MODULE 3

LEGALITY OF OBJECTS, CONSIDERATION AND

PERFORMANCE OF CONTRACT

The Principle of Legality in Contracts

The principle of legality is a fundamental requirement for a contract to be valid and

enforceable. It states that for a contract to be legally binding, its purpose, subject matter,
and consideration must be lawful. A contract is considered void if it is based on an
illegal purpose, meaning a court will not enforce it and the parties have no legal
obligation to fulfil its terms.

Unlawful Object or Consideration

An unlawful object or consideration is the core reason a contract is deemed illegal.

This means the object (the purpose of the agreement) or the consideration (the value
exchanged between parties) is against the law. These fall into several categories:

1. Forbidden by Statute

Contracts are unlawful if they require the performance of an act that is a criminal offense
or is explicitly prohibited by a specific law.

• Example: A contract to hire someone to commit a crime, such as a robbery or

assault. This is void because the object of the contract is a criminal act.

2. Defeating a Law's Purpose

Contracts designed to circumvent or frustrate the intent of a law, even if not directly
breaking it, are illegal.

• Example: An agreement to create a shell corporation to illegally evade taxes.

The purpose of the contract is to defeat the provision of tax law, making it void.

3. Fraudulent Purpose

A contract whose objective is to deceive or defraud another person or entity is

considered unlawful.

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4. Causing Injury to Person or Property

Contracts that promote harm, injury, or damage to another person, their reputation, or
their property are illegal.

• Example: A contract to publish a defamatory article about a competitor. The

object is to cause injury to the person's reputation.

5. Immoral Acts

Agreements that a court considers to be against the moral standards of society are
unlawful. This category is often subjective and varies with time and location.

• Example: Historically, contracts for gambling were considered immoral in

many jurisdictions and thus unenforceable. Similarly, a contract that promotes
illegal sexual behaviour is considered immoral.

6. Against Public Policy

This is a broad category for contracts that are harmful to the public good. These
contracts can affect justice, safety, or economic welfare.

• Examples:
o Contracts to stifle prosecution: A contract where someone agrees to
drop criminal charges in exchange for money.
o Contracts in restraint of trade: Agreements that unreasonably limit a
person's ability to engage in a profession or business.
o Contracts to bribe public officials: An agreement to pay a government
official for a favourable decision.

The Doctrine of Public Policy

The doctrine of public policy is a legal principle that allows courts to invalidate
contracts that are considered harmful to the welfare of society. It acts as a safeguard,
ensuring that private agreements do not undermine the fundamental values, ethics, and
interests of the public. This doctrine is a flexible and evolving concept, which is why it
is often described as an "unruly horse" by judges; its application is not based on a rigid
set of rules but rather on the prevailing moral and social standards of the time. The
purpose of this doctrine is to prevent agreements that are contrary to the public good,
even if they don't explicitly violate a specific statute.

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Agreements Opposed to Public Policy

Agreements that are contrary to public policy are considered void, meaning they are
unenforceable in a court of law. The court will not provide a remedy to either party in
a dispute arising from such an agreement. These agreements can be broadly categorized
into several types:

1. Agreements Interfering with the Administration of Justice

These agreements are designed to obstruct or compromise the legal system. They are
void because they undermine the integrity of the judicial process.

• Examples:
o An agreement to pay a witness to give false testimony in a trial.
o A contract to stifle criminal prosecution, where a victim of a crime agrees
to drop charges in exchange for a monetary settlement. Such agreements
are considered illegal as they privatize what should be a public matter.
o An agreement that restricts a person's right to pursue legal action against
another party.

2. Agreements in Restraint of Trade

These agreements are contracts that unreasonably restrict a person's ability to carry on
a lawful trade, profession, or business. The law favours free competition and the ability
of individuals to earn a living.

• Examples:
o A non-compete clause in an employment contract that is excessively
broad in terms of geographic area or duration. For instance, a contract
prohibiting an employee from working anywhere in the country for 10
years after leaving their job would likely be considered an unreasonable
restraint.
o An agreement between two competing companies to fix prices or divide
markets, as this creates a monopoly and harms consumers.

3. Agreements Injurious to Public Service

These contracts involve using a public office or position for personal gain or otherwise
undermining the public good.

