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CMA Foundation · Fundamentals of Business Laws and Business Communication · Consideration and Legality of Object

Mehta Traders promises to pay Ravi a salary of Rs 6,00,000 a year to manage its licensed cloth business and also to run an illegal trade in smuggled goods. Ravi accepts. What is the status of the agreement?

The agreement is void in its entirety. A single salary was promised for services covering both a lawful business and an illegal trade, so part of the object and consideration is unlawful. Section 24 makes the whole agreement void and does not allow the lawful part to be enforced alone.

  1. AValid for the cloth business and void for the smuggling
  2. BVoidable at the option of Mehta Traders
  3. CVoid in its entirety, because the object is partly unlawfulCorrect
  4. DValid, but Ravi can be penalised separately

Explanation

One salary is the consideration for services covering both a lawful and an unlawful object. Under Section 24, the object is partly unlawful, so the agreement is void. This matches the indigo illustration in the section. The option splitting the agreement into lawful and unlawful parts is wrong because Section 24 does not allow such a split here.

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