LEGALITY OF OBJECT

Where the object or consideration falls within any of the prohibited

categories, the resulting agreement is unlawful. Every agreement of
which the object or consideration is unlawful is void .Sec 23

1.FORBIDDEN BY LAW:
• Where the object of an agreement is forbidden by law, the agreement is unlawful.
“Law” means in-force for the time being, including personal & common laws,
e.g. sale of liquor without license, sale is void and price is irrecoverable
2.DEFEAT ANY LAW:
• Sometimes the object of, or the consideration for, an agreement is such that,
though not directly forbidden by law, it would, if permitted, defeat the provisions
of some law. Such an agreement is also void.
3.FRAUDULENT:
An agreement made for ‘fraudulent’ purpose is void.
4.INJURIOUS TO PERSON OR PROPERTY:
An agreement between two persons to injure the person or property of another is
unlawful.
An agreement to commit a crime or a civil wrong, to assault or beat a person or to
deceive him or to publish a libel against him, all fall under this category.
5. IMMORAL:
The law does not allow an agreement tainted with immorality to be
enforced. What is ‘immoral’ depends upon the standards of morality
prevailing at a particular time and as approved by the courts.
Lending money to obtain divorce or after the death of the husband to marry
the divorced/widowed women subsequently is immoral, the money is
irrecoverable
6. PUBLIC POLICY:
An agreement is unlawful if the court regards it as opposed to public policy.
‘Public Policy’ means ‘Public interest’ on which courts may regard to refuse
to enforce the contract.
 HEADS OF PUBLIC POLICY
• 1. TRADING WITH ENEMY: Object of war being as much to cripple the
enemy’s commerce as to capture his property, a declaration of war imports
a prohibition of commercial intercourse and correspondence with the
inhabitants of the enemy’s country, except with the permission of the
heads of the state.
• 2. TRAFFCKING IN PUBLIC OFFICES: an agreement to induce a
public officer to act corruptly is contrary to public policy.
3. INTERFERENCE WITH ADMINISTRATION OF JUSTICE: a contract
the object of which is to interfere with the administration of justice is
opposed to public policy.
• A. INTERFERENCE WITH THE COURSE OF JUSTICE: any agreement
which obstructs the ordinary process of justice is void. An agreement to
delay the execution of a decree, monetary promise for adducing false
evidence and to perform ‘Puja’ to secure success in a litigation, all are
void contracts.
• B. STIFLING PROSECUTION: an agreement to withdraw a pending
prosecution is void if the offence is of public nature. Compromise in
compoundable offences are allowed. But when a compromise happened before
filling a compliant the agreement is valid.
• C. MAINTENANCE AND CHAMPERTY: ‘Champerty’ is a bargain whereby
one party is to assist the other in recovery of the property, and is to share in the
proceeds of the action. But a fair agreement to assist a person in the enforcement
of his legal rights may be held valid even if the person providing the assistance
may be reimbursed out of the proceeds of the action.
4. MARRIAGE BROKERAGE CONTRACTS: is an agreement to procure
the marriage of a person in consideration of a sum of money is void
agreement. Sale of girl, bride price, dowry etc. are against public policy.
5. UNFAIR OR UNREASONABLE DEALINGS: where the parties are not
economically on equal footing and there is a gap in bargaining position, one
can exploit and other is vulnerable, and the contract appears to be unfair, it
can be regarded as opposed to public policy.
 Observations on Public Policy
• The Hon'ble Supreme Court of India in Gherulal Parekh v. Mahadevdas
Maiya wherein Hon'ble Justice Subba Rao, referring the observation of
Lord Atkin observed: "... Public policy or the policy of the law is an
illustrative concept. It has been described as an 'untrustworthy guide',
'variable quality', 'unruly horse', etc.; the primary duty of a court of law is
to enforce a promise which the parties have made and to uphold the
sanctity of contract which forms the basis of society but in certain cases,
the court may relieve them of their duty of a rule founded on what is
called the public policy.
• Lord Atkin describes that something done contrary to public policy is a
harmful thing; but the doctrine is extended not only to harmful cases; but
also to harmful tendencies.... it is governed by precedents. The principles
have crystalised under different heads.... though the heads are not closed
and though it may be permissible to evolve a new head under exceptional
circumstances of the changing world, it is advisable in interest of stability
of society not to make attempt to discover new heads in these days".
• In the matter titled "ONGC Ltd. v. Saw Pipes Ltd."21 while interpreting
the meaning of 'public policy' in this case, the Hon'ble Court observed
that it has been repeatedly stated by various authorities that the expression
'public policy' does not admit of precise definition and may vary from
generation to generation and from time to time. Hence, the concept 'public
policy' is considered to be vague, susceptible to narrow or wider meaning
depending upon the context in which it is used. Therefore, it was held that
the term 'public policy' ought to be given a wider meaning.
• The Hon'ble Court placing reliance on "Central Inland Water Transport
Corporation Limited and Anr. v. Brojo Nath Ganguly and Anr." (1986) held
that what is good for the public or in public interest or what would be harmful or
injurious to the public good or interest varies from time to time. However, an
award, which is on the face of it, patently in violation of statutory provisions
cannot be said to be in public interest. Such an award is likely to adversely affect
the administration of justice. Hence, the award should be set aside if it is contrary
to (i) fundamental policy of Indian Law; (ii) the interest of India; (iii) justice or
morality; (iv) in addition, if it is patently illegal.
 Unlawful and Illegal Agreements
• Every illegal agreement is unlawful but every unlawful agreement is not
necessarily illegal(when act is committed )
Effect of illegality
• Ex turpi causa non oritur action: which means that no action can arise
from an illegal act. It is one of the defences which exempts the defendant
from his liability because the plaintiff has also committed an illegal act.
Therefore, this is also known as the “plaintiff a wrongdoer” defence.
• In part delicto potior est condition defendentis: The principle that the
courts will refuse to enforce an illegal agreement at the instance of the
person who is himself a party to the illegality or fraud is expressed in this
maxim.
 VOID AGREEMENTS
• S. 2 (g): The following types of agreements are declared to be void:
• Agreements by incompetent parties(Sec 11)
• Agreements made under a mutual mistake of fact ( Sec 20)
1. Agreements unlawful in part – S. 24
2. Agreements without consideration – S. 25 (Discussed )
3. Agreements in restraint of marriage – S. 26
4. Agreements in restraint of trade – S. 27
5. Agreements in restraint of legal proceedings – S.28
6. Unmeaning agreements – S. 29
7. Wagering agreements – S. 30
• 1. AGREEMENTS UNLAWFUL IN PART – S. 24
• Where the object or consideration is illegal in part and is not severable
from the rest, the whole agreement goes down.
• AGREEMENTS IN RESTRAINT OF MARRIAGE – S. 26
• Agreement in restraints of marriage in general, partial, marrying at all,
remarriage, persons or class all are void.

