Lawful Consideration and Object: Section 23 of the Indian Contract Act, 1872

According to Section 23 of the Indian Contract Act, for a contract to be valid, the object and consideration must be legal. The purpose for which the parties engage in a contract is referred to as the object. The completion of the purpose results in the transfer of the agreed-upon compensation from one party to the other. Let's look at the characteristics of legal object and contract law that govern what constitutes a lawful object and consideration.

Lawful Object and Lawful Consideration

Let us now look at two essential aspects of a valid contract: lawful object and lawful consideration. In general, all individuals have the ability to enter into contracts of their choosing. However, their contractual freedom, or right to enter into agreements, is not absolute. Contractual freedom is limited because it is governed by broad legal rules. The preceding observation can be illustrated by the following example: If "A" agrees to pay "B" $100 in exchange for "B" stealing "C's pocketbook," then no court may force "A" to pay "B," even if he succeeds in stealing "C's purse," since it would amount to promoting such behavior.

While we're on the issue of "object" and "consideration," it's worth noting that in practice, it's difficult to tell the difference, especially when consideration consists of a commitment to do or not do something. For evaluation, both "object" and "consideration" are sometimes encountered. For example, if "A" agrees to sell goods to "B," who is insolvent, and "B" assigns the benefit of the contract for "100/-" with the intention of defrauding creditors, the consideration for the assignment, namely "100/-," is legal, but the object, namely defrauding creditors, is illegal because it violates insolvency law.

Although the terms "object" and "consideration" are frequently used interchangeably, we must distinguish them wherever feasible and determine whether they are legal.

Unlawful Object

According to Section 23 of the Act, a "consideration" or "object" is unlawful if it is forbidden by law; or if permitted, it would undermine the requirements of any law; or it is fraudulent or involves injury to an individual or the property of another; or it is immoral or opposed to public policy. Every agreement in which the object or consideration is unlawful is null and void. Section 23 has defined the boundaries of contractual freedom. The following are instances of agreements that are null and void because the item is illegal.

When A, B, and C enter the issue to divide specific earnings or losses obtained by deception equally among themselves. The agreement is null and invalid since the goal is to conduct fraud, which is illegal.

If a promises to return stolen property to "B" in exchange for "B" withdrawing the criminal case filed against him, the agreement is null and void because dismissing the case would mean stifling prosecution.

Unlawful Consideration

Now examine the circumstances that would make both the consideration and the object unlawful. There are seven such instances, which are as follows −

• They are specifically forbidden by law.

• They are fraudulent in nature.

• The nature of the object and the consideration are such that they defeat the purpose of the law.

• They involve injury or harm to a person(s) or property.

• Are considered immoral by the court of law.

• Are against public policy.

Forbidden by Law

When the object or consideration of a contract is forbidden by law, it is no longer a legitimate consideration or object. They are then considered illegal. As a result, such a contract is no longer valid.

Unlawful consideration of an object covers behaviors that are expressly prohibited by law. This also covers those that are prohibited by the competent authorities through laws and regulations. However, if such authorities' norms are inconsistent with the law, they will not apply.

For example, A obtained a permit from the Forest Department to trim the grass in a certain area. The department's officials informed him that he could not pass on such an interest to another individual. However, there is no such provision under the Forest Act. As a result, a sold his shareholding to B, and the transaction was declared valid.

Consideration or Object Defeats the Provisions of the Law

This means that the contract is trying to defeat the intent of the law. If the courts determine that the parties' real intention is to avoid the provisions of the law, the contract will be set aside.

Example: A and B agree, with A as the debtor, that B will not plead limitation. This is done, however, to circumvent the aim of the Limitation Act and allow the courts to declare the contract unenforceable due to an illegal object.

Fraudulent Consideration or Object

A lawful consideration or object can never be fraudulent. Agreements involving unlawful or fraudulent consideration or purposes are void by definition.

For example, suppose a plans to sell items to B and smuggle them out of the nation. Because this is a fraudulent transaction, it is null and invalid. If A does not keep his commitment, B cannot reclaim the money under the law.

Defeats any Rules in Effect

If the consideration or the object violates any current national rules, they are no longer legitimate considerations or objects. As a result, the contract will be void.

When they involve Injury to another Person or Property

An injury in legal terms refers to a criminal and harmful action done to another person. So, if the contract's object or consideration causes injury to another person or property, this is considered an unlawful consideration.

For instance, a contract to publish a book that violates someone else's copyright would be null and void. This is because the consideration here is illegal and infringes on the property of another individual, namely his copyright.

When Consideration is Immoral

If the court considers the object or consideration to be immoral, then the object and consideration are immoral.

For example, a provided financial assistance to B in order for her to obtain a divorce from her spouse C.A agreed to marry her once B obtained the divorce. However, the court ruled that A cannot collect money from B since the contract is defective due to illegal consideration.

Consideration is Opposed to Public Policy

In the name of public policy, we limit some contracts for the benefit of the community. However, we do not use the term "public policy" broadly in this sense. If such were the case, it would limit people's ability to engage in contracts on their own. As a result, public policy is utilized in a limited context for the sake of legitimate evaluation and objectivity. We solely concentrate on public policy in accordance with the law.

So let us look at some agreements that are opposed to public policy

• Trading with the enemy

• Stifling Prosecution

• Maintenance and Champerty

• An Agreement to Traffic in Public Offices

• Agreements to create monopolies

• An agreement to broker marriage for rewards

• Interfering with the Courts: An agreement whose object is to induce judicial or state officials to act corruptly and interfere with legal proceedings

Conclusion

It is impossible to overestimate the importance of object and consideration legality in making an agreement enforceable. The agreement is null and void if the object and consideration are not legal. As informed citizens, we must recognize that our efforts to defend our rights under such an agreement in a court of law would be futile unless and until our agreement fits within the framework of Sections 10, 23, and 24 of the Indian Contract Act, 1872. This is due to the fact that such an agreement will have no legal standing. As a result, while entering into agreements, we must exercise extreme caution to ensure that they do not simply remain "agreements," but actually meet legal standards, so that if things go wrong, we have legal recourse.

FAQs

Q1. What is a lawful object and a lawful consideration?

Ans. Lawful consideration and lawful object Section 23 of the Indian Contract Act states unequivocally that the consideration and/or object of a contract are deemed legitimate unless expressly prohibited by law of such a kind that they would contradict the objective of the laws are fraudulent.

Q2. What is Section 23 public policy?

Ans. A part of Section 23 specifies that an agreement is unlawful if it is "opposed to public policy" or if the "court judges it to be immoral." The phrase "public policy" in this sense is based on the Latin legal maxim "Ex Turpi Causa Non Oritur Actio," which states that from any "dishonorable cause," no action can arise.

Q3. What are the legal implications of object and consideration?

Ans. When the purpose of an agreement or the consideration of an agreement is forbidden by law, they are no longer legal considerations or objects. They have then become illegal in nature. As a result, such an agreement is no longer significant or legal.

Q4. What is a lawful consideration?

Ans. A lawful consideration is something of worth, tangible or immaterial, that can be exchanged for anything else of value. As a result, the contracting parties must exercise mutual attention.