This statement highlights a crucial distinction between 'illegal' and 'void' contracts in contract law. While both types of contracts are unenforceable, their nature, consequences, and reasons for unenforceability differ significantly.

1. Illegal Contracts:

An illegal contract is one whose formation or performance involves an act that is forbidden by law, contrary to public policy, or immoral. Such contracts are considered to be against the fundamental principles of justice and societal welfare. The law treats illegal contracts with extreme disapproval.

• Always Void: An illegal contract is always void ab initio (from the very beginning). This means it never had any legal existence and cannot be enforced by any party. The courts will not assist parties to an illegal contract, even if one party has performed their part.
• Collateral Transactions Affected: A significant consequence of illegality is that contracts collateral to an illegal contract may also be tainted and become unenforceable. For example, if a loan is taken specifically to fund an illegal activity, the loan agreement itself might be deemed unenforceable.
• No Restitution: Generally, money paid or property transferred under an illegal contract cannot be recovered, as the law leaves the parties where it finds them.

Illustration of an Illegal Contract:

• Contract to commit a crime: A contract to pay someone to assault another person is illegal. If the assault is committed, the 'assailant' cannot sue for payment, nor can the 'payer' sue for damages if the assault is not carried out. The contract is void and unenforceable.
• Contract in restraint of trade (unreasonable): While some restraints are permissible, a contract that imposes an unreasonable and excessive restraint on a person's ability to practice their profession or business might be deemed illegal and void.

2. Void Contracts:

A void contract is one that lacks legal enforceability from its inception, but not necessarily due to illegality. It may be void due to a fundamental flaw in its formation, such as lack of capacity, absence of free consent, or uncertainty of terms. While it has no legal effect, it doesn't necessarily involve a wrongful act.

• Not Always Illegal: A void contract is not always illegal. Many contracts are void for reasons that have nothing to do with unlawful conduct or public policy violations.
• Collateral Transactions Not Affected: Unlike illegal contracts, collateral transactions to a merely void contract are generally not affected and can be enforced.
• Restitution Possible: In some cases, money paid or property transferred under a void contract (not illegal) may be recoverable under the principles of restitution or unjust enrichment.

Illustration of a Void Contract (that is not illegal):

• Contract with a minor: A contract entered into with a minor (a person below the age of majority) is generally void ab initio in many jurisdictions (e.g., India). This is to protect minors, not because the contract itself is illegal. If a minor buys a non-essential item on credit, the seller cannot enforce the contract, but the act of selling to a minor is not illegal.
• Contract based on mutual mistake of fact: If both parties to a contract are under a fundamental mistake of fact essential to the agreement (e.g., unknowingly contracting for a specific horse that had died before the contract was made), the contract may be void. This is a void contract, but not an illegal one.
• Agreement without consideration: An agreement made without consideration is generally void (with some exceptions), but it is not illegal.

Conclusion:

The distinction is critical: all illegal contracts are void because they violate law or public policy, making them inherently unenforceable and often attracting severe legal consequences. However, not all void contracts are illegal; many are simply unenforceable due to technical defects or protective legal provisions, without involving any moral turpitude or unlawful purpose. The legal ramifications, particularly concerning collateral transactions and restitution, differ significantly between the two.