KINDS OF A

CONTRACT

Prepared by
Ms. Charu Srivastava
Assistant Professor
CoLS, UPES
 
 The method of formation of a contract
 The time of performance/execution of contract
 The parties of the contract
 The method of formalities of the contract
  The method of legality/enforceability of the contract
 Contracts on the basis of creation:

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 Express contract: Express contract is one which is
made by words spoken or written.  
Example No. 1: X says to Y, will you buy a car for Rs.
100000? Y says to X, I am ready to buy you car for Rs.
100000. It is an express contract made rally.
 Example No. 2: X writes a letter to Y, I offer to sell my
car for Rs. 100000 to you. Y send a letter to Y, I am
ready to buy you car for Rs. 100000. It is an express
contract made in writing
 
Implied contract:  An implied contract is one which is made
otherwise than by works spoken or written. It is inferred
from the conduct of a person or the circumstance of the
particular case.  
Example:  X, a coolie in uniform picks up the bag of Y to
carry it from railway platform to the ------ without being
asked by Y to do so and Y allow it.
In this case there is an implied offer by the coolie and an
implied acceptance by the passenger. Now, there is an
implied contract between the coolie and the passenger is
bound to pay for the services of the coolie.
 
 Quasi or constructive contract Implied in Law
: It is a contract in which there is no intention either side
to make a contract, but the law imposes contract. In
such a contract rights and obligations arise not by any
agreement between the practice but by operation of
law. e.g where certain  books are delivered to a wrong
address the addresses is under an obligation to either
pay for them or return them.
 Contracts on the basis
of execution:

 Executed contract: It is a contract where both the parties to
the contract have fulfilled their respective obligations under
the contract.
Example: X offer to sell his car to Y for Rs. 1 lakh, Y accepts X
offer. X delivers the car to y and Y pays Rs. 1 lakh to X. it is an
executed contract.
 Executory contract: It is a contract where both the parties to
the contract have still to perform their respective obligations.
Example: X offers to sell his car to y for Rs. 1 lakh. Y accepts X
offer. It the car has not yet been delivered by X and the price
has not yet been paid by Y, it is an Executory contract.
 
 Partly executed and partly executory contract: It is a
contract where one of the parties to the contract has
fulfilled his obligation and the other party has still to
perform his obligation.
E.g X offers to sell his car to y for Rs. 1 lakh on a credit
of 1 month. Y accepts X offer. X sells the car to Y. here
the contract is executed as to X and Executory as to Y.
 Contracts on the basis
of enforceability:

On the basis of legality of the contract :
 Valid Contract
 Void Agreement
 Void able Contract
 Unenforceable Agreement
 Illegal Agreement
 Valid contract

A contract which satisfies all the conditions prescribed
by law is a valid contract.
According to section 2(i), it is”an agreement enforceable
by law”, an agreement becomes enforceable by law
when all the essential elements of a valid contract are
present.
 VOIDABLE
CONTRACT

 According to section 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.”
 Thus, a voidable contract is one which is enforceable
by law at the option of one of the parties only. Until
it is avoided or rescinded by the party entitled to do
so by exercising his option in that behalf, it is a valid
contract.
 
 Usually a contract becomes voidable when the consent of
one of the parties to the contract is obtained by coercion,
undue influence, misrepresentation or fraud.
 Such a contract is voidable at the option of the aggrieved
party i.e., the party whose consent was so caused (secs. 19
and 19A).
 but the aggrieved party must exercise his option of rejecting
the contract
(i) within a reasonable time, and
(ii) before the rights of third parties intervene, otherwise the
contract cannot be repudiated.
 
Illustration.
(a)         A : threatens to shoot B if he does not sell his
new Bajaj scooter to A for Rs. 2,000. B agrees. The
contract has been brought about by coercion and is
voidable at the option of B.
(b)   A intending to deceive B falsely represents that
five hundred quintals of indigo are made annually at
A’s factory, and thereby induces B to buy the factory.
The contract has been caused by fraud and is voidable
at the option of B.
 
E.g. X threatens to kill Y, if the does not sell his house for Rs.
1 lakh to X. Y sells his house to X and receives payment.
Here, Y consent has been obtained by coercion and hence this
contract is voidable at the option of Y the aggrieved party.
If Y decides to avoid the contract he will have to return Rs. 1
lakh which he had received from X.
If Y does not exercise his option to repudiate the contract
within a reasonable time and in the meantime Z purchases
that house from X for 1 lakh in good faith. Y can not
repudiate the contract.
 
