The law may refuse to give effect to a contract on the ground of illegality; this is a limitation upon freedom of contract”. Comment.

Question: The law may refuse to give effect to a contract on the ground of illegality; this is a limitation upon freedom of contract”. Comment. [DJS 2007]

Find the answer to the mains question only on Legal Bites. [The law may refuse to give effect to a contract on the ground of illegality; this is a limitation upon freedom of contract”. Comment.]

Answer

Section 23 of The Indian Contract Act, 1872 lays down the provision as to what considerations and objects are lawful, and whatnot. It states as hereunder:

“The consideration or object of an agreement is lawful, unless-

1. it is forbidden by law;
2. or is of such a nature that, if permitted, it would defeat the provisions of any law;
3. or is fraudulent;
4. or involves or implies, injury to the person or property of another;
5. or the Court regards it as immoral or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.” For example, ‘A’, ‘B’, and ‘C’ enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud. The agreement is void, as its object is unlawful.

Where the object of an agreement is forbidden by law, the agreement is void. “Law” in this connection means the law for the time being in force in India and, therefore, includes Hindu and Mohammedan laws also principles of an unwritten law. A simple illustration is the sale of liquor without a license. The sale is void and the price irrevocable.

The provision of Section 23 of the act is based on the principle that the law may refuse to give effect to a contract on the ground of illegality; this is a limitation upon the freedom of contract. Illegality may arise by statute, statutory rules, or in cases where the courts consider the enforcement of contract immoral or against public policy. Illegality may arise either because the agreement is itself prohibited by law, or because the consideration or object is unlawful. This section provides the cases in which the agreement would be unlawful.

The presumption of law is in favor of the legality of contracts. If a contract reasonably admits of two meanings or two modes of performance, one legal and the other not, the court would prefer the one which supports it and makes it operate; and the burden lies on the person who impeaches its validity to establish its legality. There is a public policy in the upholding of contracts, which the doctrine of illegality undermines; the public policy lies in that the courts do not lightly interfere with freedom of contracts.

As stated by Jessel MR in Printing and Numerical Registering Co v. Sampson [(1875) 19 Eq 462]: “if there is one thing which more than another public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting and that their contracts, when entered into freely and voluntarily, shall be held sacred and shall be enforced by courts of justice. Therefore, you have this paramount public policy to consider that you are not likely to interfere with freedom of contract.”

This section imposes a restriction on the absolute freedom of a person to contract and subjects his rights to the overriding considerations of public policy and others enunciated under Section 23 of the Act. It applies to all contracts, thus a contract entered into in defiance of a legal provision continues to be illegal even to those entered into by a person and governed by special statute affecting his profession.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X