AGREEMENTS OPPOSED TO PUBLIC POLICY, AGREEMENTS WITH UNLAWFUL CONSIDERATION IN PART AND OBJECTS, AGREEMENTS WITHOUT CONSIDERATION; AGREEMENTS IN RESTRAINT OF MARRIAGE

This article is written by Ganji Sneha, an intern under Legal Vidhiya

ABSTRACT

In today’s digitalized world, the most crucial elements of what we do every day are Agreements. Every day we sign many agreements, either knowingly or unknowingly all these agreements are made. Agreements grant the parties a different of legal rights and responsibilities. Therefore it is essential to comprehend the various kinds of agreements and which ones may upheld in court in order to defend for our rights and fulfill our commitments and protect ourselves out of trouble. Agreements are of many types; valid agreements, void agreements, voidable agreements.

The topic of this research article covers delves into a major and one of the most general areas of day-to-day law that applies to the people of our country, that is “ Indian Contract Act 1872”. It also concerned with the dealing with agreements, essentials of a valid, void, voidable agreements and Section 23 comprising that the “ object” and the “ consideration” of an agreement is not lawful in certain cases, it was explaining in the question about public policy.

Further, it goes on analyzing the areas of void agreements that covers unlawful consideration of agreements in part and objects; agreements opposed to public policy, agreements without consideration and agreements in restraint of marriage, and case laws pertaining to certain as well as uncertain agreements are qualitatively analyzed under Indian Contract Act 1872.

This research article analysis of the intersection of what actual law says and where unenforceability was strikes the ground. The effects was whether the agreement is enforceable by law or not under Indian Contract Act, 1872 which provides deep insight about what are the contracts and when the contracts are legally enforceable by the court of law and what are the agreements which are not enforceable by law.

Keywords

Agreement, Contract, Enforceability, legal rights, valid, void, voidable and illegal agreements, unlawful consideration, public policy, restraint of marriage.

INTRODUCTION

The Indian Contract Act 1872 is the basic legislation in the Indian law, that deals with the “ General Principles of law of Contract” that is Nature of contract, offer and acceptance, consideration, capacity to contract, formation performance as well as the discharge of contractual obligations in the day-to-day life’s and also contracts involving higher amounts. Therefore, understanding the various nuances to it are also important to know about what are the  agreements cannot be made as a contract and what are the provisions of it can make it unlawful or against public policy. Section 23 of the Indian Contract Act deals with the object or the consideration of an agreement is not lawful in certain cases.

A legally enforceable contract is one that is considered as a valid contract. In a contract, both the parties are legally bound to each other. According to Section 2(h) of the Indian Contract Act, 1872 says that, “ A contract is an agreement which is enforceable by the court of law”. It is defined under Section 2(e) of the Indian Contract Act as “ Every promise and every set of promises forming the consideration for each other is an agreement”. A valid contract is one that is based on commitments made by both parties and is enforceable by law. If an agreement to be considered as valid, there must be an offer and acceptance.

An offer may be positive or negative, indicating that the “promisor” intends to do something or not to do something based on promisor’s decision. Actions or inactions should be used to show and communicate the acceptance of an offer. “ Promisee” who is accepting the offer made by the promisor. Once the opposite party accepts the proposal and properly notifies the proposer, provided that the proposal’s object and consideration are becomes legally enforceable agreement.

Similarly, there are various other kinds of agreements, which is not enforceable by law, such an agreement does not give rises to any legal consequences and is void-ab-initio(initially it is void). Such as agreements without consideration, agreements in restraint of marriage deals under Section 25, 26 respectively. This article also includes a broad and detailed explanation of the nuances to the agreements that oppose the public policy, unlawful consideration and various kinds of Agreements, study deeper into Section 23, 24, 25 and 26.

Descriptive analysis has been given under each heading, which is discussed in the subsequent parts of this article along with landmark case laws and illustrations for each and every section described below, and the study’s conclusions indicate that the agreements aims to preventing the competition are usually null and void.

OBJECTIVES

The main aim of doing research is to analyze the nuances of the ultimate formation and enforceability of a contract and to know which part can be enforceable and what are the agreements becomes void. To delve deeper into the concept of public policy, agreements without consideration and also agreement in restraint of marriage. In particular, along with this analysing the sections 23, 24, 25 and 26 of the Indian Contract Act of 1872.

Regardless of related to legal field, this research paper is to provide information related to what are the various kinds of agreements that the law permits and what is the rightful or particularly, the Lawful consideration that renders a valid contract under the Indian Contract Act, 1872.

