Contract and Its Kinds

CHAPTER-1
(LEC 2)
Definition of Contract
Definition of Contract by Pollack
“every agreement and promise enforceable at law is contract.”

Definition of Contract by Salmond

“a contract is an agreement creating and defining obligations between the parties

According to Contract Act 1872 section-2(h)

“An Agreement enforceable by law is a contract.”
Elements of Contract
1. Agreement

2. Enforceability
Agreement
Every promise and every set of promises, forming the consideration for each other, is an agreement.

Social Agreement: Social Agreement: Social agreement are not enforceable because they do not
create legal obligations between the parties.
Legal Agreement: Legal agreement are enforceable because they create legal obligations
between the parties and both parties have their consent .
Enforceability
An agreement is said to be enforceable if it is recognized by court. In order to be
enforceable by law, the agreement must create legal relationship between the parties.

If an agreement does not create legal relationship, it is not a contract.

“All Contracts are agreements but all agreements are not Contracts”.
 Relationship

Is Created by

Blood Contract

Brother & Sister

Husband & Wife
Father & Son
Sale / Purchase
Employer / Employee
Landlord / Tenant
Partnership Business
Contract Act

Contract

Enforceability
Agreement
Agreement
Legal
Accepta obligatio
Offer
nce ns b/w
parties
 Contract

Division/Kinds

Formation Enforceability Performance

Formation of Contract
 Contract

Formation

Constructive
Expressed Quasi

Oral By Conduct/
Implied Contract
Written
According to Formation
According to Formation a contract has the following three kinds.
1. Express Contract.
2. Implied Contract.
3. Quasi Contract.
Express Contract
Express contract is one which is expressed in words spoken or written.
When such a contract is formed, there is no difficulty in understanding the rights, terms,
obligations and conditions of a contract.
Example:
“A” gives his house on rent to “B”, on per month 10000 Rs and for one year of period, “A”
mentioned terms and condition on a paper.
 Contract in written

Mandatory Optional

•Purchase of Immovable Property All contacts may be

•Charter Party Contract made by words of
•Agreement on the basis of love & affection mouth except a few
•Agreement for time barred debt contracts
 Usefulness of Written Contract

Documentary Easily preserve No party can

Proof For a longer period Easily deny

Less disputes
As some disputes arises as one party forgets

Law considers Written evidence more powerful than Oral

Implied Contract/By Conduct:
An implied contract is made without any words spoken and written, It arise from acts, conduct
of parties, course of dealing or circumstances.

Example:
“A” went into a restaurant and had a cup of tea. It is implied contract that A will pay for the cup
of tea
 Implied Contract / By Conduct

Mean

Silently allow other

Body Language Person to enter into
A contract

Here words &

Written form are not
Shared b/w parties
Quasi Contract
In a quasi contract, the law imposes certain obligations under some special circumstances.
It is based upon the principle of equity that a person shall not get allowed to get benefit at the
cost of another.
Example: “A” finds lost goods of “B” . “A” is bound legally to return goods back to “B”
Enforceability of the
Contract
 Contract

Enforceability

Valid Void-able Void

Fully Aggrieved
Can not be
Enforceable Party may
Enforceable
By law/ court Make
By Court
Contract as
Or Law
Valid Contract:
A valid contract is enforceable by law, An agreement becomes enforceable by law when all the
essentials of a valid contract are present.
Obligations of Parties: In a valid contract, all parties are legally responsible for the performance
of the contract, if one of the parties breaches the contract, the other party can enforce it
through court of law.
Example: If “A” agrees to sell a car to “B”, if it fulfills all the essentials of a contract, it is a valid
contract.
If “A” fails to deliver the car, “B” can sue him and if “B” fails to pay agreed amount, so “A” can
sue him to re cover his amount.
Void Contract:
The term void means not binding by the law. A contract which is not enforceable by law is a void
contract.
Obligations of Parties: A contract becomes void due to impossibility to performance. A contract
becomes void before performance when it becomes impossible to be performed by any party.
Void Contract:
A contract becomes “void” before performance when it becomes impossible to be performed
by any party due to following reasons.
Impossibility to performance
Consequently illegality
Rejection of voidable contract
Impossibility of depending event
Void Agreement
An agreement not enforceable by law is said to be void. The void agreement does not creates
any legal obligations on among parties. An agreement which is void from the beginning is void
agreement.

