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NATIONAL UNIVERSITY OF STUDY

AND RESEARCH IN LAW, RANCHI

Research Paper
On

DIFFERENCES BETWEEN VOID, VOIDABLE AND


ILLEGAL AGREEMENTS

Submitted to: Submitted by:


Miss Pragya Aishwarya Arushi Singh
Assistant Professor, Law Semester – 1st
Roll no. – 859
RESEARCH QUESTION

Are void and illegal agreement the same thing?


HYPOTHESIS

Differentiating illegal agreements with void


agreements, with throwing light on the fact that the
scope of void agreement is bigger than an illegal
agreement.
A void contract cannot be enforced by law. Void contracts are different from voidable
contracts, which are contracts that may be nullified.

There is no specific way that can be utilised by the country to find out the same. The Court of
law can declare any given agreement as void only after through studying of the case and then
coming down on the judgement.

An agreement to carry out an illegal trade practice is deemed as void.

For example, agreement between a drug dealer and a consumer is void, just because the object
of consideration is illegal. And that is why, if any dispute occurs neither of the parties can
actually go to the court and claim damages.

A contract related to impossibility of performance is void.

For example, if a party asks another to make all the rivers dry, such a contract would be void.
This is because the object of consideration is impossible to achieve due to action by someone
or something other than the contracting parties. This contract cannot be enforced in the court
of law, and is thus void.

 Made by incompetent parties.


 Has a bilateral mistake.
 Has unlawful consideration
 Has an unlawful object.
 Is devoid of consideration on one side.
 Restricts a person from marrying and remarrying.
 Restricts trade.
 Restricts legal proceedings.
 Has material uncertain terms.
 Has a wager, gamble or bet.
 Contingent upon the happening of an impossible event.
 Has a clause for impossible events.

Void contracts differ from voidable contracts. But often these terms are confused, as the
difference is very slight but obvious, because the type of contracts under this category is
similar.
A “void” contract cannot be enforced by either of the parties. The rule of law says that such
contracts are void ab intio, that in turn means that void contracts are not even treated as
contracts by the court, and if a contract is not treated as one in the eyes of law that itself means
that any party to this contract will have no say in the same, and that is why a void contract is
non-enforceable by either of the parties.

A “voidable” contract is non enforceable for just one party in the contract, this means it is a
valid contract. That is why it holds certain value in the eyes of law. This implies that one party
can enforce it. But, even if it is a valid contract, in this contract only one party is bound to the
contract. The unbound party has full power to cancel the contract whenever they want. Which,
then, makes the contract void.

Thus, the key difference between void and voidable contract is that in the court of law, while a
voidable contract can be performed, only if the unbound party puts an action over this and
makes the contract voidable, and a void contract is void ab intio.

When a contract is void?

(i) Void ab initio :- unenforceable from the very beginning

(ii) Void due to the impossibility of its performance.

(iii) Void agreements as per the provisions of Indian Contract Act , 1872 :-

Any agreement with a bilateral mistake is void. Where both the parties to an agreement are
under a mistake as to matter of fact essential to agreement , the agreement is void

But a contract is not voidable merely because it was caused by one of the parties to it being
under a mistake as to a matter of fact

Agreements which have unlawful consideration and objects are void.

The consideration or object of an agreement is unlawful if it is forbidden by law or of such


a nature that if permitted , it would defeat the provisions of any law or is fraudulent or
involves injury to the person or property of another or court regards it as immoral or opposed
to public policy If any part of a single consideration for one or more objects , or any one or
any part of any one of several consideration for a single object , is unlawful , the agreement
is void. But where the legal part of an agreement is severable from the illegal , the former
would be enforced.

Agreements made without consideration is void. An agreement without the consideration is


void unless :-

(i) It is made on account of natural love and affection and it is expressed in writing and
registered under the law for the time being in force.

(ii) It is a promise to compensate, a person who has already voluntarily done something for
the promisor.

(iii) It is a promise to pay a time barred debt.

Agreement in restraint of marriage of any major person is void.

Every agreement in restraint of the marriage of any person , other than a minor is void. It is
the policy of the law to discourage agreements which restrains freedom of marriage . The
restraint may be general or partial , that is to say , the party may be restrained from marrying
at all ,or from marrying for a fixed time or from marrying a particular person or class of
persons , the agreement is void.

Agreement in restraint of trade is void.

Every agreement by which anyone is restrained from exercising a lawful profession, or trade
or business of any kind , is to that extent void.

