Kinds Of Contract :
By Chartered Accountant
1. According To Enforceability :
According to enforceability, a contract can be divided as under:
(a) Valid contract :
A valid contract is enforceable by law. An agreement becomes enforceable my law when all essentials of a valid contract are present.
Obligation Of Parties :
In valid contract all the 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 the court of law.
EXAMPLES :
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, A can sue him.
(b) Void Contract :
The word void means not binding in law. Section 2(j) defines " A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. " It means that a void contract is not void from the beginning. It is valid contract wen it is made but subsequently it becomes void due to certain reasons. A contract becomes void under the following circumstances:
1. Impossibility Of Performance :
A contract becomes void due to impossibility of performance. A contract becomes void before performance, when it becomes impossible to be performed by any party due to any reason. ( Sec 56).
By Chartered Accountant
1. According To Enforceability :
According to enforceability, a contract can be divided as under:
(a) Valid contract :
A valid contract is enforceable by law. An agreement becomes enforceable my law when all essentials of a valid contract are present.
Obligation Of Parties :
In valid contract all the 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 the court of law.
EXAMPLES :
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, A can sue him.
(b) Void Contract :
The word void means not binding in law. Section 2(j) defines " A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. " It means that a void contract is not void from the beginning. It is valid contract wen it is made but subsequently it becomes void due to certain reasons. A contract becomes void under the following circumstances:
1. Impossibility Of Performance :
A contract becomes void due to impossibility of performance. A contract becomes void before performance, when it becomes impossible to be performed by any party due to any reason. ( Sec 56).
EXAMPLES :
A agrees to sell his house to B after two days. His house is burnt next day. The contract becomes void.
2. Subsequent Illegality :
A agrees to sell 100 bags of wheat to B. Before delivery the government bans private trade in wheat. The contract becomes void.
3. Rejection of a Voidable Contract :
A voidable contract becomes void when the part whose consent is not free rejects the contract. ( Sec. 19)
EXAMPLES :
A forcibly buys B's car for Rs. 20,000 only. The contract is voidable at the option of B. B may accept or reject it. If B rejects the contract it becomes void.
4. Impossibility Of Depending Event :
A contingent contract is that, the performance of which depends upon the happening or non-happening of a certain event. It becomes void, when that event does not happen. (Sec. 32)
EXAMPLES :
A contract to give Rs. 1 lac to B, if B gets admission in Heiley College. B fails to get admission. The contract becomes void.
Obligation Of Parties :
In void contract both the parties are not legally responsible to fulfill the contract. Under this contract the party who has received any benefit is bound to return it to the their party.
(c) Void Agreement :
An agreement not enforceable by law is said to be void. The void agreement does not create legal obligations among the parties and is void ab-initio. In void agreement there is absence of one or more essentials of valid contract except free consent. An agreement with minor and an agreement without consideration is void from the beginning. (Sec. 2 (g)).
Obligation Of Parties :
In void agreement, any party who has received any advantage is bound to restore it to the party from which he received it. Both the parties are not responsible from the performance of the agreement.
EXAMPLE :
A promises to buy a dog from B for Rs. 10,000. The dog was dead before the contract The parties were unaware. The agreement is void.
(d) 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."
A contract is voidable when the consent of one of the parties is not free. It is a valid contract until t is avoided by the party having the right to avoid it. When it is avoided it becomes void. If the party decides to confirm it, it remains valid. A contract becomes voidable under following circumstances.
1. A contract becomes voidable when the consent of one or more of the parties to a contract is obtained by coercion, undue influence, misrepresentation or fraud. ( Sec. 15-18)
EXAMPLES :
(a) A, threatens B to purchase his car for Rs 5 lac. B agrees . The contract is made by coercion and is voidable at the option of B.
(b) A deceives B by stating his factory produces 500 kg of sugar daily and thus induces B to buy it. The contract is voidable at the option of B.
2. When a person promises to do something for another person but the other person prevents him from performing his promise, the contract becomes voidable at his option. (Sec. 53)
EXAMPLES :
A contracts to paint B's house. A is ready to paint but B prevents him from doing so. This contract is voidable at the option of A.