P promised to marry L only and none else and to pay L a sum of Rs 2000 if
he married someone else .P married X .
Lowe V Peers
 Agreements in restraint of trade – S. 27
• Madhub Chander v. Raj Coomar (1874): defendant a shopkeeper agrees to the
plaintiff another shopkeeper of similar business to close down his shop on the
payment of money which defendant denied paying later, the contract is void and
the money claimed is irrecoverable.
• Whether the restraint is general, partial or total, unqualified or qualified, if the
agreement is in the nature of a restraint of trade, it is void.
• English Law: The restriction will be valid if it is reasonable. In India it will be
valid if falls within any of the statutory, or judicially created exceptions.
EXCEPTIONS: There are two kinds of exceptions,
• STATUTORY EXCEPTIONS:
1. Sale of Goodwill: the agreement has to specify the reasonable local limits
of the restraint.
2. Partnership Act: there are four provisions in the partnership Act which validate agreements in restraint of trade.
1.contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner. Sec
11(2)
2.A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business
similar to that of the firm within a specified period or within specified local limits 36(2)
3.Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer
and he may advertise such business, but, subject to agreement between him and the buyer, he may not (a) use the firm-
name, (b) represent himself as carrying on the business of the firm, or (c) solicit the custom of persons who were dealing
with the firm before its dissolution. 55(2)
4.Any partner may upon the sale of the goodwill of a firm, make an agreement with the buyer that such partner will not
carry on any business similar to that of the firm within a specified period or within specified local limits 55(3)
• EXCEPTIONS IN JUDICIAL INTERPRETATIONS:
1. Trade Combinations:
2. Sole or Exclusive dealing agreements
3.Service Agreements
Agreements in restraint of legal proceedings –
S.28
• The rule of law is that “an agreement purporting to oust the jurisdiction of
the courts is illegal and void on grounds of public policy”. Any clause in
an agreement providing that neither party shall have the right to enforce
the agreement by legal proceedings is void.
S.28 renders two kinds of agreements void, namely:
1. an agreement by which a party is restricted absolutely from enforcing his
legal rights arising under a contract by the usual legal proceedings in the
ordinary tribunals,
• Exceptions:
• 1. Reference of future disputes to arbitration: the section does not render void a
contract by which two or more persons agree that any dispute which may arise
between them shall be referred to arbitration and that only the amount awarded in
the arbitration shall be recoverable.
• 2. Reference of existing disputes to arbitration: this exception saves contracts to
refer to arbitration questions that have already arisen. Where the parties agreed to
refer their disputes to arbitration, they were held to be bound to do so.
• In National Ins. Co. Ltd. v. S.G. Nayak & Co. (1997), the Court ruled an
insurance agreement clause, which released the insurance company of all
liability if a loss/damage claim was not filed within 12 months, not in
violation of Section 28 of the Indian Contract Act, 1872. The agreement
did not seek to curtail the period of limitation. An agreement to
forfeit/waive rights before the lapse of a specified time period is not void.
2. an agreement which limits the time within which the contract rights may
be enforced. (Limitation Act )
Exceptions:
• Bank Guarantee (2013 Amendment )
 Uncertain Agreements - S. 29
• Which is not certain
• Capable of being made certain (According to circumstances )
• Void
• Guthing v. Lynn: Horse bought for a certain price coupled with a promise
to give $ 5 more if the horse proved lucky. The agreement was held to be
void for uncertainty.
 Wagering contracts – S.30
Essentials
1.Uncertain Event:
2. Mutual chances of gain or loss:
3. Neither party to have control over the event:
4. No other interest in the event:
Note : a wager is void, though not forbidden by law, hence, a wagering
agreement is not unlawful under section 23 of ICA, and transactions
collateral to it are enforceable.
• Speculative Transactions: an agreement to settle the difference between
the contract price and the market price of certain goods on a specified day
has been held to be wager.
• Effect of wagering transactions: void in forms.
Collateral transactions: a wager is void, though not forbidden by law, hence,
a wagering agreement is not unlawful under section 23 of ICA, and
transactions collateral to it are enforceable