(ii)   When a party to the contract promises to do a
certain thing within a specified time, but fails to do it,
then the contract becomes voidable at the option of the
promisee. If the intention of the parties was that time
should be of the essence of the contract. (sec.55)
Illustration. X Agrees to sell and deliver 10 bags of
wheat to Y for Rs. 2,5000 within one week. But X does
not supply the wheat within the specified time. The
contract becomes voidable at the option of Y.
 
Consequences of rescission of voidable contract.
Section 64 lays down the rights and obligations of the parties to a
voidable contract after it is rescinded.
The section states that when a person at whose option a contract has
become void has received any benefit from another party to such
contract, he must restore such benefit.
If an amount has been received as a security for the due
performance of the contract, such earnest money deposit is not to be
returned if the contract becomes voidable under section 55 on
account of the promisor’s failure to complete the contract at the time
agreed and has been rescinded by the promisee because it is not a
benefit received under the contract.
 Void Contract

Literally the word ‘void’ means ‘not binding in law’. Accordingly
the term. ‘void contract’ implies a useless contract which has no
legal effect at all.
Such a contract is a nullity, as for there has been no contract at all. 
Section 2(j) defines: A contract which ceases to be enforceable by
law becomes void, when it ceases to be enforceable.”
It follows form the definition that a void contract is not void from
its inception and that it is valid and binding on the parties when
originally entered but subsequent to its formation it becomes
invalid and destitute of legal effect because of certain reasons.
 
The reasons which transform a valid contract into a void contract,
as given in the contract Act. Are as follows.
(a) Supervening impossibility (sec. 56) A contract becomes void
by impossibility of performance after the formation of the of
contract for example, A and B contract to marry each other.
Before the time fixed for the marriage, A goes mad. The contract
to marry becomes void.
(b)     Subsequent illegality (sec, 56) A contract also becomes void
by subsequent illegality. For example, A agrees to sell B 100 hags
of wheat at Rs. 650 per bag. Before delivery the government bans
private trading in wheat. The contract becomes void.
 
c) Repudiation of a voidable contract.
A voidable contract becomes void, when the party,
whose consent is not free, repudiates the contract.
For example, M by threatening to murder B’s son,
makes B agree to sell his car worth Rs. 30,000 for a sum
of Rs. 10,000 only. The contract, being the result or
coercion, is voidable at the option of B. B may either
affirm or reject the contract. In case B decides to rescind
the contract, it becomes void.
 
(d)   In the case of a contract contingent on the
happening of an uncertain future event, if that event
becomes impossible. 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 (sec.32).” for example, A contracts to give
Rs. 1,000 as loan to B if he marries C. C dies without
being married to B. the contract becomes void.
 Void Agreement

 According to Section 2(g), an agreement not
enforceable by law is said to be void.
 Such agreements are void- ab- initio which means
that they are unenforceable right from the time they
are made.
 E.g. in agreement with a minor or a person of
unsound mind is void –ab-initio because a minor or
a person of unsound mind is incompetent to
contract.
 
Thus, agreement does not give rise to any legal consequences
and is void ab-initio.
In the eye of law such an agreement is no agreement at all from
its very inception.
There is absence of one or more essential elements of a valid
contract, except that of ‘free consent,’ in the case of a void
agreement.
Thus, an agreement with a minor is void ab-initio as against
him, because a minor lacks the capacity to contract.
Similarly, an agreement without consideration is void ab-initio,
of course with certain exceptions as laid down in section 25.
 
Certain agreements have been expressly declared
void in the contract act e.g., agreements which are in
restraint of trade or of marriage or of legal proceedings
or which are by way or wager.
 
A ‘void’ agreement should be distinguished from a
‘void contract’.
A ‘void agreement ‘ never amounts to a contract as it is
void ab-initio.
A ‘void contract’ is valid when it is entered into, but
subsequent to its formation something happens which
makes it unenforceable by law, notice that a
contract cannot be void ab-initio and only an agreement
can be void ab-initio.
 
Obligation of person who has received advantage
under void agreement or contract that becomes void.
In this connection section 65 lays down that 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.
Thus, this section provides for restitution of the benefit
received. Thus both parties may stand un-effected by
the transaction in the following two cases. 
 
(a)   When an agreement is discovered to be void.
In other words, when an agreement is void being discovered at a later
stage.
For example, A pays B Rs. 1,000 for B’s agreeing to sell his horse to him. It
turns out that the horse was dead at the time of the bargain, through
neither party was aware of the fact.
In this case the agreement is discovered to be void and B must repay to A
Rs. 1,000. it should, however, be noted that agreements which are known
to be void or illegal, when they are entered into, are excluded from the
purview of this section.
Thus, if L pays Rs. 10,000 to M to murder Z, the money cannot be
recovered. 
.
 
