Mention the circumstances under which the consideration becomes unlawful.

Question: Mention the circumstances under which the consideration becomes unlawful. [MPJS 2003]

Find the answer to the mains question of the Law of Contract only on Legal Bites. [Mention the circumstances under which the consideration becomes unlawful.]

Answer

Under Indian Contract Act, 1872, the consideration in a contract may become unlawful in certain circumstances. These circumstances are mentioned in Sections 23 to 30 of the Act. Section 23 of the Indian Contract Act clearly states that the consideration or object of a contract is considered a valid consideration or object and if they are not, the object and consideration shall be deemed to be unlawful. Section 23 of the Indian Contract Act, 1872, specifies three issues, for example, consideration for the agreement, the object of the agreement and the agreement in essence. Section 23 makes a restriction on the freedom of an individual in connection to going into agreements and subjects the privileges of such an individual to the overriding contemplations of public policy and the other provisions articulated under it.

Here are the key situations where the consideration can be considered unlawful:

Forbidden by Law: If the consideration or object of the contract is expressly prohibited by law, either by statute or common law, the contract becomes unlawful. For example, a contract to engage in an illegal activity or trade that is prohibited by law.

Contrary to Public Policy: If the consideration or object of the contract is against public policy, the contract becomes void. This includes contracts that are harmful to the public, such as contracts promoting fraud, dishonesty, or immorality.

In the matter titled ONGC Ltd. v. Saw Pipes Ltd., 2003 (2) RAJ 1 (SC), while interpreting the meaning of 'public policy' in this case, the Hon'ble Court observed that it has been repeatedly stated by various authorities that the expression 'public policy' does not admit of precise definition and may vary from generation to generation and from time to time. Hence, the concept 'public policy' is considered to be vague, susceptible to narrow or wider meaning depending upon the context in which it is used. Therefore, it was held that the term 'public policy' ought to be given a wider meaning.

Fraudulent or Immoral Consideration: If the consideration involves fraud, dishonesty, or an immoral act, the contract is considered unlawful. For instance, a contract where one party pays a bribe to secure a business deal.

Injurious to Person or Property: If the consideration or object of the contract causes physical harm, injury, or damage to a person or their property, the contract becomes unlawful. For example, a contract to physically harm someone or destroy their property.

Court-Restrained Consideration: If the consideration involves restraining someone from enforcing their legal rights through a court of law, the contract becomes void. Contracts that restrict someone's right to approach the court for legal remedies are considered unlawful.

Agreement without Lawful Consideration: If a contract lacks lawful consideration, it becomes void. Lawful consideration refers to an exchange of something of value between the parties, such as money, goods, services, or a promise to do or refrain from doing something.