ILLEGAL AGREEMENTS

Illegal agreement, under the common law of contract, is one that the courts will not enforce
because the purpose of the agreement is to achieve an illegal end. The illegal end must result
from performance of the contract itself. The classic example of such an agreement is a
contract for murder. A contract is illegal if it is forbidden by law; or is of such nature that,
if permitted, would defeat the provisions of any law or is fraudulent; or involves or implies
injury to a person or property of another, or court regards it as immoral or opposed to public
policy. These agreements are punishable by law. These are void-ab-initio.1

1
Law of contracts by R.K Bangia
“All illegal agreements are void agreements but all void agreements are not illegal.”

However, a contract that demands only legal performance from both of the parties, such as
gambling, which is illegal but enforceable. The contract linked to gambling, will not meet the
guidelines of enforceability. Therefore, an employment contract between a dealer and the
manager, is an example agreement of an illegal agreement and the employee-employer contract
cannot have a right to claim damages if gambling is illegal under that jurisdiction.

In Bovard v.American Horse Enterprises (1988), the California Court of Appeal for the
Third District refused to enforce a contract for payment of promissory notes used for the
purchase of a company that manufactured drug paraphernalia. Although the items sold were
not actually illegal, the court refused to enforce the contract for public policy concerns.

In Royal Bank of Canada v. Newell, in which a woman forged her husband's signature on 40
cheques, totalling over $58,000. To protect her from prosecution, her husband signed a letter
of intent prepared by the bank in which he agreed to assume "all liability and responsibility"
for the forged cheques. However, the agreement was unenforceable, and struck down by the
courts, because of its essential goal, which was to "stifle a criminal prosecution." Because of
the contract's illegality, and as a result voided status, the bank was forced to return the payments
made by the husband.

Contracts with respect to restraint to trade unless the restriction valid and reasonable is not
enforceable.

Contracts in restraint of trade if proved to be reasonable can be enforced


Agreement in restraint of legal proceedings is void.

An agreement purporting to oust the jurisdiction of the courts is illegal and void on grounds
of public policy.

Section 28 of the Act renders void two kinds of agreement , namely:

 An agreement by which a party is restricted absolutely from enforcing his legal rights
arising under a contract by the usual legal proceedings in the ordinary tribunals.
 An agreement which limits the time within which the contract rights may be
enforced.

However this is also not an absolute rule and it has two exceptions to it which is as
follows :-
1. This section shall not render illegal a contract , by which two or more persons agree
that any dispute which may arise between them in respect of any subject or class of
subjects shall be referred to arbitration , and that only the amount awarded in such
arbitration shall be recoverable in respect of the dispute so referred.
2. Nor shall this section render illegal any contract in writing, by which two or more
persons agree to arbitration any question between them which has already arisen , or
affect any provision of any law in force for the time being as to references to arbitration.

But right to Appeal does not come within the purview of this section. A party to a suit may
agree not to appeal against the decision.

 An agreement the terms of which are uncertain is void. Agreements , the meaning of
which is not certain , or capable of being made certain , are void. It is a necessary
requirement that an agreement in order to be binding must be sufficiently definite to
enable the court to give it a practical meaning. An agreement to agree in the future
is void, for there is no certainty whether the parties will be able to agree.
 An agreement by way of wager (betting/gambling) is void. Agreements by way of
wager are void ; and no suit shall be brought for recovering anything alleged to be
won on any wager or entrusted to any person to abide by the result of any game or
other uncertain event on which any wager is made . The section does not define
“Wager”. But wager can be said as a promise to give money or money’s worth upon
the determination or ascertainment of an uncertain event .

This rule has two exception to it , which is as follows :-

 Horse Race:- This section does not render void a subscription or contribution, or an
agreement to subscribe or contribute , towards any plate , prize or sum of money of the
value or amount of 500 Rs. Or upwards to the winner or winners of any horse races .
 Crossword Competitions & Lottery :- If skill plays a substantial part in the result and
prizes are awarded according to the merits of the solution , the competition is not a
lottery. Otherwise it is . Thus , literary competitions which involve the application of
skill and in which an effort is made to select the best and most skilful competitor, are
not wagers. An agreement contingent upon the happening of an impossible event is
void.
“A contingent contract is a contract to do or not to do something ,if some event , collateral
to such contract ,does or does not happen . Contingent agreements to do or not to do anything
, if an impossible event happens , are void , whether the impossibility of the event is known
or not to the parties to the agreement at the time when it is made .”

Agreement to do impossible acts is void.

“An agreement to do an act impossible in itself is void . A contract to do an act which , after
the contract is made , becomes impossible ,or by reason of some event which the promisor
could not prevent becomes void when the act becomes impossible or unlawful.”

DIFFERENCE BETWEEN ILLEGAL AGREEMENT AND VOID AGREEMENTS

The above type of illustration has been judicially observed in the case of Kantilal v.
Ranchhoddas -“Now, it must be observed that the word ‘illegal’ and ‘void’ are often loosely
used as synonymous terms even by lawyers, jurists and sometimes judges. None the less for
the purposes of the present discussion it is essential to distinguish between what is illegal
and what is merely void.

“ All unlawful or illegal agreements are void; but all void agreements are not necessarily
illegal.” 2

Now this is an important distinction to be made for the purposes of how the Courts view and
approach it.

