Illegal Agreements and Collateral Agreements:

Illegal agreements are those agreements which are not enforceable by law. When any agreement is illegal, the collateral agreements which are made in reference to that illegal agreement also become void. Let us understand the concept of illegal agreements and collateral agreements in detail.

What are Illegal Agreements?

An agreement is considered illegal if it is prohibited by law. According to Section 23 of the Indian Contract Act, 1872, any agreement that is considered illegal is not enforceable by law. In such cases, the courts do not recognize the agreement, and there is no remedy available to the parties involved in the agreement.

Illegal agreements can be of various types. They can be:

1. Agreements which are prohibited by law: There are certain agreements which are prohibited by law. For example, an agreement to commit a crime, an agreement to smuggle goods, etc.

2. Agreements which are fraudulent: An agreement which involves fraud or misrepresentation is also considered illegal.

3. Agreements which are opposed to public policy: Any agreement which is against public policy is also considered illegal. For example, an agreement which is against the interest of the state or society.

What are Collateral Agreements?

Collateral agreements are those agreements which are made in reference to the main agreement. These agreements are made to fulfill the obligations of the main agreement. For example, if A borrows money from B, and C stands as a guarantor for A, then the agreement between C and B is a collateral agreement.

Effect of Illegal Agreements on Collateral Agreements:

When an agreement is illegal, all the collateral agreements which are made in reference to that agreement also become void. The reason behind this is that the collateral agreements are made to fulfill the obligations of the main agreement. If the main agreement is illegal, then there is no obligation to fulfill, and hence the collateral agreements become void.

Conclusion:

In conclusion, it can be said that when an agreement is illegal, all the collateral agreements made in reference to that agreement become void. This is because the collateral agreements are made to fulfill the obligations of the main agreement. If the main agreement is illegal, then there is no obligation to fulfill, and hence the collateral agreements become void.

Collateral agreement is a related agreement. Eg suppose there is an agreement to smuggle drugs. this is an illegal agreement. along with this there is another agreement regarding payment which was defaulted by the other party. now you cannot file a suit because this agreement is void as it is related to an illegal agreement?