What is Contract?
1) In the words of Pollock, ‘every agreement and promises enforceable by law is contract’.
2) According to Sir William Anson, a contract is “a legally binding agreement between two or more persons by which rights are acquired by one or more to acts or forbearances on the part of the others.”
3) According to Salmond, “A contract is an agreement creating and defining oblgations between the parties.
4) According to Section 2(h) of the Contract Act, 1872, "An agreement enforceable by law is a contract."
Thus to make a contract, there must be:
a) An agreement, and
b) That agreement must be enforceable by law.
Contract = Agreement + Enforceability
What is Agreement?
An agreement becomes a contract when it is enforceable at law.
According to Section 2(e) of the Contract Act, 1872, "Every promise and every set of promises forming the consideration for each other is an agreement.”
What is promise?
According to Section 2(b) of the Contract Act, 1872, "A proposal when accepted, becomes a promise.”
Example: X offers to sell his car for ` 1,00,000 to Y. Y accepts this offer. This offer after acceptance becomes promise and this promise is treated as an agreement between X and Y.
In other words, an agreement consists of an offer by one party and its acceptance by the other.
Agreement = Proposal or Offer + Acceptance
What is Enforceability of an agreement?
It means an agreement which creates some legal obligation; if this agreement is not followed by any party to contract, he can be sued.
Example: X offers to sell his car to Y for Rs. 1,00,000. Y accepts this offer. Such an agreement between X and Y is a contract because it creates legal obligation. In this agreement, if X refuses to sell or Y refuses to buy, the other party can file a suit in the court of law for the breach of the contract.
What are the different types of Contract?
On the basis of Mode of Formation:
1. Express Contract:
A contract would be an express contract if the terms are expressed by words or in writing.
Section 9 of the Act provides that if a proposal or acceptance of any promise is made in words the promise is said to be express.
Example: X says to Y "Will you buy my car for Rs. 1,00,000?" Y says to X "I am ready to buy your car for Rs. 1,00,000." It is an express contract made orally.
Example: X writes a letter to Y, "I offer to sell my car for Rs. 1,00,000 to you." Y sends a letter to X, "I am ready to buy your car for Rs. 1,00,000." It is an express contract made in writing.
2. Implied Contract:
An implied contract is a contract which is made otherwise than by the words spoken or written. It came into existence on account of an act or conduct of the parties.
Section 9 of the Act contemplates such implied contracts when it lays down that in so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.
Example: A stops a taxi by waving his hand and boards it. There is an implied contract that A will pay the prescribed fare on reaching his destination.
3. Quasi Contract:
Quasi Contracts are contracts which are created neither by word spoken, nor written, nor by the conduct of the parties. But these are created by the law.
Example: If Mr. A leaves his goods at Mr. B’s shop by mistake, then it is for Mr. B to return the goods or to compensate the price. In fact, these contracts depend on the principle that nobody will be allowed to become rich at the expenses of the other.
On the basis of Mode of Performance:
1. Executed Contract:
It is a contract in which both the parties to the contract have performed their respective obligations under the contract.
Example: X offers to sell his car to Y for Rs. 1,00,000. Y accepts X's offer. X delivers the car to Y and Y pays Rs. 1,00,000 to X. It is an executed contract.
2. Executory Contract:
It is a contract in which both the parties to the contract have still to perform their respective obligations.
Example: X offers to sell his car to Y for Rs. 1,00,000. Y accepts X's offer. If the car has not yet been delivered by X and the price has not yet been paid by Y, it is an executory contract.
3. Partly Executed and Partly Executory Contract:
In a partly executed and partly executory contract, one party has already performed his promise and the other party has yet to execute his promise.
Example: A sells his car to B and A has delivered the car but B is yet to pay the price. For A, it is executed contract whereas it is executory contract on the part of B since the price is yet to be paid.
4. Unilateral Contract:
A unilateral contract is also known as a one-sided contract. It is a contract where only one party has to perform his promise.
5. Bilateral Contract:
In a bilateral contract both the parties have to perform their respective promises. It is also known as a two-sided contract.
On the basis of Enforceability or Validity:
1. Valid Contract:
A contract which satisfies all the conditions prescribed by law is a valid contract.
Example: X offers to marry Y. Y accepts X's offer. This is a valid contract.
2. Void Contract:
According to Section 2(j) of the Contract Act, 1872, "A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable." In other words, a void contract is a contract which was valid when entered into but which subsequently became void due to impossibility of performance, change of law or some other reason.
Example: X offers to marry Y. Y accepts X's offer. Later on Y dies. This contract was valid at the time of its formation but became void on the death of Y.
3. 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) and does not create any legal rights or obligations.
Example: An agreement with a minor or a person of unsound mind.
4. Voidable Contract:
According to Section 2(i) of the Indian Contract Act, 1872, "an agreement which is enforceable by law at the option of one or more of the parties thereon but not at the option of the other or others", is a voidable contract. It happens when consent of a party to a contract is not free. The party whose consent is not free in contract may rescind the contract within reasonable time. If he does not choose to do so, the contract will be valid and binding. The right to rescind the contract is only given to the aggrieved party whose consent is not free but not to the other party.
Example: X threatens to kill Y if he does not sell his house for Rs. 1,00,000 to X. Y sells his house to X and receives payment. Here, Y's 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. 1,00,000 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 Rs. 1,00,000 in good faith, Y cannot repudiate the contract.
5. Illegal Agreement:
An illegal agreement is one which is prohibited by law or is against public policy or is immoral. In other words, 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).
Example: X agrees to pay Y Rs. 1,00,000 if Y kills Z. Y kills Z and claims ` 1,00,000. Y cannot recover from X because the agreement between X and Y is illegal as its object is unlawful.
6. Unenforceable Contracts:
It is a 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.
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