3. 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 time is essence of the contract. (Sec. 55)
EXAMPLES :
A contracts to paint B's house within one week. A, does not come within the specified time. The contract is voidable at the option of B.
Obligation Of Parties :
The following are the obligation of the parties.
1. It is valid for both the parties if it continues.
2. The law gives an option to one of the parties to avoid it.
3. The party entitled to cancel the contract is not bound to cancel. If he confirms it, the other party remains bound to perform.
4. The aggrieved party can get damages from the other party.
5. If one has received some benefit he must return it to the other.
Burden Of Proof :
The burden Of proof lies on plaintiff, i.e., an aggrieved party. It means that the party, who claims that his consent is unfree, has to prove in the court of law. If he fails to prove, the contract remains valid.
(e) Unenforceable contract :
An unenforceable contract is that which cannot be enforced in a court of law because of some technical defects such as absence of writing, registration, requisite stamp, etc. When these defects are removed, the contract can be enforced.
EXAMPLE :
A borrows Rs. 1 billion from B and makes a pronote on a Rs. 10 stamp paper. It is unenforceable because pronote is undervalued.
Obligation Of Parties :
In unenforceable contract, the parties may perform the contract. But in breach of such contract, the aggrieved party is not entitled to legal remedies.
(f) Illegal Agreement :
An illegal agreement is illegal when its performance is forbidden by any law. Such an agreement can never become a contract. An agreement is illegal and void if 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 it involves injury to the person or property of another or the Court regards it as immoral, or opposed to public policy. (Sec. 23)
EXAMPLE :
A gives money to B, a smuggler to buy smuggled goods. Such agreement is illegal and the money cannot be recovered.
Obligation Of Parties :
The parties to this agreement are not responsible to perform their promises. There is a punishment for the parties according to law also.
(a) A, threatens B to purchase his car for Rs 5 lac. B agrees . The contract is made by coercion and is voidable at the option of B.
(b) A deceives B by stating his factory produces 500 kg of sugar daily and thus induces B to buy it. The contract is voidable at the option of B.
2. When a person promises to do something for another person but the other person prevents him from performing his promise, the contract becomes voidable at his option. (Sec. 53)
EXAMPLES :
A contracts to paint B's house. A is ready to paint but B prevents him from doing so. This contract is voidable at the option of A.
3. 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 time is essence of the contract. (Sec. 55)
EXAMPLES :
A contracts to paint B's house within one week. A, does not come within the specified time. The contract is voidable at the option of B.
Obligation Of Parties :
The following are the obligation of the parties.
1. It is valid for both the parties if it continues.
2. The law gives an option to one of the parties to avoid it.
3. The party entitled to cancel the contract is not bound to cancel. If he confirms it, the other party remains bound to perform.
4. The aggrieved party can get damages from the other party.
5. If one has received some benefit he must return it to the other.
Burden Of Proof :
The burden Of proof lies on plaintiff, i.e., an aggrieved party. It means that the party, who claims that his consent is unfree, has to prove in the court of law. If he fails to prove, the contract remains valid.
(e) Unenforceable contract :
An unenforceable contract is that which cannot be enforced in a court of law because of some technical defects such as absence of writing, registration, requisite stamp, etc. When these defects are removed, the contract can be enforced.
EXAMPLE :
A borrows Rs. 1 billion from B and makes a pronote on a Rs. 10 stamp paper. It is unenforceable because pronote is undervalued.
Obligation Of Parties :
In unenforceable contract, the parties may perform the contract. But in breach of such contract, the aggrieved party is not entitled to legal remedies.
(f) Illegal Agreement :
An illegal agreement is illegal when its performance is forbidden by any law. Such an agreement can never become a contract. An agreement is illegal and void if 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 it involves injury to the person or property of another or the Court regards it as immoral, or opposed to public policy. (Sec. 23)
EXAMPLE :
A gives money to B, a smuggler to buy smuggled goods. Such agreement is illegal and the money cannot be recovered.
Obligation Of Parties :
The parties to this agreement are not responsible to perform their promises. There is a punishment for the parties according to law also.
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