Question

Choose the correct answer based on the following statements-
1. All void contracts are not necessarily illegal.
2. All illegal contracts are void.

• A. Both 1 and 2 are individually correct
• B. 1 is not correct but 2 is correct
• C. 2 is not correct but 1 is correct
• D. Both 1 and 2 are individually incorrect

Hint:

Think of it as an overlapping circle system: "Illegal" is a narrower subset inside the wider circle of "Void". Every illegal agreement is void, but every void agreement is not necessarily illegal.

Answer 1

The Correct Option is A

Concept: Under the Indian Contract Act, 1872, it is essential to distinguish between a *void agreement/contract* and an *illegal agreement*. While they appear similar because neither can be enforced by a court of law, their legal consequences and impacts on collateral transactions are vastly different.

Step 1: Evaluating Statement 1 ("All void contracts are not necessarily illegal").
An agreement can be void without violating criminal or penal statutes. For example: * An agreement with a minor is void *ab initio* (Section 11). * An agreement in restraint of marriage is void (Section 26). * An agreement in restraint of trade is void (Section 27). These agreements are simply devoid of legal effects because the law refuses to enforce them, but executing them is not a criminal offense, nor does it lead to punishment. Therefore, they are void but not illegal. This confirms that Statement 1 is completely true and correct.

Step 2: Evaluating Statement 2 ("All illegal contracts are void").
An agreement is illegal if its object or consideration is expressly forbidden by law, defeats the provisions of any law, involves injury to a person or property, or is regarded as immoral or opposed to public policy (Section 23). For example, a contract to commit a theft or smuggle prohibited goods is illegal. Because the law explicitly prohibits the core action, an illegal agreement can never be enforced under any circumstances. Hence, every single illegal agreement is automatically void from its inception. This confirms that Statement 2 is also completely true and correct.

Step 3: Assessing the effect on collateral transactions.
The core difference lies in how they affect connected activities. Transactions collateral to a simple void agreement are valid and enforceable. However, transactions collateral to an illegal agreement are tainted by the illegality and are also rendered completely void. Since both Statement 1 and Statement 2 are true, Option (A) is the correct choice.