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Contracts may be classified according to their

(1) Validity

(2) formation or

(3) performance

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An agreement becomes a contract when all the essential

elements are present. In such a case, the contract is valid. Ifone or more of these elements is/are missing, the contract iseither voidable, void, illegal or unenforceable.

Voidable contract: An agreement which is enforceable by law

at the option of one or more of the parties thereto, but not atthe option of the other or others, is voidable contract. Thishappens when the essential element of free consent in acontract is missing. When the consent of a party to a contractis not free, i.e., it is caused by coercion, undue influence,

misrepresentation or fraud, the contract is voidable at hisoption. The party whose consent is not free may either rescind(avoid or repudiate) the contract if he so desires, or elect tobe bound by it. A voidable contract continues to be valid till itis avoided by the party entitled to do so.

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Example: A promises to sell his car to B for Rs.2,000. His

consent is obtained by use of force. The contract isvoidable at the option of A. He may avoid the contractor elect to be bound by it.

A contract becomes voidable in the following two cases

also:(1) When a person promises to do something for anotherperson for a consideration but the other person preventshim from performing his promise, the contract becomes

voidable at his option.(2) When a party to a contract promises to perform anobligation within a specified time, any failure on his partto perform his obligation within the fixed time makes thecontract voidable at the option of the promisee.

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When a person at whose option a contract is voidablerescinds it, the other party thereto need not perform anypromise therein contained in which he is promisor. If theparty rescinding the contract has received any benefit

under the contract from another party to such contracthe shall restore such benefit, so far as may be, to theperson from whom it was received. The party rightfullyrescinding the contract is also entitled to compensationfor any damage which he has sustained through the non-fulfillment of the contract.

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Void agreement: An agreement not enforceable by law

is said to be void.A

void agreement does not createany legal rights or obligations. It is a nullity and is destituteof legal effects altogether. It is void ab initio, i.e., from thevery beginning as, for example, an agreement with aminor or an agreement without consideration.

Void contract: A contract which ceases to beenforceable by law becomes void when it ceases to beenforceable. A contract, when originally entered into,may be valid and binding on the parties, e.g., a contract

to import goods from a foreign country. It maysubsequently become void, e.g., when a war breaks outbetween the importing country and the exportingcountry.

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Illegal Agreement: An illegal agreement is one which

transgresses some rule of basic public policy or which iscriminal in nature or which is immoral. Such anagreement is a nullity. All illegal agreements are void butall void agreements or contracts are not necessarilyillegal. An illegal agreement is not only void as between

the immediate parties but has this further effect thateven the collateral transactions to it become tainted withillegality. A collateral transaction is one which issubsidiary, incidental or auxiliary to the principal ororiginal contract.

Eg: B borrows Rs. 5,000 from A and enters into a contractwith an alien to import prohibited goods. A knows of thepurpose of the loan. The transaction between B and A iscollateral to the main agreement. It is illegal since themain agreement is illegal.

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Unenforceable contract: An unenforceable contract isone which cannot be enforced in a court of lawbecause of some technical defect such as absence of

writing or where the remedy has been barred by lapse oftime. The contract may be carried out by the partiesconcerned; but in the event of breach or repudiation ofsuch a contract, the aggrieved party will not be entitled

to the legal remedies.

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A contract may be (a) made in writing or by word ofmouth, or (b) inferred from the conduct of the parties orthe circumstances of the case.Express Contract: If the terms of a contract are expresslyagreed upon ( whether by words spoken or written) at

the time of formation of the contract. Where the offer oracceptance of any promise is made in words, thepromise is said to be expressed. An express promiseresults in an express contract.Implied Contract: is one which is inferred from the acts orconduct of the parties or course of dealings betweenthem. It is not the result of any express promise orpromises by the parties but of their particular acts. Animplied promise results in an implied contract.

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Examples: There is an implied contract when A-

(i) Gets into a public bus, or

(ii) Takes a cup of tea in a restaurant

(iii) Obtains a ticket from an automatic weighing machine,or ,

(iv) Lifts Bs luggage to be carried out of the railway station.

