PRESENTATION ON:PRESENTATION ON:KINDS OF CONTRACTSKINDS OF CONTRACTS

ON THE BASIS OF ON THE BASIS OF ENFORCEABILITYENFORCEABILITY

PREPARED BY :PREPARED BY :PALLVI ARORAPALLVI ARORA

R.NO.15R.NO.15SUBJECT:LEGAL ASPECTS OF SUBJECT:LEGAL ASPECTS OF

BUSINESSBUSINESS

LAW OF CONTRACTSLAW OF CONTRACTS

An introductionAn introduction

WHAT IS A CONTRACT ?WHAT IS A CONTRACT ?

A contract is an agreement to do or A contract is an agreement to do or not to do an act. It is a legally not to do an act. It is a legally binding agreement, which is binding agreement, which is enforceable by law. enforceable by law.

Section 2(h) of the Contract Act Section 2(h) of the Contract Act defines contract as defines contract as “an agreement “an agreement enforceable by law”. enforceable by law”.

DEFINITIONSDEFINITIONS

According to Salmond According to Salmond “Contract is an “Contract is an agreement creating and defining agreement creating and defining obligations between the parties”obligations between the parties”..

According to Sir Fredrick Pollock According to Sir Fredrick Pollock “Every agreement and promise “Every agreement and promise enforceable at law is a contract”enforceable at law is a contract”..

2 ESSENTIAL PARTS OF 2 ESSENTIAL PARTS OF CONTRACTCONTRACT

ANAGREEMENT

ITS ENFORCEABILITYAT LAW

CONTRACT

AN AGREEMENT:AN AGREEMENT:

Section 2(e) defines an agreement asSection 2(e) defines an agreement as

““every promise or every set of every promise or every set of promises forming the consideration promises forming the consideration for each other”for each other”..

Section 2(b) defines a promise asSection 2(b) defines a promise as

““ a proposal when accepted becomes aa proposal when accepted becomes a promise”.promise”.

ENFORCEABILITY AT LAW:ENFORCEABILITY AT LAW:

Creation of Creation of LEGAL RELATIONSLEGAL RELATIONS and not and not merely relations which are social or merely relations which are social or domestic in naturedomestic in nature

The leading case is:The leading case is:

Balfour Vs Balfour (1919)Balfour Vs Balfour (1919)

CLASSIFICATION OF CLASSIFICATION OF CONTRACTSCONTRACTS

The classification of contracts is done The classification of contracts is done on the basis of :on the basis of :

1.Enforceability / Validity.1.Enforceability / Validity.

2.Formation .2.Formation .

3.Performance.3.Performance.

CONTRACTS ON THE BASIS OF CONTRACTS ON THE BASIS OF ENFORCEABILITY / VALIDITYENFORCEABILITY / VALIDITY

1.Valid Contracts.1.Valid Contracts.

2.Void Contracts.2.Void Contracts.

3.Void Agreements.3.Void Agreements.

4.Voidable Contracts.4.Voidable Contracts.

5.Unenforceable Contracts.5.Unenforceable Contracts.

6.Illegal Contracts.6.Illegal Contracts.

CONTRACTS ON THE BASIS OF CONTRACTS ON THE BASIS OF FORMATIONFORMATION

1.Express Contracts.1.Express Contracts.

2.Implied Contracts.2.Implied Contracts.

3.Quasi Contracts.3.Quasi Contracts.

CONTRACTS ON TE BASIS OF CONTRACTS ON TE BASIS OF PERFORMANCEPERFORMANCE

1.Executed Contracts.1.Executed Contracts.

2.Executory Contracts2.Executory Contracts

OrOr Unilateral Contracts.Unilateral Contracts. Bilateral Contracts.Bilateral Contracts.

1.VALID CONTRACT1.VALID CONTRACT

An agreementAn agreement + = CONTRACT+ = CONTRACT EnforceabilityEnforceability At LawAt Law

Contract + Essentials of a valid= VALIDContract + Essentials of a valid= VALID Contract under Contract under

CONTRACTCONTRACT Section 10Section 10

Essentials of a valid contract under Essentials of a valid contract under Section 10 are :Section 10 are :

Offer & Acceptance.Offer & Acceptance. Intention to create legal relationship.Intention to create legal relationship. Lawful Consideration.Lawful Consideration. Capacity Of Parties.Capacity Of Parties. Free Consent.Free Consent. Lawful Object.Lawful Object. Certainity Of Meaning.Certainity Of Meaning. Possibility of Performance.Possibility of Performance. Not declared to be illegal or void.Not declared to be illegal or void. Legal formalities.Legal formalities.

