Business Law CIA II

Essential Element of a Valid Contract: Lawful object Agreement not declared Void
Done by: Smriti Shrestha 1111223 Keerthi vijay 1111270

Lawful object
For the valid agreement, the object of an agreement must be lawful. If the object of a contract is unlawful the agreement is illegal and therefore void. The words object and consideration are different from each other. The word object means purpose. While the consideration means the price for which the promise of the other is taken. According to section 23 the consideration or object of an agreement is unlawful in the following cases1. Forbidden by law 2. Defeats Provisions of Law 3. Fraudulent 4. Involves Injury to Person or Property 5. Court regards as Immoral 6. Court consider it against Public Policy

1. Forbidden by law
If object of an agreement is forbidden by law, the agreement is unlawful and void. An act is forbidden by law: a. When it is punishable by the Criminal Law of the country, or b. When it is prohibited by special act of legislature. Example Sita Ram vs. Kunj Lal

2. Defeats Provisions of Law

If the object of an agreement is of such a nature that if permitted, it would defeat the provisions of any law, it will be illegal. Such object may not be directly forbidden by law but it will indirectly violate law and so illegal. Example A fails to pay his loan to HDFC. As house is sold for recovery of debt. According to law, A is prohibited from purchasing his house. A asks B to purchase the house and transfer it back to him. The agreement is void.

3. Fraudulent
If the object of agreement is to defraud others it is unlawful and so void. Where the parties agree to commit a fraud on third person, the agreement is illegal. Examples a. A promises to pay Rs.20, 000 to B, on Bs promise to commit fraud on C. the agreement is illegal and void. b. A is the agent of X. A agrees to sell the land to his friend B, at a lesser price without knowledge of his principal. The agreement between A and B is void as it is fraud by A against X.

4. Involves Injury to Person or Property

If the object of agreement is to cause an injury to the person or property of another is illegal and also void. Injury means criminal or wrongful harm. Examples Allen vs. Rescous

5. Court regards as Immoral

if the object of an agreement is such that the court regards is as immoral, the consideration is void. Immoral means acts which are against the moral vaules and also prohibited by law. Example Bai vijli vs. Hamda Nagar

6. Court consider it against Public Policy

An agreement which is harmful for the welfare of the society or the state is against the public policy. If the court considers the object or consideration of an agreement as opposed to public policy, the agreement is unlawful. An agreement which leads to corruption, injustice or immorality is considered to be against the public policy. Examples a. The agreements to give money to induce a person to give false evidence. b. The agreements to influence judges. c. The agreements which disturb the friendly relations of the state. d. The agreements the purpose of which is to influence over the officers of justice.

Agreement not declared void

The last essential of a valid contract as declared by Section 10 is that it must not be

one which is expressly declared to be void by the Act. The following agreements
have been expressly declared, to be void by the Indian Contract Act: 1. Agreements in restraint of marriage (Sec. 26). 2. Agreements in restraint of trade (Sec. 27). 3. Agreements in restraint of legal proceedings (Sec. 28). 4. Agreements the meaning of which is uncertain (Sec. 29). 5. Agreements contingent on impossible events (Sec. 36). 6. Agreements to do impossible acts (Sec. 56).

Agreement in restraint of marriage

Every agreement in restraint of the marriage of any person, other than a minor, is void. Example:

1. A agrees with B for good consideration that she will not marry C. It is a void
agreement. But if A agrees with B that she will marry him only. It is a valid contract of marriage.

Agreements in Restraint of Trade

Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Example: 2. An agreement whereby one of the parties agrees to close his business in consideration of the promise by the other party to pay a certain sum of money is void, being an agreement is restraint of trade, and the amount is not recoverable, if the other party fails to pay the promised sum of money (Madhub Chander vs Raj Kumar).

But agreements merely restraining freedom of action necessary for the carrying on of

business are not void, for the law does not intend to take away the right of a
trader to regulate his business according to his own discretion and choice.

3. An agreement to sell all products to a certain party, with a condition that the purchaser was bound to accept the whole quantity, was held valid because it aimed to promote business and did not restrain it (Mackenzie vs Striramiah). But where in a similar agreement the purchaser was free to reject the goods (i. e., was not bound to accept the whole quantity tendered) it was held that the agreement was void as being in restraint of trade (Sheikh Kalu vs Ram Saran).

Agreements in restraint of legal proceedings

Every agreement by which a party is restricted absolutely from taking usual legal
proceedings, in respect of any rights arising from a contract is considered to be void. Example: 4. A, in Bombay, enters into a contract with B in Madras with a condition that all disputes will be subject to Bombay jurisdiction. This limits the right of B to sue only in Bombay Court in case of dispute. Such an agreement is void.

Uncertain Agreements
Agreements, the meaning of which is not certain, or capable of being made certain, are
void Example: 5. A agrees to sell to B a hundred tons of oil. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.

Thank you!