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Quasi-contract:A quasi-contract is not a contract at all. A contract isintentionally entered into by the parties. A quasi contract,on the other hand, is created by law. It resembles a

contract in that a legal obligation is imposed on a partywho is required to perform it. It rests on the ground ofequity a person shall not be allowed to enrich himselfunjustly at the expense of another.

Sec 68 to 72 deal with five kinds of quasi-contractualobligations.

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1. Supply of necessaries:A provided B, a lunatic, with necessaries suitable tohis condition in life. A is entitled to be reimbursed fromBs property.

2. Payment by an interested person:B holds land in Bengal, on a lease granted by A thezamindar. The revenue payable by A to theGovernment being in arrear, his land is advertised forsale by the Government. Under the revenue law the

consequences of such sale will be annulment of Bslease. B to prevent the sale and the consequentannulment of his own lease, pays to the Governmentthe sum due from A. A is bound to make good to B theamount so paid.

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3. Obligation to pay for non-gratuitous acts:

(a) , a tradesman, leaves goods at Bs house by mistake. Btreats the goods as his own. He is bound to pay for them to A.

(b) A saves Bs property from fire. A is not entitled tocompensation from B, if the circumstances show that heintended to act gratuitously.

4. Responsibility of finder of goods:

F picks up a diamond on the floor of Ss shop. He hands itover to S to keep it till true owner is found out. No oneappears to claim it for quite some weeks in spite of the wide

advertisements in the newspapers. F claims the diamond fromS who refuses to return. S is bound to return the diamond to Fwho is entitled to retain the diamond against the whole worldexcept the true owner.

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5. Mistake or coercion:

(a) A pays some money to B by mistake. It is really due toC. B must refund the money to A. C, however, cannotrecover the amount from B as there is no privity ofcontract between B and C.

(b) A and B jointly owe Rs. 10,000 to C. A alone pays theamount to C and B not knowing this fact, pays Rs. 10,000over again to C. C is bound to repay the amount to B.

( c) A railway company refuses to deliver certain goods

to the consignee ex

cept upon the payment of an illegalcharge for carriage. The consignee pays the sumcharged in order to obtain the goods. He is entitled torecover so much of the charge as was illegallyexcessive.

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Executed Contract:An executed contract is one in which both the parties haveperformed their respective obligations:Example: A agrees to paint a picture for B for Rs.100. When Apaints the picture and B pays the price, i.e., when both theparties perform their obligations, the contract is said to beexecuted.In some cases, even though a contract may appear to becompleted at once, its effects may still continue. Thus when aperson buys a bread containing a stone and subsequently

breaks one of his teeth, he has a right to recover damagesfrom the seller.

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Executory contract:

An executory contract is one in which both the partieshave yet to perform their obligations.

In the above example, the contract is executory if A hasnot yet painted the picture and B has not paid the price.

A contract may sometimes be partly executed and

partly executory. Thus if B has paid the price to A and Ahas not yet painted the picture, the contract isexecuted as to B and executory as to A.

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Unilateral contract:

A unilateral contract is one wherein at the time the contract isconcluded there is an obligation to perform on the part ofone party only.

Example: A makes payment for bus fare for his journey from

Bombay to Pune. He has performed his promise. It is now forthe transport company to perform the promise.

Bilateral contract:A bilateral contract is one in which the obligations on the partof both the parties to the contract are outstanding at the

time of the formation of the contract. They are similar toexecutory contracts.

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An offer is a proposal by one party to another to enterinto a legally binding agreement with him. A person issaid to have made a proposal, when he signifies toanother his willingness to do or to abstain from doinganything, with a view to obtaining the assent of that

other to such act or abstinence.For example, A says to B, Will you purchase my car forRs.50,000? A in this case is making an offer to B as hesignifies to B his willingness to sell his car to B for Rs, 50,000

with a view to obtaining Bs assent to purchase the car.

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The person making the offer is known as the offeror,proposer, or promisor and the person to whom it is madeis called the offeree or proposee. When the offeree

accepts the offer, he is called the acceptor or promisee.How an offer is made:

An offer may be made by express words, spoken orwritten. This is known as an express offer. For example,

when A says to B, will you purchase my house at Meerutfor Rs. 5,00,00 or when A advertises in a newspaperoffering Rs.5,000/- to anyone who returns his lost dog,there is an express offer.

