LEGALITY OF OBJECT AND CONSIDERATION

One of the essentials of a valid contract is that the consideration and the object

should be lawful. Every agreement of which the object or consideration is

unlawful is void.

Section 23 mentions the circumstances when the consideration or object of an

agreement is not lawful.

Sec. 23 What consideration and objects are lawful, and what not:

The consideration or object of an agreement is unlawful unless,

1. It is forbidden by law, or

2. is of such nature that, if permitted, it would defeat the provisions of law, or

3. is fraudulent

4. involves or implies injury to the person or property of another; or

5. the Court regards it as immoral or opposed to public policy.

1. Forbidden by Law

When something is forbidden by law, an agreement to do that is unlawful. An

agreement to do what has been prohibited by the Indian Penal Code or by some

other law cannot be enforced.

A Contract to pay some money if a crime or a tort is committed is not

enforceable.

If the law prohibits bigamy, a promise by a married man to marry another lady is

unlawful. Even if the promise says that a man would marry a woman after his

wife’s death, such a promise is not enforceable because such a promise tends to

break up marriage, encourages immorality and often leads to commission of

crimes.

If the agreement does not satisfy the clear and unequivocal requirements of a

statute it is void.

In Re Mahmoud and Ispahani, (1921) during the war the sale of linseed oil

without a licence from the Food Controller had been forbidden. The Plaintiff

agreed to sell linseed oil to the defendant, on a false assurance from the

defendant, that he had such a license. Subsequently, when the oil was supplied

the defendant refused to accept the same on the ground that he had such a

licence. In an action against the defendant for damages for breach of contract it

was held that he was not liable as there was no valid contract between the

parties.

Merely because a party does not observe certain statutory requirements does

not mean that the agreement is void. The Court has to see the real purpose of

the Act.

In Smith V. Mawhood, a statute required that a dealer in tobacco must hold a

licence to sell the same and he should also have his name painted outside the

place of his business and the failure to observe this rule attracted a penalty of £

200. The plaintiff, who had sold tobacco without observing the abovestated

statutory requirements, was held entitled to recover the price of the goods. In this

case the real purpose of this Act was to impose a fine on the offending party for

the purpose of the revenue, rather than to vitiate the contract itself.

2. Defeat the provisions of any law

If the object or consideration of an agreement is of such a nature that, if it is

permitted, it would defeat the provisions of any law, such an agreement is void.

Certain acts may not be expressly forbidden by law, but if they result in

circumventing any law, they cannot be encouraged.

In Sitaram V.s Harihur, (1911) the natural father paid a sum of Rs. 8,000/- to a

widow to induce her to adopt his son. It was held that this payment was in the

nature of a bribe and as such was illegal according to Hindu Law.

In Abdul Pirojkhan Nabab V. Hussenbi (1904), the Plaintiff and the defendant,

who married under the Mahomedan law, agreed before marriage that the

defendant (wife) would be allowed to live with her parents after the marriage. The

wife went to her parents and refused to come back to her husband (plaintiff). He

filed a suit for restitution of conjugal rights. Her defence was that she was

permitted by the agreement made before the marriage, to live apart, and also

that the husband had not paid her dower amounting to Rs. 1,000/-. It was held

that the agreement before marriage permitting the wife to live separately was

void in law. The Plaintiff was granted the decree for restitution of conjugal rights

conditional upon payment by him of the stipulated dower of Rs. 1,000/-

An agreement for future separation between a Mahomedan husband and wife is

also void because the same is opposed to public policy.

However an agreement to do a thing not contrary to any provision of law or

contrary to public policy, is not unlawful.

In Sukha Vs. Ninni, it has been held that although according to Mahomedan Law

a man, who has begotten an illegitimate child, does not have a duty to maintain

him but an agreement to maintain an illegitimate child is not unlawful, and is

therefore not void. Maintenance of illegitimate children, it was further observed, is

in consonance with public policy in India.

Justice B.P. Bedi, said “ An agreement to maintain an illegitimate child for which

the Mohammedan Law as such makes no provision, will in my opinion not have

the effect of defeating the provisions of any law ……………………………………..

I am, therefore, not prepared to hold that the consideration for the agreement if

permitted would defeat the provisions of any law”.

3. For fraudulent purpose

If the consideration or object of an agreement is to commit a fraud, the

agreement is void. If A, being an agent of for a landed proprietor, agrees for

money, without the knowledge of his principal, to obtain for B a lease of land

belonging to his principal. The agreement between A and B is void, as it implies a

fraud by concealment by A, on his principal.

An agreement to avoid competition with one another cannot be considered to be

either fraudulent or opposed to public policy.

In Jai Ram Vs. Kahna Ram, A.I.R 1963, H.P., the forest department of Himachal

Pradesh invited tenders for timber. A and B entered into an agreement according

to which both of them were to submit tenders, A’s tender to be for a higher

amount than B. In consideration for A non competing with B, B gave a post-

dated cheque to A for Rs. 15,000/-. It was agreed that if B’s tender was

accepted A will get the cheque cashed, otherwise he will return the cheque to B.

B’s tender was accepted, but he gave instructions to his bank to stop the

payment of the cheque to A. A filed a suit against B to recover the amount of the

cheque. One of the defences pleaded by B was that the agreement between

them was fraudulent and opposed to public policy and as such void. It was held

that in this case the dominant object of the aforesaid agreement was that the

contract by the Forest Department be given to B, and the object could be said to

be aimed at defrauding the Forest Department. The agreement between the

parties was held to be valid and binding. It was also found that the Forest

Department has a discretion even to reject the lowest tender and, therefore,

procuring the acceptance of the tender by submitting lowest rate could not be

considered to be fraudulent object.

