1

Contents:

Introduction 4

Principle 5

Provisions of Sec 23 explained

Forbidden by law
6
Defeats the provision of law 7
Fraudulent 8
Injury to person and property 10
Immoral agreements 10

A. Interference in marital relations 11

B. Dealings with prostitutes 11
C. Illegal cohabitation 12

Opposed to public property 13

Bibliography 21

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Introduction:

Sec. 23, Indian Contract Act, 1872, states

“The consideration or object of an agreement is lawful, unless- it is forbidden by law; or is of

such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or
involves or implies injury to the person or property of another or; 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.”

Thus, for an object or consideration to be unlawful, it should be:

a) Forbidden by law;
b) Defeats the provisions of the laws of the land;
c) Is fraudulent;
d) Involves or implies injury to the person or property of another
e) Is, in the eyes of the Courts, immoral or opposed to public policy.

Before we proceed with the aforementioned components of unlawful objects and consideration,
let us look into the definition of the important terms involved:

Consideration- “When, at the desire of the promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from doing, or promises to do or to abstain from
doing, something, such act or abstinence or promise is called a consideration for the promise;”1

Object- Object means purposes or design. However, certain difficulties are faced in practice to
distinguish between the two, particularly when considerations consist in a promise to do or not to
do something.2 The object of a contract is the thing which it is agreed on the part of the party
receiving the consideration to do or not to do.3

Public policy- The term ‘public policy’ in its broadest sense means that sometimes the courts
will, on considerations of public interest, refuse to enforce a contract. The normal function of the
courts is to enforce contracts; but considerations of public interest mat require the courts to
depart from their primary function and to refuse to enforce a contract.4

Principle
1
Sec 2(d), Indian Contract Act, 1872.
2
http://www.mifsudbonnici.com/lexnet/articles/causa.html
3
Montana Code; http://data.opi.mt.gov/bills/mca/28/2/28-2-601.htm
4
Avtar Singh, Law of Contract, Ninth Edition.

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The law may refuse to give effect to a contract on the ground of illegality; this is a limitation
upon the freedom of contract. Illegality may arise by statute, or statutory rules, or in cases where
the courts consider the enforcement of contract as immoral or against public policy. Illegality
may arise either because the agreement is itself prohibited by law, or because the consideration
or object is unlawful. This section provides the cases in which the agreement would be unlawful.

The presumption of law is in favor of legality of contracts. If a contract reasonably admits of two
meanings of two modes of performance, one legal and the other not, the court would prefer the
one which it supports it and makes it operate; and the burden lies on the person who impeaches
its validity to establish its legality.5

The freedom of the citizen to enter into contract is always subject to the over-riding
considerations of public policy. If the consideration or object of an agreement in the opinion of
the court is opposed to public policy the agreement becomes invalid. There are three well settled
principles by the application of which the enforceability or other wise of a contract should be
determined. These are:

i. A contract is void if its purpose is the commission of an illegal act.

ii. A contract which is expressly or impliedly prohibited by law.
iii. A contract whose performance is not possible without disobedience to law.6

The term ‘public policy’ has an entirely different and more expensive meaning from the policy of
the law. It does not remain static in any given community and varies from generation to
generation. Judges when interpreting the law will take into consideration the precedents which
will guide them to a substantial extent. Practices which were considered perfectly normal at one
time have today become obnoxious and oppressive to public conscience. If there is no head of
public policy which covers a case, then the court must in consonance with the public conscience
declares such practice to be opposed to public policy.