• Examples:
o A contract to sell or purchase a public office or title.

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 o An agreement to pay a public official for a favourable decision or to
secure a government contract.
o A contract where a government employee agrees to use their influence to
get a job for someone in exchange for money.

4. Marriage Brokerage Agreements

These are contracts where a person is paid a fee to arrange a marriage. The law considers
marriage to be a sacred and voluntary union and believes that commodifying it is against
public morality.

• Example: An agreement with a matchmaker to pay a commission for finding a

suitable spouse. The agreement to find the person is not unlawful, but the
agreement to pay a fee contingent on the marriage taking place is.

5. Agreements to Defraud Creditors

Contracts made with the intent to deceive creditors or hinder their ability to collect debts
are void. This is to protect the rights of creditors and maintain the stability of the
financial system.

• Example: A debtor sells property to a friend for a nominal amount with the
understanding that the friend will return it later, all to prevent the property from
being seized by a creditor.

6. Agreements Interfering with Parental Duties

A contract that interferes with a parent's right to the custody or care of their minor child
is void. The law recognizes the paramount duty of a parent to care for their child.

• Example: A contract where a parent agrees to give up custody of their child in

exchange for money. Such agreements are unenforceable.

7. Trading with the Enemy

During a time of war, a contract with a person or entity that is a citizen of an enemy
state is considered void. This is a matter of national security and public interest to
prevent any aid or support from reaching the enemy.

• Example: A business owner in one country entering into a contract to supply

goods to a business in a country with which their nation is at war.

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Performance of Contract

The performance of a contract refers to the fulfilment of the legal obligations created
by the agreement. Once the parties to a contract have performed their respective
promises, their liability under the contract comes to an end, and the contract is
discharged. Performance can be categorized into two main types: actual performance
and tender of performance.

1. Actual Performance

Actual performance occurs when a party to a contract fulfils all their obligations
precisely as agreed upon in the contract. This is the most common and ideal way a
contract is discharged. When both parties have completed their promises, the contract
is fully executed.

2. Tender of Performance (Attempted Performance)

Tender of performance, also known as attempted performance, occurs when a party

offers to perform their obligation under the contract, but the other party refuses to accept
the performance. If the tender is valid, the party who offered to perform is discharged
from their liability and can sue the other party for breach of contract.

• Example: A agrees to deliver 100 bags of wheat to B's warehouse on a specific

date. A arrives with the bags on the due date, but B refuses to accept the delivery.
A has made a valid tender of performance, and their obligation to deliver the
wheat is now discharged. B, having refused the tender, is now in breach of
contract.

A key distinction exists between a tender of goods/services and a tender of money.

While a valid tender of goods/services discharges the promisor's liability, a tender of
money does not. If a debtor offers to pay a creditor, and the creditor refuses, the debtor
is not discharged from their debt. The debt remains, but the debtor is not liable for any
interest from the date of the tender.

Eight Essentials of a Valid Tender of Performance

For an offer of performance to be considered a valid tender and discharge a party's

obligations, it must meet certain essential conditions. These conditions ensure that the
offer is genuine and fair. A tender that fails to meet these essentials is not a valid tender
and will not discharge the promisor's liability.

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The eight essentials are:

1. Must be Unconditional: The offer to perform must be unconditional. It cannot

be subject to any new terms or conditions that were not part of the original
contract. For example, a debtor cannot offer to pay a debt on the condition that
the creditor gives them a receipt.
2. Must be Made at the Proper Time: The offer must be made at the time
specified in the contract. If no time is specified, it must be made within a
"reasonable time," which is determined by the nature of the contract and the
circumstances.
3. Must be Made at the Proper Place: The performance must be offered at the
place agreed upon in the contract. If no place is specified, the offeror must make
a reasonable effort to find the other party to perform the obligation.
4. Must be for the Whole Obligation: A valid tender must be for the entire amount
or the whole of the performance as per the contract. An offer to perform only a
part of the promise is not a valid tender.
5. Made by a Capable Person: The tender must be made by a person who is
capable of performing the contract. This can be the promisor or their authorized
agent or legal representative.
6. Made to the Proper Person: The offer must be made to the promisee or their
authorized agent.
7. Reasonable Opportunity for Inspection: If the tender is for goods, the
promisee must be given a reasonable opportunity to inspect the goods to ensure
they conform to the contract's quality and quantity specifications.
8. In the Proper Form: A tender of money must be in legal tender (e.g., currency
notes). The person making the tender must be in a position to give a receipt if
requested.

