Legality of Object &

Consideration
 What consideration and objects are lawful, and what not.

• When do you say consideration and object are lawful?

• Section 23 -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. 
 Example
• A agrees to sell his house to B for 10,000 rupees. Here, B’s
promise to pay the sum of 10,000 rupees 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 the 10,000
rupees. 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, and they are
lawful considerations.
 SL Fernandes V VM Fernandes
• The plaintiff was the owner of a business for the sale of liquor
and also for running a bar. He had a license for such a business.
He entered into a contract with the defendant whereby he
entrusted his business including the running of the bar, to the
defendant in exchange for a certain amount of yearly payment.
The plaintiff had transferred the full control over the business to
the defendant rather than mere management of the same. It
was found that the defendant did not hold any licence for such
business. The plaintiff brought an action to recover the yearly
amount promised to be paid by the defendant.
• Held- transferring the business itself to the defendant and
allowing him carry on the trade of sale of liquor without licence
was prohibited by law.
 defeat the provisions of any law
• If the object or the consideration of an agreement is of such a
nature that, though not directly forbidden by law, it would defeat
the provisions of the law, the agreement is void.
• Regazzoni v K C sethia
• The govt. of India had by regulation made under the sea customs
Act prohibited the export of goods to South Africa. The plaintiff &
the defendant being aware of this and in a bid to overcome the
embargo, agreed that a larger quantity of jute bags would be
shipped from India and made available for resale to South African
buyers. The defendant failed to deliver the goods and plaintiff
sued for damages.
• Held: while the English courts will not enforce foreign revenue or
penal laws, they will not entertain an action based on a
transaction which knowingly intended to involve a breach of such
laws.
 Cotinued..
• Ram Sevak V Ram Charan the parties agreed to carry
on business in partnership. The agreement provided
that they would conceal some part of their business
activity and would not enter certain items in the books
of accounts to evade payment of tax. One of the
partners brought an action against others for accounts
and also for the recovery of amount due to him.
• His action was dismissed and it was held that the
agreement was aimed at defeating the provisions of
Tax laws and thus was not enforceable.
 Fraudulent Purpose
• If the consideration or object of an agreement is to commit fraud, the
agreement is void.
• Ex turpi causa non oritur actio, which means that no action can arise
from an illegal act. It is one of the defences which exempts the
defendant from his liability because the plaintiff has also committed
an illegal act. Therefore, this is also known as the “plaintiff a
wrongdoer” defence.
• Ram Nath Mishra v Rajendranath Sanyal
• There were two decree holders against a debtor and one of them, the
plaintiff had the debtor’s property attached and brought to sale. The
plaintiff agreed with the defendant a prospective buyer, that he would
not bid against the defendant and that the defendant would pay him
off. The property was knock down to the defendant for a very low
price
• Held: the whole of the object of the arrangement was fraudulent as it
deprived the other decree holder of what h e would have got if the
sake had been competitive. Thus plaintiff could not recover anything
from the defendant.
Scott v Brown Doering McNab & Co
• The plaintiff entered into a contract with a broker that he
should purchase the shares pf a particular company at a
premium so as to induce in public belief that the shares
were worthy of being bought at a premium. Later he
discovered that broker has sold his own shares to him and
had bought no shares in the market at all. He brought an
action for rescission of contract for the fraud committed
on him.
• Held: no relief was allowed. The object of the agreement
was to commit a fraud on the public. The sole object of
the purchaser was to cheat and mislead the public.
 Jai Ram V Kahna Ram
• The forest dept 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 not 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.
• Held- the dominant object of the agreement was that contract by the
Forest Department be given to B and the object could not be said to
be aimed at defrauding the Forest Department. The agreement was
held to be valid and binding. Procuring the acceptance of the tender
by submitting a lower rate cannot be considered to be fraudulent.
Injurious to the person or property of another

• Injury means harm which is unlawful

• Ram Sarup v Bansi Mandar
• the debtor is made to execute a bond 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 amounts to slavery and
therefore such agreements are void.
 JMD Alloys Ltd v Bihar State Electricity Board

• The board finding the electric meter tampered with,

raised a punitive bill. The appellant having no option
but to accept the electric supply on the terms and
conditions imposed by the board, even
unreasonably, it being a monopoly supplier, on
account of loss which stoppage of such supply would
entail for a manufacturer or other commercial
consumer, accused to make payment in installments.
• The Patna High Court held the agreement to pay
installment was void.
 Immoral
• Any agreement which is meant to oppose public policy or is
immoral are void.
• What is immoral depends upon the standard of morality
prevailing at a particular time and as approved by the courts.
• Fender v St John Mildmay
• The defendant had sexual relations with a nourse on the
basis that he would marry her after his divorce. On the basis
of this adultry hos wife obtained decree for divorce, he
promised the nurse to marry as soon as the decree was
made absolute. But later he married another woman. The
plaintiff sued him.
• Held: she was entitled to recover compensation for breach of
promise.
 Illegal cohabitation

• If the object or consideration for an agreement

is future illicit cohabitation between a man and
a women, the agreement is always unlawful.
• If the past consideration is cohabitation, which
is not adulterous and a part of the
consideration also consists in rendering of
some household services by the lady, a gift
made to her for such living as well as services
has been held to be valid one.
 Narayani Devi V Pyare Mohan

• In this case Narayani, a married women, lived as mistress

with one Gopal Lal for 10 to 11 years before the death of
gopal lal. He made a gift of a house to Narayani through a
gift deed. After his death his sister’s son Pyre Mohan had
also started livingnin that house. He refused to vacate the
house and put his claim to the same. His contention was
that gift to Narayani was void as the object of the same was
to pay her for past cohabitation which was immoral and
the house devolved upon him as a heir of gopal lal. Even
though Narayani was married women, her living with gopal
lal was not considered to be adulterous because her
husband’s consent to her living that way was there. The
object of the gift was Narayani’s cohbitation with gopal lal
and also for her services during her stay with him. Thus gift
was valid
 Continued..