Provisions of section 23 explained

5
P.C. Markanda, Law of Contracts, Second Edition.
6
Pollock &Mulla, Indian Contract & Specific relief Acts

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1) Forbidden by law

The word ‘law’ means judicial law, that is, the law enacted by a competent legislature and the
word ‘law’ as used in this section means personal or customary law. The word ‘law’ includes an
order by a competent authority having the force of law7. Consequently, where any agreement is
forbidden by an order of the competent authority having the force of law, it shall be an agreement
forbidden by law. There is a clear distinction between an agreement which may be forbidden by
law and one which is declared to be void. In the former case the legislature penalizes it or
prohibits it. If a void contract is carried out and consideration has passed the promissory may not
in equity be allowed to go back upon it without restoring the benefit which he had received but if
the promise comes to court to enforce it he would receive no help. The words ‘void’ and
‘forbidden by law’ are not synonymous. What is void is not necessarily forbidden by law. In a
written contract the question is whether it is illegal by reason of its seeking to do what is
forbidden by law. Where the plaintiff, a khusra, claimed exclusive right of business and
profession in 30 villages to perform giddagiri, as per custom, on happy occasions, it was held
that law had not given any monopolistic rights to a particular person or sect of persons that such
person could exercise exclusive right of begging nor there was any custom to the defect and that
if there was some internal arrangement between the khusras with regards to performance of
giddagiri, such a right was not enforceable.8

When an assignment or transfer is made in contravention of statutory provisions, the

consequence thereof would be that the same is invalid and thus, being opposed to public policy,
the same shall attract the provisions of this section. Thus where there was no dispute that there
had been a grant of agricultural land with occupancy rights in terms of provision of Karnataka
Land reforms Act in 1981 and the will was executed in 1984 it was held that the transfer having
been made within 15 years from the date of grant, it was prohibited in law.9

In Smith V. Mawhood10, a statute required that a dealer in tobacco must hold a license 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 above stated 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.

An agreement was entered into between the petitioner and the respondent allowing the former
to run a truck shop in the school. The petitioner indulged in antisocial activities selling
pornographic and obscene literature to male and female students and serving hard drinks by
7
P.C. Markanda, The Law of Contract
8
Babi Khusra v. Ram Piari khusra, 2000(1) RCR 343
9
Jayamma v. Maria Bai, AIR 2004 SC 3957
10
(1845) 153 E. R., 552

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mixing with soft drinks. The petitioner was evicted by military police on the request of the
respondent. The petitioner filed writ for restoration of Tuck shop. Held that the contract was void
ab initio because the land on which the school building stood belonged to the Union of India and
the respondent had no authority to enter into such contract.11

Article 46 of the constitution enjoins upon the state to provide economics justice to the
schedule castes, schedule tribes and other weaker section of the society and to prevent their
exploitation. The right to economic justice to the schedule caste, schedule tribes and other
weaker section of society is fundamental right to secure equality of status, opportunity and
liberty. The state, therefore, is under a constitutional obligation to ensure to them opportunity
giving its largess to the poor to augment their economic position. Thus alienation of land by the
assignees of their land was held to be in violation of the constitutional policy as also section 23
of the Contract Act.12

Though a wager is void and unenforceable, it is not forbidden by law and therefore the object of
collateral agreement is not unlawful. In as much as betting is not itself illegal, the law does not
refuse to recognize a partnership formed for the purpose of betting. Upon the dissolution of such
a partnership an account may be ordered. Each partner has right to recover his share of the
capital subscribed , so far as it has not been spent , but he cannot claim an account of profit or
repayment of amounts advanced by him which have actually been applied in paying the best of
the partnership13 .

2) Defeat the provisions of any law:

The parties are not entitled to contract themselves out of the statute. It would be quite contrary to
public policy to allow the provisions of an act to be ignored by the parties. This section
incorporates three well settled principles, by the application of which, the enforceability or
otherwise of an agreement should be determined. First, principle is that the agreement is void if
the purpose is illegal, the second principle is that an agreement which is prohibited by law either
expressly or implied and, the third principle is that an agreement whose performance is not
possible without disobedience to law is void. 14

An agreement offending a statute or public policy or forbidden by law is not merely void but is
invalid from nativity and cannot become valid even if the parties thereto agreed to it. No legal
relation comes into being from such an agreement.

A contract entered into in defiance of a legal provision ceases to be effective and a plea that the
contract, when it was to be enforced, was not hit by any subsisting law is not open to the party
seeking to enforce it.