MEANING OF AN AGREEMENT

According to Section 2(e) of the ICA, 1872 defined as “ Every promise and every set of promises forming the consideration for each other is an agreement”. In an agreement there is a promise and offer that is made, and accepted from both parties. A commitment or promise made by one party to another party is known as agreement. In simple words, an agreement is made where one party makes an offer and that offer accepted by another party. This agreement made up between two or more parties. Only when all the essential elements are met does it becomes a valid agreement.

                            Agreement = offer + Acceptance

Illustration:

A promise to deliver his watch to B and in return B promises to pay sum of RS. 2000/- to A. Here there is said to be an agreement between A and B.

Promise: Referring to Section 2(b) of the Indian Contract Act, A proposal when accepted becomes promise.

Illustration:

According to above example, when A makes a proposal to sell his watch to B for RS. 2000/- and B accepts his proposal. Here, a promise made between A and B.

ESSENTIAL ELEMENTS OF AN AGREEMENT

If an agreement to be enforceable, then the following essentials must be fulfilled:

1. Parties: In an agreement there must be two or more parties formed the contract.
2. Offer/ proposal: In an agreement when one person signifies another person, his willingness to do or abstain from doing something with a view of abtain assent of other. Simply, when one party makes a proposal or offer to the other party.
3. Acceptance: one party making the offer and other party accept it.
4. Promise: In an agreement the proposal when accepted it becomes promise.
5. Consideration: An agreement to be enforceable by law must be supported by consideration. It means “ something in return” the agreement is legally enforceable only when both parties give something and get something in return.

LEGAL MAXIM

 “ALL CONTRACTS ARE AGREEMENTS, BUT ALL AGREEMENTS ARE NOT CONTRACTS”

Here, is to see that, If an agreement which is enforceable by law is a contract. Unless an agreement is not enforceable by law, then it cannot be considered as contract. So an agreement that is recognized by both parties and has legal enforceability is called a contract. In a contract each and every party engaged with specific rights as well as duties that they must follow throughout the end of the contract, otherwise the breach of contract happened. So it is concluded that all contracts are agreements but all agreements are not officially contracts.

DEFINITION OF A CONTRACT

The term “ Contract” is defined under Section 2(h) of the ICA, 1872  An agreement which is enforceable by law is a contract. The contract made between two or more parties which the law will enforce. According to Section 10 of the Indian Contract Act, 1872 “ all agreements are not contracts” only those agreements are contracts, which are made by the parties who are competent to enter into a valid contract. The parties who enter into a contract they must have capacity to do so.

According to Pollock’s definition “ Every agreement and promise enforceable by law is a contract”.

According to Salmond, A contract is an agreement creating and defining obligations between the parties.

ESSENTIAL ELEMENTS OF A VALID CONTRACT

To constitute a contract, the following conditions are to be satisfied.

1. There must be two parties( offeror Section 2(a) & Acceptor Section 2 (b)): To constitute a contract there must be an offer and acceptance. The person who makes an offer is called “ Offeror” and the person who accepts the offer is called “ Acceptor”. Therefore, in every contract there must be atleast two parties namely- the offeror and acceptor. The offer and acceptance must be communicated properly to each other.
2. Legal Relationship: when the two parties enter into an agreement, their must by to create legal relationship between them. If there is no such intention between the parties then there is no contract between them.
3. Lawful Consideration:  According to Section 2(d) of ICA, 1872 Consideration is defined as when at the desire of the promisor or promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or to abstain from doing or promisee something, such an act or abstinence or promises called a consideration for the promise. But it must be real and lawful.

In simple words, A party to an agreement who promises to do something and must gain something in return that something in return is called consideration. A contract without consideration is void.

4. Capacity to Contract: The parties to the contract must be competent to enter into a contract. According to Section 11 of the Indian Contract Act, any person is competent to contract provided-

• He must be major
• He must be sound mind
• He must not be disqualified by any other law

5. Free consent: Agreement between the parties should have free assent by both the parties.

6. Lawful Object:  A contract to be valid, the “ object” for which  it has been entered into must be lawful. According to Section 23 of the Indian Contract Act, an agreement entered into with lawful consideration or object is declared “void” if it is;

• Forbidden by law
• It would defeat the provision of any law
• It is fraudulent
• It involves or implies causing injury to person or property of another, or
• Court regards it as immoral or opposed to public policy

TYPES OF CONTRACTS

Valid Contract:  An agreement which is binding and enforceable by law is a contract. It contains all the essential elements must be fulfilled, if any one of these requirements is or is not met like contract is void, illegal, voidable, invalid or unenforceable. An agreement which meets all legal requirements is considered as valid contract,  if any of these are absent, contract is void, voidable, illegal, voidable, invalid or unenforceable.

