LAW OF CONTRACT AND TYPES

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What is Law……………..
Law is a Body of Rules………..
Purpose To govern the society…..
They are made by Governing authorities..

But these Rules can be implemented by

Judicial authorities………only.

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Law of Contract

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 Meaning

The law of contracts is the most important

branch of the Business law or commercial
laws. Even it is the base of business laws.

It has vital significance not only for the

business world, but also for every one of us.

…..As we all enters into contracts of one kind

or the other in all walks of our routine life.
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 Meaning Continues…

For example…….When one buys or borrows the

essentials as well as luxuries of life, in the form of
goods or services from early morning to late evening
during the life period, one naturally enters into
contracts.

Bread, butter, home-appliances, clothes, books,

stationery, journey-tickets etc. are some of the goods
and services we buy or borrow in our daily life and for
that purposes we enter into different kinds of
contracts.
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 Meaning Continues…

In business at every moment, there may be

a transaction that gives rise to a contract.

The law of contracts is fundamental to the

existence of the business world.

Without this total business world as well as

entire economic system may collapse.
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 Legal Meaning

A contract is an Agreement between two or

more persons, creating an obligation upon
them to fulfill or not to fulfill some duties laid
down specifically in the agreement.

This agreement creates a legal relationship

of rights and duties on the parties and if
these obligations in the agreement are not
fulfilled then specific action could be taken
by courts on the defaulter parties.
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Law of Contract Continues….
In other words contract is a legally binding agreement
between two or more person and parties for a particular
purpose.

It is an exchange or promise between parties to do or

absent from doing an act, which is an enforceable by
the court of law.
CONTRACT:-
AGREEMENT + ENFORCEABILITY BY LAW

So it is true that Law of Contract is the extension of

agreement.
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 Definition - Law of Contract

1. “Every agreement and promise enforceable by Law

is a Contract”.
Sir Fredrick Pollock

2. “An agreement which create and define obligations

between the parties is Law of Contract.”
Samoans

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 Definition Continues….

3. “A contract is an agreement enforceable at law

made between two or more persons by whom
rights are acquired by one or more to acts or
absent on the part of the other or others”

Sir Pollock

4. “A contract is deliberate engagement between

competent parties, upon a legal consideration to
do or to abstain from doing some act.”

Justice Storey

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 Conclusion:-

“Every Law of Contract are Agreement,

but every Agreement are not

Law of Contract.”
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 What is Agreement
It is the combinations of three following
elements:-

Proposal + Acceptance + Consideration

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Example: -

“A is ready to buy a Cell phone from B with a

price of 20,000 Rs, and B is also agree for this
deal.

So it is an agreement first than due

enforceability by law it will treat as law of
contract.”

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 CLASSIFICATION OF CONTRACTS

ENFORCEABILI FORMATION PERFORMAN OBLIGATION

TY CE
• Express • Unilateral
• Valid Contract • Implied / • Executed • Bilateral
• Void Contract Tacit Contract
• Void Agreement • Quasi/ • Executory
• Voidable Constructive Contract
Contract
• Illegal Agreement
•Agreement
discovered to be
void
•Unenforceable
Contract
 CONTD….
 ON THE BASIS OF ENFORCEABILITY
1.- Valid Contact:- valid contract is that contract which satisfies all
the essentials of section 10 of Indian Contact Act like:- lawful
offer & acceptance, free consent, etc.
For example:- A ask B if he wants to buy his bike for Rs.10,000. B
agrees to buy bike. It is agreement which is enforceable by law.
Hence, it is contract.

2. Void Contract Sec2(j):- void contract is one which was a valid

contract when it was made but subsequently it becomes void due to
change of circumstances.
For example:- X agrees to sell his horse to Y for Rs. 5,000. but the
horse died in an accident. It become impossible to perform the
contract due to destruction of the subject. Thus, a valid contract
changes into void contract because of impossibility of
performance.
 CONTD……
3. Void Agreement :- an agreement not enforceable by law is said to be
void.
For example:- X supplies luxury goods to Y a minor for a consideration of
Rs. 10,000. Y refused to make payment. X cannot enforce the agreement in
the court of law since the agreement is void because Y is minor.

4. Voidable Contract Sec2(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
other, is voidable contract. Such a contract come into existence where of
consent of one or more parties is not free.

For example:- X promise to sell his scooter to Y for Rs. 500000. however,
the consent X has been procured by Y at a gun point. X is an aggrieved
party & the contract is voidable at his option.
 CONTD……

5. Illegal Agreement:- an agreement which is prohibited by law or

against the policy of law is known as illegal agreement.
For example:- X agrees to kill Y if Z pays him Rs.10,000. it is an
unlawful as well as void agreement.

6. Agreement discovered to be void:- an agreement whose void

nature become known to parties only subsequent to its formation
For example:- X agrees to sell his car to Y, both not knowing that
the car has been badly damaged in accident the previous night.
 CONTD……

7. Unenforceable Contract:- A contract which is valid in

all respects but because of non – fulfillment of some
technical formality, it cannot be treated as enforceable.

For example, if document is unstamped but required to be

stamped.
VOID AGREEMENT V/S VOIDABLE
CONTRACT

BASIS OF VOID AGREEMENT VOIDABLE CONTRACT

DISTINCTION
Void ab - initio Void from the beginning Valid for one party but
not for another
Missing Enforceability by Law Free consent of party
Element missing
Enforceability Cannot be enforced by Continues to be
any party enforceable as long as
both the parties give
their consent
CONTD……

 ON THE BASIS OF FORMATION

1. - Express Contract:- the contract is said to be an

express contract when terms of contract have been
agreed upon between the parties expressly i.e. oral
or written, at the time of formation.
 CONTD……
2. Implied Contract:- an implied contract is one which come into
existence by the acts, the conduct of the parties.
For example:- Order placed for a cup of coffee in a restaurant.