11
In Re P.P. Raja Reddy, 1997(1) Cal LT 387 (Cal)
12
Papaiah v. State of Karnataka, AIR 1997 Sc 2676
13
T.S. Venkatesa Iyer’s The Law of Contracts & Tenders
14
P.C. Markanda, The Law of Contract

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In Sitaram V.s Harihur15, (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 , 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. Ninni16, 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”17.

3) Fraudulent

An agreement made for a ‘fraudulent’ purpose is void. Where the parties agree to impose a fraud
on a third person, their agreement is unlawful. “Intention to deceive” seems to be necessary for
an agreement to fall in this category. A decision of the English Court of Appeal, however, shows
that the same result may follow where one of the parties had no such intention, but made himself
an innocent instrument of fraud at the suggestion of the other party18.

15
(1911) ILR 35 Bom 169
16
AIR 1966 Raj 163
17
http://www.scribd.com/doc/27041470/Legality-of-Object-and-Consideration

18
T.S. Venkatesa Iyer’s The Law of Contracts & Tenders

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If the consideration or the object of an agreement is to commit fraud, the agreement is void e.g.
A, B & 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. Similarly if a debtor
has made a compromise with his creditors, agreeing to pay them one third of the some due, but
makes a secret agreement with the plaintiff agreeing to pay him in full, the secret agreement with
one creditor is fraud on the other. In the case Manni Ram vs Purshottam Lal19, A knew that the
railway company would not grant him a contract; he entered into a contract with B that B should
put forward an application for the contract and after the contract was granted, A shall serve as the
real contractor. A brought an action to put his claim as a real contractor. It was held by the court
that the agreement was to commit fraud upon the railway company therefore the contract was
void.

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 Ram20, 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 defenses 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 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. It was held that the agreement between the parties was not void under Sec. 23
of the Indian Contract Act.

4) Injury to person and property

Such is an agreement to indemnify a person against the consequences of an illegal act. The term
‘injury’ has been construed to mean criminal or wrongful harm. A bond providing that the person

19
(1919) 21 BOMLR 975
20
A.I.R 1963, H.P

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executing it should perform manual labour in lieu of interest till the sum borrowed be repaid was
held void, as being indistinguishable from slavery. For example, an agreement to give a son in
adoption in consideration of a monetary allowance will be void as involving injury to the person
and property of the adopted son.21

If one of the parties in adjustment seeks to disturb the peace and wants to retain an advantage
derived by him under the contract, the contract is unilateral and it cannot be said that there is any
consideration moving from him to support it.

An agreement which involves injury to the properties of other persons is void under this section
and cannot be enforced in law. No claim for damages is sustainable for the breach of such an
unlawful agreement.

5) Immoral agreements

If the object of a transfer of property is immoral, the transfer is void, and there cannot be
conveyance of any interest affected by the transfer.

Where the owner of the house lets out the property to the defendant for the immoral purpose of
running a brothel, the executors and trustees of the will of the owner who were not in para
delicto or in particeps criminus can sue to eject the defendant on the basis that the transfer is
void.

Where a woman was married and her husband was alive and her father agreed to send her with
another person without obtaining proper divorce and some piece of land was transferred in the
name of the father as consideration for giving his daughter to another person, and marriage of the
daughter was performed after transfer of the land, with the other person, the transfer of the land
would be for an immoral purpose and would be against public policy.

Interference in marital relations

One such act is interference with marital relations. Thus, where a married woman was given
money to enable her to obtain divorce from her husband, the lender promising to marry her
subsequently, it was held that the money could not be recovered.22 Similarly, a promise to marry
a married woman after the death of her husband or after she obtains divorce from him is
immoral. In the same way, a promise by a married man to marry a woman after the death of his
wife or after obtaining divorce from her is illegal. But if she does not know the man to be

21
T.S. Venkatesa Iyer’s The Law of Contracts & Tenders
22
Baivijli v. nansa nagar, (1885) 10 BOM 152

Law of Contracts
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married, she can bring an action for breach.23 In Fender v St John Mildmay24 the House of Lords
had to face a difficult case on this point.