Void Contract: A contract which is not enforceable by law is a void contract. Void Contract is an agreement without any legal effect and it is void-ab-initio.  A void contract cannot be performed and does not grant any rights to the parties. Ex: A contract with a minor is void or An agreement without consideration.

Voidable Contract: An agreement which is enforceable by law at the option of one or more parties there to, but not at the option of the other or other’s is a voidable Contract. Therefore a contract is voidable is one party who was wronged may choose to have set aside or rejected. It is a legally binding agreement unless it is avoided or set aside by the other party with the right to do so.

LEGAL PROVISIONS

SECTION 23[1]– WHEN CONSIDERATION OR OBJECT IS UNLAWFUL

A contract must not only be based upon mutual assent of competent parties but also must have a lawful object. If the object of an agreement is the performance of unlawful act, the agreement is unenforceable.

Section 23 of the Indian Contract Act,1872, “ an agreement entered  with unlawful consideration or object is declared void”. That the “ object” or the “consideration” of an agreement is not lawful in certain cases. The word object means “ proposal or design”, in some cases, consideration for an agreement may be lawful but the purpose for which the agreement is entered into must be unlawful. In such cases the agreement is void. As such both the object and consideration of an agreement must be lawful, otherwise the agreement is void.

Illustrations

1. A agrees to sell his house for B for Rs. 10,000/- here B promises to A to pay the sum of Rs.10,000/- is the consideration for A’s promise, is to sell the house is the consideration for B’s promise is, to pay Rs.10,000/- here there is a lawful Consideration and both the parties fulfill the obligations and promises. Then the agreement is valid.
2. A promise to maintain B’s child and B promises to pay Rs. 1000/- for the maintenance of child. Here, two parties fulfill their promises, and in this contract lawful Consideration is there so, the agreement is valid.
3. A promise to obtain for B and employment in the public services and B promises to participate Rs. 10,000/- to A. The agreement is void, as the consideration for it is unlawful.

The object or consideration of an agreement is unlawful unless-

1. It is forbidden by law: If the object or the consideration of an agreement is doing of an act forbidden by law, the agreement is void. An act is forbidden by law, when it was punishable by the criminal law of the country or when it was prohibited by special legislation or any other regulations made by a competent authority under the powers derived from legislature.

Illustration

• A sold liquor to B without license. The sale is liquor is unlawful without license is forbidden by law under the excise act. Hence, A cannot recover the price.
• It is of such a nature that, if permitted or it would defeat the provisions of any law: If the consideration or the object of an agreement is such that through not directly forbidden by law, it would defeat the provisions of any law the agreement is void.

Illustration

• A’s estate is sold for arrears of revenue under provisions, of act of the legislature by which the defaulter is prohibited from purchasing the estate. B upon and understanding with A becomes the purchaser, and agrees to convey the estate to A upon receiving from him the price which B has paid. An agreement is void if it renders the transaction in effect, a purchase by the defaulter and defeat the object of the law.
• If it is fraudulent: An agreement which is made for a fraudulent purpose is void. Thus, an agreement in fraud of creditors with a view to defeat their rights, is unlawful. An agreement with such an object or consideration is unlawful, it is void.

Illustration

• A, B ,C enter into an agreement for the division among them of gains acquired or to be acquired by them by fraud. Therefore, the agreement is void, as it’s object is unlawful according to law.
• Involves or implies, injury to the person or for other’s property: Injury means “ wrong, harm, damage” person means “ one’s body” property includes both “ movable and immovable property”. Where if create injury to a person or to the property of another, the agreement with such an object or consideration is unlawful and void.

Illustration

• An agreement between some persons to purchase shares in a company, and thus by fraud and they forced the other persons to purchase the shares in a company. So the agreement is void.
• If the court regards it as immoral: In an agreement, the consideration or object of which is immoral. Then the agreement is void.

Illustration

• An agreement between the husband and wife for future separation it is unlawful.

AGREEMENTS OPPOSED TO PUBLIC POLICY

An agreement is said to be opposed to public policy, when it is harmful to the “public welfare”. Public policy means, the principle of law which holds that no subject can lawfully do that which has a mischievous tendency to be injurious to the interests of the public or which is against, the public good or welfare. Public policy is such a coherent instrument through which no government is bound to take decisions against the policies related to the public.

