Module 4

• Legality of Object and Consideration

• Void Agreements
 Legality of object and Consideration
• For a valid contract it is essential that the consideration and object should be
lawful
• Every agreement of which the object or consideration is unlawful is void.
• Section 23 mentions- when the consideration or object of an agreement is not
lawful.
• The consideration or object has been considered to be unlawful by Section 23:
1. It is forbidden by law;
2. It would defeat the provision of any law;
3. It is fraudulent;
4. It involves or implies injury to the person or property of anther;
5. The Court regards it s immoral, or
6. The Court regards it as opposed to public policy.
1. Forbidden by law
• An agreement to do what has been prohibited by the Indian Penal Code or by
some other law cannot be enforced.
• A contract to pay some money if a crime or a tort is committed is not enforceable.
• Case: Nutan Kumar v. IInd Additional District Judge, Banda
• Case: S.L. Fernandes v. V.M. Fernandes
 Distinction between void and illegal contracts
• Case: Rajat Kumar Rath v. Govt. of India
2. Defeat the provision of any law
• If the object or consideration of an agreement is of such a nature that, if it
permitted, it would defeat the provisions of any law, such an agreement s void.
• Case: Ram Sewak v. Ram Charan
• An agreement to do a thing which is not contrary to any provisions of law or
contrary to public policy, is not unlawful.
• Case: Sukha v. Ninni
• Weather a particular agreement is contrary to some law depends on the purpose
of the law. If the object of the law would be frustrated by an agreement is
unlawful.
• Case: Administrator, Hindustan Cables, etc. Society Ltd. v. Jitendra Kumar Das
Chaudhury
• If the law prohibits the doing of something, the same cannot be done in a
roundabout way. If doing of a thing in a certain manner would defeat the
provisions of law, the same is unlawful.
3. Fraudulent purpose
• If the consideration or object of an agreement is to commit fraud, the agreement
is void.
• Where the parties agree to impose a fraud on a third person their agreement is
unlawful.
• Case: Atamal Ramoomal v. Deepchand Kessurmal
• If the object of an agreement is to manage to procure a contract for one party
which would otherwise be refused, the object is fraudulent within the meaning of
Section 23.
• Case: Manni Ram v. PurshottamLal
4. Agreement injurious to the person or property of another
• An agreement between two persons to injure the person or property of another
the agreement is unlawful. If the consideration or the object of an agreement is to
cause an injure to the person or property of another the agreement is unlawful an,
void.
• Case: Ram Sarup v. Bansi Mandar
• If the real object of the agreement between the parties is to promote their own
interests rather than to cause harm to another, the agreement is lawful.
• Jai Ram v. Kahna Ram
5. Immoral
• If the consideration or object of a agreement is regarded by the Court to be
immoral or opposed to public policy, the agreement is unlawful and has also been
declared void.
• What is immoral has not been defined by the Indian Contract Act. Immorality
depends on the norms accepted by the society at a particular point of time.
• Case: Rajendra Nath Das v. Abdul Hakim Khan AIR, 1918
6. Opposed to Public Policy
• The court regards that the consideration or object of an agreement as opposed to
public policy. The agreement is void. Public policy is not capable of any precise
definition. Public policy means the policy of the law at a stated time.
• An act which is injurious to the interest of society is against public policy. If the
contract is against public policy the law must not allow that to be enforced.
• The doctrine of public policy is based on the making ‘‘ex turpi cause non oritur
actio’’ means: ‘ an agreement which opposes public policy would be void and of no
effect’.
• The following agreements have been held to be opposed to public policy:
1. Agreement to stifle prosecution
2. Agreement of maintenance and Champerty
3. Trading agreement with an enemy
4. Marriage brokerage contract
5. Agreement tending to injure the public service
1. Agreement to stifle prosecution:
An agreement to stifle prosecution has been regarded as opposed to public policy.
If A promises B to drop a prosecution which he has instituted against B for robbery, and B
promises to restore the value of the things taken, the agreement is void. However if A has
a choice to bring a civil or criminal action against B, and he procures a promissory note
from B instead in satisfaction of his claim and drops the idea of bringing any kind of action
against B, there is no stifling in the prosecution and the pronote is valid.

