Chapter 1

Nature and Kinds of Contracts

Prattusha
Bhattacharjee
Lecturer, Dept. of MPE,
AUST
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The Indian Contract Act,1872

• Branch of law which determines circumstances

in which promises made by parties to a
contract shall be legally binding on them.
• The act divided into two groups
□ General Principles of the Law of Contract (Sec 1-75)
□ Some special contracts only (Sec124-238)

• The Act is not exhaustive: Does not deal with contracts

relating to partnership, sale of goods, negotiable
instruments, insurance, etc.

• Nature of the Law: Does not lay down the rights and duties
the law will enforce, but consists of limiting principles
subject to which the parties may create rights and duties for
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themselves, which the law will uphold.
Meaning Of Contract

• Definition :
□ A contract is an agreement to do or not to do
an act. It is a legally binding agreement which
is enforceable at law.

• Salmond Defines Contract As :

□ “A contract is an agreement creating and
defining obligations between the parties.”

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Meaning Of Contract

• Valid Agreement :
“every promise (a valid offer and its valid
acceptance) or every set of promises forming the
consideration for each other is an agreement.
1. Plurality of persons
2. Consensus-ad-idem

• Legal Relationship :
The parties must have intended their agreement to
have legal consequences. The law will not concern
itself with purely domestic or social agreements.
Example: Tour Plan is not under legal relationship.
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Essential Elements of a Valid
Contract.
1. Offer and Acceptance
There must be an offeror and an acceptor.
□ Offer: Definite
□ lawful offer, lawful acceptance. (satisfies the
requirement of contract act)
□ Acceptance: Absolute, unconditional,
communicated in the mode prescribed
2. Intention to create legal relationship
□ “Social agreements do not create legal
relations,therefore not contracts,
□ Example: Saree
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Essential Elements of a Valid
Contract.
3. Lawful Consideration
□ Consideration: Something in return, must be
real and Lawful

4. Capacity of Parties
Parties must be:
□ Of age of majority
□ Of sound mind
□ Not disqualified from contracting by any law
subject to

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Essential Elements of a Valid
Contract.
5. Free and Genuine Consent
□ Parties must agree on subject matter in the
same sense and at the same time.
□ Consent should not be induced by coercion,
undue influence, misrepresentation, fraud or
mistake.
6. Lawful Object
• Object must not be:
□ Illegal
□ Immoral
□ Opposed to public policy
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Essential Elements of a Valid
Contract.
7. Agreement not declared void
□ Must not have been expressly declared void by
any law in force in the country

8 & 9. Certainty and Possibility of performance

□ Agreement must not be vague or impossible to
perform, Example: Magic is not possible,
Uncertainty in oil.

10. Writing and Registration

□ Contract preferably written, must be
registered or stamped as per 1–8
 Classification Of Contracts

Classification By Validity :
1. Valid Contract: A contract enforceable by law is a valid contract.
2. Voidable Contract: 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 i.e., the party whose consent was so caused.

(i) 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 prevented
When a party to the contract promises to do a certain thing within a specified time but
(ii
) fails
then to docontract
the it, becomes voidable at the option of the promise, if the intention of
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that
the parties
time should
was be of the essence of the
 Classification Of Contracts

Classification By Validity :
3. Void Contract: A contract that is lawful in nature but due to some
conditions ceases to be enforceable by law is known as a void contract
e.g.- an impossibility, illegality, repudiation, etc. The reason which turns a
valid contract into a void one:

a) Supervening impossibility: A contract becomes void by

impossibility of performance after the formation of the
contract.

b) Subsequent illegality: A contract also becomes void by

subsequent illegality.

c) Repudiation of a voidable contract: A voidable contract becomes

void when the party, whose consent is not free, repudiates the
contract.

d) In the case of a contract contingent on the happening of an 1–10

 Classification Of Contracts

Classification By Validity :
4. Void Agreement: An agreement that is not enforceable by
law is known as a void agreement. In the eye of the law,
such an agreement is no agreement at all from its very
inception.
1. There is the absence of one or more essential
elements of a valid contract, except that of free
consent,' in the case of a void agreement.
2. an agreement with a minor is void ab initio as
against him because a minor lacks the capacity to
contract.
3. Similarly, an agreement without consideration is
void ab initio,

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 Classification Of Contracts
Classification By Validity :
5. Unenforceable Contract: A contract that is enforceable
by law and is a valid contract but can not be enforced
due to some technical issue i.e. missing of stamp on
paper or written form etc.

6. Illegal or unlawful Contract: The word illegal' means

contrary to law and the term *contract' means "an
agreement enforceable by law”. 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, or
(d) involves or implies injury to the person or 1–12

property of another; or
Classification Of Contracts

Classification by mode of creation :

1. Express Contract: A contract in a written or spoken form
where both offer and acceptance are in words spoken or
written is an express contract. Example- Car sell etc.
2. Implied Contract: A contract in which the parties enter
by conduct or any act. In simple words, a contract
made other than words is an implied contract. Example
–Service like coolie.
3. Constructive- Quasi Contract: A contract that is imposed
by the law, i.e. Neither of the party has no intension of
making any contract. E.g. “finder of lost goods has an
obligation to return the goods to its rightful owner”.

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 Classification Of Contracts

Classification by Extent of Execution

1. 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.
Where only one of the parties to a contract has performed his
share of obligation and the other party is still to perform his
share of obligation, then also the contract is called
'executed’. Ex- Unilateral contract, Buying-Selling

2. Executory Contract: A contract in which some future act is

to be done by one of the parties or both. E.g.- Bilateral
contract, EMI system, etc.
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