Legality of Object and Consideration: Agreements Against Public Policy

Legality of Object and Consideration: Agreements Against Public Policy

Agreements are necessary in both business and private transactions. But keep this in mind: not all agreements can be legally enforced. A central concept of contract law is that the objective and worth of a contract must be legal. If they conflict with public policy, the contract is void.

This article explores the law within contracts, why legal objects and consideration are important, and why agreements can be in conflict with public policy. You will understand by the end of this why contracts become void and how public policy comes into play.

Understanding Legality of Object and Consideration

For a contract to be enforceable, it needs to meet certain basic requirements. Two main components are:

• Object– This is the purpose or subject of the contract.
• Consideration– This refers to what is exchanged between the parties, like money, goods, or services.

To be valid, both the object and consideration must be legal and not oppose public policy. If either one is illegal, the contract is void from the start.

Legality of Object

The object of the contract must be legal. In case the object is illegal activity, fraud, or immoral goals, the contract is void. Illegal objects in a contract include:

•  Contracts for smuggling or drug dealing
• Contracts concerning bribery or graft
•  Arrangements connected to criminal conduct
• Agreements that infringe on civil liberties illegally

Legality of Consideration

Consideration should also be legal for a contract to stand. When the consideration is illegal, the contract collapses. Some of the illegal considerations include:

• Payment for an illegal act (like employing another person to do something illegal)
• Exchange of stolen goods
• Contracts involving fraud or deception

Legal Rules on Legality of Object and Consideration

Various legal systems have provisions to ensure contracts remain within the ambit of law. For example, in India, Section 23 of the Indian Contract Act, 1872 provides that a contract is void if:

• Its object is illegal under law
• It beats any legal provision
•  It is fraudulent
• It inflicts harm to another individual or property
• It is against public policy or immoral

There are similar standards in English Law and other legal systems across the globe, which ensure that contracts are in line with legal and ethical standards.

Agreement against public policy 

Public policy serves as a guardian of public values. A contract can be void even if it does not technically violate the law if it is contrary to public policy. Courts have the power to declare contracts that are prejudicial to public interest as invalid.

What is public policy?

Public policy is a broad and evolving term that varies geographically. Typically, a contract is presumed to be against public policy if it:

• Damages the public good
•  Promotes corruption or falsehood
• Supports immoral actions
• Destroys justice or legal proceedings
•  Restricts fundamental rights

Courts are empowered to determine whether or not a contract goes against public policy in light of the prevailing social, economic, and legal scenario.

Common Types of Agreements Against Public Policy

There are a few types of agreements that are frequently held to be void on the grounds of violation of public policy. Some of the most common among them are given below:

1. Agreements Restricting Trade

Unfairly restrictive contracts of trade or competition are generally void. Although reasonable non-compete agreements are valid in employment contracts, excessively wide ones can be invalid.

Example:

A contract that prohibits a former worker from practicing their profession for life will probably be contrary to public policy.

2. Contracts Facilitating Corruption or Illegal Activities

Bribery, illegal commissions, or unlawful political donations are against public policy in contracts.

Example:

A business providing a government official with a share of profits in return for a contract would be deemed void.

3. Agreements Blocking Justice

Agreements that interfere with legal processes, conceal evidence, or seek to affect the courts are not enforceable.

Example:

A contract in which a person is paid not to give testimony in court is contrary to public policy.

4. Agreements Promoting Divorce or Immoral Behavior

Contracts inducing adultery, fornication, or other immoral conduct, and divorce are void.

Example:

An agreement to pay another person to dissolve a marriage is not enforceable.

5. Agreements Limiting Personal Freedom

Agreements that unreasonably limit personal freedoms or exploit individuals are not valid.

Example:

A contract compelling a person into involuntary servitude or bonded labor is against public policy.

Important Court Cases on Agreements Against Public Policy

Various court rulings have influenced how public policy is viewed in contract law:

1. Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. (1894)

In this English case, a firearm manufacturer covenanted not to compete with his former employer for 25 years. The court held that although some restraints on trade are permissible, excessively wide ones violate public policy.

2. Gherulal Parakh v. Mahadeodas Maiya (1959)

The Supreme Court in India held that a contract entered into for gambling purposes is against public policy and therefore is not enforceable.

3. Pearce v. Brooks (1866)

An agreement for the hire of a carriage to a prostitute was held void, since it was an agreement to do an immoral act.

Consequences of Entering into Agreements Against Public Policy 

If a contract is seen as against public policy, it can lead to serious legal outcomes:

1.It is void and cannot be enforced – Courts will not uphold such contracts.

2. No legal recourse – Parties can neither recover damages nor enforce the agreement.

3. Potential legal penalties – In certain cases, parties may be subject to fines or civil sanctions.

4. Damage to reputation– Companies or persons engaging in unethical contracts stand the risk of tarnishing their reputation.

Conclusion: Ensuring Legality in Contracts

In order to ensure that a contract is legally valid, the parties must verify that its object and consideration are in harmony with legal criteria and public policy. A few important details to keep in mind are given below:

•  Always verify the legality of contract terms before signing.
• Avoid contracts that involve crime, fraud, or immorality.
• Consult legal experts if you have doubts regarding whether a contract holds validity.
• Protect contracts from causing harm to public interest or violating fundamental rights.

All of us, ranging from companies to citizens and lawmakers, must be well-versed in these principles of law so as not to make invalid contracts. Courts will go on refining their interpretations in light of social needs and moral considerations to ensure fairness and justice prevail.

Got specific contracts you’d like to talk about? Feel free to post your questions in the comments!

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