CENTRAL UNIVERSITY OF SOUTH BIHAR, GAYA -823001

School of Law and Governance

Project Work on the topic:

Agreements and unlawful consideration in part and objects.

Submitted By: Supervisor: Mrs. Minakshi

Pragya Sinha ( Roll: 29)
B.A L.L.B (Hons.)
Second Semester (2018-23)
Enrollment ID: CUSB1813125065

1|Page
ACKNOWLEDGEMENT:

It feels great pleasure in submitting this project to Mrs. Minakshi, without whose guidance this
project would not have been completed successfully. This project is a result of hard work
incorporated by immense dedication and moral support.

Last but not the least, I would like to express my heartfelt gratitude towards my parents and friends
who guided me at every possible step.

Pragya Sinha

Enrollment Number:

CUSB1813125065

B.A LL.B(2018-2023)

2|Page
TABLE OF CONTENTS:

Serial No. Topic Page Number

1. Research Methodology 3

2. Introduction 4

3. What is an Agreement 5

4. Unlawful Consideration 6

5. Consideration and object unlawful in parts 11

6. Some important cases 14

7. Conclusion 16

8. Bibliography 17

3|Page
RESEARCH METHODOLOGY:

RESEARCH METHODOLOGY:
This project is based on doctrinal method of research as no field work is done on this topic.

AIMS AND OBJECTIVES:

To know about Agreements and unlawful consideration in part and objects of the Indian Contract
Act.

SOURCES OF DATA:

The whole project is made with the help of secondary source. The sources used are: Books and
Websites.

MODE OF CITATION:

The researcher has followed a uniform mode of citation throughout the course of this research
paper.

TYPE OF STUDY:

For this topic, the researcher has opted for descriptive and explanatory type of study as in this
topic, the researcher is providing the description of existing facts.

4|Page
INTRODUCTION:

If an agreement is to be enforced in a court of law, both consideration and object of an agreement

must be lawful. When one the consideration or object is unlawful, the contract is void. In order to
constitute a valid contract, both consideration as well as object must be lawful; otherwise would
be void.

Section 23 states that the consideration or object of an agreement is lawful, unless- it is forbidden
by law; 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.

Section 24 states that 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. —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 Agreements and unlawful consideration in part and objects a single object, is unlawful, the
agreement is void."

An agreement is unlawful if the court regards it as opposed to public policy. The term Public Policy
in its broadest sense means that sometime the courts will, on considerations of public policy, refuse
to enforce a contract. The normal function of the courts is to enforce contracts; but consideration
of public interest may require the courts to depart from their primary function and to refuse to
enforce a contract. Interpretation of the concept of public policy is the function of the court and
not of the executive.

It is not enough that the terms of contract have been brought to the knowledge of the other party
by a sufficient notice before the court is entered into, it is also necessary that the terms of the
contract themselves should be reasonable. If the terms of the contract are unreasonable and
opposed to public policy, they will not be enforced merely because they were printed on the reverse
of a bill or a receipt or have been expressly or impliedly agreed upon between the parties.

5|Page
WHAT IS AN AGREEMENT?
According to Section 2(e)1 : “Every promise and every set of promises forming the consideration
for each other is an agreement.”

In an agreement there is promise from both sides. For example, A promises to pay a sum of Rs.
2000 to A. there is said to be an agreement between A and B.

When there is proposal from one side and acceptance of that proposal from another side, it results
in promise. This promise from the two parties to one another is known as an agreement.

An agreement is the second essential step in creating a contract. An agreement represents the
acceptance of an offer made by another party. When an agreement is reached, it means that the
two parties to a contract have agreed to terms and have decided to become bound to perform the
actions in the contract.

In the past, this agreement was known as a "meeting of the minds," but this has fallen out of favor
in court rulings over the last century. Instead, an agreement in a formal contract is now recognized
by the signing of a contract. In an informal contract, which is a contract when signatures are not
exchanged, acceptance is demonstrated by the actions of the two parties. In a bilateral contract,
agreement occurs when the two parties accept the obligations placed on them. When a unilateral
contract is in effect, agreement occurs when the offeree completes the action requested by the
offeror.

Every promise is an agreement, so is every set of promises ‘forming consideration for each other’.
The phrase ‘forming consideration for each other’, relates to the word ‘set of promises’ and does
not qualify ‘every promise’.2 Therefore, a promise is an agreement without consideration. The fact
that consideration is not a necessary element for making an agreement is seen from the language
of section 10 and 25,3 though it is necessary for making it enforceable. A promise ripens into an
agreement only after an offer has been accepted by the offeree; the question of consideration arise
thereafter.4

1
Indian Contract Act, 1872
2
Abaji Sitaram Modak v. Trimbak Municipality, (1903) 28 Bom 66.
3
Ibid
4
Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union, AIR 1957 SC 95.

