Void and illegal agreements distinguished

Void Vs. Illegal Agreements

1. VOID AND ILLEGAL AGREEMENTS DISTINGUISHED
AGREEMENT DEFINED:
Section 2(e) of the Indian Contract Act 1872 defines agreement as ‘every promise and every
set of promises, forming consideration for each other. When a proposal is accepted it
becomes a promise. Thus an agreement is an accepted proposal. Therefore, for an
agreement there must be a proposal, an offer by one party and acceptance by other party.
In short Agreement means Proposal + Acceptance.
VOID AGREEMENT – As per section 2(g) – Any contract which ceases to be enforceable by
law becomes void when it ceases to be enforceable.
AGREEMENTS WHICH ARE CLASSIFIED AS VOID:
1. Where both parties are under a mistake: Section 20 of the Indian Contract Act, 1872
defines that if the parties entering into contract agree to a contract by mistake or
under a false impression that agreement will be termed as void agreement. The
mistake can either be “a mistake of fact” or “a mistake of law”.
2. Agreement void, if part consideration is objects unlawful: Section 24 of the Indian
Contract Act, 1872 defines that if part consideration of an agreement is illegal and
part consideration is legal then the agreement so entered will be held as void. But if
the part consideration of the contract is divisible and can be taken as a whole, then
said unlawful consideration will be held illegal and unenforceable whereas rest of

2. the consideration of the said contract will be legal. If the consideration of the
contract is indivisible then the whole contract will be void.
3. Agreement without consideration is void unless it is in writing and registered or is a
promise to compensate for something done or is a promise to pay a debt barred by
limitation law: Section 25 of the Indian Contract Act, 1872 defines that any
agreement which is without any consideration will be void unless it entered in
writing with a promise to do something else in lieu of consideration or in lieu of a
time barred debt. In these cases the contract shall be legal and enforceable;
otherwise any agreement without any consideration is void.
4. Agreement in restraint to marriage is void: Section 26 of the Indian Contract Act,
1872 defines that any agreement with relation to marriage or in restraint to
marriage shall be void
5. Agreement in restraint to trade: Section 27 of the Indian Contract Act, 1872 defines
that any agreement which restrains to proceed with a lawful profession, trade or
business will be held void.
6. Agreement in restraint of legal proceedings is void: Section 28 of the Indian Contract
Act, 1872 defines that any agreement which absolutely restricts the rights of a
person is a void agreement.
7. Uncertain agreements are void: Section 29 of the Indian Contract Act, 1872 defines
that any agreement whose terms and conditions are not clear or certain that
agreement will be void.

3. 8. Agreement by way of wager, void: Section 30 of the Indian Contract Act, 1872 defines
that any wagering agreement where the agreement is entered upon a wager will be
void and unenforceable.
9. Contingent agreements on impossible events: Section 36 of the Indian Contract Act,
1872 defines any contingent agreements on the happening of an uncertain event is
void.
ILLEGAL AGREEMENTS
There is no proper definition of illegal agreement as such but in general terms an illegal
agreement is defined as an agreement that was made for an illegal purpose and,
consequently, violates the law in other words forbidden by law (as per section 23 of the
Indian Contract Act, 1872). Agreements are said to be illegal if the performance or
formation of the agreement will cause the parties to engage in activity that is illegal. The
illegality must relate directly to the subject matter creation of the contract and not some
intervening circumstance.
An illegal agreement is not a contract at all, and courts will not enforce them. Thus, they are
said to be “forbidden by law” or “unenforceable”.
NATURE AND EFFECT OF PROHIBITION
In case of Yango Pastrol Co. Pvt. Ltd. V. First Chicago Australia Ltd. (1978) 139 CLR 410 the
court laid down four main guidelines in which the enforceability of contract gets affected:
1. The contract may be to do something which the statute forbids.

4. 2. The contract may be one which the court expressly or impliedly prohibits.
3. The contract although lawful on its face, may be made in order to affect a purpose
which the statute renders unlawful.
4. The contract although lawful according to its own terms, may be performed in a
manner which the statute prohibits.
ILLEGAL AGREEMENTS AND VOID AGREEMENTS DISTI NGUISHED
The difference of illegal agreement and void agreement was taken up in a landmark
decision by the Supreme Court in the matter of Gherulal Parekh v. Mahadeodas AIR 1959 SC
781 the court took a view that it is not necessary that whatever is declared void is
forbidden by law. Hence what is void cannot be equated with “forbidden by law”.
In another landmark judgment of Dip Narain Singh v. Nageshwar Prasad (1929) 52 All 338,
it was observed that in case of illegal contracts, the legislature prohibits it, denies it or
penalizes it. Whereas in case of void agreements, the legislature merely refuses to give
effect to it, if the void contract has been carried out and considerations has been passed, the
promisor may not be allowed to go back upon it without restoring the benefit, but the
promisee will not get any help in case he approaches the court.
In the case of Albert Judah Judah v. Ramapada Gupta AIR 1959 Cal 715 at 728 the court took
a view that that a contract may be perfectly good and yet not enforceable in a court of
equity. On the said observation Madras High Court in the case of Ahmed Sait v. Bank of
Mysore Ltd. AIR 1930 Mad 512 held that a contract ultra vires the power of the company
under its memorandum of association cannot necessarily be held illegal.