When is an Object or Consideration Unlawful?
The circumstances which would make a consideration as well as object of an agreement unlawful, are discussed as under
1. Forbidden by Law
Where the object or the consideration of an agreement is the performance of an act which is forbidden by law, the agreement is void. Acts or undertakings forbidden by law are those punishable under any statute as well as those prohibited (expressly or implicitly) by special legislation of Parliament and state legislatures.
For example, the production or sale of excisable articles are prohibited under Excise Act except upon a Government license. Sale of liquor without license are prohibited for this reason under the Excise Act and is, therefore, illegal. A contract entered into in contravention of a statutory prohibition will be null and void whether such prohibition is express or implied. To sum up, all agreements involving breach of laws enacted for the protection or promotion of public interest are void.
The following are examples of some void agreements.
Void agreements forbidden by law
Example 1: A promises B to drop a prosecution which he instituted against B for robbery, while B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.
Example 2: Where a loan was granted to the guardian of a minor to arrange the minor’s marriage, has been held to be contrary to the enactment (Child Marriage Restraint Act) and, therefore, void. Therefore the money advanced cannot be recovered.
2. Defeat the Purpose of Provisions of any Law
Though the object or consideration for agreement, sometimes not directly forbidden by law, they are still forbidden if it nature defeats the purpose of provision of law. Agreement with such an object or consideration is void. Where a legislative enactment provides penalty for an act or promise, the performance of such an act or promise would amount to the defeat of that enactment, as it is implicit that the statute intends to forbid that act.
An agreement, the object of which is to defraud others is void. Where the parties agree to practice a fraud on a third person, not a party to the contract, their agreement is unlawful and void. The first two examples in Box 6.1 fall under this category.
To render an agreement unlawful and void on the basis of fraudulent object or consideration, the fraud, must, however, be established beyond reasonable doubt and cannot be based on mere suspicion and conjecture.
4. Injurious to Person or Property
Any agreement that implies or involves injury to person or others property, it is deemed unlawful and therefore void.
For example, in a person borrowed Rs.100, and in consideration, executed a bond in favour of the lender, also the plaintiff in this case. The person, in the bond, promised to work for him for two years failing which he agreed to pay a very exorbitant rate of interest and the principal amount at once. It was held that the contract was void since the promise contained in the bond was tantamount to slavery on part of the defendant, which is both injurious to a person as well as illegal.
If the object or consideration of an agreement is opposed to morality, it is void. The following examples would help understand the point better.
Agreements based on immorality also void
Example 1: A, a landlord, let his house on rent to B, a commercial sex worker, knowing that it would be used for immoral trafficking. The landlord cannot recover the rent. Here, the object being immoral, the agreement to pay rent is void.
Example 2: A agrees to let her daughter to B as a concubine. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code (45 of 1860).
6. Agreements Opposed to Public Policy
The term public policy in a wider sense means restriction of freedom of persons from doing something in the larger interest or for the good of the community. In the context of the Indian Contract Act, it restricts the freedom of persons to contract in certain areas which are detrimental to public policy. An agreement is void if the law regards it as opposed to public policy.
In law, the doctrine of public policy covers many heads such as the following.
- Trading with an alien enemy
- Interference with administration of justice
- Marriage brokerage agreements
- Trafficking in public offices
- Unfair or unreasonable dealings
The ordinary function of the courts is to rely on the well-settled heads of public policy and to apply them to varying situations. For example, A, the manager of a firm, agrees to pass a contract to B if the latter pays a sum of Rs 5,000 to the former privately. The agreement tends to create an interest against obligation and is void on the ground of trafficking in public offices.