The defendant, who was a married man at the time, met the plaintiff at a nursing home where she
was a nurse. He told her that he was unhappy with his wife and later asked her whether, if his
wife divorced him, she would marry him after the divorce. She consented and thereupon sexual
relations took place between them. The wife petitioned for a divorce on the ground of this
adultery and a decree nisi was pronounced25. The defendant then promised to marry the plaintiff
as soon as the decree was made absolute. But he committed breach of this promise by marrying
another woman. The plaintiff sued him.

The claim was resisted on the ground of immorality, but she was held entitled to recover. When
is immoral is interference with marital status, whereas, in the present case, “after decree nisi the
bottom has dropped out of marriage: nothing but a shell is left”. Accordingly, the circumstances
which lead to mischief were absent here.

Dealings with Prostitutes

Dealings with prostitutes have always been regarded as immoral. “If articles are sold or
something is hired to a prostitute for the purpose of enabling her to carry on her profession,
neither the price of the articles sold nor the rent of the thing hired can be recovered.”26 “If a
woman takes a house in order to live in it as the mistress of a man and to use it for that purpose,
and the landlord at the time when the lease was executed knows that it is taken for that purpose,
the landlord cannot recover the rent.” 27

Illegal Cohabitation
A promise to pay for past sexual immorality or illegal cohabitation has been held in English to be
enforceable if under seal. If it is not under seal, it cannot be enforced or past consideration is no
consideration.28 The Allahabad High Court allowed a woman to recover arrears of allowance
promised to her for past cohabitation.29 But in subsequent decision the same high court has held

23
Shaw v. Shaw, (1954) 2 QB 429; Wilson v carley, (1908) 1 KB 729.
24
(1938) AC 1.
25
Decree nisi is made absolute after six months and then final divorce takes place. In the meantime the martial
status continues.
26
Pearce v Brookes, (1866) LR 1 Ex213: 14 LT 788; Upfill v Wright, (1911) 1 KB 506.
27
BUCKNILL J in Upfill v Wright,(1911) 1 KB 506; Chogalal v Piyari, (1908) 31 All 58. The landlord may, however,
recover if he did not know the purpose. Sultan v Naner, (1877) Punj Rec No 64.
28
Beaumont v Reeves, (1846) 8 QB 483.
29
Dhiraj Kuer v Bikramji Singh, (1831) 3 All 787.

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that where cohabitation is adulterous, that is to say, where either party is married, whether past or
future, it will not support a promise. Adultery is not only immoral, but also illegal.30 Contrary
views have also been expressed. “In Husseinali Casan v Dinbai,31 MACLEOD CJ and CRUMP J
held that a contract which was immoral at the time, and, therefore, could not support an
immediate promise to pay, did not become innocent by merely being past consideration. There
can be no difference whether A says to B: ‘I will you Rs 1000 a month if you live with me for a
year,’ or ‘ I will give you Rs 1200 because you have lived with me for a year’.” The
consideration therefore for the past cohabitation is unlawful as being immoral or opposed to
public policy.32

A promise to pay for future cohabitation is unenforceable. A promise to pay for past cohabitation
for the purpose of securing the continuance of the cohabitation is also unenforceable. Where a
promise is given for past cohabitation “with a view that she may continue in my service “, it was
held to be opposed to public policy.33 But a promise to pay for past cohabitation only is
enforceable even if the circumstances do not rule out the continuance of the cohabitation34.

The principles which have thus crystallized from the various High Court decisions have
been approved by the Supreme Court in D.Nagaratnamba v Kunuku Ramayya.35 Certain
properties were gifted in consideration with past cohabitation. The Supreme Court found that the
properties belonged to the joint family, which the Karta had no power to gift and, therefore, the
gift was void. But apart from this, BACHAWAT J recognized past cohabitation as a good
consideration. Rajasthan High Court has put the same thing on more rational basis.36 A gift was
executed by person in favor of a woman with whom he had Adulterous cohabitation. Holding the
gift deed to b e enforceable, the court said that the word “Object” as used in sec 23 means
purpose or design. Past cohabitation, even if adulterous, is no longer the object of the gift. It only
supplies a motive. Gift is a transfer without consideration. Hence, no question of unlawful
consideration can arise.