6|Page
UNLAWFUL CONSIDERATIONS:

INTRODUCTION:

Section 23 of The Contract Act lays down that the consideration or object of an agreement is
unlawful if it is forbidden by law, or would defeat the provision of law, or would defeat the
provisions of law, or would involve injury to the person or property of another, or the court
considers it immoral or opposed to public policy. When the consideration or object is unlawful,
the agreement is void.

This section was inspired by the Common Law of England and should be construed in that light. 5

PRINCIPLE:

The law may refuse to give effect to a contact on the ground of illegality; this is a limitation upon
the freedom of contract. Illegality may arise by statute, or statutory rules, or in case where the
courts consider the enforcement of contract immoral or against public policy. Illegality may arise
either because the agreement itself is prohibited by law, or because the consideration or object is
unlawful. This section provides the cases in which the agreement will be unlawful.

The presumption of law is in favor of legality of contracts. If a contract reasonably admits of two
meanings or two modes of performance, one legal and other not, the court would prefer the one
which supports it and makes it operate; and the burden lies on the person who impeaches it’s
validity to establish it’s legality.

There is a public policy in the upholding of contracts, which the doctrine of illegality undermines;
the public policy lies in that the courts do not lightly interfere with the freedom of contracts;6
however some contracts have been held unlawful without due consideration to this very important
principle. As stated by Jessel MR in Printing and Numerical Registering Co v. Sampson:7

…if there is one thing which more than another public policy requires, it is that men of full age and
competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered
into freely and voluntarily, shall be held sacred and shall be enforced by courts of justice. Therefore, you
have this paramount public policy to consider – that you are not likely to interfere with freedom of contract.

5
Gherulal Parakh v. Mahadeodas Maiya, (1959) Supp 2 SCR 406, AIR 1959 SC 781 at 797.
6
Bansi Dhar v. Ajudhia Prasad, AIR 1925 Oudh 120, 82 IC 333.
7
(1875) LR 19 Eq 462 at 465

7|Page
This section imposes a restriction on the absolute freedom of a person to contract and subjects his
rights to the overriding considerations of public policy and others enunciated under s.23 of this
Act.8 It applies to all contracts, even to those entered into by a person and governed by special
statute affecting his profession. But it does not apply to claims founded on tort.9 A contact entered
into defiance of a legal provision continues to be illegal even after the legal provision ceases to be
effective and a plea that the contract, when it was to be enforced, was not hit by any subsisting law
is not open to the party seeking to enforce it.10

EFFECTS VARY:

The seriousness and turpitude of the illegality varies considerably. First, the illegality may arise
out of statute, personal laws, or other rules, especially the issue of public policy requiring that an
otherwise valid contract not be enforced. Secondly, the gravity of unlawfulness varies. It may
range from gross moral turpitude to such acts which only cause small harm. Accordingly, th effect
of illegality of the contract would also vary; sometimes, the courts may refuse enforcement
altogether, at other times, enforce the separable legal part, or give assistance to the party which is
not guilty of the illegality. The court my also set aside the illegal transaction and provide relief for
giving effect to the purpose of statute.11 It is for these reasons that the branch of law relating to
illegality has been described as complex, and it’s growth unsystematic.

8
Re KL Gauba, AIR 1954 Bom 748.
9
Bhola Nath Shankar Das v. Lakshmi Narain, AIR 1931 ALL 83.
10
Sita Ram v. Kunj Lal, AIR 1963 AII.
11
R Chandervarappa v. State of Karnatka, (1995) 6 SCC 309; Papaiah v. State of Karnatka, AIR 1997 SC 2676.

8|Page
UNLAWFUL CONSIDERATIONS AND OBJECT:

According to section 23 of The Contract Act, the following considerations and objects of the
contract are unlawful:

1.FORBIDDEN BY LAW:

Any type of consideration or performance of the act which has been forbidden by any law
enforceable in Pakistan is Unlawful and illegal and the contract formed for such consideration is
void.

Illustration:

(1) A promises to pay Rs. 1000 to B If B steals the bicycle of C. The Contract is void due to
unlawful act of B.

(2) A sells o stolen car to B for Rs. 50000. The consideration is unlawful for both the parties
because theft has been forbidden by law

2. DEFEATS THE PROVISION OF LAW:

Any consideration which defeats any provision Of law enforceable in Pakistan is unlawful and
the contract made for such consideration is void.