Example: “A” promise to buy a cow from “B” for 25000Rs/= . The cow was dead before the
contract. Both parties were unaware. The agreement is void.
Voidable Contract:
It is voidable contract when the consent of one of the parties is not free, contract which has
been made on by using false means, through fraud and mispresentation.

Example: “D” forced “Q” to sell his car at gunpoint. OR “A” deceives “B” by stating that his
factory produces 10 million kg of sugar monthly and induces “B” to buy it. The contract is
voidable.
Unenforceable contract:
An unenforceable contract is that contract which cannot be enforced in a court of law because
of some technical defects and faults such as absence of writing, registration, requisite stamp etc.
Example: “A” borrow Rs. 1 billion from “B” and makes a pronote on a Rs.10 stamp paper, it is
unenforceable because pronote is undervalued.
Performance of the
Contract
 Contract

Performance

Executory Executed

Spot
Unilateral Bilateral Ready
Contract Contract Contract
According to Performance:
According to performance a contract is of following two kinds.
Executed Contract:
A contract is said to be executed when both the parties have completely performed their
obligations. It means that nothing remains to be done by either party under the contract.
Executory:
In an executory contract something remains to be done. In other words, a contract is said to be
executory when both parties to a contract have yet to perform their obligations.
 Executed Contract

Delivery Payment
100% on 100% on
Spot Spot
 Executory Contract

Unilateral

Case -1 Case-2

Delivery Delivery Payment

Payment Part now 100% Part now
100% now Remaining Now Remaining
in future in future
Full Delivery Full Payment
in Future in Future
 Executory Contract

Bilateral

Delivery Payment in
In Future Future

Today just
Words are shared
 Bilateral Contract

Performance

Executed Contract
Executory Contract

Both parties do their

Future/ Forward part of work at the
Contract time of contract

Both parties are

Bound to do Spot/ Ready basis
as per contract
 Unilateral Contract

Performance

One party has done Other party is to

His part of act Do his part of act

Before contract or At the time of

At the time of Formation of contract
contract

After the Formation

Of Contract
 Unilateral Contract

Buying of Goods

Advance Payment Delivery of Goods

100% By Seller

At the time of
Contract In Future Date
Essentials of a Valid
Contract
Essentials of a Valid
Contract
Contract Act
According to Section 2 (h) of the Contract Act, “an agreement enforceable by
law is a contract.”
It means an agreement is regarded as a control when it is enforceable by law. It
is a contract, which can be enforced by either of the parties to the contract.
If one of the parties refuses to perform the contract, the other party can take an
action in a court of law against such party.
To be enforceable by law, an agreement must possess some essentials of a valid
contract, which are stated in section 10.
Essentials of valid Contract
1. Offers and Acceptance 6. Lawful Objects
2. Legal Relationship 7. Writting and Registration
3. Lawful Consideration 8. Certainity
4. Capacity of Parties 9. Possibility of Performance
5. Free Consent 10. Not Expressly Declared Void
 Offer and Acceptance

 At least two parties to an agreement

 one party making the offer and the other accepting it
 Terms of the offer must be definite
 Acceptance must be absolute and unconditional
 Acceptance must be as prescribed
Example:
A say to B that he will sell his cycle to him for Rs.2000. This is an offer. If B
accepts this offer, there is an acceptance.
Intention to create legal relationship

When two parties enter into an agreement, their intention must be to

create legal relationship between them, otherwise there is no contract
between them.

Example:
1. A father promises to pay his son Rs.500 every month as pocket money. Later, he
refuses to pay. The son cannot recover as it is a social agreement and does not create
legal relations.
Lawful consideration

o To be enforceable by law an agreement must be supported by

consideration

o ‘Consideration’ means advantage or benefit moving from one party to

the other

o Consideration need not be in cash or kind

o It may be an act or abstinence

o A promise to do something or getting nothing in return is usually not

enforceable by law.
Lawful consideration
Example:
1. A agrees to sell his house to B for Rs.10 Lac is the consideration for A’s
promise to sell the house, and A’s promise to sell the house is the consideration
for B’s promise to pay Rs.10 Lac. These are lawful considerations.

