Unlawful Consideration and Unlawful Object under Contract Law

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This article is authored by Pankhuri Pankaj, a 3rd-year student pursuing BA-LLB (Hons.) from Vivekananda Institute of Professional Studies, affiliated to GGSIPU. She is currently interning with Lexpeeps. This article summarises certain key provisions of “unlawful consideration and unlawful object” under the Contract Law and is qualified in its entirety by reference to the Indian Contract Act, 1872.

INTRODUCTION

In India it is said that for a contract to be understood as a valid contract two things are a must: a lawful object and a lawful consideration. To ensure the regulation of such valid contracts in the country naturally legal provisions have been implemented. Under Section 23 of the Indian Contract Act, 1872 certain restrictions have been imposed on an individual while indulging into any agreement and limits the freedom of that individual and his said privileges by drawing a parallel with the contemplations of public policies and various other provisions that have been articulated under this section. 

Under Section 23 the term ¨object” indicates “purpose” of that contract does not really imply importance in a similar sense as the term ¨consideration¨. It is understood that even if the consideration of the contract is purely legally valid but the object of that contract is found to be unlawful in nature, then the contract would be termed an invalid contract. Similarly, if consideration, which has been defined under Section 2(d) of the Act, is found to be unlawful, then even if the object of the contract is legally valid, the contract would be considered an unlawful contract.

UNLAWFUL CONSIDERATION IN A CONTRACT

As discussed under section 23 of the Indian Contract Act, 1872, the legality of a consideration is only valid if:

  1. The Consideration Is Not Forbidden By Law: It is understood that if the consideration in a contract is prohibited by law then it is considered to be an unlawful consideration and the contract is said to become invalid. It is important to note that for an act forbidden by law to account as an unlawful consideration it would generally include acts that are explicitly punishable by the law and it can also include those acts that are prohibited through the medium of either rules or regulations. 
  2. The Consideration Is Not Immoral In Nature: A consideration in a contract is considered to be an unlawful one if it has been regarded as an immoral act by the honourable court. In case of an immoral consideration the contract would end up being invalid and void.
  3. In Case The Consideration Is Not Fraudulent In Nature: A contract becomes invalid or void by nature if the consideration of the contract is fraudulent in nature. Here, it is important to understand what may fall under a fraudulent act. To understand the term fraud better Section 17 of the Indian Contract Act, 1872, can be referred to which states that any act committed by a party to a contract with the intent to deceive another party or to induce that party into entering into the contract.
  4. The Consideration Does Not Defeat the Provisions Set Under The Law Of The Country:  A consideration is termed as an unlawful consideration of a contract, and end up making the contract an invalid and void contract, when the said consideration aims at defeating the provision of law or the intentions of law. In case the court finds the consideration to be in contradiction with the provisions of the law then it can discard the contract as void.
  5. The Consideration Does Not Involve Harm Or Injury To Any Other Person Or Property: A Consideration is denied to be considered a lawful consideration of a contract if the consideration includes an act which involves causing harm to any other person or property. It can be understood with the simple example of a person taking money as an object and in return as a consideration killing a third person or vandalising a third party’s property.  This type of consideration can be broadly included under an act forbidden by law as well since the consideration includes an unlawful act. 
  6. The Consideration Does Not Defeat Any Rules Already In Effect: A Contract is said to become invalid or void in nature if the consideration of that contract is against the essence of any rules already implemented in the country or if it intends to defeat the intention of any rules in effect in the country at that time. Such a consideration is also termed as an unlawful consideration.
  7. The Consideration Does Not Oppose The Public Policies: The ultimate motive of the Indian judiciary is to maintain the essence of natural justice in the community. In case the consideration of a contract is oppressive of the public policy then such a consideration is said to be an unlawful consideration and the contract becomes an invalid contract or void by nature.

It is important to understand what would fall under the term ¨public policy¨ here. Public Policy can be understood as a very broad concept but for the purpose of consideration of a contract it is not referred to in the wider sense but in general terms- for the good community. If the act included in the consideration is not particularly in the favour of the good of the community but rather brings inconvenience then such an act makes the consideration unlawful. 

Various examples can be discussed under this heading to further illustrate this field, like:  Trading with the enemy of the country, or interfering with the courts, or stifling a prosecution by removing evidence or witness and multiple other things, etcetera.

UNLAWFUL OBJECT IN A CONTRACT

As discussed under Section 23 of the Indian Contract Act, 1872, an object of a contract is not considered to be legally valid if:

  1. The Object Of The Contract Is Forbidden By The Law: It is understood that if the object in a contract is prohibited by law then it is considered to be an unlawful object and the contract is said to become invalid and void by nature. It is important to note that for an act forbidden by law to be counted as an unlawful object it would generally include acts that are explicitly punishable by the law and it can also include those acts that are prohibited through the medium of either rules or regulations in the country.
  2. The Object Of The Contract Is Immoral In Nature: An object of a contract is considered to be an unlawful one if it has been regarded as an immoral act by the honourable court. In the case of an immoral object, the contract would end up being invalid and void. An immoral object would generally include acts which are frowned upon in our society, like taking money to file for divorce. Here, the party cannot file a case in case the consideration for the immoral object is not received.
  3. The Object Of The Contract Is Fraudulent In Nature: A contract becomes invalid or void by nature if the object of the contract is understood to be fraudulent in nature. Here, it is important to define what may fall under a fraudulent act. To understand the term fraud better one can refer to Section 17 of the Indian Contract Act, 1872, or the definition given above under ¨unlawful consideration of a contract¨.
  4. The Object Of The Contract Defeats The Provisions Of The Law: An object of a contract is termed as an unlawful object if the said act under the object aims at defeating the provision of law or the intentions of the law. In case the court finds the consideration to be in contradiction with the provisions of the law then it can discard the contract as void.
  5. The Object Of The Contract Involves Harm Or Injury To Another Person Or Property: Just as discussed under unlawful consideration an object of a contract will be denied the status of a lawful object of a contract if the object includes an act which involves causing harm to another person or property. It can be understood with the simple example of a person taking money as a consideration for the act of killing another person, which would make it the object.  This type of an object can be broadly included under an act forbidden by law as well since the object here includes an unlawful act.
  6. The Object Of The Contract Defeats Any Rules In Effect: A Contract is said to become invalid or void in nature if the object of that contract is found to be against the essence of any rules already implemented in the country or if it intends to defeat the intention of any rules in effect in the country at that time. Such an object is also understood as an unlawful object.

CONCLUSION

For a contract to be considered as a valid contract it is important to have a lawful object and a lawful consideration. If either of the two is found to be missing, the contract is to be found as invalid in total. To maintain fairness in the society it is important to follow the norms and in case of an unlawful object or unlawful consideration, which in turn would affect the society, this purpose cannot be pursued.

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