Classification of the law of contract
Kinds of Contracts as discussed in this article are-
1. Void Agreement2. Voidable Contract
3. Void Contract
4. Unenforceable Contract
5. Illegal or Unlawful Agreement
6. Express and Implied Contracts
7. Executed and Executory Contracts
8. Unilateral and Bilateral Contracts
These are discussed as follows:
1. Void Agreement
"An agreement not enforceable by law is said to be void" [Section (2)(g)].
Features:
- A void agreement does not give rise to any legal consequences. It is void ab-inito, i.e., from the very beginning. If any of the essentials of a valid contract, other than free consent, is missing, the agreement is void, i.e., it can not be enforced at courts of law. For example, a agreement with a minor or an agreement without consideration.
- Certain agreements have been expressly declared as void by the Indian Contract Act, in Sections 11,20, 23 30 and Section 56.
- There cannot be restitution of benefit under a void agreement and if something has been paid it cannot be recovered. However, when an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it (Section 65).
For example, A pays B Rs. 50,000 in consideration of B's promising to sell his car to him. The car is destroyed in an accident at the time of the promise though neither party was aware of the fact. In this case the agreement is discovered to be void and B must repay A Rs. 50,000. It should be noted that when the agreement is known to be void, no restitution is allowed. Thus, if A pays Rs. 10,000 to B to assault C, the money cannot be recovered.
2. Voidable Contract
An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract. "Section 2 (i)".
Features:
a. A voidable contract is enforceable at the option of one party.
For example, If X is forced to sign a contract, the contract is voidable at the option of X. X may either rescind (avoid or repudiate) the contract or elect to be bound by it.
b. A voidable contract continues to be good until it is avoided by the party entitled to do so.
c. The aggrieved party must exercise his option of rejecting the contract.
d. The party rescinding a voidable contract shall if, he has received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received (Section 64).
“A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”, Section 2 (j).
Features
a. The term void contract appears to be contradictory, but it is a nice way of describing a situation where a contract is valid in the beginning but becomes void subsequently. Note that a CONTRACT BECOMES VOID. IT IS NEVER VOID AB INITO.
b. A void contract is one which was valid when it was made but becomes void later on.
b. A voidable contract continues to be good until it is avoided by the party entitled to do so.
c. The aggrieved party must exercise his option of rejecting the contract.
- within a reasonable time and
- before the rights of third parties intervene, otherwise the contract cannot be repudiated.
d. The party rescinding a voidable contract shall if, he has received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received (Section 64).
3. Void Contract
“A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”, Section 2 (j).
Features
a. The term void contract appears to be contradictory, but it is a nice way of describing a situation where a contract is valid in the beginning but becomes void subsequently. Note that a CONTRACT BECOMES VOID. IT IS NEVER VOID AB INITO.
b. A void contract is one which was valid when it was made but becomes void later on.
For example, A agrees to supply liquor to B but before he gives delivery, the Government declares total prohibition. The contract becomes void. A void contract is not void from its inception and it is valid and binding on the parties when originally entered but subsequent to its formation it becomes invalid.
c. Restitution of benefit allowed when contract becomes void: According to Section 65, when a contract becomes void, the party who received any advantage under such agreement, should restore or make compensation for it to the party from whom he received it.
c. Restitution of benefit allowed when contract becomes void: According to Section 65, when a contract becomes void, the party who received any advantage under such agreement, should restore or make compensation for it to the party from whom he received it.
For example, A takes an advance of Rs. 1000 for singing at a concert for B. A is too ill to sing. A must refund to B the 1000 rupees paid in advance.
The reasons which transform a valid contract into a void contract as given in the Contract Act are as follows:
1. Supervening impossibility: (Section 56) A Contract becomes void if it becomes impossible to perform, after it is made.
The reasons which transform a valid contract into a void contract as given in the Contract Act are as follows:
1. Supervening impossibility: (Section 56) A Contract becomes void if it becomes impossible to perform, after it is made.
For example: A and B contracted to marry each other. Before the time fixed for the marriage A goes mad. In this case the contract becomes void due to subsequent impossibility.
2. Subsequent illegality: (Section 56) A Contract becomes void if it becomes illegal after it is made.
2. Subsequent illegality: (Section 56) A Contract becomes void if it becomes illegal after it is made.
For example: A agrees to sell B 100 bags of wheat at Rs. 550 per bag. Before delivery, the government bans private trading in wheat. The contract becomes void due to subsequent illegality.
3. Repudiation of a voidable contract: When a voidable contract is rescinded, the contract becomes void.
4. Subsequent impossibility of contingent event (Section 32): A contingent contract to do or not to do something on the happening of an uncertain future event, becomes void, when the event becomes impossible.
An unenforceable contract is one which suffers from some technical defect such as lack of attestation, registration or affixing of certain amount of stamps,etc.
