Now we live in a world where we deal with contracts everywhere and each time. From early morning to late night we are being going through contracts. Sometimes where we live in our home that was contractual based even though marriage also. When we go to a restaurant and take snacks , we have entered into a contract .We do not even realize that we are making a contract . When we do business , we make contract with our partner.
In simple words, a contract means a voluntary agreement between two or more people or parties that creates a duty on each of them to do. There are many types of contracts and it must have certain basic elements .It is an agreement with specific terms between two or more persons or entities with their own consent in which there is a promise to do something in return for a valuable benefit known as consideration. Contact is at the heart of most business dealings .But contracts for illegal things are not enforceable at law. According to Section 2(h) of the Indian Contract Act “An agreement enforceable by law is a contract”.1 It means that whenever the agreement acquires the qualification of enforceability by law then it becomes a contracts. The agreements may be of two types such as agreements enforceable by law and agreements not enforceable by law. The agreements which are enforceable by law only those can be the contracts and never the others which are not enforceable by law. There may be plenty of agreement, some of which are enforceable by law.2 Suppose, an agreement to purchase 1-kg heroine is not enforceable by law and as such it cannot be a contract but an agreement for the purchase of a computer is enforceable by law and as such is a contract. In this regard, we can reach to a conclusion that all contracts are agreements, but all agreements are not contracts. Because, to be a contract it must be an agreement first of all, so a contract is necessarily an agreement. But an agreement is not necessarily a contract, suppose the above agreement to purchase heroine is not a contract since it is not enforceable by law. So, all contracts are agreement but all agreements are not contracts.
1.Cheshire and Fifoot, Law of Contract,2nd ed, p.27
2.Mckendrick,Ewan,Contract Law,4th ed , 2000, published by Palgrave , at p.41
Types of contract :
There are different types of contracts such as formal , informal , written , oral , express or implied contract , unilateral or bilateral , quasi contract etc . Contract can be written or oral . Some contracts are mandatory to be written like sale of real property . Sometimes oral contracts are taken place between two or more parties . Most of the time , they know each other and they trust each other . They have personal relationship . But written contract with signatures of the related parties are always preferred . Because written contract is one kind of legal document and prove of the agreement. Written document can solve many kinds of problems.3
Types of contracts as regards the mode of creation :
From the point of view of mode of creation a contract may be express or implied or constructive.
Express contracts :
Where both the offer and acceptance constituting an agreement enforceable at law are made in words spoken or written,it is an express contract.For example, A tells B on telephone that he offers to sell his car for Rs 20,000 and B in reply informs A that he accepts the offer , there is an express contract .
Implied contract :
Where both the offer and acceptance constituting an agreement enforceable at law are made otherwise than in words by acts and conduct of the parties, it is an implied contract .Thus, where A, a coolie in uniform takes up the luggage of B to be carried out of the Railway station without being asked by B and B allows him to do so then the law implies that B agrees to pay for the services of A and there is an implied contract.
Quasi contract :
The term ‘constructive or quasi contract’ is a misnomer. The cases grouped under this type of contracts have little no affinity with contract. Such a contract does not arise by virtue of any agreement express or implied between the parties but the law infers or recognizes a contract under certain special circumstances. For example, obligation of finder of lost goods to return them to the true owner or liability of person to whom money is paid under mistake to repay it back cannot be said to arise out of a contract even in its remotest sense, as there is neither offer and acceptance nor consent. But these are very much covered under quasi contract as per section 71 and 72 respectively.4
3.Anson’s Law of Contract,409,23nd ed by A.G. Guest (1971)
4.Balfour Vs Balfour ,1919,2 K.B. 571
Types of contracts as regards the enforceability and validity :
From the point of view of enforceability a contract may be valid or voidable or void or unenforceable or illegal.
Valid contract :
A valid contract is an agreement enforceable by law. An agreement becomes enforceable by law when all the essential elements of a valid contract as enumerated above 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”.5 Thus ,a voidable contract is one which is enforceable by law at the option of one of the parties. 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, the party whose consent was so caused ( sec 19 and 19A).6But 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 repudiate.
Void contract :
The word “void” means ‘ not binding in law’.According 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 bcomes void , when it ceases to be enforceable”. 7It follows from the definition that a void contract is not 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.