2. Agreement of maintenance and Champerty (monetary assistance in litigation):

Maintenance consists in aiding a party in civil proceeding by providing financial or other
assistance without lawful justification.
When a person (stranger) intermeddles in the litigation between others by providing
assistance to one of the parties, and he has no interest of his own in the litigation, such
intermeddling is unlawful. Maintenance has been considered both a crime and a tort.
Champerty is a kind of maintenance in which the person assisting in proceeding is to
receive a share in the gain made in the proceedings maintained by him. If the person
assisting and the person assisted have a common interest in the proceedings, it is not
unlawful.
In an agreement of Champerty, the courts have to see whether the financier is trying to
take undue advantage of helplessness of the other party, or the agreement is a fair one
taking into account the amount of financial assistance, and proposed gain to the financer
out of the litigation.
3. Trading agreement with an enemy:
when there is a war between two countries , it is unlawful and against public policy
that a person should trade with a subject of the enemy country.

4. Marriage brokerage contract:

Such contracts under which a person agrees to procure a marriage between two
persons on some consideration are opposed to public policy and thus void.

5. Agreement tending to injure the public service:

An agreement to buy, sell or procure a public office or to omit a public duty is void.
Consideration and Objects unlawful in part-
Section 24
• Consideration and Objects unlawful in part If a part of the consideration or object
which is unlawful can be separated from the other lawful part , the court will
enforce only the lawful part. But if however no such severance is possible, the
whole of the agreement is void.
Case: Alice Mary Hill v. William Clarke
The plaintiff, a married woman , agreed to live in adultery with the defendant and also
agreed to serve him as his housekeeper. In return , the defendant agreed to pay a
single consolidated remuneration to her of Rs. 500 per month. It was held that since
the lawful part cannot be separated from the unlawful one, the whole of the
agreement was void. And the plaintiff could not recover anything even for her services
as a housekeeper. If an agreement between the two parties has stipulated payment of
Rs. 300 for housekeeping and Rs. 200 for living in adultery, the agreement would have
been valid for the first part and void for the second part.
 Void Agreements
• Void agreements, Sec 2(g)- an agreement not enforceable by law is said to be a
void agreement.
• The agreements which have been specifically or expressly declared as void by the
Indian Contract act are:
1) Agreements of which the consideration or object is unlawful (sec. 23 & 24)
2) Agreements without consideration (sec. 25)
3) Agreements in restraint of marriage (sec. 26)
4) Agreements in restraint of trade (sec. 27)
5) Agreements in restraint of legal proceedings (sec. 28)
6) Agreements which are uncertain and ambiguous (sec. 29)
7) Agreements by way of wager (sec.30)
8) Agreements to do impossible acts (sec.56)
1) Agreements in restraint of marriage (sec. 26):
• Every agreement in restraint of the marriage of any person, other than a minor is
void.
• Where a party is restrained from marrying at all, or for marrying for a fixed period
or from marrying a particular person, or class of persons, the agreement is void. If
the agreement is not in the form of promise to marry a particular lady, but it
stipulates that the promisor will not marry any other lady than the promisee, the
agreement is void.
• The agreement can be for marrying a particular person but cannot be for not
marrying a particular person.
• E.g.- where A promise B , that he would not marry any other person other than B,
and further promise to pay Rs. 10,000 if A marries any other person. The
agreement is void as it was not in the form of promise to marry a particular lady
but restrictive arrangement containing a promise not to marry anybody else.
• Case- Lowe v. Peers, 1768
2) Agreements in restraint of trade (sec. 27):
• Every agreement, by which one is restrained from exercising a lawful profession,
trade or business of any kind, is to that extent void. Restraining a person from carrying
on a trade generally aims at avoiding competition and has monopolistic tendency and
this is both against an individual’s interest as well as the interest of the society.
• Restraint whether total restraint or partial restraint, it is invalid, unless the restraint is
reasonable in reference to the interest of parties concerned and also to the Public
interests.
• Like A shall not carry on a trade anywhere in India during his lifetime or it imposes