Similarly, nothing can be recovered in the case of
expressly declared void agreements, of course, subject to
the following exceptions
(i)    In the case of an agreement caused by bilateral mistake
of essential fact (although it is expressly declared void
under section 20) restitution is allowed as it comes under
the category of ‘an agreement discovered to be void.’
(ii)   In the case of an agreement with a minor who
commits fraud by misrepresenting his age (although
agreement with a minor is known to be void.) restoration is
allowed in specie on equitable grounds because a minor
cannot be allowed to cheat people, and also because the
other party has not lost his title to the thing in question.
 
b)  When a contract becomes void, restitution is also allowed in the case
of a void contract.
For example, A agrees to sell B after one month 10 quintals of wheat at
Rs. 625 per quintal and receives Rs. 500 as advance.
Soon after the contract, private sales of wheat becomes void but A
must return the sum of Rs. 500 to B.
Similarly, where after accepting Rs. 1,000 as advance for singing at a
convert for B, A is too ill to sing. A is not bound to make compensation to
B for the loss of the profits which B would have made if A would have
been able to sing, but A must refund to B the 1,000 rupees paid in
advance.
 illegal Agreement

An illegal agreement is one the object of which is
unlawful.
Such an agreement cannot be enforced by law. Thus,
illegal agreements are always void – ab- initio (i.e. void
from the very beginning) e.g. X agrees to y Rs. 1 lakh Y
kills Z. Y kill and claims Rs. 1 lakh. Y cannot recover
from X because the agreement between X and Y is
illegal and also its object is unlawful.
 Moreover, being of unlawful nature, such
an agreement can never attain the status of a contract.
Unenforceable contract:

 It is contract which is actually valid but cannot be enforced because of
some technical defect (such as not in writing, under stamped). Such
contracts can be enforced if the technical defect involved is removed.
An unenforceable contract is one which is valid in itself, but is not
capable of being enforced in a court of law because of some technical
defect such as absence of writing, registration, requisite stamp, etc.,
or time barred by the law of limitation.
For example, an oral arbitration agreement is unenforceable because
the law requires an arbitration agreement to be in writing. Similarly, a
bill of exchange or promissory note, though valid in itself, becomes
unenforceable after three years from the date the bill or note falls due,
being time barred under the limitation act.
Difference between illegal agreements and void
agreemengts

(i) An illegal agreement is narrower in scope than a
void agreement. ‘All illegal agreements are void but all
void agreements are not necessarily illegal.’ The object
or consideration of an agreement may not be contrary
to law but may still be void.
For example, an agreement with a minor is void as
against him but not illegal. Again, an agreement the
terms of which are uncertain is void but such an
agreement is not illegal.
 
The reason underlying this rule is that no person shall be allowed to
invoke the aid of the court if he is himself implicated in the illegality. On
the other hand, when an agreement is void (but not illegal), agreements
which are collateral to it are not invalidated and remain valid.
Illustrations:
(a) A engages B to murder C and borrows Rs 5,000 from D to pay B. D is
aware of the purpose of the loan. Here the agreement between A and B is
illegal and the agreement between A and D is collateral to an illegal
agreement.
As such the loan transaction is illegal and void and D cannot recover the
money. But the position will change if D is not aware of the purpose of the
loan. In that case the loan transaction is not collateral to the illegal
agreement and is a valid contract.
 
(b) In the above case if A borrows from D to pay his
wagering debts (a wagering agreement is void under
Section 30), the contract between A and D would not
have been affected even though D is aware of the
purpose of the loan because agreement collateral to a
void agreement is perfectly valid.
 The parties of the
contract

Under the method of the parties of the contract may be two kinds
 Ø Bilateral Contract
 Ø Unilateral Contract
  Bilateral Contract: There must be at last two parties to the contract.
Therefore all contracts are bilateral or multilateral.
Example: A promises B that he will sell B ten baseball cards, and B
promises to pay A one dollar.
   Unilateral Contract: In certain contracts one party has to fulfill his
obligations where as the other party has already performed his
obligations. Such a contract is called unilateral contract.
A promises to pay B $100 if B paints A’s home. A has not asked B for a
promise to paint, but rather to actually paint.
 
 The difference between unilateral and bilateral
contracts is not as important today as in the past.
However, one significant difference is the extent of
the obligations they impose. Once parties exchange
promises in bilateral contracts, they are obligated to
perform their promises. In a unilateral contract, the
non promising party is not obligated to perform and
the promisor’s obligation does not arise until the
requested act is completed.