3. Repudiation of a voidable contract: When a voidable contract is rescinded, the contract becomes void.
4. Subsequent impossibility of contingent event (Section 32): A contingent contract to do or not to do something on the happening of an uncertain future event, becomes void, when the event becomes impossible.
4. Unenforceable Contract
An unenforceable contract is one which suffers from some technical defect such as lack of attestation, registration or affixing of certain amount of stamps,etc.
It is valid in itself, but is not capable of being enforced in a court of law because of non observance of such contracts can be enforced if their technical defects are removed.
For example, the defect of under stamping can be removed by affixing the right value of stamps.
An illegal agreement is one which is contrary to law.
For example, the defect of under stamping can be removed by affixing the right value of stamps.
5. Illegal or Unlawful Agreement
An illegal agreement is one which is contrary to law.
According to Section 23, an agreement is illegal and void if its object or consideration:
a. Is forbidden by law, or
b. Is of such a nature that, if permitted, it would defeat the provisions at any law or
c. Is fraudulent, or
d. Involves or implies injury to the person or property of another, or
e. The court regards it as immoral or opposed to public policy (Section 23).
An illegal agreement may attract punishment and prosecution under criminal law. An agreement which is collateral to an illegal agreement also becomes illegal. It is like an infectious disease and is fatal not only to the main contract but to collateral transactions as well.
An express contract is created by the words of the parties, whether oral or written.
a. Is forbidden by law, or
b. Is of such a nature that, if permitted, it would defeat the provisions at any law or
c. Is fraudulent, or
d. Involves or implies injury to the person or property of another, or
e. The court regards it as immoral or opposed to public policy (Section 23).
An illegal agreement may attract punishment and prosecution under criminal law. An agreement which is collateral to an illegal agreement also becomes illegal. It is like an infectious disease and is fatal not only to the main contract but to collateral transactions as well.
6. Express and Implied Contracts
An express contract is created by the words of the parties, whether oral or written.
Section 9 of the Act says that when the proposal or acceptance is made in words (written on spoken), the promise is said to be express.
An implied contract is created by the conduct of the parties or is inferred from circumstances.
For example, A steps into a bus to go to a certain location. A is bound to pay the fare, although he has not in words promised to do so.
An executed contract is one that has been performed by all parties.
For example, A buys a TV set from B for Rs. 20,000. A pays the price and B delivers the TV. It is an executed contract. Both the parties have performed their respective obligations.
An executory contract is one where both the parties have still to perform their respective contractual obligations.
An implied contract is created by the conduct of the parties or is inferred from circumstances.
For example, A steps into a bus to go to a certain location. A is bound to pay the fare, although he has not in words promised to do so.
7. Executed and Executory Contracts
For example, A buys a TV set from B for Rs. 20,000. A pays the price and B delivers the TV. It is an executed contract. Both the parties have performed their respective obligations.
An executory contract is one where both the parties have still to perform their respective contractual obligations.
A contract may be partly executed and partly executory.
For example, A contracts to sell and deliver a TV to B for Rs. 20,000 to be paid in 3 weeks. A delivers the TV. The contract is executed as to A, executory as to B, as B has not yet paid the agreed price.
In case of a unilateral contract, only one party has to perform its obligation and the other party has already performed its obligation at the time of formation of contract or before.
For example, A contracts to sell and deliver a TV to B for Rs. 20,000 to be paid in 3 weeks. A delivers the TV. The contract is executed as to A, executory as to B, as B has not yet paid the agreed price.
8. Unilateral and Bilateral Contracts
In case of a unilateral contract, only one party has to perform its obligation and the other party has already performed its obligation at the time of formation of contract or before.
For example: If A buys a railway ticket for his journey from Delhi to Bombay, A has performed his duty under the contract by paying the fare but the railways are yet to perform their promise. i.e. of carrying him from Delhi to Bombay. A unilateral contract is partly executed and partly executory. Such contracts are also called as contracts with executed consideration or one-sided contracts.
A bilateral contract is one in which both the parties are yet to perform their respective obligations at the time of formation of contract.
A bilateral contract is one in which both the parties are yet to perform their respective obligations at the time of formation of contract.
The obligation in the contract is outstanding on the part of both the parties. They are similar to executory contracts and are called as contracts with executory consideration.
For example, B promises A that he will purchase A’s house after 6 months and A promises to pay the value of house by making sale-deed. This contract is bilateral because the performance of the obligations of A and B, where the parties to the contract, are outstanding at the time of the formation of the Contract.
For example, B promises A that he will purchase A’s house after 6 months and A promises to pay the value of house by making sale-deed. This contract is bilateral because the performance of the obligations of A and B, where the parties to the contract, are outstanding at the time of the formation of the Contract.
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This topic is explained in full detail in a youtube video created by vidhi_bodh.
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