It can also be constituted on the principles of social laws. It also affect the legality of an agreement, as it was an injury to the public good. Public policy is either laws or actions of the state which regulate cultural, traditional, ethical ideas, norms of the society practices prevalent, etc. If any laws are made, first of all government will check, if that law or act doesn’t violate the principles of public policy. Then that law should be beneficial for people. There are so many examples that contracts or agreements stands void as the court may refuse to enter into this type of contracts or agreements falls under the category of illegal behaviour. The court does not encourage these types of practices that may lead to the deterioration of the country or depletion of rights and laws. Public policy plays a vital role in encouraging equality among the people for their improvement by providing equal treatment for all and providing upliftment and protection of our country.

If the government make some laws against public policy and then people cannot accept and follow those laws as it effects their moral ethics, traditional or cultural values, etc. then it is very difficult for government to implement those laws and the government had to keep in mind the social basis of the country. India is a land of diversity, culture and heritage, so people are more connected towards their religious beliefs, cultural aspects. Therefore, the government has to make laws according to the public interest.

English Law and Public Policy

Under the English law considers agreements against public policy is to be declared as “ void”, but what constitutes is, a public policy is a grey area. The English judges opined that the courts must function within the closed categories of public policy and should not add to it. They referred  it as an unruly Horse.

Indian Law and Public Policy

Indian Law also aligns with the English law in this regard and Indian law does not allow for much interpretation by the judges regarding public policy. It believes that the courts should in most of its cases enforce the contractual obligations, except where the courts has to deliver public good or prevent mischief.

Different types of agreements that are opposed to public policy and are unlawful are as follows:

1. Agreement of trading with Enemy: An agreement, made with an alien enemy at the time of war is unlawful on the ground of public policy. This is based upon two reasons,
2. Either that further performance of the agreement, could involve commercial connection with the enemy, or
3. That the continued existence of agreement would confer upon the enemy an immediate or future benefit.

Contracts which are entered into before the outbreak of war are either suspended or dissolve according to the intention of the parties can or cannot be carried out by postponing performance till the end of hostilities.

• Agreement to commit crime: where the consideration in an agreement is to commit a crime, the agreement is opposed to public policy. The court will not enforce such type of an agreement. Likewise an agreement to indemnify a person against consequences of his criminal act was opposed to public policy and hence the agreement is unenforceable.
• Agreements which interfere with Administration of justice: Agreements which interference with the administration of justice is considered as against public policy and is unlawful. There are three categories of Agreements which interference with Administration of justice. These are –
• Interference with the course of justice: An agreement which obstructs the ordinary process is unlawful. Thus an agreement is using improper influence of any kind with the judges or officers of justice is unenforceable. But an agreement to refer present or future disputes to arbitration is valid.
• The Stifling prosecution: Agreements which, are made to withdraw the prosecution or not to prosecute the criminal are known as  Stifling prosecution. These agreements are against public policy and void. It permits, the compromise only in case of the compoundable offences. But any level of compromise in case of non-compoundable offences not allowed as they concern the public at large.
• Maintenance and Champerty: these types of champertous agreements, where any third party comes and offers for maintenance of the litigation expenses for just in order to get  unconscionable gains from it. Such, types of agreements are considered to be against public policy.
• Marriage Brokage Agreements: An agreement by which a person, for a monetary consideration, promises in return to procure the marriage of another is void, being opposed to public policy. Similarly, an agreement to pay money to the parent or guardian of a minor in consideration of his or her consenting to give the minor in marriage is void, being opposed to public policy.

Case law: A Suryanarayan Murthy v. P Krishna Murthy[2], in this case the Orissa High court delivered the judgment, the court observed that voluntary gifts in the marriages are not opposed to public policy, but when the sole purpose of the marriage is the consideration or monetary gain then it becomes void.

• Unconscionable Dealings: Where the parties are not in equal footing to another and one party is clearly in opposition to dominate the will of the other, such dealings results in unconscionable agreements and theses are against public policy.

Case Law:  Central Inland Water Transportation Corporation v. Brojo Nath Gnguly, in this case the court held that, the agreement of government body that it can fire it’s employees who are needy, just be notice or payment was considered to be arbitrary and the agreement opposed to public policy.

Now, as we have covered the topic of public policy which renders the contract to be void in full-fledged manner, we shall be looking at section 24 which describes, the agreements in which consideration and object are unlawful in part.

SECTION 24- IF CONSIDERATION AND OBJECTS UNLAWFUL IN PART[3]

If there are many objects but there is a single consideration, an agreement is void if any one of the objects is unlawful. Similarly, if there is a single object but there are several considerations, the agreements is void if any one of the considerations is unlawful.

Illustration

• A promise to superintend on behalf of B a legal manufacture of indigo. B promises to pay to A, Rs. 90,000/- for salary per a year. Here, the agreement is void and the object of A’s promise and the consideration for B’s promise is unlawful.