Performance of Joint Promises

A joint promise occurs when two or more people jointly agree to perform a single
promise. The rules governing the performance of such promises determine the rights
and liabilities of both the promisors and the promisee.

Rules Relating to the Performance of Joint Promises

1. Liability of Joint Promisors: Unless the contract states otherwise, the promisee
can compel any one or more of the joint promisors to perform the entire promise.
The liability of joint promisors is considered joint and several. This means the
promisee is not required to sue all the promisors; they can choose to enforce the
entire obligation against a single promisor.

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 2. Right of Contribution: If one of the joint promisors is compelled to perform
the entire promise, they have a right to compel the other joint promisors to
contribute their equal share of the performance or payment.
3. Sharing of Loss from Default: If one of the joint promisors fails to contribute
their share, the loss must be borne by the remaining promisors in equal shares.
4. Effect of Release of a Joint Promisor: The release of one joint promisor by the
promisee does not discharge the other joint promisors from their liability. The
released promisor remains liable to contribute to the other promisors.

Time and Place of Performance

The time and place of performance are crucial for a valid contract. The rules for
determining them are as follows:

1. Where Time is Specified and No Application by the Promisee: If the contract

specifies a day for performance but does not require the promisee to make a
request, the promisor must perform the promise during the usual hours of
business on that specific day and at the proper place.
2. Where Time is Specified and an Application is Required by the Promisee:
If the contract specifies a day for performance and states that the promisor will
perform only upon a request from the promisee, it is the promise’s duty to apply
for the performance at a proper place and within the usual hours of business on
that day.
3. Where No Time is Specified: If the contract does not specify a time for
performance and no application is required, the performance must be completed
within a "reasonable time." What constitutes a reasonable time is a question of
fact that depends on the specific circumstances and nature of the contract.
4. Where No Place is Fixed and No Application by the Promisee: If the contract
does not specify a place for performance and the promisee is not required to
apply for it, it is the promisor's duty to apply to the promisee to appoint a
reasonable place for the performance of the promise.
5. Performance in the Manner Prescribed by the Promisee: The promisor must
perform the promise in the manner and at the time prescribed or sanctioned by
the promisee.

Performance of Reciprocal Promises

Reciprocal promises are promises that form the consideration for each other. They are
the essence of a bilateral contract where each party's promise is given in exchange for
the others.

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Rules Governing the Performance of Reciprocal Promises

1. Simultaneous Performance: When a contract consists of reciprocal promises

that are to be performed simultaneously (concurrently), neither party is required
to perform their promise unless the other party is ready and willing to perform
their reciprocal promise.
o Example: A promises to deliver goods to B, and B promises to pay for
them on delivery. A is not required to deliver the goods unless B is ready
and willing to pay, and B is not required to pay unless A is ready and
willing to deliver the goods.
2. Order of Performance:
o Expressly Fixed: If the contract expressly fixes the order in which the
reciprocal promises are to be performed, they must be performed in that
order.
o Not Expressly Fixed: If the order is not fixed, the promises must be
performed in the order that the nature of the transaction requires.
o Example: A promises to build a house for B for a fixed price. The
performance of A's promise to build the house must precede B's promise
to pay for it, as the nature of the transaction requires the house to be built
first.
3. Liability for Preventing Performance: When a contract contains reciprocal
promises and one party prevents the other from performing their promise, the
contract becomes voidable at the option of the party who was prevented. The
prevented party is also entitled to compensation for any loss sustained.
4. Effect of Default in Performance of the Promise that Must be Performed
First: If a contract consists of reciprocal promises and one promise cannot be
performed without the first promise being fulfilled, the promisor of the first
promise cannot claim the performance of the reciprocal promise if they fail to
perform their own. Furthermore, they must compensate the other party for any
loss caused by their non-performance.
o Example: A promises to manufacture goods for B, but B fails to supply
the raw materials required for the manufacturing. A is not required to
perform their promise and can claim compensation from B for the loss
incurred.

