Classification of contract.pptx

This PPT is helpful for B.com & B.com Hons students

1. Classification of Contracts/ Agreements Course Co-Ordinator : Dr . Neetu Kushwaha

2. Valid Agreement i.e. Contract: A valid agreement is a contract and “A contract is an agreement enforceable by law”. It creates legal obligations of all the parties to it. Such an agreement possesses all essentials of a contract laid down by Section. 10. Void Agreement: “An agreement not enforceable by law is said to be void.” [Sec. 2(g)] Such an agreement lacks essentials of a valid agreement. Effects: Void from beginning: The agreement is void from beginning. It does not give rise to legal obligation of either party. No restitution: ( the act of giving back something that was lost or stolen to its owner) No restitution can be granted. Any consideration passed on by the parties to each other, cannot be generally resorted. However, the law courts may on equitable ground, grant restitution where one of the parties is minor and he has misrepresented of defrauded by other.

3. Void Contract: According to Sec2(j) “A contract which ceases to be enforceable by law becomes void when it cease to be enforceable.” When a contract is valid at the time of its making but later on due to change in circumstances or in law, it becomes unenforceable, it is a void contract. Effects: Contract is Void: Contract is void, when it is discovered to be void or it becomes void due to change in circumstances. Restitution: Any person who has received any advantage under void contract, is bound to restore it to person from whom he got it. [Sec.65] Payment or compensation for performance: Any party who has received any advantage by way of part performance of a void contract (i.e. which later on becomes void) is also bound to pay or make compensation to the person from whom he received it. [Sec.65]

4. Voidable Contract: According to Sec. 2( i ), “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.” Therefore, a voidable contract is an agreement which is voidable at the option of the aggrieved party. Voidable contracts may be of two types: Voidable from the beginning Voidable subsequently _________________________________________________________________ Voidable from beginning: There are certain contracts which are voidable from the very beginning. It is so when the consent of the party is caused either coercion, undue influence, fraud or misrepresentation. The party whose consent is caused by any one of the four factors is known as aggrieved party. The aggrieved party has option either to treat the contract as void or to enforce it.

5. II. Voidable Subsequently: There are certain cases in which party may treat a contract as voidable: - On refusal of performance: When a party to a contract has refused to perform his promise in entirety, the promise may put an end to the contract, unless he has signified by words or conduct, his silent consent in its continuance. [Sec. 39] - When a party prevent another from performing: When one part to the contract prevents the other from performing a reciprocal promise, the contract becomes voidable at the option of the party so prevented. The party so prevented will entitled to compensation from the party preventing him. [Sec. 53] - When a party fails to perform within a specific time

6. Effect: Voidable at the option of aggrieved part: A contract voidable from beginning is voidable at the option of the aggrieved party. The aggrieved party may either rescinded the contract or choose to be bound by it. [Sec. 19 & Sec. 19A] Valid till rescinded: A voidable contract continues to be valid till rescinded by the aggrieved part. Other party relieved from performing: When aggrieved party rescinds the contract, the other party need not perform any promise therein contained, in which he is a promiser. [Sec. 64] Restitution: If the party rescinding the contract has received any benefit, under the contract from the other party, he must restore such benefit, so far as may be, to the other party. [Sec.64] Compensation: When a party rescinds the contract rightfully on account of non-fulfilment of the promise by other, the part is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract. [Sec. 75]

7. Illegal Agreement: An agreement which is expressly or impliedly prohibited or forbidden by law is an illegal agreement. Also, Section 23 of the Indian Contract Act clearly states that the consideration and/or object of a contract are considered lawful consideration and/or object unless they are –   Forbidden by Law When the object of a contract or the consideration of a contract is prohibited by law Consideration or Object Defeats the Provision of the Law  Fraudulent Consideration or Object Lawful consideration or object can never be fraudulent It involves or implied, injury to the person or property of another. The court regards it as immoral. The court regards it opposed to public policy.

