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What is a lawful consideration?
When would a consideration or object of an agreement be unlawful? Explain with illustration. 

Section 23 says that consideration or an object of an agreement is lawful unless

1. it is prohibited by law.
2. it is of such nature that, if permitted, defeats the provisions of law.
3. it is fraudulent.
4. it involves or implies injury to another person or property of another.
5. it is immoral or against public policy.

Illustrations
1. A promises to sell his house to B for 10000 Rs. The object is the house and the consideration is 10000/- both are lawful.
2. A promises to pay B 1000/- if C fails to pay his debt to B within the next 6 months. B upon this promise gives 6 more months to C repaying debt.
3. A promises to B to superintend B’s manufacture of Indigo, which is lawful, as well as a trade-in illegal items for a monthly salary of 5000/. Unlawful.
4. A promises to pay 5000/- per month to B to clean his house and live with him in an adulterous relationship.
So on…

Forbidden by Law –

• Means any law in force, including Hindu and Muslim personal laws.
• Koteswar Vittal Kamath vs K Rangappa Baliga 1969 SC – Sale of liquor without a license is void and prices paid is irrecoverable.
• Mannalal Khetan vs Kedar nath Khetan 1977 SC – If the intention of the law is to forbid something in public interest, an agreement that contravenes it is void. However, if the intention is to merely regulate something, the contract may not be void even if the parties have to pay a penalty.

Defeats the provisions of a law

1. Fateh Singh vs Sanval Singh 1878 – An accused was required to put a surety of 5000/- for good behavior. He deposited the money with the defendant and asked the defendant to become surety. Ofter the period of surety, the accused sued to recover the deposit. Agreement was held void.
2. Regazzoni vs K C Sethia 1956 – Two parties made an agreement that one will supply jute to another in an African country so that it can then be resold in another country to which export of jute bags was prohibited. One party sued the other for breach of contract. Agreement was held void.

Fraudulent

1. Scott vs Brown Doering McNab and Co 1891 – A trader asked the broker to purchase a stock of a company at a premium to create an impression in people that the company was worth paying a premium. Later he discovered that the broker sold his own shares to him. The trader sued to revert the transaction. Held void because it was done to defraud people.

Injury to person or property

1. Ram Sarup vs Bansi Mandar 1915 – An agreement said that a person would work for another person for two years for borrowing rs 100. In case of default, he was to pay an exorbitant interest and principal at once. This was held indistinguishable from bonded labor and this was injurious to person. Held void.

Immoral

1. What is moral depends on the standards of morality prevailing at a particular time and approved by the courts.
2. Interference in marital relations is immoral.
3. Dealings with sex workers
4. Allice Marry Hill vs William Clark 1905 – Adultery involving a married person is not only immoral but illegal and any contract or promise related to that cannot be enforced.

Public Policy

1. Under Public Policy, sometimes the court may refuse to enforce a contract for the benefit of the public interest.
2. Ratanchand Hirachand vs Askar Navaz Jung 1976 – J Reddy of AP HC observed, “The twin touchstones of public policy are advancement of public good and prevention of public mischief and these are to be decided by the judges not as a men of legal learning but as experienced and enlightened members of the society.”
3. Trafficking in public offices, trading with enemy, interference with administration of justice, champerty, marriage brokerage contracts, unfair or unreasonable dealings – when parties are not on equal footing.

Understanding of a lawful consideration is important because as per section24, an agreement is void if any part of a single consideration for one or more objects, or if any one or any part of any one of several considerations for a single object is unlawful.

Keywords: Lawful Consideration in India, Concept of Lawful Consideration, Definition of Lawful Consideration

Click here to read the Indian Contract Act 1872

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