Legality of Object under the Indian Contract Act, 1872
In India, the Indian Contract Act, of 1872, is a key piece of legislation that regulates contracts and agreements. It provides a framework for individuals and businesses to enter into legally binding agreements with one another and is one of the country’s first laws. This Act’s provisions, which define the standards for contract formation and enforcement, must be understood by anyone who wishes to conduct business in India. The Indian Contract Act of 1872 has been updated in order to remain relevant in modern society. It covers a number of different contract types, including agency, lease, and sale contracts. Here we will explore the concept of the legality of an object, its meaning, scope, exception, and case laws.
The Indian Contract Act
The Act’s 238 sections cover a wide range of topics related to contracts and agreements. The legality of the object, consideration, capacity to contract, free consent, the performance of the contract, breach of contract, and remedies for breach of contract are all conditions that must be met for a contract to be considered valid. The Act also addresses the principles governing contract interpretation, the fallout from contract errors, and contract discharge. The entire process of contract formation and enforcement in India is governed by this comprehensive law.
Essentials of Valid Contract
- Offer and Acceptance: There must be a clear offer made by one party to another, and that offer must be accepted without coercion (Sec. 2(a), 2(b)).
- Intention to Establish Legal Relations: Parties must intend to create enforceable obligations.
- Consideration: Something of value must be exchanged (Sec. 2(d)).
- Capacity to Contract: Parties must be of legal age and sound mind (Sec. 10).
- Free Consent: Consent must be free from fraud, undue influence, or misrepresentation (Sec. 14).
- Legality of Object: The contract’s purpose must be lawful (Sec. 23).
The Legality of the Object
The reason why the parties are entering into a contract is known as the object of the contract. Whether or not the contract’s goal is legitimate depends on the object’s legality. If a contract’s purpose or consideration is illegal, it is void (Sec. 23).
Scope of Legality of Object
The legality of an object applies to all types of agreements including sale, lease, partnership, agency, employment, and insurance. The object must not be unlawful, immoral, or against public policy.
Prohibited by Law
A contract must not involve an illegal purpose, such as selling drugs, weapons, or committing fraud. Such contracts are void.
Against Public Policy
Contracts that undermine public welfare, morality, or legality are void. Courts have developed principles to define public policy.
- Immoral: e.g., prostitution, gambling.
- Injurious to the State: e.g., treason, espionage.
- Injurious to Public Interest: e.g., restricting trade.
- Opposed to Public Welfare: e.g., discriminatory or exploitative contracts.
Exceptions to Legality of Object
- Agreement to Foregoing Legal Action: Arbitration agreements are valid (Sec. 28).
- Agreement in Restraint of Trade: Certain reasonable non-compete clauses or partnership restrictions may be enforceable (Sec. 27).
Case Laws
- Mohiri Bibee v. Dharmodas Ghose (1903): Clause against public policy declared void.
- Balfour v. Balfour (1919): Domestic agreements between spouses are not enforceable.
- Ramji Dayawala & Sons v. Invest Import (1981): Smuggling-related contracts are void.
- Abdul Aziz v. Masum Ali (1958): Lease for illegal liquor business void.
- Shukla v. Lionel Industries Ltd. (1988): Trademark transfer causing deception void.
- Jay Bharat Credit v. CIT (1995): Sham contracts to evade tax are void.
Remedies under Legality of Object
- Rescission: Cancels contract, restoring parties to original positions.
- Restitution: Return of money or property (Sec. 65).
- Damages: Compensation for losses suffered (Sec. 73, 74).
Need for Legality of Object
Legality ensures that contracts uphold law, morality, and public policy. Illegal objects harm society, erode trust in the legal system, and expose parties to liability. Therefore, confirming legality before entering into agreements is crucial.
Conclusion
The Indian Contract Act emphasizes the legality of the object: any agreement involving an unlawful object or consideration is void. Individuals and businesses must ensure their agreements comply with the Act to safeguard rights and avoid legal consequences.
Reference:
- The Indian Contract Act, of 1872.
- “Legality of Object and Consideration Under Indian Contracts Act, 1872.” iPleaders, 3 Jan. 2020, blog.ipleaders.in/legality-objects.
- LawBhoomi. “Legality of Object in Law of Contracts.” CLAT Study Materials – for Law Entrance Exams!, 30 June 2022, lawbhoomi.com/clat-study-materials/legality-of-object-in-law-of-contracts.
- Contract-I, Dr. R.K. Bangia
