Page 24 - DMGT407Corporate and Business Laws

Unit 1: Laws of the Contract

Notes
Example: A saves B’s life. B promises to pay A ` 10,000 out of gratitude. The consideration
for B’s promise is a past consideration, something done before making of the promise.

1.7.4 Unlawful Consideration and Object [Ss.23-24]

There are certain cases in which the consideration and the object of an agreement are unlawful,
thereby making it unenforceable. Section 23 defines an illegal agreement as one the consideration
or object of which-
1. is forbidden by law
2. defeats the provisions of any law

3. is fraudulent
4. involves or implies injury to the person or property of another
5. the court regards it as immoral or opposed to public policy.
1. Where it is forbidden by law. A loan granted to the guardian of a minor to enable him to
celebrate the minor’s marriage in contravention of the Child Marriage Restraint Act is
illegal and cannot be recovered (Srinivas v. Raja Ram Mohan (1951) 2. M.L.J. 264). A
promises to drop a prosecution which he has instituted against B for robbery and B promises
to restore the value of the things taken. The agreement is void as its object is unlawful.

2. Where it is of such a nature that if permitted it would defeat the provisions of any law. A
let a flat to B at a rent of ` 12,000 a month. With a view to reduce the municipal tax, A made
two agreements with B. One by which the rent was stated to be ` 4,500 only and the other
by which B agreed to pay ` 7,500 for services in connection with the flat. Held, A could not
recover ` 7,500 since the agreement was made to defraud the municipal authority and thus
void [Alexander v. Rayson (1939) IK.B.169].
3. Where it is fraudulent. A, being an agent for a landed proprietor, agrees for money
without the knowledge of his principal to obtain for B, a lease of land belonging to his
principal. The agreement between A and B is void as it implied a fraud by concealment by
A, on his principal.
4. Where it involves or implies injury to the person or property of another. An agreement
between some persons to purchase shares in a company, with a view to induce other
persons to believe contrary to the fact that there is a bona fide market for the shares, is
void.
5. Where the court regards it as immoral or opposed to public policy. A who is B’s power of
attorney promises to exercise his influence as such with B in favour of C, and C promises
to pay ` 5,000 to A. The agreement is void being against public policy.

Examples:
1. X agrees to buy from a jeweller certain jewellery to be delivered to him after two
months. In the meantime, the government enacts a law on gold control and prohibits
dealings in gold. When the time for delivery of the jewellery comes the jeweller
refuses to deliver the same. What can X do? He has no cause of action. The contract
becomes void when the law is enacted. Thus, the contract was originally valid but
becomes void later on by subsequent (supervening) illegality.

LOVELY PROFESSIONAL UNIVERSITY 17