JMM KLELC 1 Indian Contract Act, 1872 Legality of Consideration and Object.

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Indian Contract Act, 1872

Legality of Consideration

and Object

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S. 23 What considerations and objects are lawful, and what not

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.

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IllustrationsA agrees to sell his house to B for Rs.

10,000. Here B's promise to pay the sum of Rs. 10,000 is the consideration for A's promise to sell the house, and A's promise to sell the house is the consideration for B's promise to pay Rs. 10,000. These are lawful considerations.

A promises to pay B 1,000 rupees at the end of six months, if C, who owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here the promise-of each party is the consideration for the promise of the other party. They are lawful considerations.

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A promises, for a certain sum paid to him by B, to make good to B the value of his ship if it is wrecked on a certain voyage. Here A's promise is the consideration for B's payment and B's payment is the consideration for A's promise These are lawful considerations.

A promises to maintain B's child and B promises to pay A 1,000 rupees yearly for the purpose. Here the promise of each party is the consideration for the promise of the 'other party.

They are lawful considerations.

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A, B and C enter into an agreement for the division among them of gains acquired, or to be acquired, by them by fraud.

The agreement is void, as its object is unlawful.

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.

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A, being agent 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.

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.

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A's estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which the defaulter is prohibited from purchasing, the estate. B, upon an understanding with A, becomes the purchaser, and agrees to convey the estate to A upon receiving from him the price which B has paid. The agreement is void, as it renders the transaction, in effect a purchase by the defaulter, and would so defeat the object of the law.

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A, who is B's mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral

A agrees to let her daughter to hire to B for concubinage.

The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code. (45 of 1860.)

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Analysis of S. 23►Object or Consideration►The section covers legality of

consideration and object as well.►Object and consideration sometimes

may be different – both shall be lawful►Eg. loan for child marriage –

consideration lawful but object unlawful -defeats the purpose of CMRA

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Consideration or object

Forbidden by law

Defeat the provision of any law

Fraudulent

Injury to person or property

Immoral/opposed public policy

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Forbidden by Law► Object of an agreement forbidden by law is

void ► ‘Law’ – law in force in India, personal laws

unwritten principles of law► Eg. Sale of liquor without license is void &

price irrecoverable ► Eg. License to run liquor shop – sale, transfer,

sub-lease of license or creation of partnership to run liquor shop – agreement of partnership void

► Eg. An agreement to by goods (jaggery powder) above control price is void

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Defeat the provision of any law

► Object or consideration of an agreement is such that though it is not directly prohibited, if permitted, would defeat the provision of any law, such agreement is also void.

► Sundersingh v. krishnasingh agreement by the accused with surety for providing security under Cr. P.C.– void

► Agreement to defeat the law of a friendly country is also void

► Foster v. Driscoll – Agreement to buy whisky in Great Britain & to smuggle it in to US led to commission of offence in a foreign & friendly

country – breach of international comity – hence void.

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► But innocent violation of municipal or foreign law which may not offend public conscience, may not make the agreement voidHoward v. Shirlaster Container Transport Ltd

Owner of an aircraft agreed with the pt for successfully removing his aircraft from Nigerian territorial airspace. Pt did so without permission of the Nigerian authorities and landed it in Ivory coast. The pt did so under the belief that there was imminent danger to lives in Nigeria. Pt sued for fees –

Held: allowed to recover. Although court would not normally enforce a contract to enable a pt to benefit from his criminal conduct, because to do so, would offend public conscience. There are circumstances, it would be wrong to disqualify a person from recovering, even though his conduct constituted statutory offence.

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Fraudulent► An agreement made for a fraudulent purpose

to deceive third parties is void ► Eg. Agreement with debtor and creditor that

the creditor would get separate commission for inducing other creditors to enter into composition of their debts.

► Eg. Two decree holders - Pt, decree holder with property attachment brought it to sale – agreed with the dt to buy for lesser price and then pay him a sum – property was knocked down to dt for a small price.

Held, agreement void, it deprived the other decree holder of what he would have got if the sale had been competitive.

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Injury to person or property►An agreement to injure the person or

property of another is unlawful and void ►Eg. A person barrowed a sum of Rs. 100

and agreed to serve pt for 2 yrs without pay and in case of default to pay the exorbitant interest and principal at once.

Held, it involved slavery and unlawful and void

► agreement to commit assault, hurt, defamation, etc

►Eg. Agreement of insurance – insured committing suicide to help dependents void.

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Immoral► Agreement tainted immorality is not enforced► “Immorality” depends on standards of

morality prevailing in a society at a given time and as approved by courts.

► Instances of immorality-1. Interference with marital relations

► Eg. Money lent to a married woman to enable her to get divorce from her husband and promise to marry the lender void

► Promise to marry a woman after her husband’s death void

Immoral ► Fender v. St. John – dt a married man

told a nurse that he was unhappy with his wife and enquired whether she would marry him if his wife divorces him – she consented, sexual relations took place – dt’s wife secured decree of divorce on the ground of adultery – dt committed breach and married another

► HELD: pt was allowed to claim compensation – circumstances leading to mischief were absent hence not immoral. JMM KLELC 17

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2. Dealings with Prostitutes► Always considered immoral ► Eg. sale/hiring of goods to a prostitute

for enabling her to carry on her business

► void► Landlord knowingly letting his house

for carrying on the business of prostitution

► void

3. Illegal cohabitation ► England – past consideration not valid –

if promise in writing to pay for illegal cohabitation

► India – promise to pay for-i. Adulterous cohabitation, past/ present/future

– voidii. Future cohabitation – void iii. Past cohabitation to secure it in future – void iv. Past cohabitation only – valid

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Opposed to public policy► An agreement is unlawful if the court regards

its object or consideration as opposed to ‘public policy’

► ‘public policy’ – vague & unsatisfactory term. ► TEST: “the twin touchstones of public policy

are, advancement of public good and prevention of public mischief.

These questions have to be decided by judges not as men of legal learning but as experienced and enlightened members of the community representing the highest common factor of public sentiment and intelligence”

► Eg. Surrender of rights, sale of seats in public offices, etc.

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Heads ofPublic Policy

Trading with

Enemy

Trafficking inPublic Office

Interferencewith

Administratio

n of justice Interferencewith Course of

justice

Shifting

Prosecution

Maintenance

and Champerty

Marriage

Brokerage

contracts

Unfair or

Unreaso-nable dealing

s

1. Trading with an enemy

►Object of war is to cripple the commerce of enemy country

►A declaration of war imports prohibition of commercial intercourse and correspondence with the inhabitants of enemy country.

►Illegal except with the permission of the Crown.

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2. Trafficking in Public offices

►An agreement with a public officer to act corruptly is contrary to public policy.

►Agreement to provide money to a parliamentarian to influence his judgment

► sale of public offices in consideration of money .

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3. Interference with Administration of Justice

Interference with course of justice

Shifting prosecution

Maintenance & Champerty

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4. Marriage brokerage contracts

►An agreement to procure marriage of a person in consideration of money – void

►Agreement for the sale of girl – void ►Attempt to make any material gain out

of marriage is equally opposed public policy and void

►Gifts promised at the time of marriage – void

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5. Unfair and unreasonable dealings

Where-►Parties economically are not on same

footing ►Unequal bargaining power ►One in a position to exploit and the

other is vulnerable ►Bargain is apparently unfair

►Opposed to public policy►Eg. Service contracts.

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