Section 10 (Indian Contracts Act) states that all agreements are contracts if made for lawful considerations and with lawful object. Considerations should be lawful, as otherwise, it would vitiate the whole contract and make it void. For example, A promises to pay B Rs 500/- if he commits a theft in C’s house. Such a promise will not be enforced by law even if B has committed a theft because the object of consideration of the promise is unlawful.
Section 23 also lays down that every agreement of which the object or consideration is unlawful is void. It, therefore follows that every contract, in order to be valid must be made for lawful consideration with a lawful object.
Illustrations of Lawful Considerations:
1) A agrees to sell his house to B for Rs 10,000. Here B’s promise to pay the sum of Rs 10,000 is the consideration for A’s promise to sell the house, and A’s promise to sell the house is the consideration for B’s promise to pay Rs 10,000. These are lawful considerations.
2) A promises to pay B Rs 10,000 at the end of six months, if C who owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here the promise of each party is the consideration for the promise of the other party and they are lawful considerations
3) A promises for a certain sum paid to him by B to make good to B the value of his ship if it is wrecked on a certain voyage. Here A’s promises is the consideration for B’s payment and B’s payment is the consideration for A’s promise and these are lawful considerations.
4) A promises to maintain B’s child, and B promises to pay A Rs 1,000 yearly for the purpose. Here the promise of each party is the consideration for the promise of the other party. These are lawful considerations.
Lawful considerations and lawful object distinguished:
Object of an agreement should be differentiated from consideration for an agreement. Object is different from consideration. Object means purposes or design. However, certain difficulties are faced in practice to distinguish between the two, particularly when considerations consist in a promise to do or not to do something.
The following illustrations will make the distinction clear between object and consideration:
A promises to obtain or B an employment in the public services and B promises to pay A Rs 100/- The agreements is void as the consideration being A’s promise to procure an employment in the public services is opposed to public policy and hence unlawful.
Illustrations of unlawful object:
1) A promises to drop a prosecution which he has instituted against B for robbery and B promises to restore the value of things taken. The agreement is void as its object to save a robber from punishment is unlawful.
2) A, B and C enter into an agreement for the division among them of the gains to be acquired by them by fraud. Because object of the agreements is to practice fraud on others, it is unlawful.
What is unlawful consideration?
In the following cases, the consideration or object of an agreement is unlawful:
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 in moral or opposed to public policy.
An act promised to be done may be either unlawful to perform (illustrations (1) and (3) below); or the act may be lawful but law will not enforce it for reasons of public policy like wagering agreements. Law means the law for the time being in force in India and includes Hindu and Muslim laws.