Introduction

Contracts can cover an extremely broad range of matters, including the sale of goods or real property, the terms of employment or of an independent contractor relationship, the settlement of a dispute, and ownership of intellectual property development as part of a work for hire. From dawn to dusk, we enter a number of contracts, such as engaging a plumber to set right a leaking tap, giving clothes for dry cleaning, hiring a motorcar etc.

The Law of Contract plays an important role in this case. It consists of certain legal rules that are related to:

l. The promises
2.  The formation of contract
3.  Their performance
4. Their enforceability

What is a Contract?

Section 2(h) of the Indian Contract Act, 1872 defines a contract as “an Agreement enforceable by law”. The law governing contracts entered into between persons in India comprises both Indian law and general principles of law that are established and accepted in the United Kingdom, also called “English Law” of “Common Law”.
The term ‘Contract’ is derived from the Latin term ‘Contractum’ which means drawn together.

AGREEMENT + LEGAL OBLIGATION = CONTRACT

What is an Agreement?

Agreement is a result of an offer that has been accepted by the person to whom the offer was made initially. Every promise and every set of promises, forming the consideration for each other, is an agreement [S.2(e)]. Agreement is otherwise called as promise. An agreement is created when an offer is accepted by the offered. When an offer is accepted it becomes a promise.

OFFER + ACCEPTANCE = AGREEMENT

All contracts are agreements but all agreements are not contracts.
1.        All agreements are not contract except those agreements which created legal obligations and enforceable by law are called as contract.
2.        An agreement which creates moral obligation is not enforceable by law hence it is not a contract. All other types of agreements are simple promises but not contracts
3.        The term ‘enforceable by law’ implies that an agreement must fulfill certain conditions. Those conditions are broadly called as the essentials of a ‘Valid Contract’

An Agreement is not a Contract if:

1 It creates only moral obligation
2 It is without consideration
3 The parties are not competent to contract
4 Has uncertain terms and conditions
5 The object of which is unlawful
6 It is about absolutely impossible act

Classification of Contract

Mistake of Facts:

l  Unilateral
2 Bilateral

Mistake of Law:

l  Foreign Law
2 Mistake of Private Right

Types of Contracts

Two contracts on the basis of Creation are:
1. Valid Contract: A contract that satisfies all the essential elements prescribed by law. It is enforceable by both the parties.
2. Void Contract: An agreement where in any of the essential elements of a valid contract is missing.
3. Voidable Contract: A contract where in free and voluntary consent of one of the parties is missing and hence the party whose consent is not free can avoid the contract.

Essential Elements of a Valid Contract

l  Offer and Acceptance
2 Intention to Create Legal Relations
3 Consensus Ad Idem
4 Minimum two parties
5 Not expressly declared void
6 Lawful consideration
7 Capacity of parties
8 The parties must have legal capacity to enter into a contract
9 Free consent
l0 Lawful object
l1 Writing and Registration
l2 Legal Formalities
l3 Possibility of performance
l4 Certainty

What is Voidable Contract?

It is defined under the Contract Act as “an agreement enforceable by law at the option of one or more of the parties there to, but not at the option of the other/others”.
A contract become voidable when:
l  When free and voluntary consent of a party to the contract gets affected.
2 When a party to the contract promise to do a certain thing within a specified time, but fails to do it as, time is essence of the contract.
l  When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, then the contract becomes voidable at the option of the party so prevented.
For Example: Rudra threatens to shoot Partho if Partho refuses to sell his 10 acres of land to him for Rs. 3.5 lakhs. The contract has been affected using coercion and is voidable at the option of Partho.

What is a Void Agreement?

Section 2 (g) of the Contract Act defines the term void agreement as “an agreement not enforceable by law.
The Contract Act declares the following agreements as void agreements:
l  Minor contracts (S. 11)
2 Agreement made under a mutual mistake of fact (S. 20)
3 Agreement where the consideration or the object of which is unlawful (S. 23)
4  Agreement in restraint of marriage (S. 26)
5 Agreement in restraint of trade (S. 27)
6 Agreement in restraint of legal proceeding (S.28)
7 Agreement where the meaning of which is uncertain (S. 29)
8 Wagering agreement (S. 30)
9 Agreement to do the impossible act (S. 58)

What is a Void Contract?

“Void” means unenforceable. A contract which cannot be performed and which becomes infructuous because of the conditions specified above. “Void” means that the parties to the contract are no more required to perform their respective obligations. Since the very definition of contract states “an agreement enforceable by Law”, an agreement which cannot be enforced by Law is a Void agreement.

Difference between a Void Agreement and a Void Contract

Void Agreement
Void Contract
It is void from the beginning.
It becomes void subsequently.
It becomes void, when an element essential to a contract is missing.
It becomes void under special circumstances

Comparison of Void and Voidable Contract

Void Contract
Voidable Contract
It is unenforceable by both the parties.
It is enforceable if the aggrieved party has waived his right to avoid it.
 A contract becomes void due to some subsequent event.
When free consent is absent the contract is voidable.
Avoid contract cannot create any right or obligation.
It is a good contract until it is avoided by the aggrieved party.
A third party cannot acquire any right or title if he buys goods from a person claiming title under a void contract
A bonafide third party can acquire a valid title from a person claiming title under a voidable contract provided the third party has acquired the title before the contract is avoided by the aggrieved party

Conclusion

The law of contracts is governed by the Indian Contract Act. 1872. The contract is a combination of agreement and obligation. Person to whom the proposal is made and accepted as “Promisee”. Obligation means a legal duty to do or not to do certain things agreed upon. A valid contract contains an agreement, with the consent of the parties, supported by some kind of consideration for a lawful object. This agreement should be between competent parties. An offer is proposal [Section 2 (a)]. Acceptance means giving assent of acceptance to the proposal [Section 2 (b)]. When offer is accepted, it is a valid contract. The parties must show interest in entering a legal relation. No contract without consideration [Section 2 (d)]. Privity of contract means a stranger cannot enforce the contract. Minor and people of unsound mind are incapable to contract. The object of the contract cannot be unlawful. Under certain circumstances, a contract could not be entered upon due to certain flaws in it. Void agreement has no legal effect [Section 2 (g)]. Voidable contract is enforceable at the option of either parties [Section 2(i)]. The illegal contract cannot be enforced by the court of law. A minor’s contract is void. 


Mr Vivek Yadav is Law student of Maharishi University of Information Technology, Noida Campus. He can be reached at vivekyadavhbk@gmail.com