LEGALITY OF OBJECT AND

CONSIDERATION (SEC 23)

 For the validity of contract, the consideration and object must be
lawful as per section 23 of the Indian Contract Act, 1872.
 Sec 23makes following agreement unlawful:
1) If it is forbidden by law
2) If it is of such nature that if permitted would defeat the
provisions of law.
3) If it is fraudulent.
4) If it involves or implies injury to the person or property of
another.
5) If the court regards it as immoral or opposed to public policy.
 Read Illustrations
1) If it is forbidden by law
Law  legislations, personal laws etc.
Sale of liquor without license void. Etc.
Sitaram v. kunjlal, AIR 1963 All 20,
A contract for the sale of jaggery powder above control price
was held to be unlawful because “it was tainted with all that
anti social desire against which Control orders attempted to
fight.
 But the agreements are valid if no specific penalty is attached to
the specific transaction and if it appears that the condition was
imposed for merely administrative purpose e.g., the convenient
collection of revenue.
Bhikhambhai v. Hiralal (1900) 24 Bom 622
Sec 10 of the Bombay Tolls act, 1875, empowered the government
to lease the levy of tolls on such terms and conditions as Govt
founds necessary. Plaintiff sublet it to defendants and sued him for
recovery. Court said a valid contract. Court said statute does not
forbid or attach penalty to the transaction of subletting, but merely
gives power to impose a condition under which he can declare such
acts to be forbidden.
2) If it is of such nature that if permitted would defeat the
provisions of law.
(illustration i)
Chandra Sreenivasa Rao v. Ram Mohana Rao, AIR 1952 Mad
579,  money lent for child marriage cant be recovered
because the purpose of borrowing, if permitted, would defeat
the provisions of Child Marriage Restraint Act of 1929.
3) If it is fraudulent.
(Illustration e, g)
4) If it involves or implies injury to the person or property of
another.
Ram swarup v. Bansi Mandir (1915) 42 ILR Cal 742,
A person executed a bond of slavery , contract held to be
unlawful.
5) If the court regards it as immoral.
Pollock and Mulla what is “ immoral” depends upon the standard of
immorality approved by courts.
In Gherulal Parikh v. Mahadeo Das, AIR 1959 SC 781, SC held that
wagering agreement is not illegal as it is neither forbidden by law, nor
immoral or opposed to public policy. It said as follows:
“the case law both in england and India confines the operation of the
doctrine to sexual immorality e.g. settlements in consideration of
concubinage, contracts of sale or hire of things to be used in brothel or
by prostitute, agreement to pay for illicit cohabitation or contracts
facilitating divorce etc”
Illustration (k)
Pearce v.Brooks (1886) LR 1 Ex 213
If anything is supplied to a prostitute for enabling her to make
display favourable to her immoral purposes, the plaintiff can
derive no cause of action for the bargain.
Uphil v. Wright (1911) 1 KB 506 A person advanced money to
B to enable her to take divorce from husband, he cannot
recover the amount, contract being unlawful.
6) If court regards it as opposed to PUBLIC POLICY
Public policy broadly means something as public good or public interest.
Agreement having tendency to injure public interest or public welfare is opposed
to public policy. Injury to public interest or welfare would depend upon prevailing
social values.
Gherulal v. Mahadeo Das , AIR 1959 SC 781,
The SC summarized the doctrine as follows: “public policy is an illusive concept,
it has been described as “untrustworthy guide”, “ uncertain one”, “unruly horse”
etc, the primary duty of a court oflaw is to enforce a promise which the parties
have made and to uphold the sancity of contracts, but in certain cases, the court
may relieve them of their duty on a rule founded on what is called the public
policy. Lord Atkin says something done contrary to Public policy is harmful thing,
but the doctrine also extends to harmful tendencies.
 Central Inland Water Transport Corporation Ltd v. Broj Nath Ganguli,
AIR 1986 SC 1571
Court said new heads of public policy can be evolved in the light of
fundamental rights and directive principle of state policies.
In the instant case, the respondent worked in Navigation company limited.
The company was taken over in 1967 by the appellant govt. corporation.
The letter of appointment given by corporation provided that he would
subject to service rules of corporation. Rule 9(i) of the central inland water
transport corp ltd. service discipline and appeal rules of 1979 provided
that permanenet employee can be terminated just by three months notice
or pay in lieu of notice without assigning any reason.
Issue: whether rukle 9(i) is unconscionable?
Decision of the court:
Inequality of bargaining power is the result of the great
disparity in the economic strength of the parties. Such
contracts affect a larger number of people, if they are
unconscionable, unfair, unreasonable and hence injurious to
public interest. Public policy connotes some matter which
concerns the public good and public interest.
Present contract is void as against public policy.
 Lily White v. Munnuswami, AIR 1966 Mad 13,
Receipt says in case of garment loss, the customer can
recover only 15 percent was opposed to public policy.
 Gurumukh Singh v. Amar Singh (1991) 3 SCC 79,
Two parties combined in an auction. Court said a valid
contract.
 AGREEMENTS OPPOSED TO PUBLIC POLICY (RECOGNISED
CATEGORIES)
1) Trading with an enemy
2) Trafficking in public office(Illustration f)
Agreement for sale of public offices void.
3) Stifling prosecution (illustration h)
It is a matter of public policy that an offender should not go unpunished if the
offence is of public nature.
V. Narsimha Raju v. Gurumurthy Raju, AIR 1963 SC 107
Respondents and appellants were partners in a firm. R1 charged respondent 2 &
3 and other appellants for forgery, conspiracy etc. subsequently they entered into
an arbitration agreement provided Respondent withdrew the criminal complaint.
Court said arbitration agreement was void under sec 23.
4) Interference with the court of justice.
Agreement to give false evidence etc.
5) Maintenance and champerty
Maintenance  object is to ferment litigation.
Champerty  sharing of value of case.
However an agreement to fund proceedings in return
receiving small portion of property does not per se amount to
unlawful contract. However the amount of share to be given to
the financer is an important question
Ram Coomer Coondoo v. Chunder Mookherjee 4 IA 23 (PC
1876 ) ( 3/4rth share to be given to financer held to be
opposed to public policy.
6) Marriage agreements
Pecuniary gains  opposed to public policy.
7) Agreement between all the competing bidders to peg
down the price
8) Agreement tending to create monopolies
 Consequences of illegal or unlawful agreements
1) No action lies , contract is void ab initio. Legal maim is ex
turpi causa non oritur actio which means, no action arises
from a disgraceful cause. Money paid or supplied under an
illegal agreement cannot be recovered. Similarly the buyer
who has paid the price cannot sue for non delivery of the
goods.
2) Collateral transaction to illegal agreement also void.
3) When both the parties are equally guilty , the pari delicto potior est conditio
possidentis is applied.
Exceptions to the rule:
There are few circumstances where a person will be relieved of the
consequences of an illegal contract into which he has enetered. (cases to
which maxim does not apply)
They fall under three classes:
a) Where the illegal purpose has not yet been substantially carried into effect
before it is sought to recover money paid or goods delivered in furtherance
of it;
b) Where the plaintiff is not in pari delicto (equal guilty) with the defendant.
c) Where the plaintiff does not have to rely on the illegality to make out his
claim.