Unenforceable or unlawful contract :
The word ‘illegal’means ‘contary to law’ and the term ‘contract’ means ‘ an agreement enforceable by law’.As such to speak of an ‘illegal contract’ involves a contradiction in terms ,
5.Cheshire and Fifoot , Law of contract , 2nd ed , p.27
6.Harris Vs Nickerson , 1873,LR 8 QB 286
7.Mckendrick , Ewan, ‘Contract Law’,4th ed, 2000, published by palgrave , at p .
Because it means something like this an agreement enforceable by law and contrary to law .There is apparent contradiction in terms. Moreover, being of unlawful nature , such an agreement can never attain the status of a contract . Thus , it will be proper if we use the term ‘illegal agreement’ in place of ‘ illegal contract’. An illegal agreement is void ab-initio. An agreement is illegal and void if its object or consideration (a)is forbidden by law or (b)is of such a nature that , if permitted , it would defeat the provisions of any law ; or (c) is fraudulent ; (d) involves or implies injury to the person or property of another , or (e) the court regards it as immoral or opposed to public policy (sec23)8 Thus, an agreement to commit murder or assault or robbery or to make a gift in consideration of illicit intercourse would be illegal and void ab-initio.
Types of contracts as regards the mode of the extent of execution:
From the point of view of the extent of execution a contract may be executed or executor.
Executed contract :
A contract is said to be executed when both the parties to a contract have completely performed their share of obligation and nothing remains to be done by either party under the contract. For example, when a bookseller sells a book on cash payment it is an executed contact because both the parties have done what they were to do under the contract. 9Where only one of the parties to a contact has performed his share of obligation and the other patty is still to perform his share of obligation, then also the contract is called ‘executed’. For example , M advertise a reward of Rs 20000 to anyone who finds his missing son.B knowing the offer finds the missing boy and brings him. As soon as B traces the boy, there comes into existence an executed contract because B has performed his share of obligation and it remains for M to pay the amount of reward to B. This type of executed contracts are also called Unilateral Contracts because in such contracts only one obligation remains outstanding, the other obligation having being performed at the this of or before the formation of the contract.
Executory contract :
It is one in which both the obligations are outstanding , one on either party to the contract , either wholly or in part , at the time of the formation of the contract.10 In other words , a contract is said to be executor when either both the parties to a contract have still to perform their share of obligation in to do or there remains something to be done under the contract on both sides.
8. Mulla on The Indian Contract Act , students edition ,10th ed,p-98
9.Carlisles , Nephews & Co. Vs Ricknauth Bucktearmul(1882) 8 cal 809
10.Abdul Momen Bhuiyan V hazi POyer Ali mia 43 DLR 97
For example, where T agrees to coach R , a pre-medical student , from first day of the next month and R in consideration promises to pay T Rs 500 per month , the contract is executor because it is yet to be carried out . Similarly , where M promises to sell his car to N for Rs 10000 cash down , but N pays only Rs 1000 as earnest money and possession of car to N and promises to execute a sale deed on receipt of the full amount . The contract between M and N is executor because there remain something to be done on both sides . Executor contracts are also known as Bilateral Contracts.
General laws relating to contracts :
- Formation of contact
- Performance of contract
- Breach of contract and remedies
Laws relating to some particular types of contracts :
- Contracts of indemnity and guarantee
- Contracts of bailment and pledge
- Contract of agency
Essential elements of a valid contract :
To be enforceable by law , an agreement must possess the essential elements of a valid contract as constrained in Sections 10,29 and 56. According to section 10 , all agreements are contracts if they are made by the free consent of the parties , competent to contract , for a law full consideration , which a lawful object , are not expressly declared by the Act to be void and where necessary , satisfy the requirements of any law as to writing or attestation or registration. The essential elements of a valid contract are as follow :
- Offer and acceptance :
There must be a ‘lawful offer’ and ‘ a lawful acceptance’ of the offer , thus resulting in an agreement .The adjective ‘lawful’ implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation thereto.