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An offer may also be implied from the conduct of theparties or the circumstances of the case. This is known asan implied offer. Thus when a transport company runs abus on a particular route, there is an implied offer by thetransport company to carry passengers for a certain fare.

The acceptance of the offer is complete as soon as apassenger boards the bus.

When an offer is made to a definite person, it is called aspecific offer. It can be accepted only by the person towhom it is made.

When an offer is made to the world at large, it is called ageneral offer.

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Example: A company advertised in several newspapers that areward of 100 pounds would be given to any person whocontracted influenza after using the smoke balls of thecompany according to its printed directions. One Mrs. Carlillused the smoke balls according to the directions of thecompany but contracted influenza. Held, she could recoverthe amount as by using the smoke balls she had accepted theoffer.Where an offer is made to the world at large, any person orpersons with notice of the offer may accept the offer,. Whenthe offer is accepted by a particular person, there is acontract between the offerer and that particular person. If alarge number of persons accept the offer, there are as manycontracts as the number of persons accepting the offer.Where a reward has been offered for giving a specific pieceof information, e.g., information about the thief of a certainproperty, or finding of a specific thing, acceptance can bemade only by the first person who gives the information.

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Not every proposal made by an offerer is legallyregarded as an offer. The test to determine whether ornot an offer has actually been made are as follows:

1. The offer must show an obvious intention on the part of

the offerer to be bound by it, i.e., the offerer must signifyto the offeree his willingness to do or to abstain fromdoing something.

2. The offerer must make the offer with a view to obtaining

the assent of the offeree to such act or abstinence.3. The offer must be definite.

4. It must be communicated to the offeree.

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1. Offer must be such as in law is capable of beingaccepted and giving rise to legal relationship:

2. Terms of offer must be definite, unambiguous and

certain and not loose and vague:3. An offer may be distinguished from:(i) A declaration of intention and an announcement: Adeclaration by a person that he intends to dosomething gives no right of action to another. Such a

declaration only means that an offer will be made orinvited in future and not that an offer is made now. Anadvertisement for a concert or an auction sale doesnot amount to an offer to hold such concert or auctionsale.

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Example: An auctioneer advertised in a newspaper thata sale of office furniture would be held. A broker camefrom a distant place to attend that auction, but all thefurniture was withdrawn. The broker thereupon sued the

auctioneer for his loss of time and ex

penses. Held, adeclaration of intention to do a thing did not create abinding contract with those who acted upon it, so thatthe broker could not recover.

Likewise, an announcement of a beauty competition by

a Beauty Parlour or a scholarship examination by somecollege is not an offer .

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An invitation to make an offer or do business:

Display of goods by a shopkeeper in his window, withprices marked on them, is not an offer but merely aninvitation to the public to make an offer to buy the goodsat the marked prices. Likewise, quotations, catalogues,

advertisements in a newspaper for sale of an article, orcirculars sent to potential customers do not constitute anoffer. They are instead an invitation to the public to makean offer.

4. Offer must be communicated :A

n offer, to be complete,must be communicated to the person to whom it ismade. Unless an offer is communicated to the offeree bythe offeror or by his duly authorized agent, there can beno acceptance of it.

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An acceptance of an offer, in ignorance of the offer, is noacceptance and does not confer any right on the acceptor.Example: S offered a reward to anyone who returned his lostdog. F brought the dog to S without having heard of the offer.Held F was not entitled to the reward.

5. Offer must be made with a view to obtaining the assent.

6. Offer should not contain a term the non-compliance of whichmay be assumed to amount to acceptance:For example, where A writes to B I will sell you my horse forRs.5,000 and if you do not reply, I shall assume you haveaccepted the offer, there is no contract if B does not reply. B

is under no obligation to speak. However, if B is in possession ofAs horse at the time the offer is made and he continues to usethe horse thereafter, Bs silence and his continued use of horseamount to acceptance on his part of the terms of As offer.

