All illegal agreements are void but all void agreements are not necessarily illegal." Discuss statutory provisions....

Question: All illegal agreements are void but all void agreements are not necessarily illegal." Discuss statutory provisions along with illustrations and decide cases in the light of this statement. [JJS 2018]

Find the answer to the mains question of the Law of Contract only on Legal Bites. [All illegal agreements are void but all void agreements are not necessarily illegal." Discuss statutory provisions along with illustrations and decide cases in the light of this statement.]

Answer

According to Section 2(g) of the Indian Contract Act, an agreement not enforceable by law is said to be a void agreement. The effect of terming an agreement as void contract would mean that the contract never existed in the first place, thus implying that none of the parties are legally required to perform any obligations related to that contract. The following agreements are examples of void agreements:-

a) Agreement without consideration

b) Agreement with persons like minors (sec.11)

c) Agreement made without consideration (sec.25)

d) Uncertain agreement (sec.29)

e) Impossible agreements (sec.56) etc.

Illegal agreements: - An agreement which is either prohibited by law or otherwise against the policy of law is an Illegal agreement. All illegal agreements are null and void but void agreements are not illegal. All collateral transactions to an illegal agreement are also illegal.

The contract is said to be illegal if its object is illegal or forbidden by law. A contract arising out of an illegal agreement is illegal ab initio (void-ab-initio). For instance, an agreement to commit robbery is an illegal one.

Distinction between Void and Illegal Agreements

Void Agreements: These agreements are not enforceable by law but are not forbidden by law (criminal by nature). For example, an agreement to sell a piece of land without any consideration is void but not illegal. Other illustrations to elaborate void agreements as per Indian Contract Law are:-

• Agreement Without Consideration: As per Section 25 of the Indian Contract Act, 1872, an agreement to gift without receiving anything in return is void in law.
• Agreement in Restraint of Trade: According to Section 27 of the Indian Contract Act, an agreement where one party agrees not to open a business in a specific area for a certain period is void as it restrains trade.

Illegal Agreements: These are agreements that involve actions forbidden by law. These agreements are not only void but also involve actions that are against the law. For example, an agreement to commit a crime is illegal and void. Section 23 of the Indian Contract Act, 1872, states that the consideration or object of an agreement is unlawful if it is forbidden by law, defeats the provisions of any law, is fraudulent, involves or implies injury to the person or property of another, or is immoral or opposed to public policy.

One of the landmark case laws is Lachoo Mal v. Radhey Shyam, 1971 AIR 2213, in which an agreement was made to sell a property that was under dispute. The court held the agreement to be illegal as it involved fraudulent representation.

In SB Fraser & Co. v. Bombay Ice Manufacturing Co. Ltd., (1904) 29 ILR Bom 107, the Hon’ble Allahabad High Court, observed as under:-

“The rules of an association of traders and weigh men provided that members shall not deal with outsiders, the penalty for breach being fine and expulsion. The legality of the association was attacked on the ground that its object and methods were unlawful as it aimed at the creation of a monopoly by shutting out all competition and was a defiance of the spirit of Section 23 and 27”.