• On appeal to Division Bench of Rajasthan HC- Pyre Mohan

contended that their cohabitation was adulterous and was
offence underS 497 of IPC. It is immoral and opposed to
public policy and thus gift should be declared as void. The
contentions were rejdected andit was observed that-
• 1)A gift being transfer without consideration, the question
of consideration does not arise.
• 2) And regard to object which should not be unlawful: Past
cohabitation even though adulterous cannot be the object
of the gift made subsequent to cohabitation. Past
cohabitation in this case was merely a motive and not
consideration or object of the gift. The motive was to
compensate Narayani for the services provided by her.
• Thus the appeal was dismissed
 Gherulal Parkh v Mahadeodas Maiya
• Plaintiff and defendant entered into Partnership
agreement with object of entering into wagering
transactions with obligation to bear equal loss
or profit arising out of such partnership. When
plaintiff asked for reimbursement of half of
money paid by him to discharge losses of
partnership, defendant alleged that the
agreement made between them was illegal and
unenforceable on account of S.23
• Whether the alleged Partnership agreement was either forbidden by law, or
opposed to public policy or immoral so as to render it void?
• Immorality u/s 23 should be confined to cases of sexual immorality like
agreements for concubinage, sale or hire of things to be used in a brothel,
marriage for consideration; agreements facilitating divorce, etc. are all
immoral in nature. 
• he phrase “Courts regard it as immoral” as in S.23 highlights immorality is
also a branch of common law and must be confined to principles recognized
and settled by Courts; Thirdly, case law in England and in India confines its
operation to sexual immorality.
• Since present case revolves around wagering which cannot be regarded as
sexually immoral, hence, it is not under realm of immorality as given u/s 23
of ICA.
• Therefore partnership agreement formed with the object of entering into
wagering transactions is enforceable, valid and subsisting for its object of
wagering isn’t unlawful u/s 23 because it is neither forbidden by law, nor
opposed to public policy, and nor immoral.
 Opposed to public policy
• If the consideration or object of an agreement is
opposed to public policy the agreement is void.
• The courts play a great role in interpreting
whether the agreement is in consonance with
the recognized public policy or not.
• The doctrine of public policy is based on the
maxim “Ex turpi causa non oritur actio” which
means an agreement which opposes public
policy would be void and of no effect.
 Agreements opposed to public policy
• Interference with administration of Justice-
• A)Interference with the course of justice.
• B) Agreement to stifle prosecutionಫಿಯ್ರಾದಿ ಕೊಟ್ಟ
ವ್ಯ ವಹರಣೆಗಳನ್ನು ದಮನ ಮಾಡುವ ಓಪ್ಪ ೦ದ

• C)maintenance and champertyವ್ಯಾಜ್ಯ ನಿವಹಣೆ ಮತ್ತು ಆಸ್ತಿಯ ವಿಭಾಗ

• Trading agreement with an enemy
• Marriage brokerage contract
• Agreement tending to injure public service
• Unfair or unreasonable dealings
 Interference with the course of justice

• Any agreement which obstructs the ordinary

process of justice is void.
• Promise to give money to induce a person to
give false evidence.
• Agreement to delay the execution of a decree
are void.
 Agreement to stifle prosecution
• The purpose of criminal law is to punish the wrong
doer. A compromise with him would invade the very
purpose of criminal law.
• By accepting some consideration to make a
compromise in a criminal case is opposed to public
policy.
• If A commits murder of B’s sister, B has a remedy to
get criminal action against A upon complaint. but if B
accepts some consideration instead of taking action
it is stifle of prosecution
 Agreement of maintenance and champerty
• Maintenance is 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.
• Champerty is a kind of maintenance in which a person
assisting in the proceeding is to receive a share in the gain
made in the proceedings maintained by him. It’s a bargain
whereby one party is to assist the other in recovering
property, and is to share in the proceeds of the action. When
the assistance is without justification it is unlawful.
 Trading with 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.
• If some rights in respect of a contract have
already accrued, the outbreak of was does not
put to an end to those rights but their
enforcement is suspended until the hostilities
are over.
 Marriage brokerage contracts
• An agreement to procure the marriage of a
person in consideration of sum of money is
called marriage brokerage contract.
• It where a person agrees to procure a
marriage between two persons on some
consideration.
• Marriage unions must be made by a free and
deliberate decision of the parties themselves.
Agreement tending to injure public service

• An agreement to buy or sell or procure a

public office is against public policy.
• A promises to obtain for B an employment in
the public service, and B promises to pay 1000
rs to A. the agreement is void, as the
consideration for it is unlawful.
 Unfair or unreasonable dealings
• Where the parties are not economically on
equal footing and there is a wide gap in the
bargaining power of the parties, where one of
them is in a position to exploit the other is
vulnerable and the contract made with that
other is apparently unfair, it can also be
regarded as opposed to public policy.