Illustration:

A agrees to pay Rs. 5000 to B for not to present in court as an evidence in favour of C who is a
party in a suit against A. it is unlawful to Stop any person to give evidence in the court. Illustration:
A who has been declared insolvent by court of law sells his property to B for Rs. 5000. The
consideration is unlawful because it defeats the provision of law as such that an insolvent cannot
sell his property.

3. WHEN IT IS FRAUDULENT:

The consideration is unlawful when it received by a fraudulent act of any of the contracting party.

Illustration:

A enters into a contract to sell 1000 units of his product to B for Rs. 5 per unit with the aim of not
to perform the contract. A receives Rs. 2000 from B in advance. The consideration is unlawful due

9|Page
to the fraudulent act of A. Illustration: A promises to pay Rs. 2000 to B if B would commit fraud
on D. B agrees. It is an unlawful consideration for A’s promise to pay. Hence the agreement is
illegal and void.

4. WHEN IT INVOLVES THE PROPERTY OF ANOTHER:

Any consideration that involves the property of another person who is not the party of the contract
without his permission is unlawful and contract will become void.

Illustration:

A sells to B the horse of C without the permission of C. it is unlawful consideration, so the contract
is void

5. INJURY TO THE PROPERTY OF ANOTHER:

The consideration of a promise, the purpose of which is to cause injury to the property of another
person is also unlawful and the contract for such consideration is void. Here the term “injury”
means criminal or wrongful harm.

Illustration:

A offers to pay Rs. 10000 to B, if B puts a fire to CYs building and B agrees. In this Illustration,
the consideration is unlawful because its purpose is to cause injury to the property of another.

6. INJURY TO ANY PERSON:

Any consideration the purpose which is to cause injury to any other person is also unlawful and
the contract made for such consideration is void.

Illustration:

(1) A promises to pay to B Rs. 1000 if B kills C. B agrees to do so. It is also an unlawful
consideration because it is a criminal act to kill anybody.

(2) A gets a loan from B for RS. 5000 and promise to do manual labour for B without pay until the
total debt is repaid. It is unlawful because it causes injury to A’s person as was decided in Ram
Sarup Vs Bansi Mandar in 1915.

7. WHEN IT IS IMMORAL:

10 | P a g e
Any agreement, the object consideration of which is immoral, is illegal and therefore it is void.
The consideration of a contract is treated as immoral when it is against the opinion of the general
public.

Illustration:

(1)A promises to pay Rs. 10000 to B, if he divorces his wife, is void and unlawful because its
object is immoral.

(2) A enters into an agreement to Marry C death of his first wife B who is alive at the time of this
agreement, is unlawful and void as was decided in Wilson Vs Carntey case in 1908.

8. WHEN IT OPPOSE TO PUBLIC POLICY:

When the object or the consideration of an agreement opposes the public policy, considered as
unlawful and the contract made for such consideration or with such object is void. Here a “public
policy” means the general interests of the community. The act is considered as against the public
policy when it is against the interests of the general public. In other words, an agreement which
tends to promote corruption or injustice the society is said to be opposed to public policy.

Illustration:

(1) An agreement to pay a certain sum of money to a judge to induce him to decide the case in a
party’s favour, is opposed to public policy and is void.

(2) An agreement by a client to pay his lawyer according to the results of the case is opposed to
the public policy and is void It is also against the code of conduct.

11 | P a g e
CONSIDERATIONS AND OBJECTS UNLAWFUL IN PARTS:
Section 24 explains the position in cases when only a part of the consideration or object are
unlawful, as follows:

“24. Agreement 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.”

When there are two sets of distinct promises, and when the void part of the contract can be properly
separated from the rest, the latter does not become invalid.12

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 salary of 10,000 rupees a year for both the jobs, the agreement
is void.13

In this case, the object of A’s promise and the consideration for B’s promise is unlawful in part
only, but the two cannot be separated. In Alice Mary Hill v. William Clarke,14 the plaintiff, a
married woman agreed to live in adultery with the defendant and also agreed to serve him as his
housekeeper. In return, the defendant agreed to pay the plaintiff a single consolidated remuneration
of Rs. 50 per month. It was held that because the lawful part could not be severed from the unlawful
one, the whole of the agreement was held void, and the plaintiff could not recover anything even
for her services as a housekeeper. If an agreement between the two parties had stipulated payment
of Rs. 30 p.m. for living in adultery and Rs. 20 p.m. for housekeeping, the agreement would have
been void as to the first object, but valid as to the second.