8. Unenforceable Contract : An unenforceable contract or transaction is one that is valid but one the court will not enforce. Unenforceable is usually used in contradiction to void (or  void ab initio ) and voidable. If the parties perform the agreement, it will be valid, but the court will not compel them if they do not. Example: For example, an oral contract to buy land would not be enforceable because the Statute of Frauds requires such an agreement to be in writing. Express Contract: A contract is express when the parties state its terms & condition and show their assent by words, either oral or written. [Sec.9] Such contract made by parties face to face or with the help of letters, telegraph, phone, telex, fax, e-mail etc. Implied Contract: A contract made otherwise than in words, is called implied contract [Sec. 9]. An implied contract is inferred from the acts or conduct of the parties or by their surrounding circumstances but not by the written or spoken works of the parties.

9. Quasi Contract : It is not a real contract because it does not result from any intentional result agreement. It is not a result of exchange of promises by the parties. Therefore, it does not have all the essentials of a valid contract. Thus, a quasi contract is implied by law. It is not made by the parties but imposed by the parties by the law on the ground of principle of equity. Example: A person orders some perishable items online by providing his address and paid for the same. At the time of the delivery of the goods, the delivery man delivers it to the wrong address. The receiving party then, instead of denying the delivery, accepts the order and consumes the same. The case went to the court and the court then ordered to issue a quasi-contract according to which the recipient has to pay back the cost of the item to the party who the person who paid for the item initially. So, in this case, the benefits of the goods have been enjoyed by the receiving party, so such a receiving party is bound to give compensation to the former party .

10. Executed Contract : A contract in which all the parties to the contract have performed their respective obligation. Nothing remains to be done by any party under such contract. It is a completely performed contact.. Executory Contract: An executory contract is one in which all or something still remains to be performed by the parties. Bilateral Contract: It is one in which both the parties exchange a promise to each other. In such a contract, one party promises to perform something in the future in exchange of other party’s promise to do something. Thus, it is similar to an executory contract. Unilateral contract: A unilateral contract is one in which offeror promises to do something only when the offeree has done his desired task or act.

11. BASIS FOR COMPARISON VOID AGREEMENT VOID CONTRACT Meaning Void agreement refers to an agreement which as per law, is unenforceable and has no legal consequences. Void contract implies a valid contract, that ceases to be enforceable by law, becomes a void contract, when it lacks enforceability. Void ab-initio It is void from the very beginning. It is valid at the beginning but later on becomes void. Period of validity It is never valid. It is valid, till it does not cease to be enforceable. Causes Due to absence of one of more essentials. Due to impossibility of performance. Prerequisite of contract When the agreement is created, all the prerequisite of the contract are not satisfied, thus making it void. When the contract is entered into, all the prerequisite of the contract are satisfied, which due to certain circumstances, subsequently becomes void.

12. BASIS FOR COMPARISON VOID CONTRACT VOIDABLE CONTRACT Meaning The type of contract which cannot be enforceable is known as void contract. The contract in which one of the two parties has the option to enforce or rescind it, is known as voidable contract. Defined in Section 2 (j) of the Indian Contract Act, 1872. Section 2 ( i ) of the Indian Contract Act, 1872. Nature The contract is valid, but subsequently becomes invalid due to some reasons. The contract is valid, until the party whose consent is not free, does not revokes it. Reasons Subsequent illegality or impossibility of any act which is to be performed in the future. If the consent of the parties is not independent. Rights to party No Yes, but only to the aggrieved party. Suit for damages Not given by any party to another party for the non-performance, but any benefit received by any party must be restored back. Damages can be claimed by the aggrieved party.

13. BASIS FOR COMPARISON VOID AGREEMENT ILLEGAL AGREEMENT Meaning An agreement, which lacks legal enforceability is void agreement. An agreement whose creation is forbidden by the court of law is an illegal agreement. Consequence An agreement becomes void when it loses its enforceability by law. An illegal agreement is void ab initio i.e. void from the very beginning. Prohibition by IPC No Yes Scope Wide Narrow Penalty Parties to void agreement are not liable for any penalty under law. Parties to illegal agreement are penalized. Connected agreements May not necessarily be void, they may be valid also. All connected agreements are void.