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7. A statement of price is not an offer:Example: Three telegrams were exchanged betweenHarvey and Facey1. Will you sell us your Bumper Hall Pen? Telegraph lowestcash price (Harvey to Facey)

2. Lowest price for Bumper Hall Pen 900 Pounds (Facey toHarvey)3. We agree to buy Bumper Hall Pen for the sum of 900pounds asked by you. (Harvey to Facey)Held there was no concluded contract between Harvey

and Facey.Facey supplied mere information and no offer had beenmade by him to sell. There could be a contract only if hehad accepted Harveys last telegram.

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A contract emerges from the acceptance of an offer.Acceptance is the act of assenting by the offeree to anoffer. In other words, it is the manifestation by the offereeof his willingness to be bound by the terms of the offer. Itis Acceptance is to an offer what a lighted match is to atrain of gunpowder.It produces something which cannotbe recalled, or undone. This means when the offeree

signifies his assent to the offeror, the offer is said to beaccepted. An offer when accepted becomes a promise.

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Acceptance may be express or implied. It is expresswhen it is communicated by words, spoken or written orby doing some required act. It is implied when it is to begathered from the surrounding circumstances or theconduct of the parties.

Example: At an auction sale, S is the highest bidder. Theauctioneer accepts the offer by striking the hammer on

the table. This is an implied acceptance.

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Acceptance of particular offer: When an offer is made toa particular person, it can be accepted by him alone. If itis accepted by any other person, there is no validacceptance. The rule of law is clear that if you proposeto make a contract with A, B cannot substitute himself forA without your consent.

Acceptance of general offer: When an offer is made to

world at large, any persons to whom the offer is madecan accept it.

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1. It must be absolute and unqualified, i.e., it mustconform with the offer:

Ex

ample:A

made an offer to B to purchase a house withpossession from 25th July. The offer was followed by anacceptance suggesting possession from 1st September.Held, there was no concluded contract.

A says to B I offer to sell my car for Rs. 50,000. B replies, I will purchase it for Rs.45,000. There is no acceptanceand amounts to a counter-offer.

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2. It must be communicated to the offeror:

Example: A tells B that he intends to marry C, but tells C nothing of hisintention. There is no contract, even if C is willing to marry A.

3. It must be according to the mode prescribed or usual andreasonable mode:

If the acceptance is not according to the mode prescribed, or someusual and reasonable mode (where no mode is prescribed) theofferor may intimate to the offeree within a reasonable time that theacceptance is not according to the mode prescribed and may insistthat the offer must be accepted in the prescribed mode only. If hedoes not inform the offeree, he is deemed to have accepted the

acceptance.Example: A makes an offer to B and says: If you accept the offer,reply by wire. B sends the reply by post. It will be a validacceptance unless A informs B that the acceptance is notaccording to the mode prescribed.

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4. It must be given within a reasonable time:

If any time limit is specified, the acceptance must begiven within that time. If no time limit is specified, it mustbe given within a reasonable time.

Example: On June 8th M offered to take shares in R

company. He received a letter of acceptance onNovember 23. He refused to take the shares. Held, M wasentitled to refuse as his offer had lapsed as thereasonable period during which it could be accepted

had elapsed.

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5. It cannot precede an offer: If the acceptanceprecedes an offer, it is not a valid acceptance and doesnot result in a contract.

Example: In a company, shares were allotted to a personwho had not applied for them. Subsequently when he

applied for shares, he was unaware of the previousallotment. The allotment of shares previous to theapplication is invalid.

6. It must show an intention on the part of the acceptor

to fulfill terms of the promise. If no such intention ispresent, the acceptance is not valid.

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7. It must be given by the party or parties to whom the

offer is made.Acceptance given by a person other than the offeree orby a person who is not authorized to give acceptance isineffective in law.

8. It must be given before the offer lapses or before theoffer is withdrawn.

9. It cannot be implied from silence:Example: A wrote to B I offer you my car for Rs.10,000. If Idont hear from you in seven days, I shall assume that youaccept. B did not reply at all. There is no contract.