“On a true construction, (A1) i.e. (the Agreement) would be annulled or become void on the
happening of an event, i.e. if the application for subdivision of the land made to the relevant
authorities, (over which both parties had no control, not involving, of course any omission
or fault of the agent in submitting such an application), was not approved by 31 December
1977. The validity of (A1) depended on this approval of his application by this date, and the
existence of mutual obligations depended on this condition of approval by the relevant
authorities by 31 December 1977. From the evidence of the parties, forming the background
of (A1), the essentiality of the speed of approval of the application for subdivision or to put
it more succinctly its approval by 31 December 1977, was for both parties, as regards (A1),
everything or nothing. (A1) should in my view be construed as a conditional contract or

2
http://wahabohidlegalaid.blogspot.in/2012/04/what-is-difference-between-void-and.html
contract subject to a contingency, i.e. conditional on, or contingent on the approval of the
application by that specified date.”

“I hold that (A1) (i.e. the Agreement) was annulled or became void on 31 December 1977
when the application for subdivision of the land was not approved by the relevant authorities
on that day ….”

Now for illegal contracts, one needs to look at Section 24 which states:-

“The consideration or object of an agreement is lawful, unless-

(a) it is forbidden by a law;

(b)it is of such a nature that, if permitted, it would defeat any law;

(c)it is fraudulent;

(d) it involves or implies injury to the person or property of another;

(e) the court regards it as immoral, or opposed to public policy.”

For an illegal contract, the Court will set it aside. Let’s take where the Court regard the illegal
contract as immoral or opposed to public policy.

In Charles Ooi Kiah Inn v. Kukuh Maju Industries, the defendants entered into an
agreement with the plaintiff under the terms of which two civil suits were compromised. The
Defendants also executed a guarantee. The Plaintiff had, while the disputes were afoot, lodged
a police report alleging that he had been cheated. As part of the compromise the Plaintiff
agreed to withdraw the charges set out in the Police Report. Subsequently, the Plaintiff sued
on the guarantee for the balance remaining unpaid under the principal agreement. The Court
held that the agreement in question was one that stifled a prosecution and was therefore illegal.

VOID AND ILLEGAL AGREEMENT

The Indian Contract draws a clear distinction between a contract which is unlawful and one
which is void. Because an illegal agreement is forbidden by law and a void agreement, though
not void, is still not enforceable.
The key difference between the two is that an illegal agreement is punishable, and
transactions attached to it are affected whereas in a void agreement agreement per se is
not punishable and the transactions attached to it, are not affected.

DIFFERENCE BETWEEN VOID AND VOIDABLE AGREEMENT.

A void agreement is a legal contract, that is deemed as invalid from the start.

A voidable agreement is a legal contract, which is deemed as invalid by one of the participating
parties.

A void agreement is invalid, whereas voidable is agreement is made invalid by the party. In a
void agreement performance is not possible and in a voidable agreement it is. Void agreement
has no face value, voidable agreement is valid, which can be made invalid any time. In void
agreement, performance is not possible. A same is possible in voidable agreement. A void
agreement has no value in the eyes of law, unlike voidable agreement where it is made so by
one of the participating parties.

The law strictly prohibits such agreements, hence entering into an illegal agreement is called a
punishable offence in the eyes of law. Therefore, the parties are penalised for the same, under
Indian Penal Code. Some examples of an illegal agreement are like an agreement whose terms
are not certain, or an agreement to kill someone, etc.

KEY DIFFERENCES BETWEEN VOID AND VOIDABLE AGREEMENTS.

The differences between void and voidable agreements are:

A void agreement has no value in the eyes of law, from the start or lose their legal view in
between the course. And an illegal agreement is void ab intio.

A void agreement is not prohibited by Indian Penal Code (IPC), but IPC strictly prohibits an
illegal agreement. The scope a void contract is comparatively wider than an illegal contract
as all agreements which are void may not necessarily be illegal, but all illegal agreements
are void from its inception. A void agreement is not punishable under law whereas an illegal
agreement is considered as an offence, hence the parties to it are punishable and penalised
under Indian Penal Code (IPC).3

Collateral agreements of a void agreement may or may not be void i.e. they might be valid.
Conversely, collateral agreements of an illegal agreement cannot be enforceable by law as they
are void ab initio.

3
http://www.investopedia.com/terms/v/void-contract.asp
CONCLUSION

The term void means “empty” and agreement means consensus between the parties for a
certain object. That means a void agreement is an agreement which is empty, or has no value
in it.

The law strictly prohibits such agreements, hence entering into an illegal agreement is called a
punishable offence in the eyes of law. Therefore, the parties are penalised for the same, under
Indian Penal Code..

it is quite clear that the void and illegal agreement are very different. One of the factors that
make an agreement void is the illegality of the contract, such as contract whose object or
consideration is unlawful. Moreover, in both the two agreements loses its enforceability by
law.