The difference between void and illegal contracts is subtle, but important. In 1872, the Indian Contract Act defined the line between void and illegal agreements. A void agreement is most likely not allowed by law, and an agreement that is illegal is stringently not allowed by law. Both parties can be disciplined for joining an illegal agreement. Because a void agreement is invalid from the start, it doesn't have any legal consequences. No aspect of an illegal agreement is ever considered legal. 

Every illegal agreement is void, but not every void agreement is illegal. Agreements connected to an illegal agreement are void. The classic example is the illegal agreement of a murder for hire. Because murder is illegal, two parties can't make a contract to kill. If he isn't paid his fee, a hitman can't go to court and sue the other party for breach of contract because the contract is illegal and void. Some illegal agreements, including the murder for hire example, are crimes by themselves.

However, a contract can be void even if it is legal. One of the main reasons a contract would be made void is if one of the parties is incapacitated and not allowed to join a contract.

It is important to know the difference between void and illegal agreements so you know which contracts break the law. A collateral transaction that comes from a wagering transaction is not void because paying or getting payment for a lost bet is legal. It is possible for a broker to file a lawsuit against the principal to recover his commission from a wagering contract.

What Is a Void Agreement?

A void agreement means that the consensus between two parties isn't legally binding. When an agreement becomes void, it can no longer be enforced by law and loses its legally binding nature. In a void agreement, neither party has any legal rights or obligations or any kind of legal status. However, any transactions linked to a void agreement are valid. When an agreement is void, money that has been paid can be claimed back.

Certain types of agreements are considered void from the beginning according to the Indian Contract Act, including:

  • Agreement that restricts marriage
  • Agreement that restricts legal proceeding
  • Agreement that restricts trade
  • Agreement that is considered illegal
  • Wagering agreement
  • Agreement with a minor

Connected agreements are not always void and can be valid in some situations. 

What Is an Illegal Agreement?

An illegal agreement is any contract that is forbidden by law. This includes any agreement that is against the law, is criminal, or that is against public policy. Illegal agreements are invalid from their creation, meaning that agreements associated with the original contract are also considered void. Because illegal agreements are against the law, joining an illegal agreement can also bring punishment. Both parties to the agreement receive the same punishment according to the Indian Penal Code.

Illegal agreements include a contract with uncertain terms, an arrangement to hurt someone, or perform any other illegal act. In an illegal agreement, all connected agreements are void, and the money received can not be claimed or recovered.

Void Versus Voidable Contract

A void contract is considered invalid from its creation, most commonly due to not having the normal requirements of a valid contract. For example, a contract where both parties are minors is void because minors don't have legal capacity, and an agreement to traffic drugs is void and illegal because it violates the law.

However, a voidable contract starts out as a valid contract. The unbound party has the option to either affirm or reject the contract, but the bound party isn't allowed to do so. Essentially, only the unbound party can cancel the agreement within a reasonable timeframe. This most often happens when one party enters the contract without free consent.

Void contracts include things like the following:

  • Contract between legally incompetent parties or minors
  • Contract that restricts trade
  • Contract with uncertain material terms
  • Contract that involves betting or gambling

Voidable contracts include the following:

  • Contract with a party that has been misrepresented or coerced
  • Contract where one party is a minor

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