This Legality of Object & Consideration – CA Foundation Law Study Material is designed strictly as per the latest syllabus and exam pattern.
Legality of Object & Consideration – CA Foundation Business Law Study Material
Question 1.
Under the provisions of the Indian Contract Act, 1872, when is the object or consideration of the contract regarded as unlawful?
Answer:
Under the provisions of Section 23 of the Indian Contract Act, 1872, in the following instances, the object or consideration of an agreement is said to be unlawful:
- When the object or consideration of the contract is such that it is forbidden by any law or statute or under any rule or regulation made thereunder, which is for the time being in force in India.
- When the contract is made for such an object or consideration, the consequence of which is to defeat the provisions of law te. to intend to violate the provisions of any other law in force in the country.
- When the consideration or object under the contract is of such a nature so as to result in injury to the person or property of another.
- Where the object is fraudulent z.e. it is of such a nature that it promotes fraud.
- Where the object is or consideration is such that it is regarded as immoral by the court.
- When the object or consideration under the contract is such that it is opposed to public policy z.e. it is against the principle of public welfare.
Question 2.
Write a note on the following:
- Agreements for maintenance
- Agreements for champerty
- Agreements for stilling prosecution
- Agreements for the sale of public offices and public titles
Answer:
(1) Agreements of champerty and maintenance .’Champerty and Maintenance are British terms and can be described as the promotion of litigation in which one has no self-interest. When a person helps (financial or otherwise) another in litigation in which he is not himself interested and does not share in the proceeds of the action, it is called MAINTENANCE.
(2) When a person helps another in litigation in exchange for a promise to hand over a portion of the fruits of the litigation if any, it is called CHAMPERTY.
Ex: P files a suit against Q for the recovery of a claim of ₹ 1 lakh. Does X promise to advance ₹ 20,000 to P for the costs of the litigation and P promises to give to X ₹ 40,000 if he is successful in his suit. This is an agreement by way of Champerty. Had P been liable to return to X only the amount taken by him, then it would have been a mere maintenance agreement.
In India, an agreement to finance litigation in return for a portion of the results of the litigations is valid provided the litigation was instituted with a bona fide motive and the terms are not unfair or unjust to the helped person. If, however, the litigation was inspired by a malicious motive or to instigate litigation or is of a gambling character, or is against public policy, the agreement is bad.
(3) Agreements for stifling (suppressing) prosecution: When an offense has been committed, the guilty party must be prosecuted and any agreement which seeks to prevent the prosecution of such a person is opposed to public policy and is void.
(4) Agreement for sale of Public Office & Public titles: An agreement made with the object of trafficking, ie. sale and purchase or procure for consideration, with respect to public offices and public titles, is against public policy, illegal, and void ab initio. Thus any agreement to procure public titles like Bharat Ratna, Padam Vibhushan, etc. for consideration or to procure votes in the election against consideration, or induce a public officer to act corruptly and other agreements of such type is opposed to public policy, illegal and void ab initio.
Question 3.
G pays ₹ 5,00,000 to A, a civil servant employed in a Government Department in consideration of A’s promise that a Government contract which is at the disposal of his department will be placed with G. Before this can be done, A is transferred to another department. G now wishes to reclaim from A ₹ 5,00,000 paid to him. Will G succeed?
Answer:
Hint: The agreement is opposed to public policy since it creates A’s interest as opposed to his duty. The agreement is illegal and void ab initio. G cannot recover the amount paid.
Question 4.
A enters into a contract that he shall give his house to B for rent. They further agree that if B uses the house for gambling, the rent shall be charged at the rate of ₹ 50,000 per month and if the house is used for residential purposes then the rent shall be charged at the rate of ₹ 10,000 per month. Is the contract valid?
Answer:
Hint: Where a contract contains reciprocal alternative promises, one part of which is legal and the other part being illegal, then if the legal branch is pursued, the contract is valid and enforceable, whereas if the illegal branch is pursued, the contract shall be treated as void ab initio. The contract for rent is valid if the house is used for residential purposes whereas if it is used for gambling then the same shall be treated as void ab initio.
Question 5.
W appoints K to supervise his businesses of cloth manufacturing and trading in drugs for a salary of ₹ 1,00,000 pm. Can K recover his salary?
Answer:
Hint: Where a contract is made for several objects but single consideration then the contract shall be treated as illegal and void ab initio if even a single object is illegal. Thus since the legal part cannot be severed from the illegal part the contract shall be treated as illegal and void ab initio and K shall have no right to recover his salary from W.
Question 6.
F, a father of a minor son & a daughter agreed to transfer guardianship of his children in favor of Mrs. O, an elderly lady, and agreed not to revoke it for consideration. Subsequently, F filed a suit against Mrs. O for the recovery of his children. Mrs. O Contends that the same should not be allowed as she had the contractual right of guardianship. Comment on the validity of contention of Mrs. O in the context of the Indian Contract Act, 1872.
Answer:
Hint: Agreements interfering with parental rights are opposed to public policy, illegal & void ab initio. Thus the above contract is void ab initio & F has a right to revoke his authority & get back his children.
Question 7.
X and Y were running two organizations trading in wheat of ‘Popular Brand’ in Uttar Pradesh. X realized that the wheat business is high-yielding. To expand his business X offered Y a sum of Rs.10 Lakhs on the condition that Y shall not sell “Popular Brand” Wheat in Uttar Pradesh. X failed in making the promised payment to Y. Y, filed a suit against X for non-fulfillment of the promise. Is the suit maintainable?
Answer:
Hint: Agreements resulting in the creation of monopoly: Such agreements are treated as opposed to public policy, illegal, and void ab initio. Thus in the given case the contract between X & Y is opposed to public policy & illegal since it results in the creation of a monopoly. The suit is not maintainable.