6) Opposed to Public Policy

30
Alice Mary Hill v William Clarke, (1905)27 All 266. Patna high court has expressed a similar view. See Godfrey v
Parboti, AIR 1938 Pat 308.
31
AIR 1924 Bom 135. See also Kiesendas v Dhondu, (1920) 44 Bom 542.

32
Per ANANTARAYAN CJ in Manicka GOUNDER v Muniammal, AIR 1968 Mad 392; Subhash Chandra V Nousadbai,
AIR 1982 MP 236 ( past cohabitation).
33
Alice Mary Hill v William Clarke, (1905)27 All 266.
34
So held in B.V.Ramarao v Jayamma, AIR 1953 MYS 33.
35
AIR 1968 SC 253: (1968) 1 SCR 432
36
Pyare Mohan v Narayani, AIR 1982 Raj 43.

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 11

The concept of public policy is illusive, varying and uncertain. It has also been described as
‘untrustworthy guide ’, ‘unruly horse’, etc. The term ‘public policy’ is not capable of a precise
definition and whatever tends to injustice of operation, restraint of liberty, commerce and natural
or legal rights, whatever tends to the obstruction of justice or to the violation of a statute and
whatever is against good morals can be said to be against public policy is capable of expansion
and modification .4

CONCLUSION

So basically in the light of section 23 of the INDIAN CONTRACT ACT 1872, The consideration
or object of an agreement is lawful, unless- it is forbidden by law or is of such a nature that, if
permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies
injury to the person or property of another or; 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

Bibliography

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Books:

S. Wheeler & J.Shaw, Contract Law, Cases, Materials and Commentary (1st Ed, OUP, 2005)

Pollock &Mulla, Indian Contract & Specific relief Acts (Vol I, 13th Ed, Lexis Nexis, 2007)

Ewan McKendrick, Contract Law, Texts, Cases, and Materials (2nd Ed, OUP, 2005)

Anson’s Law of Contract (28th Ed, OUP, 2008)

T.S. Venkatesa Iyer’s The Law of Contracts & Tenders (Vol 2, 10th Ed, S. Gogia & Company,
2008)

Cheshire, Fifoot & Furmston’s Law of Contract (15th Ed, OUP, 2007)

Annual Survey of Indian Law 2002, Indian Law Institute

Annual Survey of Indian Law 2005, Indian Law Institute

Annual Survey of Indian Law 2008, Indian Law Institute

Chitty on Contracts ( Vol I, 29th Ed, Sweet & Maxwell Ltd,2004)

Avatar Singh, Law of Contract & Specific Relief (1oth Ed, EBC, 2008)

P.C. Markanda, The Law of Contract (Vol 2, 2nd Ed, Lexis Nexis, 2008)

Articles (URLs):

http://www.texasgeneralcounsel.com/areas/noncompetes/noncompetes/bluepencil.html

http://www.nls.ac.in/resources/ded/resources/MBL%20I/contractDec10.pdf

http://books.google.co.in/books?
id=pXH991HmO0sC&pg=PA93&lpg=PA93&dq=Legality+of+object+and+consideration&source=bl&ot
s=0jnaVccbtp&sig=iTmbtqto45E0-
RsbKyGGJJ7qDyM&hl=en&ei=O4ynTdWbGMT5sgatqdGJCA&sa=X&oi=book_result&ct=result&resn
um=2&ved=0CBgQ6AEwATgK#v=onepage&q=Legality%20of%20object%20and
%20consideration&f=false

Websites ( URLs):

http://en.wikipedia.org

http://www.slideshare.net/birubiru/legality-of-object

http://www.scribd.com/doc/27041470/Legality-of-Object-and-Consideration

Law of Contracts