Legality of Consideration and Object of an Agreement
1. Legality of Consideration and Object of an Agreement
Mr. Amit Guleria (Double Medalist; Gold and Silver)
Assistant Professor,
Dr. B.R. Ambedkar National Law University Sonepat
Email: amitdbranlu@gmail.com
2. Lawful object/Legality of object
All the agreements for being a contract need lawful consideration and lawful
object behind the same.
Sec. 23, ICA, 1872: What considerations and objects are lawful, and what
not.—The consideration or object of an agreement is lawful, unless—
• it is forbidden by law4; 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.
Consequences: 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.
3. Consideration or Object Forbidden by Law
Whenever 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. 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. For instance ‘X’ received a license from the Forest Department to cut
the grass of a certain area. The authorities at the department told him he cannot
pass on such interest to another person. But the Forest Act has no such statute. So,
‘X’ sold his interest to ‘Z’ and the contract was held as valid.
4. Consideration or Object Defeats the Provisions 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. For instance: ‘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.
Consideration or Object Fraudulent in Nature
Lawful consideration or object can never be fraudulent. Agreements entered into
containing unlawful fraudulent consideration or object are void by nature. For
instance ‘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.
5. Consideration or Object Defeating the provisions of any Law
If the consideration or the object is against any rules in effect in the country for
the time being, then they will not be lawful consideration or objects. So, the
contract thus formed will not be valid.
Consideration or Object involve Injury to another Person or Property
In legal terms, an injury means to a criminal and harmful wrong done to another
person. So, if the object or the consideration of the contract does harm to another
person or property, this will amount to unlawful consideration. For instance: 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 causes injury to the
property of another person i.e., his copyright (an Intellectual Property).
6. Immoral in Nature
If the object or the consideration are regarded by the court as immoral, then such object
and consideration are immoral. For instance: ‘X’ lent money to ‘Y’ to obtain a divorce
from her husband ‘Z’. It was agreed once ‘Y’ obtains the divorce ‘X’ would marry her.
But the court passed the judgement that ‘X’ cannot recover money from ‘Y’ since the
contract is void on account of unlawful consideration.
In Bani Mancharam v. Regina Stanger, (1907) 32 Bom 581, it was observed that a landlord `cannot
recover the rent of lodgings knowingly let it to a prostitute who carries on her vocation in the same.
Opposed to Public Policy
For the good of the community, we restrict certain contracts in the name of public policy.
But we do not use public policy in a wide sense in this matter. If that was the case it
would curtail individual freedom of people to enter into contracts. So, for the purpose of
lawful consideration and object public policy is used in a limited scope. We only focus
on public policy under the law. In ONGC v. Saw Pipes Limited AIR 2003 SC 2629, it
was observed that ‘public policy’ here does not mean policy of a particular government
7. Sec. 24, ICA, 1872: Agreements void, if considerations and objects unlawful in
part.—If any part of a single consideration for one or more objects, or any one or any
part of any one of several considerations for a single object, is unlawful, the agreement is
void.
Illustration: A promises to superintend, on behalf of B, a legal manufacture of indigo,
and an illegal traffic in other articles. B promises to pay to A a salary of 10,000 rupees a
year. The agreement is void, the object of A’s promise, and the consideration for B’s
promise, being in part unlawful.
In Pikering v. Ilfracomb Ry. Co. (1868) LR 3 CP 235 Wiles J.
observed that “The general rule is that, where you cannot serve the
illegal from the legal part of a covenant, the contract is altogether
void. But where you can serve them, whether the illegality be
created by statute or by the common law, you may reject/ignore
the bad part and retain the good”.
8. Sec. 25, ICA, 1872: Agreement without consideration, void, unless it is in writing
and registered, or is a promise to compensate for something done or is a promise to
pay a debt barred by limitation law.—An agreement made without consideration is
void, unless—
(1) it is expressed in writing and registered under the law for the time being in force for
the registration of documents, and is made on account of natural love and affection
between parties standing in a near relation to each other ; or unless
(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily
done something for the promisor, or something which the promisor was legally
compellable to do; or unless;
(3) it is a promise, made in writing and signed by the person to be charged therewith, or by
his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of
which the creditor might have enforced payment but for the law for the limitation of suits. (
In Pestonji v. Bai Meherbai (1928) 30 Bom LR 1407, it was held that, promise to pay a
time-barred debt this exception applies only where the promisor is a person who would be
liable for the debt if not time-barred, and does not cover promises to pay time-barred debts
of third persons).
9. In any of these cases, such an agreement is a contract.
Explanation 1.—Nothing in this section shall affect the validity, as between the donor and
donee, of any gift actually made.
Explanation 2.—An agreement to which the consent of the promisor is freely given is not
void merely because the consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the Court in determining the question whether
the consent of the promisor was freely given.
Illustrations
Illustration: A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A’s consent to the
agreement was freely given. The agreement is a contract notwithstanding the inadequacy
of the consideration.
Illustration: A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his
consent to the agreement was freely given.
The inadequacy of the consideration is a fact which the Court should take into account
in considering whether or not A’s consent was freely given.
10. In National Insurance Co. Ltd. v. Seema Malhotra AIR 2001 SC 1197 A
cheque given by the insured towards the 1st premium was dishonoured, and the
Hon’ble Court held the insurance contract void U/Sec. 25, ICA, 1872.
Briefly we can say that, in order to be an agreement both consideration and
object must be lawful.
