Introduction

• Consideration has been defined as “some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”.
• In simple words, ‘Consideration’ means ‘something in return, or ‘quid pro quo’. It means something which is of some value in the eyes of law.

Definition

• Section 23 of The Indian Contract Act, 1872 (ICA) states that for a contract to be valid, there must be the legality of object and consideration. The object is the purpose for which the parties enter a contract. The fulfillment of the object leads to the transfer of the consideration agreed from one party to the other.
  • 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.

Lawful Object and Lawful Consideration

• The legality of the object in contract law stipulates that the consideration and the object of a contract are considered legal except when:
  • They are specifically forbidden by law.
  • They are fraudulent in nature.
  • The nature of the object and the consideration is such that it defeats the purpose of the law.
  • They involve injury or harm to a person(s) or property.
  • They are considered immoral by the court of law.
  • They are against public policy.

Forbidden by the Law

• An object and/or a consideration prohibited by law are not considered legal and render a contract void. Unlawful consideration of the object means unlawful acts that are punishable by the law.
• The acts disallowed by the appropriate authority by means of their rules and regulations are also considered for determining the legality.
  • However, if these rules and regulations are not in tandem with the law, they are not applicable.
• Forbidden by law provision renders a contract void but all void contracts may not be illegal.

Fraudulent in Nature

• The object and the consideration of the contract must not be fraudulent as then the contract will become void.
  • Example - A enters a contract with B where he agrees to pay B if he embezzles money from C. This is considered a fraudulent object, and the contract is not valid.

Defeats the Purpose of the Law

• If the purpose of entering into the contract is to go against any provisions of law, the contract will be deemed void. The contract is void if:
  • The object of the contract is to perform an illegal act.
  • The object of the contract is explicitly or in an implied manner prohibited by law.
  • The completion of the contract is impossible without going against the provisions of the law.
• Example - A enters into a contract with B whereby B promises to not pursue legal proceedings against A if A commits a robbery in B’s house. This contract is against the provisions of IPC law.

Involves Injury or Harm to Another Person or Property

• The object of the contract must not cause any destruction to property or cause injury to another person.
• Examples:
  • Publishing a book on the life of a person without his consent.
  • Destruction of property.
  • Violation of licenses.
  • Violation of copyrights.
• e.g. - A enters into a contract with B whereby he agrees to pay a sum of money to B if he destroys a city landmark. This contract does not have a lawful consideration and lawful object and it is not deemed legal.

Immoral as Per Law

• If the object and/or consideration of the contract are considered immoral, the contract will not be deemed void.
  • Immoral acts are against the reasonable and acceptable general behavior or personal conduct accepted by society.
• Example - A lends money to B on the condition that B will divorce C, and later get married to A. If B does not divorce C, then A cannot pursue legal proceedings against B to recover the money. The basic premise of this contract is immoral so it will be deemed void.

Against the Public Policy

• A lawful object in business law means that it should not be against public policy. The purpose of public policy is not to curtail any individual’s rights but to maintain and protect the general welfare of the community.
• Kinds of contract that are considered to be against the public policy:
  • Entering into an agreement with a party that belongs to a country with which India does not have peaceful relations, makes the agreement void.
  • Restraining from prosecution: A contract that prohibits a person from pursuing legal recourse is considered void.
  • Maintenance and Champerty: In Maintenance, a person promises to maintain a lawsuit in which he has no vested interest. Champerty is when a person agrees to assist another party in litigation in return for a portion of the damages or proceeds received.
• An agreement to indulge in trafficking in public offices.
• Agreements to create monopolies.
• An agreement to brokerage marriage as a reward.
• An agreement to induce judiciary or state officials to act in a corrupt manner and interferes with legal proceedings.

Case laws

• Gherulal Parakh v. Mahadeodas Maiya & Ors. (1959):
  • The Supreme Court held that any agreement which was against public policy, will be seen as an agreement injurious to person and will be deemed as void.
• Clay v. Yates (1856):
  • It was held by the English Court that every agreement of which the object or consideration is unlawful are void.
• Allen v. Rescous (1676):
  • In this case, the English Court held that object of the agreement was assault, which was illegal, and had the intent to cause injury to a person. Hence it was dismissed, and the agreement was rendered void.

Conclusion

It is impossible to overestimate the importance of object and consideration legality in making an agreement enforceable. The agreement is null and void if the object and consideration are not legal. As informed citizens, we must recognize that our efforts to defend our rights under such an agreement in a court of law would be futile unless and until our agreement fits within the framework of Sections 10, 23, and 24 of the Indian Contract Act, 1872. This is due to the fact that such an agreement will have no legal standing. As a result, while entering into agreements, we must exercise extreme caution to ensure that they do not simply remain "agreements," but meet legal standards, so that if things go wrong, we have legal recourse.