3. Quasi Contract:- in quasi contract, there is no intention of the

parties to form a contract but created by law.
For example:- X, a trader, leaves certain goods at house of Y by
mistake. This imposes an obligation on “Y” either to return the
goods to X or to make the payment if he treats the goods as his
own.

4. E.com Contract:- contract created on the internet.

For example:- any business deal done on internet.
CONTD…..
 ON THE BASIS OF PERFORMANCE

1.- Executed Contract:- a contract is said to be

executed contract where both the have performed their
respective obligations. It is a completed contract.
For example:- all the transactions of cash sales are
executed contract.
2. - Executory Contract:- An executory contract is one
where both the parties are yet to perform their
respective obligations. (Furniture to be made)
CONTD…..
 ON THE BASIS OF OBLIGATION

1.- Bilateral Contract:- A bilateral contract is one in which both the

parties are required to perform their obligations at the time of
formation of contract.

2. Unilateral Contract:- a contract is said to be unilateral where

one party has performed his obligation and the performance of
obligation is outstanding on the part of other party.
For example:- X buys a railway ticket for journey from Amritsar
to Delhi. X has performed his obligation under the contract by
paying the fare. But, the railways are yet to perform their duty i.e.
carrying ‘X’ from Amritsar to Delhi.
Essentials Elements of a Valid Contract
(section 10 of Indian contract act,1872)
All Contracts are agreements but all agreements are not
contracts.

Only that agreements which is enforceable by law is a contract.

An agreement, to be enforceable by law, must posses the

essential elements of a valid contract as contained in section 10 of
the Indian Contract Act.

 According to Section 10, "All agreements are contract if they are

made by the free consent of the parties, competent to contract, for
a lawful consideration and with a lawful object and are not
expressly declared to be void.
The essential elements of a valid contract are:
1. Proper Offer and Proper Acceptance. In order to create a
valid contract, there must be a 'lawful offer' by one party and
'lawful acceptance' of the same by the other party.

Section 2 (a) of the Contract Act defines Offer as – ‘when one

person signifies to another his willingness to do or to abstain
from doing anything, with a view to obtaining the assent of that
other to such act or abstinence, he is said to make an offer'.

Section 2 (b) of the Contract Act states that, ‘when the person
to whom the offer is made signifies his assent there to, the offer
is said to be accepted.
2. Intention to Create Legal Relationship. In case, there is no
such intention on the part of parties, there is no contract.
Agreements of social or domestic nature do not contemplate
legal relations.

A) An agreement to have lunch at a friend’s house is not an

agreement intending to create legal relations, Agreements
between husband and wife, generally lack the intention to create
legal relations.
3.Lawful Consideration. Consideration is an essential element of
a contract. It has been defined in various ways.

In other words of Pollock, "Consideration is the price for which the

promise of the another is brought.“

According to Blackstone "Consideration is recompense given by

the party contracting to another."

Consideration is known as quid pro-quo or something in return.

It may be in the form of money, goods and services, a promise to

marry and it may be past, present or future. But it must be real
and lawful.

It should not be unlawful, immoral and against the public policy.

4. Competency of parties. The parties to an agreement must be
competent. If either of the parties does not have the ability to
contract, the contract is not valid.

According to the following persons are incompetent to contract.

(a) Minor: A person less than age of 18 is minor.

(b) Unsound mind person: Any person who is unable to

understand the term and condition of contract at the time of its
formation is unsound mind.

(c) persons disqualified by law to which they are subject.

5. Free Consent. 'Consent' means the parties must have agreed
upon the same thing in the same sense.

According to Section 14, Consent is said to be free when it is not

caused by-

(1) Coercion (forcing someone)

(2) Undue influence (a person is induced to act otherwise than
by their own will)
(3) Fraud (wrongful deception (deceive) intended to result in
financial/personal gain)
(4) Mis-representation (an offence of giving false information)
(5) Mistake. (erroneous belief concerning something)

An agreement should be made by the free consent of the parties.

6. Lawful Object. The object of an agreement must be valid.
Object has nothing to do with consideration. It means the purpose
or design of the contract.

Thus, when one hires a house for use as a gambling house, the
object of the contract is to run a gambling house.

The Object is said to be unlawful if-

(a) it is forbidden by law;

(b) it is of such nature that if permitted it would defeat the
provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.
7. Certainty of Meaning. According to Section 29,"Agreement the
meaning of which is not Certain or capable of being made certain
are void.“

For e.g. : A agree to sell to B a 100 tonne of oil, there is nothing to

show what kind of oil intended, the agreement is void due to the
absence of certainty.

But if A is dealer of coconut oil only agree to sell B,100 tonne of

oil, the nature of A’s trade is sufficient to show the kind of oil,
and this will be a valid contract.
8. Possibility of Performance. Condition for a contract should
be capable for performance .If the act is impossible in itself,
physically or legally, if cannot be enforced at law.
9. Not Declared to be void or Illegal. The agreement though
satisfying all the conditions for a valid contract must not have
been expressly declared void by any law in force in the country.

For example agreements in restraint of trade, marriage, legal

proceedings etc.

That is : If A is not willing to marry with B, law can not enforce

him/her.
10. Legal Formalities. An oral Contract is a perfectly valid
contract, expect in those cases where writing, registration etc. is
required by some statute.

In India writing is required in cases of sale, mortgage, lease and

gift of immovable property, negotiable instruments; memorandum
and articles of association of a company, etc.

Registration is required in cases of documents coming within the

scope of section 17 of the Registration Act.

All the elements mentioned above must be in order to make a

valid contract. If any one of them is absent the agreement does
not become a contract.