Chapter -7 Q&A CA.
Yagya Raj Joshi
Subjective Questions
1. Define legality of object and consideration.
Object means intention of entering into the contract and consideration means benefit received
under contract. Both the object and consideration of the contract must be lawful to form a valid
contract. All the unlawful agreements are void. While unlawful refers to “something, not
authorized by law”, illegal is defined as “forbidden by law”.
Section 517 of Muluki Devani Samhita Act, 2074 has mentioned certain types of agreement or
conditions of making the agreement void which are as follows:
i. Contract for prohibiting anyone from engaging in any occupation, business or trade
which has not been prohibited by current law [Exception similar to the exception of
agreement in restraint of trade]
ii. Contracts prohibiting marriage other than those prohibited by current law.
iii. Contracts prohibiting any one from using the public utilities.
iv. Contracts seeking to prevent the legal rights of any person from being enforced by
government office or court.
v. Contracts concluded in violation of the current law or on issues prohibited current law.
vi. Contracts concluded for immoral purposes or against the public policies or interests.
vii. Contracts concluded whose performance have become impossible because the
parties involve therein do not exactly know the matter in relation to which they have
been concluded.
viii. Contract which become impossible to perform at the time they are concluded.
ix. Contract which are not explicit because there is lack of reasonable interpretation
thereof
x. Contracts concluded by person who are not competent to conclude contracts.
xi. Contracts with unlawful consideration or objectives.
xii. Contract entered amidst the bilateral mistake over the essential matters of the
contract at the time of entering contract.
2. Define lawful consideration. Explain in what conditions the object and consideration of
the contract are unlawful.
Legality refers to the legal provision which should be complied and consideration is an essential
element of a valid contract which refers to the benefit received by the parties for entering into a
contract. However, such benefit must not be something which is opposed by law, therefore, for
the validity of contract, legality and object of consideration must be analyzed.
In following conditions object and consideration of a contract are unlawful:
a. Object or consideration forbidden by law: If the objective or consideration is anything
which is forbidden by law, such agreement cannot have legal validity and hence, those
agreements are considered void. A contract entered into in contravention of a statutory
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Chapter -7 Q&A CA. Yagya Raj Joshi
prohibition will be null and void whether such prohibition is express or implied. To sum
up, all agreements involving breach of laws enacted for the protection or promotion of
public interest are void.
b. Object or consideration defeating provisions of law: Though the object or consideration
for agreement, sometimes not directly forbidden by law, they are still forbidden if it’s
nature defeats the purpose of provision of law. Agreement with such an object or
consideration is void. Where a legislative enactment provides penalty for an act or
promise, the performance of such an act or promise would amount to the defeat of that
enactment, as it is implicit that the statute intends to forbid that act. Defeating the
provisions of law means any activity which is conducted with the intention to manipulate
the provisions of law for undue advantage.
c. Fraudulent object: Fraudulent object refers to the objective to deceive another party by
concealing facts and any agreements in the nature of fraudulent objective are void. An
agreement, the object of which is to defraud others is void. Where the parties agree to
practice a fraud on a third person, not a party to the contract, their agreement is unlawful
and void. To render an agreement unlawful and void on the basis of fraudulent object or
consideration, the fraud must, however, be established beyond reasonable doubt and
cannot be based on mere suspicion and conjecture.
d. Immoral object or consideration: Any agreements which are against the established
values, practices or ethics are known as immoral agreement and such agreements are
void.
e. Object or consideration opposed to public policy: Public policy is government policy
created for the benefit of public at large. Any such agreements which are opposing
public policy are void.
f. Objective or consideration injuring person or property: Any agreements that are made
with the objective of physical harm or injury to any person or property are void.
3. What does opposed to public policy mean? Explain in brief.
Following section 501 of the MCCA, 2074, Notwithstanding any matter contained anywhere in
this chapter in case the fulfillment of any liability appears to be opposite to law, public order or
public morality the liability as such shall not be fulfilled.
Public policy is government policy created for the benefit of public at large. Any such
agreements which are opposing public policy are void. Following agreements are considered to
be opposing to public policy:
a. Agreements of trading with alien enemy
b. Agreements in restraint of personal freedom
c. Agreements in restraint of trade
d. Agreements in restraint of marriage
e. Marriage brokerage agreements
f. Agreements interfering with justice
g. Agreements to sell/transfer public offices or titles
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4. Differentiate between void and voidable contract.
Basis of comparison Void contract Voidable Contract
Meaning The type of contract which The contract in which one of
cannot be enforceable is the two parties has the option
known as void contract. to enforce or rescind it, is
known as voidable contract.
Defined in Section 517 of MCCA, 2074 Section 518 of MCCA, 2074
Nature The contract is valid, but The contract is valid, until the
subsequently becomes invalid party whose consent is not
due to some reasons. free, does not revokes it.
Reasons Subsequent illegality or If the consent of the parties is
impossibility of any act which not independent.
is to be performed in the
future.
Rights to party No Yes, but only to the aggrieved
party.
Suit for damages Not given by any party to Damages can be claimed by
another party for the non- the aggrieved party.
performance, but any benefit
received by any party must be
restored back.
5. What is a contingent contract? Mention essential elements for a contingent contract.
Contract where rights and obligations of the parties are dependent on some future uncertain
event is known as contingent contract. The contract shall not create any liability until such event
takes place. Those contracts whose doing or not doing depends upon happening or non-
happening of any future uncertain collateral event is called contingent contract. In the contracts
of insurance, indemnity or guarantee, they have one thing in common they create an obligation
on the promisor if an event, which is collateral to the contract, does or does not happen.
Following are essential elements of contingent contract
a. Meaningful purpose: contingent contract must have some meaningful purpose to
stand valid in law. Otherwise, it becomes wagering agreements which are illegal and
void.
b. Depends on happening or non-happening of certain event: The contract should be
contingent upon the happening or non-happening of certain event. The happening
and non-happening must be beyond the control of parties to the contract.
c. The event is collateral to the contract: The event must be collateral to the contract
and not the part of the contract. If one agrees to deliver the goods only if he receives
money in advance, it is not contingent contract rather it is a conditional contract
which is valid.
d. The event should be uncertain: The event should be uncertain. If it is something
bound to happen, then the contract is due to be performed.
e. It should not be mere will of the promisor: The event must be contingent in addition
to being mere will of the promisor.
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6. Mention rules regarding contingent contract as stipulated by MCCA.
Section 513 of MCCA, 2074 has provided for the rules regarding contingent contract as follows:
a. If a contract is concluded to do or not to do any act if some event happens in the
future, such a contract shall create no obligation until such an event happens.
b. If a contract is so concluded as to be deemed to be concluded if any person does a
particular act in the future, such a contract shall create no obligation if such a person
does anything by which he or she becomes unable or it becomes impossible for him
or her to do such an act.
c. If a contract is concluded to do or not to do any act if any uncertain event does not
happen in the future, the obligation under such a contract shall arise only after such
an event becomes impossible to happen.
d. If a contract is concluded to do or not to do any act if any event happens within any
fixed time in the future, the contract shall be deemed to be void after such an event
becomes impossible to happen within, or after the expiry of, the fixed time.
e. If a contract is concluded to do or not to do any act if any event does not happen
within any fixed time in the future, the obligation under such a contract shall arise if
such an event does not happen or it becomes certain that such an event will not
happen within the fixed time.