Lawfulness of Consideration and Object in Agreements: A Legal Overview
Understanding Lawful and Unlawful Consideration in Agreements (Section 24 Contracts Act 1950)
What Makes an Agreement Lawful?
In contract law, an agreement is valid only if its consideration (what is given in exchange) and object (purpose) are lawful. The law states that consideration or object is lawful unless it:
- Is prohibited by law – If an agreement is explicitly forbidden by legal statutes, it is considered unlawful.
- Defeats the purpose of the law – If an agreement, when permitted, would go against the intent of existing laws, it becomes unlawful.
- Involves fraud – Any agreement that is based on deception or fraudulent intent is void.
- Causes harm to a person or property – If an agreement results in injury or damage to someone’s rights or property, it is unlawful.
- Is immoral or against public policy – Courts can declare agreements void if they are deemed unethical or harmful to society.
If an agreement falls under any of these categories, it is considered void, meaning it has no legal standing.
Examples of Lawful and Unlawful Agreements
✅ Lawful Agreements
- Example 1: A agrees to sell his house to B for RM10,000. The exchange of money for property is a lawful consideration.
- Example 2: A promises to pay B RM1,000 if C fails to settle his debt. This agreement is legally valid.
- Example 3: A promises to compensate B for a shipwreck under a paid insurance contract. Both considerations are lawful.
❌ Unlawful Agreements (Void Contracts)
- Example 1: A, B, and C agree to divide gains obtained through fraud. Since the object is illegal, the agreement is void.
- Example 2: A promises to secure a government job for B in exchange for RM1,000. This is unlawful as it involves bribery.
- Example 3: A, acting as an agent, secretly accepts money from B to lease land from his principal. The agreement is fraudulent.
- Example 4: A agrees to drop a criminal prosecution against B in exchange for money. This is illegal and void.
- Example 5: A lets her daughter to B for concubinage. Though not criminally punishable, the agreement is void due to immorality.
Key Takeaways
- Lawful agreements are enforceable and legally binding.
- Unlawful agreements are void and cannot be enforced in court.
- Courts determine legality based on fraud, harm, legality, morality, and public policy.
By understanding these principles, businesses and individuals can ensure that their agreements are legally sound and enforceable.
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Disclaimer: The above proposition is subject to actual facts and circumstances and shall never be referred as the actual law without seeking legal advice. Consult us for more information!