only a partial restraint requiring A not to trade within a certain area or for a certain
duration, the agreement is void.
• Case- Madhub Chander v. Rajcoomar Dass
• Under English Law a restraint on trade will be valid only if it is reasonable in reference
to parties as well as public.
• Case- Nordenfelt v. Maxim Nordenfelt Guns and Ammunition [Link].
 Exceptions to agreement which are in restraint of trade but valid
1. Sale of Goodwill: An agreement by a person, who sells the goodwill of his business
not to carry on a similar business within specified local limits, so long as the buyer
carries on a similar business, is valid, provided that the restrictions are reasonable.
• Where the aim of agreement is prevention of competition, the agreement is void.
• When a person purchases goodwill he pays for the right to carry certain type of
business in exchange for an express or implied promise by seller not to carry on
that type of business.
2. Exception under the Indian Partnership Act: There are provisions in Partnership
Act which validate agreements in restraint of trade.
i. It permits the partners of a partnership firm to make a contract which provides
that a partner shall not carry on any business other than that of the firm while he
is a partner; this is not restraint of trade. [Section 11 (2), Indian Partnership Act]
ii. When an outgoing partner is paid his share of the goodwill of the firm, and it is
reasonable that he agrees that he will not carry on a business similar to that of the
firm. [Section 36 (2), Indian Partnership Act]
iii. An agreement can also be made at the time of dissolution of the firm. Those
partners who get such payment for the sale of goodwill may then agree that they
will not carry on a similar business within a specified period or within specified
local limits.
3. Restraint in case of contract of service: An agreement of service under which an
employee agrees that he will serve a particular employer for certain duration, and that
he will not serve anybody else during that period, is a valid agreement.
• Case- Charlesworth v. Mac Donald
4. Trade Combinations: Sometimes the traders and manufacturers combine together (e.g.
via association) to eliminate competition as between themselves and make agreements
fixing minimum price, regulating the supply of goods and putting profits in a common
pool and then dividing the same amongst themselves. Such agreements are not
deemed to be in restraint of trade.
• In England Such Combinations are not valid if they impose excessive restraint on
freedom of trade but are valid if the restraint imposed is reasonable in the interest of
the parties as well as public interest.
4. Solus agreement: In such a case one party agrees to deal with the other party and none
else. It is a common business practice that a producer or manufacturer likes to market
his goods through a sole agent/distributor and the latter agrees in turn not to deal with
the good of any other manufacturer. It is valid, so long as the object of agreement is the
benefit of the parties to the contract rather than monopolizing the trade.
• Exceptions to solus agreement:
a) When buyer does not agree to purchase the whole quantity he cannot restraint seller
from selling his surplus to other.
b) When the object of agreement is to corner goods or to monopolize trade or restraint is
for an unduly long time. Eg- binding a party with such agreement from generation to
generation the agreement cannot be considered lawful.
3) Agreements in restraint of legal proceedings (sec. 28):
• An agreement absolutely restraining a party from enforcing his rights through a
court of law, or an agreement which places a limit as to the time within which a
right can be enforced, is void.
• An agreement to oust the jurisdiction of the courts is opposed to public policy and
thus void. The agreement is void if the restraint is absolute one, partial restraint is
valid.
• E.g. if two competent courts can possibly deal with the subject matter of litigation,
it is open to the parties to the contract to agree that a dispute should be
adjudicated upon one of the courts only, like Delhi court or Mumbai court. Another
kind of agreement rendered void is where an attempt is made by the parties to
restrict the time within which an action may be brought so as to make it shorter
than that prescribed by the law of Limitation.
• Case- Bharat Sanchar Nigam Ltd. v. Motorola India Pvt. Ltd., AIR 2009
4) Agreements which are uncertain and ambiguous (sec. 29):
• Agreements, the meaning of which is not certain or capable of being made certain,
are void.
• E.g. A agrees to sell to B, “a hundred tons of oil”. There is nothing whatever to
show what kind of oil was intended. The agreement is void for certainty. But if A
who is a dealer in coconut oil only, agrees to sell 100 tons of oil to B, then there is