2. A promise to obtain for B employment in the public service, and B promise to

pay 10,000 rupees to A. the agreement is void, as the consideration for it is
unlawful.
Capacity of parties-Competency

The parties to the agreement must be capable of entering in to

a valid contract
Every person is competent to contract if they;
o are of the age of majority
o are of sound mind
o are not disqualified from contracting by any law to which they are
subject
Capacity of parties-Competency
If one of the parties to the agreement suffers from minority,
madness, drunkenness etc., the agreement is not enforceable at
law, except in some cases.

Example:
1. M, a person of unsound mind, enters into an agreement with S to sell his
house for Rs.2 lac. It is not a valid contract because M is not competent to
contract.
2. A, aged 20 promises to sell his car to B for Rs.3 Lac. It is a valid contract
because A is competent to contract.
Free and genuine consent

There must be free and genuine consent of the parties to

the agreement.

There is absence of free consent if the agreement is induced by

coercion, undue influence, fraud, misrepresentation.

Example:
1. A compels B to enter into a contract on the point of pistol. It is not a
valid contract as the consent of B is not free.
Lawful object
The object of the agreement must be lawful

In other words, it means that the object must not be;

o illegal
o immoral
o opposed to public policy

Example:
A promise to pay B Rs.5 thousand if B beats C. The agreement is illegal as
its object is unlawful.
Writing and Registration:
According to Contract Act, a contract may be oral or in writing. It is
essential for the validity of a contact that it must be in writing signed
and attested by witness and registered if so required by the law.
Example:
1. A Verbally promises to sell his book to y for Rs.200 it is a valid contract
because the law does not require it to be in writing.
2. A verbally promises to sell his house to B it is not a valid contract because
the law requires that the contract of immovable property must be in writing.
Certainity
According to the Contract Act, “Agreements the meaning of which are not certain
or capable of being made certain are void.”
In order to give rise to a valid contract the terms of the agreement, must not be
vague or uncertain. For a valid contract, the terms and conditions of an
agreement must be clear and certain.
Example:
1. A promised to sell 20 books to B. It is not clear which books A has promised to sell. The
agreement is void because the terms are not clear.

2. A agrees to sell B a hundred tons of oil. It is not clear what is the kind of oil. The
agreement is void because of it uncertainty.
Possibility of Performance
The valid contract must be capable of performance section 56 lays
down that. “An agreement to do an act impossible in itself is void.” If
the act is legally or physically impossible to perform, the agreement
cannot be enforced at law.
Example:
1. A agrees with B to discover treasure by magic, the agreement is not
enforceable.
2. A agrees with B to put life into B’s dead brother. The agreement is void as it
is impossible of performance.
Not Expressly Declared Void
An agreement must not be one of those, which have been expressly
declared to be void by the Act.

Example:
A promise to close his business against the promise of B to pay him Rs.2 lac is a
void agreement because it is restraint of trade.
Not Expressly Declared Void
Under different sections of the Contract Act,, (v) Agreements having no consideration.
the following agreements have been said to be
expressly void :- (vi) Agreements in restraint of marriage.

(i) Agreements made with the parties having no
contractual capacity, e.g. minor and person of
unsound mind.
(ii) Agreements made under a mutual mistake
of fact.
(iii) Agreements with unlawful consideration or
object.
(vii) Agreements in restraint of trade.
(viii) Agreements in restraint of legal
proceedings.
(ix) Agreements, the meaning of which is
uncertain.
(x) Agreements by way of wager

(iv) Agreements, whose consideration or object (xi) Agreements to do impossible acts

is unlawful in part.
Discharge of a Contract
¨By Following modes in which a contract may be discharged.
¨By Performance
¨By Mutual Agreement
¨By impossibility of Performance
¨By Operation of Law
¨ By Breach
By Performance :
When the parties to the contract have duly performed their respective
promises undertaken by them, the contract comes to an end.

By Mutual Agreement:
A contract comes into being by the agreement between two parties,
therefore it may also be discharged by their mutual agreement and
willingness.
By the impossibility to perform:
If the performance of contract becomes, v or turns out to be, impossible,
the parties to the contract are discharged from their respective obligations.
By Operation of Law:
Some times the performance of a contract is discharged by the operation
of some law. For instance, is soon as a person is discharged by an order of
court.
By Breach:
When one party to the contract breaks the contract by non performance of the promise or
otherwise, the other party is discharged from his obligation under the contract and has right of
action against the party responsible for the breach.