SECTION 25- AGREEMENTS WITHOUT CONSIDERATION IS VOID[4]

According to Section 25, It states that agreement made without consideration is void in general circumstance except for three exceptional circumstances. And these three are when, an agreement is made in writing or registered by the authorities. Secondly when it is a promise to compensate for some act done in past. And the third one says about a promise to pay a time barred agreement.

Illustration

• A promise to give to  B Rs. 1000/- without any consideration. This is a void agreement.
• A out of natural love and affection promises to B, his son to pay Rs. 1000/- and also registers it by writing. This is a valid contract.
• A owes Rs. 2000/- to B which is barred by the Limitation act. They make an agreement where A would pay Rs. 1000/- to B. This is a valid contract

Analysing Section 25, we come to know that agreements made without any consideration are void but it has several exceptions to it as we’ll. These are –

1. Love and Affection: An agreement or promise made out of natural love and affection between the parties standing in a near relation to each other, is enforceable without consideration. In simple words, a written and registered agreement based on natural love and affection between near relatives is enforceable even without consideration.

Illustration

An elder brother on account of natural love and affection, promised to pay the debts of his younger brother. Agreement was put to writing and registered. Held, the agreement is valid.

• Past Voluntary Services: The second exception is A promise, to compensate wholly or in part, a person who has already voluntarily done something for the promisor, is in enforceable, even without consideration. A person who has promised to compensate to someone who has done any past voluntary service is enforceable.
• Time Barred Debt:  A time barred debt is a debt, which is barred by the laws of the Indian Limitation Act.

Case law: In A.V Murthy v. B.S Nagabasavanna[5], the court held that, A promise for paying a time barred debt is enforceable, but the debt must be in writing and signed by the promisor through agent or authorised person.

The promise to pay the debt should be expressed and it would be insufficient, if it goes unexpressed. Time barred debt is regarded as good consideration for new promise. The payment can be full debt or part of the debt too. And also the promise to pay for the debt must be after the period of limitation but it should be in express and not implied.

SECTION 26- AGREEMENTS IN RESTRAINT OF MARRIAGE [6]

Referring to section 26 of the Indian Contract Act 1872, contains agreements that are made in restraint of marriage. The section mention that all agreements that are made in restraint of marriage are unlawful except for the marriage of a minor. where the law itself, restraints the marriage of a minor.

Illustration

A made an agreement with B to give him Rs. 1 lakh if he restrains from marrying C, who is A’s daughter. Then this agreement is void .

CONCLUSION

This research article has covered the various nuances to the question of enforceability of an agreement as well as which agreements are void and what ultimately becomes a valid enforceable contract. The article started with the question regarding  public policy and how the judges opinion helped us to better understand the area of public policy in section 23 of India Contract Act, 1872. After that, the article went to analysis  the nuances of agreements that have considerations unlawful in part and object. Subsequently seeing there are some exceptions to section 25. And lastly analysing the restraint of marriage along with illustration and case laws. All this creates a good picture of what lawful agreements can be made according to the Indian Contract Act, 1872. This also helps to create awareness about the basic laws of the land and giving a deep connection with the social perspective of the law.

REFERENCES

1. Blogipleders, https://blog.ipleaders.in/agreements-against-public-policy-under-law-of-contracts/ visited on 18/04/2024
2. Drishtijudiciary,  https://www.drishtijudiciary.com/to-the-point/ttp-indian-contract-act/lawful-consideration-and-lawful-object visited on 18/04/2024
3. Legalservices,https://www.legalserviceindia.com/legal/article-8904-agreements-opposed-to-public-policy.html#:~:text=Every%20agreement%20of%20which%20the,refuse%20to%20enforce%20a%20contract  visited on 19/04/2024
4. Blog. ipleaders, https://blog.ipleaders.in/agreements-in-restraint-of-trade-marriage-and-legal-proceedings/#:~:text=Some%20agreements%20are%20just%20harmful,26%2C%2027%20and%2028%20respectively visited on 20/04/2024

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[1] Indian Contract Act, 1872, § 23, No.9, Acts of Parliament, 1872( India)

[2] A Suryanarayan Murthy v. P Krishna Murthy, AIR 1957

[3] Indian Contract Act, 1872, § 24 , No.9, Acts of Parliament, 1872(India)

[4] Indian Contract Act, 1872, § 25, No. 9, Acts of Parliament, 1872( India)

[5] A.V Murthy v. B.S Nagabasavanna, AIR 2002

[6] Indian Contract Act, 1872, § 26, No. 9, Acts of Parliament, 1872( India)

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