There are certain cases in which the consideration and the object of an agreement1) are unlawful, thereby making it unenforceable. An agreement is void for unlawfulness if its object or consideration is unlawful at the time it is made and it does not become enforceable if the legal provision that makes it unlawful ceases to be effective. The object of an agreement means its purpose or design. It is distinct from its consideration. It is also different from the action actually taken under the agreement.
Section 23 defines an illegal agreement as one the consideration or object of which
When something is forbidden by law an agreement to do that is unlawful. Section 23 provides that any agreement, the object or consideration of which is forbidden by law is unlawful and therefore void. Acts forbidden by law include the rules regulations, notifications etc. under or issued under the authority given by a statute. A contract ultra vires the powers of a company under its memorandum of association is not unlawful for this reason, it is merely ineffective. However, it is unlawful and void if it defeats the provisions of law.
Pearce v. Brooks2): In this case plaintiff agreed to supply the defendant with a brougham for hire, till the purchase-money was paid by instalment in a period which was not to exceed twelve months. The plaintiff had the knowledge that the defendant was a prostitute and the brougham was to be used by her as a prostitute and to assist her in carrying on her said immoral vocation.
Pollock C.B. observed that any person who contributes to the performance of an illegal act by supplying a thing with the knowledge that it is going to be used for that purpose cannot recover the price of the thing so supplied.
Re Mahmoud and Ispahani3): During the war, the sale of linseed oil without a licence from the food controller had been forbidden. The plaintiff agreed to sell linseed oil to the defendant on a false assurance from the defendant that he had such a licence. When the oil was supplied, the defendant refused to accept on the ground that he did not possess the necessary licence. In an action against the defendant for damages for breach of contract it was held that he was not liable as there was no valid contract between the parties.
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.Devices or arrangements must not be permitted to circumvent prohibitions stipulated by law.
Where the legal provision is clear and it has been enacted to protect a class or section of the community, an agreement waiving, restricting or reducing such right conferred by such law defeats the purpose of the statute making such a provision, even where the statute does contain an express prohibition.
An agreement with a view to defraud (object or consideration) others is void.
Agreements involving or implying injury to the person or property of another are unlawful. If the object of an agreement is to injure the person or property of another, it is void.
Ram Swaroop v. Bansi Mandar4): A person executed a bond for rendering manual labour and going to the creditor's house daily until the money borrowed by him was paid in the particular month. The bond also included a stipulation that if the money was not paid by the said month exorbitant interest as penalty was to be paid. The court held if as an agreement opposed to public policy and could not be enforced.
An agreement whose object or consideration is immoral is void. What amounts to immorality depends upon the standards of morality prevailing at a particular time and approved by courts. The scope of the word ‘immoral’ has been explained in Gherulal Parakh v Mahadeodas, as follows: The case law both in England and India confines operation of the doctrine to sexual immorality. To cite only some instances: settlements in consideration of concubinage, contracts of sale or hire of things to be used in a brothel or by a prostitute for purposes incidental to her profession, agreement to pay consideration for future illicit cohabitations, promise in regard to marriage for consideration or contracts facilitating divorce are held to be void on the ground that the object is immoral.
X gave Rs. 10,000 to Y a married woman to obtain a divorce from her husband. X agrees to marry when divorce taken. X cannot recover this amount.
It is very difficult to define the term 'public policy' with any degree of precision because public policy, by its very nature, is highly uncertain and fluctuating. It keeps on varying with the habits and fashions of the day, with the growth of commerce and usage of trade.
In England, Lord Halsbury in case of Janson v. Drieftein Consolidated Mines Ltd, observed “that categories of public policy are closed, and that no court can invent a new head of public policy.” Section 23 of the Indian Contract Act, however, leaves it open to court to hold any contract as unlawful on the ground of being opposed to public policy. In simple words, it may be said that an agreement which conflicts with morals of the time and contravenes any established interest of society, it is void as being against public policy. Thus, an agreement which tends to be injurious to the public or against the public good is void as being opposed to public policy.
Bai Vijle v. Nansa Sagar5): The plaintiff advanced loan to the defendant, a married woman to enable her to obtain divorce against her husband and then marry the plaintiff. The object of the agreement was held to be immoral and the plaintiff was not entitled to recover the loan so advanced.
Gherulal Parekh v. Mahadeodas Maiya6): Settlement of consideration of concubinage, contracts of sale or hire of things to be used in a brothel or by a prostitute for purposes incidental to her profession, agreements to marriage for consideration or contract facilitating divorce are held to be void on the ground that the object is immoral.