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

Agreement to stifle prosecution
Agreement of maintenance and champerty
Trading agreement with an enemy
Marriage brokage contract
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.