Define consideration. Under what circumstances, the object and consideration of a contract are deemed unlawful? How does public policy affect consideration?

Question: Define consideration. Under what circumstances, the object and consideration of a contract are deemed unlawful? How does public policy affect consideration? Explain with the help of decided cases. [BJS 2014]

Find the answer to the mains question only on Legal Bites. [Define consideration. Under what circumstances, the object and consideration of a contract are deemed unlawful? How does public policy affect consideration? Explain with the help of decided cases.]

Answer

Section 2 (d) of the Indian Contract Act,1872 lays down the definition of consideration as under: When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

In the words of Pollock, “Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.” But the most commonly accepted definition is that which was attempted by Lush J. in Currie v. Misa [(1875) LR 10 Ex 153, 162] “A valuable consideration in the sense of the law, may consist either in 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.”

Section 25 of The Indian Contract Act,1872 opens with the declaration that “an agreement made without consideration is void… In England also “promises without consideration are not enforced, because they are gratuitous”. Also, one of the requirements for the formation of a valid contract is that parties must contract for a lawful object.

Circumstances in which the object and consideration of a contract are deemed unlawful An agreement the object of which is opposed to the law of the land may be either unlawful or simply void, depending upon the provision of the law to which it is opposed. Section 23 renders certain considerations and objects as unlawful. Every agreement, of which the object or consideration is unlawful, is void.

Section 23 of the Act states that “The consideration or object of an agreement is lawful, unless—

1. It is forbidden by law; or
2. Is of such a nature that, if permitted, it would defeat the provisions of any law; or
3. Is fraudulent; or
4. Involves or implies, injury to the person or property of another; or
5. The Court regards it as immoral or opposed to public policy.

For example:

1. ‘A’, ‘B’, and ‘C’ enter into an agreement of the division among them of gains acquired, or to be acquired, by them by fraud. The agreement is void, as its object is unlawful.
2. ‘A’ agrees to let her daughter to hire ‘B’ for concubinage. The agreement is void because it is immoral.

The section covers the illegality of both the object of the contract and the consideration for it. The “object” and “consideration” may in some cases be the same thing but usually, they are different.

How does public policy affect consideration?

An agreement is unlawful if the court regards it as opposed to public policy. The term “public policy” in its broadest sense means that sometimes the courts will, on considerations of public interest, refuse to enforce a contract.’ The normal function of the courts is to enforce contracts, but considerations of public interest may require the courts to depart from their primary function and to refuse to enforce a contract.

English Law about public policy

The circumstances in which a contract is likely to be struck down as one opposed to public policy are fairly well-established in England. “…So a contract of marriage brokerage, the creation of a perpetuity, a contract in restraint of trade, a gaming or wagering contract, or the assisting of the King’s enemies, are all unlawful things” on the ground of public policy. In the words of Lord Atkin in Fender v. John Mildmay, [1938 AC 1, 723 (HL)], “the doctrine of public policy should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inference of a few judicial minds”.

Indian cases adopting English view

“The Indian cases also adopt the same view.” The following words of Subba Rao J. (afterwards CJ) in Gherulal Parakh v. Mahadeodas [AIR 1959 SC781] enshrine the present position of the doctrine of public policy in India.

The doctrine of public policy may be summarised thus:

“Public policy or the policy of the law is an illusive concept; it has been described as an “untrustworthy guide“, “variable quality“, “unruly horse“, etc.; the primary duty of a court of law is to enforce a promise which the parties have made and to uphold the sanctity of contract which forms the basis of society; but in certain cases, the Court may relieve them of their duty on a rule founded on what is called the public policy; for want of better words Lord Atkin describes that something done contrary to public policy is a harmful thing; but the doctrine is extended not only to harmful cases but also to harmful tendencies;

this doctrine of public policy is only a branch of common law, and just like any other branch of common law, it is governed by precedents; the principles have been crystallised under different heads and though it is permissible for courts to expound and apply them to different situations, it should only be invoked in clear and incontestable cases of harm to the public; though the heads are not closed and though theoretically, it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is advisable in the interest of stability of society not to make any attempt to discover new heads in these days.”

Explaining the scope of the expression “public policy” and the role of the judge, in Ratanchand Hirachand v. Askar Nawaz Jung, [(1991) 3 SCC 67]: The twin touchstones of public policy are advancement of the public good and prevention of public mischief and these questions have to be decided by judges not as men of legal learning but as experienced and enlightened members of the community representing the highest common factor of public sentiment and intelligence. The Supreme Court added that going by prevailing social values, an agreement having tendency to injure public interest or public welfare is opposed to public policy.”

In Geeta Satish Gokarna v. Satish Shankerrao Gokarna, [AIR 2004 Bom 345], a marriage was dissolved on consent terms, one of which was that the wife would not claim alimony or maintenance. It was held that such consent terms could not prevent the court from granting maintenance on the application of the wife made subsequently. Such rights are the larger parts of the right to life. It is against public policy to snatch them.

In the case of Chandra Sreenivasa Rao v. Korapatti Raja Rama Mohana Rao, [AIR 1952 Mad 579] where money is borrowed for the purpose of the marriage of a minor, the consideration for the contract is the loan and the object, the marriage. In a case of this kind before the court found that the marriage in question was hit by the provisions of the Child Marriage Restraint Act of 1929. “The purpose for which the guardian borrowed the money is to celebrate the marriage of a child which is an offense under the Act.” The arrangement was held to be opposed to public policy, being in violation of the Child Marriage Restraint Act.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X