This provision in substance means that if a part of the consideration or the object which is unlawful
can be separated from the other part which is lawful, the court will enforce that part which is lawful
and set aside that part which is unlawful. If no such severance of the illegal from the legal part is
possible, the whole of the agreement is void.

12
B.O.I. Ltd. v. The Custodian, A.I.R. 1997 S.C. 1952
13
Illustration to Section 24 of the Indian Contract Act,1872.
14
I.L.R. (1905) 28 All. 266; Also see Roshen v. Muhammad, (1887) Punj. Rec. No. 46

12 | P a g e
The section comes into play when a part of the consideration for an object or more than one objects
of an agreement is unlawful. The whole of the agreement would be void unless unlawful portions
can be served without damaging the lawful portion. A license was granted to a person for sale of
opium and ganja for the restriction that he would not take any partner in the ganja business without
the permission of collector. Without such permission he admitted a partner into the whole business
on receiving from him a fixed sum as a share of capital. Differences arose between them. The new
entrant filed a case for dissolution and refund of his money. His claim was not allowed. The court
said that “it is impossible to separate the contract or to say how much capital was advanced for the
opium and how much for the ganja.15 A Municipal Corporation granted to a contractor for a lump
sum the license to collect toll from pilgrims and vehicles and animals. It had no power to authorize
collection of fees from pilgrims. The whole transaction was held to be void.16

Where the legal part of an agreement is severable from the illegal, the former would be enforced.
A Muslim husband agreed by a registered deed to handover to his wife the totality of his earnings
and not to do anything without her permission and, if he did so, she would be at liberty to divorce
him. The latter part of the agreement was considered unlawful. It was severed from that part under
which he promised to hand over all earnings and this part was enforced giving it this meaning that
he was bound to give only maintenance amount and not every bit that he might earn.17
Transactions arising out of an agreement to do an illegal act, if they are such that when taken
separately from the illegal act, they would be valid, they would remain valid and enforceable
notwithstanding the illegality of the agreement.18

A prohibition of forward transactions in securities was held to be not applicable on that part of the
transaction which was for ready delivery (spot delivery), this part being separable from the other
part.19 If a contract is, on the face of it, capable of legal performance, the fact that one party was
entertaining an undisclosed intention of performing it unlawfully or of using it as a part of unlawful
scheme, would not disentitle the other party from enforcing it. If there is doubt about the real nature
or purpose of the agreement, that construction should be preferred which admits of lawful

15
Gopalrao v. Kallappa, (1901) 3 Bom LR 164
16
Saundatti Yellama Municipality v. shripadbhat Seshbat Joshi, AIR 1933 Bom 132: ILR (1933) 57 Bom 278.
17
Poonoo Bibi v. Fyaz Buksh, 1874 SCC OnLine Cal 59: (1874) 15 L Beng LR App 5.
18
BOI Finance Ltd v. Custodian, (1997)10 SCC 448:AIR 1997 SC 1952
19
BOI Finance Ltd v. Custodian, (1997)10 SCC 448:AIR 1997 SC 1952

13 | P a g e
performance. The fact that one party entertains the motive of defeating the execution of the decree
which maybe passed against him is immaterial.20

SECTION 24 AND 57:

The provisions of this section must be distinguished from those of section 57 below. In a Bengal
case, a Mahomedan husband agreed by a registered document, that he would pay over to his wife
whatever money he might earn, and that he would do nothing without her permission, and that he
would do nothing without her permission, and that if he did so, she would be at liberty to divorce
him. In a suit by the wife, to recover from his earnings, it was held that though the latter part of
the agreement might be unlawful, the suit was one to enforce the legal part, and the court gave a
decree to the plaintiff for her maintenance at Rs. 12/- per month, stating that the fair construction
of the agreement was not that the husband was to pay every rupee he earned, but that he was
entitled to a reasonable deduction for expenses which he must necessarily incur.21

20
M.K. Usman Koya v. C.S.Santha, AIR 2003 Ker 191: (2003) 3 CLT 12
21
Poonoo Bibee v. Feyz Buksh, (1874) 15 Beng LR App 5.

14 | P a g e
SOME IMPORTANT CASES:

[related to Section 23]

In Taylor v. Chester,22 P pledged half a banknote with D as security for money advances in D’s
brothel. If P pleaded his ownership, D could reply that the note was pledged with her. P could not
plead payment, and he had to rely on the illegality of the transaction, and could not recover. The
court indicated that if P could have made out the case without pleading the illegality, he would
have entitled to judgement. It is submitted that the decision would have been different had D never
advanced money.

