Topic: Essentials of Contract

The legality of an object is a crucial aspect of a contract under the Indian Contract Act, 1872. It pertains to the purpose or intent behind the contract, which must comply with legal standards and not violate any laws. If the object of a contract is unlawful or contrary to public policy, the contract is deemed invalid.

Section 23 of the Indian Contract Act specifies the conditions under which an object is considered lawful. The section outlines that the consideration or object of an agreement is lawful unless:

• It is prohibited by law
• It undermines the provisions of any law if allowed
• It involves fraud
• It causes harm to another person or their property
• It is viewed by the court as immoral or against public policy

If any of these conditions apply, the consideration or object is deemed unlawful, rendering the agreement void.

Additionally, contracts that limit an individual’s right to engage in a lawful profession, trade, or business are considered contrary to public policy and illegal. These are termed “restraint of trade agreements” and are generally void unless they are fair and necessary to protect the involved parties’ interests.

Furthermore, contracts made with the intent to deceive or defraud another party are also illegal. It’s important to note that while the object of a contract might be legal when formed, it can become illegal later due to changes in law or public policy, rendering the contract void from the start (void ab initio).

Lastly, even if a contract contains both legal and illegal components, the entire contract won’t necessarily be void. Only the unlawful portion will be considered invalid, in accordance with the doctrine of severability.

Questions

Question 1:

A and B entered into a contract where A promised to sell B a shipment of goods, knowing fully well that the goods were stolen. B, however, was unaware of this fact and paid the full amount in advance. Later, B found out the goods were stolen and refused to take delivery. Can B declare the contract void?

(a) No, because B already paid for the goods.

(b) Yes, because the object of the contract is unlawful.

(c) No, because the goods were still delivered.

(d) Yes, because the contract involved stolen goods, which makes it illegal.

Question 2:

Zoya was hired by a company to work in the marketing department. As part of her employment contract, she agreed not to work for any other marketing firm in the same city for the next 10 years, even after leaving the company. Is this clause valid under the Indian Contract Act?

(a) Yes, because it protects the company’s business interests.

(b) No, because it unreasonably restricts Zoya’s ability to work.

(c) Yes, because Zoya voluntarily signed the contract.

(d) No, because such clauses are only valid for a period of 1 year.

Question 3:

Mohan and Ravi entered into an agreement where Mohan would sell Ravi’s property without informing Ravi’s family members, even though the family has legal rights over the property. Mohan and Ravi later executed the sale, and Ravi’s family took the matter to court. What is the status of the contract?

(a) The contract is valid since it was between two consenting parties.

(b) The contract is void as it defeats the legal rights of Ravi’s family.

(c) The contract is valid because Ravi had full ownership of the property.

(d) The contract is voidable at the option of Ravi’s family.

Question 4:

Anil and Bipin entered into a contract for Anil to build a commercial complex on a piece of land. However, after the contract was signed, the government passed a new law prohibiting any construction on that land for environmental reasons. What is the status of the contract?

(a) The contract remains valid because it was legal when signed.

(b) The contract is voidable at Bipin’s discretion.

(c) The contract is void due to the change in law.

(d) The contract is still enforceable because Anil had already started the construction.

Question 5:

Rakesh enters into a contract with Sneha to perform a dance at his private event. Part of the contract also requires Sneha to perform at an illegal gambling event hosted by Rakesh’s friends afterward. If Sneha refuses to perform at the illegal event, what will be the status of the contract?

(a) The entire contract will be void because it involves illegal activities.

(b) Only the illegal part of the contract will be void, and the rest will remain enforceable.

(c) The contract is valid because Sneha already agreed to the terms.

(d) The contract is voidable at Sneha’s discretion because of the illegal event.

Question 6:

Sahil, a property dealer, entered into a contract with Vishal to sell a plot of land. Unknown to both parties, the land was later declared government property and could not be sold. Vishal has already paid for the land but has not taken possession. What is the legal status of the contract?

(a) The contract is valid because Sahil did not know about the government decision.

(b) The contract is void because the sale of government property is illegal.

(c) The contract is voidable at the option of Sahil.

(d) The contract is still valid because Vishal paid for the land before the change.

Question 7:

Rajiv signed a contract with Amit to supply products for Amit’s store. The contract included a clause requiring Amit to engage only with Rajiv’s business for the next 5 years, prohibiting Amit from purchasing from any of Rajiv’s competitors. Is this restraint of trade clause enforceable?

(a) Yes, because it is necessary to protect Rajiv’s business.

(b) No, because it unreasonably restricts Amit’s freedom to trade.

(c) Yes, because Amit agreed to the clause willingly.

(d) No, because such clauses are never enforceable under the Indian Contract Act.

Question 8:

Vikram entered into a contract with Sameer to sell rare wildlife species. However, selling rare wildlife is prohibited by law. Sameer later refuses to pay Vikram for the sale. Can Vikram sue Sameer for breach of contract?

(a) Yes, because Sameer agreed to buy the wildlife.

(b) No, because the object of the contract is illegal.

(c) Yes, because Vikram already delivered the species.

(d) No, because both parties entered into the contract with full knowledge.

Answers

Question 1:

B, because the object of the contract is unlawful.

Explanation: The object of the contract (selling stolen goods) is illegal. Under Section 23 of the Indian Contract Act, the object of the contract must not be forbidden by law. Since the sale of stolen goods is illegal, the contract is void.

Question 2:

B, because it unreasonably restricts Zoya’s ability to work.

Explanation: This is a classic example of a restraint of trade agreement. Contracts that restrict a person’s right to carry on a lawful profession, trade, or business are void under Section 27 of the Indian Contract Act unless the restriction is reasonable. A restriction for 10 years is unreasonable and unenforceable.

Question 3:

B, the contract is void as it defeats the legal rights of Ravi’s family.

Explanation: According to Section 23, if the object of a contract defeats the provisions of law, it is unlawful. Here, Ravi’s family has legal rights over the property, and the contract between Mohan and Ravi disregards those rights, making the contract void.

Question 4:

C, the contract is void due to the change in law.

Explanation: A contract becomes void if its object becomes illegal due to a change in law, as per Section 23. Since construction was prohibited by law after the contract was signed, the object of the contract is now illegal, making it void.

Question 5:

B, only the illegal part of the contract will be void, and the rest will remain enforceable.

Explanation: This is an application of the doctrine of severability, which allows the legal parts of a contract to remain enforceable while the illegal parts are void. The portion of the contract relating to the illegal gambling event will be void, but the rest of the contract remains valid.

Question 6:

B, the contract is void because the sale of government property is illegal.

Explanation: Since the sale of government property is prohibited by law, the object of the contract is illegal under Section 23. Even if both parties were unaware of the government’s decision at the time of the contract, the contract is void.

Question 7:

B, because it unreasonably restricts Amit’s freedom to trade.

Explanation: Under Section 27, any agreement that restricts a person’s right to trade is generally void, unless it is reasonable. A clause that forces Amit to only buy from Rajiv for 5 years is an unreasonable restraint of trade and is not enforceable.

Question 8:

B, because the object of the contract is illegal.

Explanation: The sale of rare wildlife species is illegal as it is prohibited by law. Under Section 23, if the object of a contract is illegal, the entire contract is void. Vikram cannot sue for breach of contract as the contract is void ab initio due to the illegal object.