I was held that the agreement between the parties was not void under Sec. 23 of

the Indian Contract Act.

4. Agreement injurious to the person or property of another

If the consideration or the object of an agreement is to cause an injury to the

person or property of another, the agreement is unlawful, and therefore void.

Injury here means harm which is unlawful, for example, an agreement to commit

fraud or a tort. If the borrower of money is made to execute a bound requiring

him to do manual labour until repayment, and imposes a heavy penalty on

default in the form of exorbitant rate of interest, agreement contained in the bond

virtually amounts to slavery, and therefore, such an agreement is slavery, and

therefore, such an agreement is opposed to public policy and thus void.

If the real object of the agreement between the parties is to promote their own

interest rather than to cause harm to another shipping company r, the agreement

is lawful.

If a number of shipping companies combine together for jointly carrying on their

boniness and monopolising the shipping business in a certain area, another

shipping company, who has to wind up its business because of the tough

competition offered to it, cannot sue these shipping companies. An agreement to

jointly carry on the trade is not unlawful and does not amount to conspiracy

against the rival shipping company.

5. Immoral

If the consideration or object of an agreement is regarded by a court to be

immoral or opposed to public policy, the agreement is unlawful and void.

A landlord letting his house knowing that the same was to be used for the

purpose of running a brothel cannot recover the rent of the same.

In Bai Vijli Vs. Nansa Nagar, the Plaintiff advanced a loan to the defendant, a

married woman, to enable her to obtain divorce against her husband and then

marry the plaintiff. The object of the agreement was held to be immoral and the

Plaintiff was not entitled to recover the loan so advanced.

6. Opposed to public policy

If the court regards an agreement as opposed to public policy, the agreement is

void. Public Policy is not capable of any precise definition. Public policy means

the policy of the law at a stated time. An act which is injurious to the interest of

the society is against public policy. If an agreement is prejudicial to social or

economic interest of the community, it will be against public policy to enforce

such an agreement. On the one hand a persons right of contractual freedom

should be maintained, on the other hand if the contract is against public policy

the law must not allow that to be enforced.

The following agreements have been held to be opposed to public policy

i. Agreement to stifle prosecution

ii. Agreement of maintenance and champerty

iii. Trading agreement with an enemy

iv. Marriage brokage contract

v. Agreement tending to injure the public service.

i. Agreement to stifle prosecution

An agreement to stifle prosecution has been regarded as opposed to public

policy. The purpose of criminal law is to punish a guilty person and a compromise

with a view to save a guilty person from liability would frustrate this object. Some

minor offences have been recognised as compoundable offences which permit of

a compromise. Any compromise excluding compoundable cases to frustrate an

action against a criminal, would be deemed to be unlawful.

By acceptance of some consideration to make a compromise in a criminal case,

one is deemed to have accepted bribe.

With regard to non compoundable offences, however, the position is clear that no

court of law can allow a private party to take the administration of law in its own

hands and settle the question as to whether a particular offence has been

committed or not, for itself.

If A promises B to drop a prosecution, which he has instituted against B for

robbery, and B promises to restore the value of the things taken, the agreement

is void, as its object is unlawful.

ii. Agreement of maintenance and champerty

Maintenance consists in aiding a party in civil proceedings by providing financial

or other assistance without lawful justification. When a person intermeddles in

the litigation between others by providing assistance to one of the parties, and he

has no interest of his own in the litigation, such intermeddling is unlawful.

“Maintenance is strictly prohibited by the common law as being a manifest

tendency to oppression, by encouraging and assisting persons to persist in suits

which, perhaps they would not venture to go on in upon their own bottoms”.

Champerty is a kind of maintenance in which the person assisting in the

proceeding is to have by agreement a share in the gain made in the proceedings

maintenance by him. Champerty, therefore, is “a bargain whereby the one party

is to assist the other in recovering property, and is to share in the proceeds of the

action”. Where the assisting is without justification it is unlawful. If the person

assisting and the person assisted have a common interest in the proceeding

maintained, it is not unlawful.

iii. Trading agreement with an enemy

When there is a war between two countries it is unlawful and against public

policy that a person should trade with a subject of the enemy country. During the

war it is unlawful either to enter into a contract, or to perform a contract entered

into before the war broke out. If agreements with the enemy country are not

made unlawful, then the commercial transactions between the two counties may

have the effect of promoting economic interests of the enemy country and

prejudicing the interest of one’s own. If some rights in respect of a contract have

been already accrued the outbreak of the war does not put an end to those rights

but their enforcement is suspended until the hostilities are over.

iv. Marriage brokage contract

Marriage brokage contracts means such contracts under which a person agrees

to procure a marriage between two persons on some consideration. Such

agreements are opposed to public policy and are void. Public policy is that,

suitable matrimonial unions should be made by a free and deliberate decision of

the parties themselves, and the same may not be possible if the marriage is

arranged through intermediaries, who may procure marriages for the sake of

themselves gaining some financial advantages.

Such an agreement is void even though the agreement is not to introduce any

particular person of the opposite sex for marriage, but gives a choice of the

number of persons out of whom the selection is to be made.

v. Agreement tending to injure the public service.

An agreement to buy, sell or procure a public office is against public policy. When

there is a sale of public office, or assignment of the salary of an office, it is

unlawful.

Such agreements tend to corrupt public life as they are likely to interfere in the

selection of properly qualified persons for an office, and are, therefore, void.

For example, A promises to obtain for B an employment in the public service,

and B promises to pay 1,000 rupees to A. The agreement is void, as the

consideration for it is unlawful.

If a person procures the appointment as a Customs Officer at a port with the help

of another, and in return promises to share some benefits of the post with the

later, the agreement is void and unenforceable.