11. Quenrduaine Vs Cole , 1883 , 32 WR 185
12Tinn Vs Hoffnmann Co 1873 , 29 LT 271
13.Cherishre and Fifoot , Law of Contract , p-34, 2nd ed
- Intention to create legal relation :
There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations . Agreement of a social or domestic nature do not contemplate legal relations and as such they do not give rise to a contract .An agreement to dine at a friend’s house is not an agreement intended to create legal relations and therefore is not a contract . Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts.14
- Lawful consideration :
The third essential element of a contract is the presence of ‘consideration’. Consideration has been define as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something. the something given or obtained is the price for the price for the promise and is called ‘consideration’. Subject to certain exceptions, gratuitous promise are not enforceable at law. The consideration may be an act (doing something) or forbearance ( not doing something) or a promise to do or not to do something 15.It may be past , present and future. But only consideration are valid which ‘lawful’. The consideration is lawful unless it is forbidden by law ;or is of such a nature that , if permitted it would defeat the provisions of any law; or is fraudulent ; or involves or implies injury to the person or property of another ; or is immoral ; or is opposed to public policy.
- Capacity of parties :
The parties to an agreement must be competent to contract , otherwise it cannot be enforced by a court of law. In order to be competent to contract the parties must be of the age of majority and of sound mind and must not be disqualified from contracting by any law to which they are subject ( sec-11).16 If any of the parties to the agreement suffers from minority, lunacy, drunkenness etc, the agreement is not force able at law except in some special cases , in he case of necessaries supplied to a minor or lunatic , the supplier of goods is entitled to be reimbursed from their estate.
- Free consent :
Free consent of all the parties to an agreement is another essential element of a valid contract.
14.Abdul Momen Bhuiyan V Hazi Payer Ali Mia 43 DLR 97
16.Mullah , The Indian Contract Act 10th ed , p-11
‘Contract’ means that the parties must have agreed upon the same thing in the same sense ( sec :11)There is absence of ‘free consent’, if the agreement is induced by (i)coercion (ii)undue influence (iii)fraud (iv) mis-representation (v) mistake (sec:14) .If the agreement is vibrated by any of the first four factors, the contract would be voidable and can not be enforced by the party guilty of coercion, undue influence etc. The other party can either reject their contract or accept it. Subject to the rules laid down in the Act . If the agreement is induced by mutual mistake which is material to the agreement , it would be void ( sec:20)
- Lawful object:
For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object .The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the person or property of another (sec:23).17If the object is unlawful for one or the other of the reasons mentioned above the agreement is void.
- Writing and registration:
In certain special cases it lays down that the agreement , to be valid, must be in writing or / and registered such as an arbitration agreement must be in writing as per the Arbitration and Conciliation an Act , 1996; an agreement for sale of immovable property must be in writing and registered under the Transfer of Property Act , 188218 before they can be legally enforced.
- Certainly :
Section 29 of the Contract act provides that “Agreements , the meaning of which is 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.
- Possibility of performance:
Section 56 lays down that “an agreement to do an act impossible in itself is void”. If the act is impossible in itself, physically or legally , the agreement can not be enforced at law.
- Not expressly declared void :
Sections 24-30 specify certain types of agreements which have been expressly declared to be void.19
17.Mulla , The India Contract Act,10th ed , p-11
18. Dlr 243
19.section24,The Cpontract Act ,1 872
Free consent means is an essential element of a valid contract . It is natural that for an agreement both parties to it must come to a common point . For that reason consent has become an essential element of an agreement. To constitute contract even mere consent is not sufficient ,rather the consent must be free consent according to law.
Section 13 of the Contract Act , 1872 says that-“two or more persons are said to consent when there agree upon the same thing in the same sense.”20Thus there are two statutory requirements to be a consent that the consent must be given-to the same thing and in the same sense. So, if the parties agree upon different things or in different sense then this will not be treated bas consent .
To be free consent , that must not be caused by any of these five elements-coercion, undue influence, fraud, misrepresentation and mistake. In other words, if a consent is given being affected by any of the above five elements, the consent will not be treated by law as a free consent.
In the absence of free consent , the contract may turn out to be either voidable or void depending upon the nature of the flaw in consent. When consent to an agreement is caused by coercion , undue influence , misrepresentation or fraud , there is no free consent and the contract is voidable at the option of the party whose consent was so caused (sec19 &19A) 21. But when consent is caused by ‘bilateral mistake’ as to a matter of fact essential to the agreement, the agreement is void (sec20).22.In such a case there is no consent at all.
20.section 13,the Corporate Law ,1872
21. section 19 & 19A ,The Corporate Law , 1872
22.Section 20 , The Corporate Law , 1872