SECTION 23 of the Indian Contract Act clearly states that the consideration and/or object of a contract are considered lawful consideration and/or object unless they are
- specifically forbidden by law
- of such a nature that they would defeat the purpose of the law
- are fraudulent
- involve injury to any other person or property
- the courts regard them as immoral
- are opposed to public policy.
So lawful consideration and/or lawful object cannot contain any of the above. Let us take a more in detail look at each of them.
1. FORBIDDEN BY LAW
When the object of a contract or the consideration of a contract is prohibited by law, then they are not lawful consideration or object anymore. They then become unlawful in nature. And so such a contract cannot be valid anymore.
Unlawful consideration of object includes acts that are specifically punishable by the law. This also includes those that the appropriate authorities prohibit via rules and regulations. But if the rules made by such authorities are not in tandem with the law than these will not apply.
EXAMPLE: A promised to B to pay Rs. 7,00,000/- for the kidnapping of C. So, kidnapping is an offence and punishable under the Indian Penal Code. This is an example of agreements forbidden by law.
The unlawful consideration and unlawful object include acts or omissions which are punishable by the law. The appropriate authority of prohibits such acts or omissions via rules and regulations made by them.
CASE LAW: GHERULAL PARAKH V/S MAHADEODAS, 1959
The forbidden by law meaning can be stated as an act or omission that is prohibited by the law. The term ‘Forbidden by Law’ is not synonymous with the word ‘Void’ and therefore it is not necessary that whatever agreements are void is also forbidden by law.
2. CONSIDERATION OR OBJECT DEFEATS THE PROVISION OF THE LAW
This means if the contract is trying to defeat the intention of the law. If the courts find that the real intention of the parties to the agreement is to defeat the provisions of the law, it will put aside the said contract.
According to SECTION 23, the words mentioned, “if permitted, it would defeat the provisions of law.” Therefore, the purpose of the contracting parties is against the legal provisions and if it is permitted then it will defeat any provisions of law and it would illegal and void.
At this point, three principles arise from this section that the agreement or contract is void if;
1. The object of the contract is to perform an illegal act.
2. The object of the contract is explicitly or impliedly prohibited by law.
3. The performance of a contract is impossible without going against the legal provisions.
EXAMPLE: A and B enter into an agreement, where A is the debtor, that B will not plead limitation. This, however, is done to defeat the intention of the Limitation Act, and so the courts can rule the contract as void due to unlawful object.
3. FRAUDULENT CONSIDERATION OR OBJECT
The contract is said to be unlawful if the consideration and object of the contract are fraudulent. The Latin maxim pari delicto potior est conditio defendantis, which means “The courts may refuse to enforce an illegal agreement where the party is entered into a contract with the fraudulent or illegality mind.
EXAMPLE A decides to sell goods to B and smuggle them outside the country. This is a fraudulent transaction as so it is void. Now B cannot recover the money under the law if A does not deliver on his promise.
In the case of SITA RAM V/S RADHA BAI, 1968, the Supreme Court refused to enforce an agreement at the instance of a person who is himself a party to an illegal agreement and it is expressed in the Latin maxim pari delicto potior est conditio defendantis.
But, there are found certain exceptions in this case in which a man will be relieved of the consequences of an illegal contract into which he has entered. To those cases, this maxim does not apply. There are three classes;
- Where the illegal purpose has not yet been substantially carried into effect before it is sought to recover money paid or goods delivered in the furtherance.
- Where the plaintiff is, not in pari delicto with the defendant.
- Where the plaintiff does not have to rely on the illegality to make out his claim.
4. INVOLVES INJURY TO PERSON OR PROPERTY OF ANOTHER
According to SECTION 23, the agreement in which the consideration or object causes injury to the person or property of another person is void and cannot be enforced in the court of law.
In legal terminology, injury means criminal or harmful wrong done by one person to another person. Therefore, if the consideration or object of an agreement harms another person or property of another person then this will be an unlawful consideration and unlawful object.
EXAMPLE: a contract to publish a book that is a violation of another person’s copyright would be void. This is because the consideration here is unlawful and injures another person’s property, i.e. his copyright.
5. IMMORAL CONSIDERATION OR OBJECT AS PER LAW
The consideration or object are regarded as immoral in the court of law when such consideration and object are immoral as per law and as per tradition & culture. In other words, if the court found that the consideration or object in an agreement is immoral and improper as per the law and customs then the court regards such consideration and object as immoral.
And, if the consideration and/or object of an agreement is considered immoral and improper in the court of law then such agreement is a void agreement and not enforceable in the court of law.
EXAMPLE: A made a promise with B to divorce C and B will get 5,00,000/- if B married to A. But, B does not give divorce to C. In that case, A cannot recover money from B because the court regards it as immoral.
So, the contract is void if the court regards it as immoral, immoral contract are;
- Interference in marital relations
- Agreement for intercourse
- Dealings with prostitutes
- Agreement for sex outside marriage
- Agreement for illegal cohabitation
- CONSIDERATION IS OPPOSED TO PUBLIC POLICY
he consideration and/or object in an agreement is lawful when it is not against public policy. The lawful object in business law and the lawful consideration means that should be opposed to the public policy.
Public policy is not to curtail any individual’s rights but the main purpose of public policy is to maintain and protect the general welfare of society.