no uncertainty and the contract is valid.
5) Agreements by way of wager (Sec.30):
• An agreement by way of wager is void, but it’s not immoral. The word ‘wager’
means a ‘bet’. One should win and other lose.
• In a wagering agreement , two parties have opposite views regarding an uncertain
event, and they stipulate that upon the determination of the event in a certain way
the parties shall win or lose from each other a certain sum of money, and the
parties have no other interest in the event except winning or losing a bet.
• E.g A and B may enter into a contract that if it rains today, B will pay A Rs. 1,000
and if it does not rain today, A will pay B Rs. 1,000. It is a wagering agreement.
 The essential characteristics of a wagering agreement are:
a) Uncertain event
b) Mutual chances of gain or loss. Only one party should win or loss at a time.
• Case- Carlill v. Carbolic Smoke Ball Co.
c) Neither party to have control over the event. A wager is a game of chance
d) No other interest in the event. Neither party have any interest in the contract than
the sum or stake he will so win or lose and there is no real consideration for the
making of such contract.
• Case- Babasaheb v. Rajaram
 CONTINGENT CONTRACT
• Contingent Contract(Sec 31): A ‘contingent contract’ is a contract, to do or not to
do something. If some event, collateral to such contract does or does not happen.
• A contract to pay B Rs.10,000 if B house is burnt. The liability of A to pay Rs. 10,000
to b is not created until B’s house is burnt and this contract can be enforceable by
B only when his house is burnt and not otherwise. In this problem burning of the
house of B is an event , which does not depend upon the will and pleasure of A or
B. Such event is called collateral event .
• Contract of Insurance are examples of contingent contracts.
• Essential features of a contingent contract :-
a) It is a contract to do or not to do something
b) Dependent on happening or non happening of an event
c) Such on event is a collateral event (i.e. it is collateral) to the contract i.e. the event
must not depend upon the mere will of party.
d) The event is uncertain
 Enforcement of contingent contract
1. Contracts contingent upon the happing of an event: (Section 32) In this case ,a
contract entered into on the condition that, the parties agrees to perform the
obligation upon happening of an event.
2. Contracts Contingent on the event not happening: (Section 33) Contingent
contracts to do or not to do anything if an uncertain future event does not
happen, can be enforced when the happening of that event becomes impossible,
and not before. E.g. A agrees to pay B a sum of money if a certain ship does not
return. This ship is sunk. The contract can be enforced when the ship sinks.
3. Contract contingent on the happening of an event within a specified time:
(Section 35)Contingent contracts to do or not to do anything, if a specified
uncertain event happen within a fixed time, it is enforceable. But becomes void if
at the expiration of the time fixed, such event has not happened or if before the
time fixed such event becomes impossible. E.g. A promises to pay B Rs. 10,000 if
a certain ship returns within a year. The contract may be enforced if the ship
returns within a year but becomes void if the ship is burnt within the year.
4. Contract contingent on not happening of event within a specified time: (Section 35):
Contingent contract to do or not to do anything if a specified uncertain event does not
happen within a fixed time, may be enforced by law when the time fixed is expired and
such event has not happened or before the time fixed has expired , if it becomes certain
that such event will not happen. E.g. A promises to pay B a sum of money if a certain
ship does not return within a year. The contract may be enforced if the ship does not
return within the year or is burnt within the year.
5. Contract contingent on the future conduct of a living person: (Section 34)If the future
event on which a contract is contingent is the way in which a person will act at an
unspecified time, the event shall be considered to become impossible when such person
does anything which renders impossible that he should so act within any definite time,
or otherwise than under future contingencies. E.g. A agrees to pay B a sum of money if B
marries C. C marries D. The marriage of B to C must now be considered impossible ,
although it is possible that D may die, and that C may afterwards marry B.
6. Agreement contingent on Impossible events: (Section 36)Contingent agreements to do
or not to do anything , if an impossible event happens, are void, whether the
impossibility of the event is known or not to the parties to the agreement at the time
when it is made.