• In Gherulal Parakh v. Mahadeodas Maiya, a question arose as to whether a

partnership formed for the purpose of entering into forward contracts for the
purchase and sale of wheat so as to speculate in rise and fall of price of wheat in
future, was a wager and whether it was hit by Section 30 of the Contract Act. But
the Supreme Court held that such a partnership was not illegal, although the
business for which the partnership was formed, was held to involve wagering. It
was held therein as follows:
After the enactment of the Gaming Act, 1845, a wager is made void but not illegal
in the sense of being forbidden by law, and thereafter a primary agreement of wager
is void but a collateral agreement is enforceable.
 Babasaheb vs. Rajaram,
(AIR 1931, Bom 264).
• In this case two wrestlers agreed to play a wrestling match on the condition that if any of
the party failed to appear on the day fixed then that would forfeit Rs. 500 to opposite
party and the winner would receive Rs. 1,125 from the gate money. Thus both the charges
were to be recovered from the gate money. One of the wrestler failed to appear and the
other sued him for agreed amount. Defendant contended that the agreement was a
wagering agreement therefore it was void.
• The court held that the agreement was not a wager, because it had been lacking the
essential ingredient of mutual chances of gain or loss. Here both the parties might win but
could not lose because the money had to be paid from the gate money provided by the
public not from the pockets of any of the parties
• .
 EXCEPTIONS:
• 1. Horse Race: The section does not render void a subscription or contribution,
an agreement to subscribe or contribute, towards any plate, prize or sum of
money, of the value or amount of Rs. 500/- or upwards to the winner of any horse
– races.
• 2. Crossword Competitions: if skill plays substantial part in the result and prizes
are awarded according to the result of the solution, the competition is not a
lottery, otherwise it is.
• Note : Skills & Talent.
Note : Section 294A OF IPC
 Illegal & Void Agreements
• Unenforceable:
An illegal agreement is one which is actually forbidden by the law – S. 23
A void agreement may not be forbidden, the law may merely say that if it is
made, the courts will not enforce it - S. 25-30
• Nothing can be recovered if paid under either kind of agreements.
 Contingent Contract Sec 31

Enforcement Event Future conduct

of contracts non happening(S 33) of a living person(S 34)
contingent on
a event happening (S 32)
Happening/ not happening CC on impossible events
within a fixed time (S 35) Void(S 36 )
 Frost Vs Knight (1872)

The defendant promised to marry the plaintiff on the death of his father.
While the father was still alive, he married another woman. It was held that it
had become impossible that he should marry the plaintiff and she was
entitled to sue him for the breach of contract.
 Nandkishore Lalbagh vs New Era Fabrics Pvt.Ltd.& Ors . (2015)
• A contract for the sale of land with a factory was to be performed only if the
labor unions agreed to the sale and further if the change of land use was approved
by the appropriate authority. None of these contingencies could be fulfilled
because neither there was approval by the labor union nor by the relevant
authority. The contract was accordingly not allowed to be enforced against the
seller.
• Difference :Wager agreement & Contingent Contract ??