Legality of Object & Consideration

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Legality of Object & Consideration

Chapter 6

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The consideration or object of an agreement is lawful, unless-

1.It is forbidden by law; or2.Is of such a nature that ,if permitted, it would defeat

the provisions of any law; or3.Is fraudulent; or4. Involves and implies injury to the person or property

of another; or5.The court regards it as immoral, or opposed to public

policy.In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful, is void.

What considerations and objects are lawful, and what not ( Section 23)

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The “object” and “consideration” may in some cases be the same thing but usually they are different.

Object – Purpose or Design of contractConsideration – Something in Return

Chandra Sreenivasa Rao V. Kovapatti Raja Rama Mohana Rao AIR1952 Mad 579

Money is borrowed to celebrate the child marriage.

Child marriage Restraint Act 1929; to celebrate the marriage of child is offence.

Here debt-consideration itself is not illegal but the object of debt is illegal

Illegality of consideration or illegality of object of consideration

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Law includes: Statutes, Customary law , Precedent, rules and regulations, etc.

Nandlal V.Thomas J.William,171 IC 948

The plaintiff was licensed under an Excise Act which forbids its sale, sub-lease, but he took the defendant in partnership. Partnership held void

1.Forbidden by law

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Fateh Singh V. Sanwal Singh (1878)1 All. 751The accused is required under Cr.P.C to surety bond for Rs.5000 for good behavior for certain period, he deposits the sum with the defendant when period is over refused to pay. Held not recoverable.

2.Is of such a nature that ,if permitted, it would defeat the provisions of any law;

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3.Is fraudulent;

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Parameters of immorality:

1. Immorality is a relative term in relation to values of the society at particular time and space.

2. The arbiter of the standard is the court.

3. The survey of the judicial decision reflects that immorality is limited to sexual immorality as of now.

4.The court regards it immoral

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Gherulal V. M.Maiya (1959) 2SCA 342Subba Rao J (after CJ)The case law in England and in India confines the

doctrine to sexual immoralityD.Nagartnamba v Kunuku Ramayya AIR

1968235:1 SCR 43. BACHAWAT J Certain properties were gifted my a male of

joint Hindu family for past cohabitation case failed for incompetency but BACHAWAT J recognised “the past cohabitation as good consideration.”

IN THE OPINION OF COURT IT IS IMMORAL: Immorality is limited to sex outside marriage

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1. Interference with matrimonial relations. Bai vijli V. Nansa Nagar (1885) 10 Bombay 152 :Money lended to seek divorce, not recoverable.

2. Dealing with prostitutes :Pearce V. Brookes( 1866)LR 1EX 213.Thing sold and hired for prostitution.

3. Illegal cohabitation: Past,present,future.?

Instances of sexual immorality

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PAST COHABITATION.1. English law under seal valid otherwise it is past

consideration.

2. Indian law .1.adulterous or.2. non-adulterous cohabitation.

Dhiraj Kuer V.Bikramji Singh (1831)3All 787 :Past cohabitation held good consideration.

Pyare Mohan V. Narayani AIR 1982 Raj.43 :Logic different-gift needs no consideration logic.

Husseinali Casan V.DinbaiAIR1924 Bom.135:Past cohabitation is illegal consideration.

D.Nagartnamba v Kunuku Ramayya AIR 1968235:1 SCR 43. Certain properties were gifted my a male of joint Hindu family for

past cohabitation case failed for incompetency but BACHAWAT J recognised “the past cohabitation as good consideration.”

COHABITATION AS CONSIDERATION

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ENGLISH LAW 1.Public policy 2.Judicial observations on “public policy”Lord Halsbury in Egertone V.Brownlow (1953)4HLC

123“I deny that any court can invent new head of

public policy.”

Lord Atkin in Fender V.Johan Mildmay (1938) AC.1

“ The doctrine should be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inference of a few judicial minds”

In the opinion of the court opposed to public policy

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Subba Rao J( after wards CJI) in Gherulal V.Mahadeodas AIR1959 SC781

Justice Subba Rao blended Halsbury and Atkin to articulate the Indian position.

“the primary duty of the court is to enforce the promise which the parties have made and to uphold the sanctity of the contract which forms the basis of the society : but in certain cases ,the court may relieve them of their duty on the rule founded on what is called the public policy; for want of better words Lord ATKIN describes that something done contrary to public policy is a harmful thing; but the doctrine is extended to harmful cases but also to harmful tendencies; the doctrine of public policy is a branch of common law and just like any other branch of common law, it is governed the precedents; the principles have been crystallized under different heads and though it is permissible for the courts to expound and apply them to different situations, it should only be invoked in clear and incontestable cases of harm to the public.

Public policy: Indian Law

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1. Ram Swarup V. Bansi Mandar (1915) 42 cal,742:Borrowed Rs.100 with exorbitant interest and executed a bond or to work for 2 years without salary. Slavery?

2. Beresford V. Royal Insurance Company Ltd. (1917) 2 All.E.R.243: Suicide to help representative to get money. The representative not allowed to get money.

4. Involves and implies injury to the person or property of another

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1.Trading with enemy.

2.Traffic related to public offices.

3.Marriage brokerage agreement.

4.Interference with administration of justice.

(a) Interference with the course of justice.

(b) Stifling prosecution.

(c) Maintenance and champerty.

Agreements Opposed to PUBLIC POLICY

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5. Agreements tending to create interest opposed to public duty

6. Agreements tending to create monopolies

7. Agreements to influence elections to public offices

8. Agreements in restraint of personal liberty

9. Agreements interfering with marital duties

Agreements Opposed to PUBLIC POLICY ( contd.)

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1.Illegal agreements.242.With out consideration.253.Restraint of marriage.264.Restraint of trade .275.Restraint of legal proceedings.286.Uncertain agreements.297.Wagering agreements.308.Impossible agreements.56

VOID AGREEMENTS

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Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exceptions:1.Statutory (a). Sale of goodwill, limits specified, which is reasonable. (b). Under Indian Partnership Act.2.Under Common Law

(a) Service agreements(b) Trade Combinations( c) Agreements in restraint of legal proceedings – Void Sec.28

1. Agreement in restraint of trade is void Sec.27

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A. Under section 27.1.Sale of goodwill.Definition of ‘goodwill’: Lord Eldon (Cruttwell V.Lye

Ves.335)“The goodwill which has been the subject of sale is

nothing more than the probability that the old customer will resort to old place" (old name of business)Local limits are prescribed.Limit appear to be reasonable, regards being had to the nature of business.

Statutory exceptions

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(B).Under Indian Partnership Act. 1932 1. Section 11:During the continuance… 2.Section 36 : Out going partner…. 3.Section 54: In anticipation of dissolution…

For sections 36 and 54,local limits or period be specified ,which should be reasonable.

Continued….

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1.Trade combinations.S.B.Fraser and Co.V. Bombay Ice Mfg.Co. (1904)29

ILR Bom.107 (Regulation not restrain)2.Sole or exclusive dealing agreements.Carliles Nephews and Co.V.Ricknauth Buttermull ILR

(1882) 8 Cal 809Agreement to sell 1,36,000 dhotis of certain description to the defendant only for certain period of time. (Assuring market not restraint)

Judicial exceptions

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3.Service agreements with restraint on employees:

(a) Restraint during employment.Charlesworth V. MacDonald

(b) Restraint beyond employment period.Niranjan Shanker V.Century Spinning and Manufacturing (1967) SC 1098

The appellant torn the agreement to pieces only because he has been offered higher salary by the other company.

Continued….