Impossibility of Performance of Contract

The principle of impossibility of performance is a key exception to the fundamental rule

that a party must perform their contractual obligations or pay damages for breach. The
law does not compel a person to do what is impossible, and this doctrine provides a

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legal excuse for non-performance under specific circumstances. This impossibility can
arise at two distinct stages of a contract's life.

1. Initial Impossibility

Initial impossibility refers to a situation where the performance of an agreement is

impossible from the very moment the contract is formed. The impossibility exists at the
time the parties enter into the contract. An agreement of this nature is considered void
ab initio, meaning it has no legal effect from the outset. The contract is unenforceable,
and neither party acquires any rights or obligations under it.

• Key Characteristics:
o The impossibility exists at the time the agreement is made.
o It is often a case of mutual mistake, where both parties are unaware of
the impossibility.
o It can be a physical impossibility (e.g., promising to perform an act that
is factually impossible) or a legal impossibility (e.g., agreeing to do
something that is illegal from the beginning).
• Examples:
o A agrees to sell B a specific horse, but, unknown to both parties, the horse
had died an hour before the contract was signed. The subject matter of the
contract did not exist, making the agreement void due to initial
impossibility.
o A married man contracts to marry a woman. Since bigamy is illegal, the
contract is impossible to perform from a legal standpoint and is void ab
initio.

2. Supervening Impossibility (Doctrine of Frustration)

Supervening impossibility applies when a contract, which was valid and possible to
perform at the time of its formation, becomes impossible or unlawful to perform due to
a subsequent, unforeseen event. This event must occur after the contract has been made
and must be outside the control of either party. When this happens, the contract is not
void from the beginning, but it becomes void from the moment the impossibility arises.
This is often referred to as the doctrine of frustration. The key is that the unforeseen
event changes the nature of the obligation so fundamentally that it would be unjust to
hold the parties to the original contract.

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Grounds for Supervening Impossibility:

1. Destruction of the Subject Matter: If the specific thing that is essential for the
performance of the contract is destroyed without the fault of either party, the
contract is discharged.
o Example: In the landmark case of Taylor v. Caldwell, a music hall was
rented for a series of concerts. A week before the first concert, the hall
was destroyed by an accidental fire. The court held that the contract was
frustrated because the subject matter (the hall) had ceased to exist.
2. Death or Personal Incapacity: When a contract is dependent on the personal
skill, talent, or performance of a specific individual, the death or severe
incapacitation of that person renders the contract impossible to perform.
o Example: A famous artist agrees to paint a portrait for B. If the artist dies
or suffers an injury that prevents them from painting before the portrait is
completed, the contract is frustrated.
3. Change in Law or Government Action: If, after the contract is formed, a new
law, government order, or regulation is enacted that makes the performance of
the contract illegal or unlawful, the contract is discharged.
o Example: A contracts to build a warehouse for B. Subsequently, the
government passes an ordinance that prohibits any new construction in
that specific area. The contract is frustrated due to a change in law.
4. Outbreak of War: The declaration of war between two nations can frustrate
contracts in two ways:
o It can make performance illegal (e.g., trading with an enemy country).
o It can fundamentally change the circumstances of performance (e.g.,
making a shipping route blocked by naval forces).
5. Non-occurrence of a Contemplated Event: If the entire purpose of the contract
for both parties is based on the occurrence of a specific event that subsequently
fails to happen, the contract may be frustrated.
o Example: A rents a flat from B to get a view of a royal procession. Both
parties understand that the purpose of the rental is to watch the procession.
If the procession is cancelled, the contract is frustrated because its entire
foundation has been removed, as seen in the "Coronation Cases" like
Krell v. Henry.

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Cases Not Considered Impossibility

It is important to note what does not amount to impossibility of performance:

• Commercial Impossibility: The fact that performance has become more

difficult, expensive, or less profitable than anticipated is not a valid ground for
frustration. The contract remains enforceable.
• Impossibility Due to Third Party: The failure of a third party, on whom the
promisor relies, to fulfil their obligation is not considered a frustrating event.
• Self-Induced Impossibility: A party cannot rely on their own act or negligence
to claim frustration. If a party causes the event that makes the contract impossible
to perform, they are liable for breach of contract.

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