EXAMPLE:EXAMPLE: A offers to sell his house to B for Rs.5 A offers to sell his house to B for Rs.5

lakhs.B agrees to buy it for this price.lakhs.B agrees to buy it for this price. This is a VALID CONTRACTThis is a VALID CONTRACT

Agreements Not fulfilling Agreements Not fulfilling INVALID INVALID the essentials the essentials CONTRACTSCONTRACTS + Legal+ Legal requirements ofrequirements of Section 10Section 10

*A contract to enter into a contract is however *A contract to enter into a contract is however not a contract.not a contract.

2.VOID CONTRACT2.VOID CONTRACT

Legal SuperveningLegal Supervening Enforceability Enforceability VOIDVOID impossibility impossibilityAt the time when ofAt the time when of entered performanceentered performance

EXAMPLEEXAMPLE:A contract between citizen of :A contract between citizen of India & Pakistan is valid at the time of India & Pakistan is valid at the time of peace but becomes void if a war peace but becomes void if a war breaks out between the 2 countries.breaks out between the 2 countries.

A void contract is not necessarily A void contract is not necessarily unlawful but it is destitute of legal unlawful but it is destitute of legal effects.effects.

Such a contract will not be enforced Such a contract will not be enforced by law.by law.

It can’t be made valid by the parties.It can’t be made valid by the parties.

3.VOID AGREEMENT3.VOID AGREEMENT

According to Section 2(g) of the According to Section 2(g) of the Contract Act Contract Act

““an agreement which is not enforceable an agreement which is not enforceable by law by either of the parties is void”.by law by either of the parties is void”.

It isIt is void ab initio void ab initio,i.e,i.e from its very from its very inceptioninception..

EXAMPLE:EXAMPLE:1.An agreement without consideration..1.An agreement without consideration..2.An agreement with a minor.2.An agreement with a minor.

VOID CONTRACT & VOID VOID CONTRACT & VOID AGREEMENT:DISTINGUISHEDAGREEMENT:DISTINGUISHED

VOID VOIDVOID VOID

CONTRACT AGREEMENTCONTRACT AGREEMENT

*A contract does *No contract comes *A contract does *No contract comes

come into existence into existence & it come into existence into existence & it

but subsequently is an agreement but subsequently is an agreement

ceases to be not enforceableceases to be not enforceable

enforceable by law at law.enforceable by law at law.

*An agreement which becomes illegal in the course of *An agreement which becomes illegal in the course of action is a void contract while a contract which is action is a void contract while a contract which is null and void ab initio is a void agreement.null and void ab initio is a void agreement.

4.VOIDABLE CONTRACT4.VOIDABLE CONTRACT

According to Section 2(i)According to Section 2(i)

““an agreement which is enforceable by an agreement which is enforceable by law at the option of one or more of the law at the option of one or more of the parties but not at the option of other parties but not at the option of other or others is a voidable contract”.or others is a voidable contract”.

Note that the wordNote that the word CONTRACT CONTRACT is used is used and not just anand not just an AGREEMENT AGREEMENT..

Rights and duties are created.Rights and duties are created. Contract is valid until the option to Contract is valid until the option to

avoid it is exercised by the person avoid it is exercised by the person whose consent to the agreement was whose consent to the agreement was not free but was obtained bynot free but was obtained by

- Coercion.- Coercion.

- Fraud.- Fraud.

- Undue influence.- Undue influence.

- Misrepresentation. - Misrepresentation.

The party who induced the consent cannot The party who induced the consent cannot take the advantage of his own fraud.take the advantage of his own fraud.

Validity &Validity & Until Until

EnforceabilityEnforceability repudiated by repudiated by

Of the VoidableOf the Voidable the party the party

ContractContract entitled to avoid it entitled to avoid it

This party is This party is not bound to repudiatenot bound to repudiate it but it but may affirmmay affirm it, in that case the other party it, in that case the other party remains bound to carry it on as agreed remains bound to carry it on as agreed

EXAMPLES :EXAMPLES :

1.1. A, a person of weak intelligence made a A, a person of weak intelligence made a gift of his entire property to B, who was gift of his entire property to B, who was in a position to dominate him. The gift in a position to dominate him. The gift having being obtained due to having being obtained due to undue undue influenceinfluence is voidable at the option of A. is voidable at the option of A.

2.2. S, intending to deceive Y, S, intending to deceive Y, falsely falsely representsrepresents that 500 maunds of indigo are that 500 maunds of indigo are made annually at X’s factory & thereby made annually at X’s factory & thereby induces Y to buy the factory. The induces Y to buy the factory. The contract is voidable at the option of Y.Y contract is voidable at the option of Y.Y can take advantage of the contract or can take advantage of the contract or repudiate it.repudiate it.

