In Pakistan Contract Act, 1872 there is a subtle but important distinction in the middle of void and illegal agreements.

A void agreement is agreement that is not legally enforceable, but an illegal agreement is entirely restricted by law and the parties of agreement can be punished for going into such an agreement.

In this article we are going to explain the contrasts between two types of agreement i.e. void agreement and illegal agreement, which help you to understand these agreements.

Void Agreement

The term “void” indicates that there is no legal binding and “agreement” refers mutual understanding between parties regards to a strategy. To just, a void agreement is agreement that is not lawfully binding, that is an agreement which don’t have enforceability by law is void.

A void agreement loses its lawful binding nature when pronounced void. Such form of agreement does not make any rights and commitments for parties, and additionally the parties don’t get any legitimate status. The transactions related to the void agreement will valid depending on the nature of the arrangment.

Illegal Agreement

An illegal agreement is agreement that breaches any law or is criminal or is against any open strategy or improper, is an illegal agreement. These agreements called as void from just the start thus the collateral agreements are additionally void.

The agreements are entirely disallowed by law, thus going into an unlawful agreement results the penalized the parties. Thusly, the parties are punished for the same under law.

For more insights into state-prohibited matters, check the Difference between Gnostic and Agnostic—which also deals with classification based on legal or philosophical belief systems.

Void Agreement Vs Illegal Agreement

Aspect Void Agreement Illegal Agreement
Meaning A void agreement is an agreement which does not have legal enforceability. An illegal agreement is an agreement whose formation is prohibited by the law of state.
Effect A void agreement turns into void when an agreement gives up its enforceability by the law. An illegal agreement turns into void from the start of the agreement.
Prohibited A void agreement is an agreement which is not restricted or banned by the law of state. An illegal agreement is an agreement which is restricted or banned by the law of state.
Punishment In void agreement, parties that are involved in void agreement are not accountable for any punishment under law. In illegal agreement, parties that are involved in illegal agreement are accountable for punishment and they are penalized.
Scope The scope of a void agreement is nearly more extensive. The scope of an illegal agreement is narrow.
Nature All void agreements are not said as an illegal agreement. An illegal agreement can be said as a void agreement.
Object In void agreement, the object is not said as illegal. In an illegal agreement, the object is said as illegal.
Collateral Agreement Collateral agreement related to void agreement can be valid or void. Collateral agreements related to an illegal agreement are void from the beginning of the agreement so they can’t be enforced.
Restoration In a void agreement, money paid can be claimed back. In an illegal agreement, the money got must not be returned to next party or can’t be claimed.

The Legal Fine Line: Harmless or Harmful?

Most people feel that if a contract is unenforceable, it means it is illegal. Not necessarily. For legal purposes, void contracts are simply those without legal force—they’re not bad, they just cannot be enforced. An example is two friends doing a deal on a business venture with no written contract or terms—if things go wrong, the deal cannot be enforced, but it is not illegal.

Illegal contracts, however, are an exception. Those are activities illicit or contrary to public interest—such as dealing drugs, bribe taking, or frauds. In them, the concern is not exactly that one may be unable to enforce the contract—it’s just that the contract itself is prohibited.

It is extremely important to realize this difference, particularly for new entrepreneurs or legalists. If you enter into a void contract by mistake, you might lose protection of law, but you are not a criminal. But if you enter into an illegal contract even by mistake, you may become legally liable.

Also, collateral contracts can win or lose your case. In void contracts, related transactions can be valid. In illegal contracts, everything related to it becomes legally impacted.

This is the reason why it is crucial to seek advice from legal experts and have knowledge about the nature of your contracts. For better functional comparisons in law, you might also enjoy Difference between Standard Insurance and Non-Standard Insurance—which touches on the issue of legality in financial protection devices.