Under Section 23 of the Indian Contract Act, 1872, a contract is valid only if its object and consideration are lawful. If either the object or the consideration is unlawful, the agreement is void.
Meaning of Object and Consideration
- Object refers to the purpose or design of the agreement.
- Consideration refers to what one party gives to the other in return for a promise or performance.
Both must be lawful to make a contract enforceable.
When Consideration or Object is Unlawful (Section 23)
An object or consideration is unlawful if:
- It is forbidden by law: If the act itself is prohibited by law, then the agreement is void.
Example: A contract to sell banned narcotics. - It defeats the provisions of any law: Even if not directly illegal, if it circumvents legal provisions, it is void.
Example: An agreement to sell property to evade taxes. - It is fraudulent: Any agreement to defraud a third party is unlawful.
Example: Agreement to hide assets during insolvency. - It involves or implies injury to person or property: If the performance of the contract harms others, it is void.
Example: Contract to publish defamatory material. - It is immoral or opposed to public policy: Contracts contrary to societal morals or interests are not enforceable.
Example: Agreements involving prostitution, corruption, or restraint of legal proceedings.
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Doctrine of Public Policy
This is a broad doctrine under which courts refuse to enforce contracts that go against public welfare. Categories include:
- Agreements in restraint of marriage
- Agreements in restraint of trade
- Agreements in restraint of legal proceedings
- Agreements promoting immorality
- Trafficking in public offices
The doctrine is flexible and evolves with social values.
Effect of Unlawful Object or Consideration
- The agreement becomes void and unenforceable in law.
- Collateral transactions may also be void if they are tainted by the unlawful object.
Key Case Laws
Gherulal Parakh v. Mahadeodas Maiya & Ors. (1959 AIR 781, SC)
Held: The doctrine of public policy should be applied with caution and only in clear cases.
Pearce v. Brooks (1866 LR 1 Ex 213)
Held: A contract to rent out a carriage knowing it would be used for prostitution was declared void.
Rattan Chand Hira Chand v. Askar Nawaz Jung (1991 AIR 2181, SC)
Held: Contracts against public policy cannot be enforced even if voluntarily entered.
Kedar Nath Motani v. Prahlad Rai (1960 AIR 213, SC)
Held: Any consideration or object that defeats the purpose of law or encourages fraud is void.
Distinction Between Illegal and Void Agreements
| Criteria | Illegal Agreement | Void Agreement |
|---|---|---|
| Nature | Forbidden by law | Not enforceable but not always illegal |
| Punishment | May attract penalty or prosecution | No penalty, just unenforceable |
| Effect on collateral | Collateral agreements also become void | May not affect collateral agreements |
Situation-Based Questions
Q1: A agrees to pay B ₹1,00,000 to beat up C. Is this contract valid?
Answer: No, the object is unlawful as it causes harm to a person and is against public policy. Hence, the contract is void.
Q2: A leases a shop to B knowing it will be used for illegal betting. Can A claim rent?
Answer: No, since A had knowledge of the illegal object, the contract is void, and he cannot claim rent.
FAQs
What is the object in a contract?
The object refers to the ultimate purpose or intention behind entering into the contract.
What happens if only consideration is unlawful but the object is lawful?
Even then, the contract becomes void. Both object and consideration must be lawful.
Is a contract against public policy always illegal?
Not necessarily criminally illegal, but it is unenforceable due to being contrary to public interest.
Can immoral agreements be enforced if both parties agree willingly?
No, mutual consent does not make an immoral or unlawful contract valid.