Defect of Not If Valid Defect of Not If Valid

Voidable Curable Condoned Voidable Curable Condoned ContractContract

ContractContract

TREATMENT OF DAMAGES / ANY BENEFIT TREATMENT OF DAMAGES / ANY BENEFIT FROM THE CONTRACT TO THE FROM THE CONTRACT TO THE RESCINDING PARTY.RESCINDING PARTY.

DIFFERENCE BETWEEN VOIDABLE DIFFERENCE BETWEEN VOIDABLE CONTRACT & VOID AGREEMENTCONTRACT & VOID AGREEMENT

Void Contract Void AgreementVoid Contract Void Agreement• *It is valid & *Being*It is valid & *Being

enforceable till it unenforceable at enforceable till it unenforceable at

is repudiated & law, it has nois repudiated & law, it has no

repudiated. legal effects.repudiated. legal effects.

*Defect in case of *It is void ab initio*Defect in case of *It is void ab initio

voidable contract & its defects arevoidable contract & its defects are

is curable & may be incurable.is curable & may be incurable.

condoned.condoned.

*A person is entitle *Being*A person is entitle *Being

to compensation on unenforceableto compensation on unenforceable

account for at law ,there doesaccount for at law ,there does

loss/damages for not arise any loss/damages for not arise any

non –performance question of non –performance question of

of contract compensation onof contract compensation on

account of non-account of non-

performance of theperformance of the

agreementagreement

5.UNENFORCEABLE 5.UNENFORCEABLE CONTRACTSCONTRACTS

Valid Cannot Valid Cannot Technical Technical Contract be Contract be defects likedefects like enforced enforced absence ofabsence of written form/written form/ absence of absence of proper stamp.proper stamp.*Such contracts *Such contracts cannot be provedcannot be proved in the court of in the court of

law.law.*Their *Their defectdefect has to be has to be rectified rectified for them for them to be to be

enforcedenforced by the court. by the court.*such contract must be *such contract must be sued upon by 1 or both sued upon by 1 or both

partiesparties. .

EXAMPLE:EXAMPLE:

A borrows Rs.10,000/- from B & A borrows Rs.10,000/- from B & makes a promissory note & a Re.1 makes a promissory note & a Re.1 stamp pasted on the promissory stamp pasted on the promissory note. The agreement though note. The agreement though complete is unenforceable because complete is unenforceable because of the technical defect that is the of the technical defect that is the promissory note being under promissory note being under stamped.stamped.

6.ILLEGAL AGREEMENTS6.ILLEGAL AGREEMENTS ILLEGAL AGREEMENTILLEGAL AGREEMENT

Prohibited OtherwiseProhibited Otherwise

By Law against theBy Law against the

policy of Lawpolicy of Law

**It isIt is void ab initio. void ab initio.

**All illegal agreements are void whereas all All illegal agreements are void whereas all void agreements/contracts are not void agreements/contracts are not necessarily illegal.necessarily illegal.

EXAMPLE: Agreement with a minor is void but EXAMPLE: Agreement with a minor is void but not illegal.not illegal.

• Every void agreement is not illegal unless Every void agreement is not illegal unless its object / consideration isits object / consideration is

a)Immorala)Immoral

b)Opposed to public policy etc.b)Opposed to public policy etc.

EXAMPLE:EXAMPLE:

X borrows Rs.50,000/- from Y for the purpose X borrows Rs.50,000/- from Y for the purpose of smuggling. Y knows the purpose of the of smuggling. Y knows the purpose of the loan. The agreement between X & Y is loan. The agreement between X & Y is collateral to the main agreement which is collateral to the main agreement which is illegal. The collateral agreement is also illegal. The collateral agreement is also illegal. illegal.

DISTINCTION B/W ILLEGAL & DISTINCTION B/W ILLEGAL & VOID AGREEMENTVOID AGREEMENT

Void agreementsVoid agreements are are broaderbroader in scope. Such in scope. Such agreements agreements may be voidmay be void for a reason for a reason other other thanthan illegalityillegality. All . All illegal agreements are voidillegal agreements are void..

PartiesParties to a to a void agreementvoid agreement may may notnot be be punishedpunished but parties to an but parties to an illegal agreementillegal agreement are are liable for punishmentliable for punishment..

Transactions Transactions collateral to void agreementscollateral to void agreements are are enforceableenforceable by law. However, transactions by law. However, transactions collateral to illegal agreementscollateral to illegal agreements are also tainted are also tainted with with illegality & hence become voidillegality & hence become void because ‘Ex because ‘Ex turpi causa, no oritor actio’ , i.e out of illegal turpi causa, no oritor actio’ , i.e out of illegal agreement no cause of action arises.agreement no cause of action arises.

?????? QUESTIONS ???QUESTIONS ???

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