In Sajan Singh v. Sardara Ali,23 as a result of unlawful contract, a lorry was sold to the plaintiff
and was in his possession and was used by him, although the permit was in the name of the
defendant, because the former could not, and the latter could, get a license for lorry. The defendant
removed the lorry and the plaintiff sued to recover possession. The plaintiff succeeded in
recovering property of which he was wrongfully dispossessed, even though the title of the property
was acquired by the plaintiff by an unlawful transaction between the plaintiff and the defendant.
This was because he could sue without relying on the unlawful contract between the parties.24

[Related to section 24]

In Gopalrao Hanmant v. Kallappa bin Dharmappa,25 A held a license for sale of opium and ganja.
The ganja license contained a condition prohibiting A from admitting partners into the ganja
business without the permission of collector. No such condition was contained in the opium
license. B, who was aware of the prohibition, entered into a partnership agreement with A both in
the opium and ganja business without the leave of the collector and paid A Rs. 500/- as his share
of the capital. Disputes arose between A and B, and B sued A for dissolution of partnership and
for a refund of Rs. 500/- paid by him. It was held that B was not entitled to recover Rs. 500/- of
any part thereof, one of the objects of the agreement being to carry on ganja business in partnership.
In such a case, ‘it is impossible to separate the contract or to say how much capital was advanced
for the opium and how much for the ganja’.

22
(1869) LR 4 QB 309, 38 LJ QB 225, [1861-73] AII ER Rep 154
23
(1960) AC 167, (1960) 1 ALL ER 269.
24
Ibid.
25
(1901) 3 Bom LR 164.

15 | P a g e
In a Rangoon case,26 a person had obtained a license under the Electricity Act, 191027 and
transferred it to his partners, the partnership having been formed after the grant of the license. By
s. 9(3) of Electricity Act, any agreement by which a license is transferred is void. In a suit for
partnership accounts, it was held that no part of the partnership was held agreement was separable
from the rest and it was therefore held void.

In a Bombay Case,28 the municipality corporation agreed to give for a lump sum, a contract for
recovering tax from pilgrims and levying a toll on vehicles and animals. It was beyond the power
of municipality to grant the right to collect fees from pilgrims. The court held that as the transaction
was void and tainted with illegality, it could not be enforced.

26
Ma Kyin Hone v. Ong Boon Hock, AIR 1937 Rang 47, 167 IC 707
27
Repealed by Electricity Act, 2003 (36 of 2003).
28
Saundatti Yellama Municipality v. Shripadbhat Seshbhat Joshi, (1932) 57 Bom 278, 35 Bom LR 163, 143 IC 133,
AIR 1933 Bom 132.

16 | P a g e
CONCLUSION:
It is quite clear that if the consideration or the object of the consideration is, in the opinion of the
court, opposed to public policy, the agreement becomes invalid under the provisions of section 23
of Indian Contract Act, 1872. The freedom of citizen, as indeed the freedom of the lawyer, to enter
into a contract is always subject to the overriding considerations of public policy as enunciated
under section 23. In other words, if the contract is opposed to public policy, it would be treated as
invalid in courts of India and its conclusion cannot be challenged on the ground that in involves
encroachment on the citizen’s freedom to enter into any contract he likes. The Bombay High Court
has said, that the term Public Policy is somewhat vague and th0e courts should not be astute to
invent newer and newer grounds of public policy. But on the other hand, the construction of the
clause “opposed to public policy” in context of administration of justice does not present any
difficulty. Therefore, all agreements that obstruct or affect the administration of justice would be
treated invalid under section 23 of Indian Contract Act, 1872.

Section 24 explains the position in cases when only a part of the consideration or object are
unlawful. This provision in substance means that if a part of the consideration or the object which
is unlawful can be separated from the other part which is lawful, the court will enforce that part
which is lawful and set aside that part which is unlawful. If no such severance of the illegal from
the legal part is possible, the whole of the agreement is void. Where the legal part of an agreement
is severable from the illegal, the former would be enforced.

If both, consideration and object is lawful, the contract will be considered valid. When one the
consideration or object is unlawful, the contract is void. In order to constitute a valid contract, both
consideration as well as object must be lawful; otherwise would be void.

17 | P a g e
BIBLIOGRAPHY:

WEBSITES:

1.quora.com

2.freeonlinenotes.net

3.lawoctopus.com

BOOKS:

1.The Indian Contract and Specific Relief Acts by: Pollock and Mulla
(Volume 1)

2.Contract – 1 by: Dr. R.K.Bangia

3.Contract and Specific Relief by: Avtar Singh

18 | P a g e