Legality of Object and Void Agreements (CA Foundation Business Laws)

Understand Legality of Object and Void Agreements

Key rules to remember

Valid contract test (section 10)

Free consent + competent parties + lawful consideration + lawful object + not expressly void = contract

Unlawful consideration or object takes the agreement out of this test.

Unlawful heads (section 23)

Forbidden by law | defeats a law | fraudulent | injury to person or property | immoral or opposed to public policy

Any one head is enough. The agreement is void. Memory aid: F-D-F-I-I/P.

Partly unlawful agreement (section 24)

Any part of a single consideration for one or more objects unlawful, or any one or any part of any one of several considerations for a single object unlawful → whole agreement void

Both limbs make the whole agreement void. Contrast with section 57, where separate legal and illegal sets of promises are split.

Legal and illegal promises (section 57)

First set legal → contract; second set illegal → void agreement

Applies where the promises are reciprocal and clearly in two sets.

Restraint of marriage (section 26)

Agreement in restraint of marriage of any person other than a minor → void

Minors are outside this section, so do not call every marriage restraint void.

Restraint of trade (section 27)

Restraint on lawful profession, trade or business → void to that extent

Exception 1: seller of goodwill may agree not to carry on a similar business within specified local limits, so long as the buyer carries on a like business there, if the Court finds the limits reasonable.

Restraint of legal proceedings (section 28)

Absolute restriction on enforcing rights by usual legal proceedings, or limit on time to enforce, or extinguishing rights on expiry of a period → void to the extent

Exceptions: arbitration of future disputes (only the awarded amount recoverable), arbitration of existing disputes (contract in writing), and certain bank or financial institution guarantee terms (specified period not less than one year).

Uncertainty (section 29)

Meaning not certain or capable of being made certain → void

Example: 'a hundred tons of oil' with nothing to show the kind of oil.

Impossibility (sections 36 and 56)

Agreement to do an act impossible in itself → void. Contingent on an impossible event → void.

A contract that later becomes impossible or unlawful becomes void when it does. A promisor who knew or could have known of the impossibility must compensate the promisee who did not know.

How to solve Legality of Object and Void Agreements questions

1. 1Read the facts and list what each party promises. Identify the consideration and the object separately.
2. 2Ask whether the agreement has a lawful consideration and a lawful object (section 10). If the question mentions crime, fraud, bribery, immorality or public interest, test it against the five heads of section 23.
3. 3If the facts show a restraint, match it to the specific section: marriage (26), trade (27), legal proceedings (28).
4. 4Check for exceptions: goodwill sale, arbitration, minor in marriage restraint, bank guarantee period. Many questions are built around an exception.
5. 5Check for uncertainty (29), impossibility (36, 56) and wagering if the facts involve a bet or an uncertain event.
6. 6If only part of the agreement is bad, decide between section 24 (whole void) and section 57 (legal set stands as a contract).
7. 7State the conclusion clearly: valid, void in whole, or void to the extent. Add the consequence in one line.

Quickest way: Trigger-word scan

Common mistakes in Legality of Object and Void Agreements

• Writing that a restraint of trade agreement is always completely void.

  Students remember the heading 'void' and forget the words 'to that extent' and the goodwill exception.

  Fix: Quote section 27 fully and test the goodwill exception: a seller of goodwill, within specified local limits, so long as the buyer carries on a like business, and the limits are reasonable to the Court.

• Calling every restraint of marriage void without the minor carve-out.

  Students learn the short title 'restraint of marriage void'.

  Fix: Section 26 voids agreements in restraint of the marriage of any person 'other than a minor'. Mention this wording when facts involve a minor.

• Treating all agreements with an arbitration clause as void under section 28.

  Students read only the first part of the section.

  Fix: Remember Exception 1: a contract may refer future disputes to arbitration, with only the amount awarded recoverable. Exception 2 covers written agreements to refer existing disputes to arbitration.

• Mixing up section 24 and section 57.

  Both deal with partly lawful agreements, and the wording is similar.

  Fix: Under section 24 the whole agreement is void if any part of a single consideration for one or more objects is unlawful, or if any one or any part of any one of several considerations for a single object is unlawful. Under section 57, if there are two clear sets of reciprocal promises, one legal and one illegal, the legal set is a contract and only the illegal set is void.

• Confusing a wagering agreement with a contingent contract.

  Both depend on an uncertain event.

  Fix: A wager is a mere stake on the event, where each side may win or lose and has no other interest in it. A contingent contract, such as insurance, involves a real interest in the event. Write this test as your reason.

• Stating the conclusion without applying section 23's specific head.

  Students write 'it is against public policy' for everything.

  Fix: Pick the exact head that fits the facts: fraud, defeating a law, injury, forbidden by law, or immoral or opposed to public policy. Link the facts to that head.

Worked examples