This PPT is helpful for B.com & B.com Hons students

1. CLASSIFICATION OF
CONTRACTS/
AGREEMENTS
Course Co-Ordinator: Dr. Neetu Kushwaha

3. • Valid Agreement i.e. Contract: A valid agreement is a contract and “A
contract is an agreement enforceable by law”. It creates legal obligations of all
the parties to it. Such an agreement possesses all essentials of a contract laid
down by Section. 10.
• Void Agreement: “An agreement not enforceable by law is said to be void.”
[Sec. 2(g)] Such an agreement lacks essentials of a valid agreement.
Effects:
I. Void from beginning: The agreement is void from beginning. It does
not give rise to legal obligation of either party.
II. No restitution: (the act of giving back something that was lost or stolen to
its owner) No restitution can be granted. Any consideration passed on
by the parties to each other, cannot be generally resorted. However, the
law courts may on equitable ground, grant restitution where one of the
parties is minor and he has misrepresented of defrauded by other.

4. • Void Contract: According to Sec2(j) “A contract which ceases to be
enforceable by law becomes void when it cease to be enforceable.” When a
contract is valid at the time of its making but later on due to change in
circumstances or in law, it becomes unenforceable, it is a void contract.
Effects:
I. Contract is Void: Contract is void, when it is discovered to be void or it
becomes void due to change in circumstances.
II. Restitution: Any person who has received any advantage under void
contract, is bound to restore it to person from whom he got it. [Sec.65]
III. Payment or compensation for performance: Any party who has
received any advantage by way of part performance of a void contract
(i.e. which later on becomes void) is also bound to pay or make
compensation to the person from whom he received it. [Sec.65]

5. • Voidable Contract: According to Sec. 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.” Therefore, a voidable
contract is an agreement which is voidable at the option of the aggrieved party.
Voidable contracts may be of two types:
i. Voidable from the beginning
ii. Voidable subsequently
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I. Voidable from beginning: There are certain contracts which are voidable
from the very beginning. It is so when the consent of the party is caused
either coercion, undue influence, fraud or misrepresentation. The party
whose consent is caused by any one of the four factors is known as
aggrieved party. The aggrieved party has option either to treat the contract as
void or to enforce it.

6. II. Voidable Subsequently: There are certain cases in which party may treat a contract as
voidable:
-On refusal of performance: When a party to a contract has refused to perform his
promise in entirety, the promise may put an end to the contract, unless he has signified by
words or conduct, his silent consent in its continuance. [Sec. 39]
-When a party prevent another from performing: When one part to the contract
prevents the other from performing a reciprocal promise, the contract becomes voidable at
the option of the party so prevented. The party so prevented will entitled to compensation
from the party preventing him. [Sec. 53]
-When a party fails to perform within a specific time

7. Effect:
I. Voidable at the option of aggrieved part: A contract voidable from beginning is
voidable at the option of the aggrieved party. The aggrieved party may either
rescinded the contract or choose to be bound by it. [Sec. 19 & Sec. 19A]
II. Valid till rescinded: A voidable contract continues to be valid till rescinded by the
aggrieved part.
III. Other party relieved from performing: When aggrieved party rescinds the contract,
the other party need not perform any promise therein contained, in which he is a
promiser. [Sec. 64]
IV. Restitution: If the party rescinding the contract has received any benefit, under the
contract from the other party, he must restore such benefit, so far as may be, to the
other party. [Sec.64]
V. Compensation: When a party rescinds the contract rightfully on account of non-
fulfilment of the promise by other, the part is entitled to compensation for any
damage which he has sustained through the non-fulfilment of the contract. [Sec. 75]

8. Illegal Agreement: An agreement which is expressly or impliedly prohibited or
forbidden by law is an illegal agreement.
Also, Section 23 of the Indian Contract Act clearly states that the consideration and/or
object of a contract are considered lawful consideration and/or object unless they are –
i. Forbidden by Law When the object of a contract or the consideration of a contract is
prohibited by law
ii. Consideration or Object Defeats the Provision of the Law
iii. Fraudulent Consideration or Object Lawful consideration or object can never be
fraudulent
iv. It involves or implied, injury to the person or property of another.
v. The court regards it as immoral.
vi. The court regards it opposed to public policy.

9. Unenforceable Contract: An unenforceable contract or transaction is one that is
valid but one the court will not enforce. Unenforceable is usually used in
contradiction to void (or void ab initio) and voidable. If the parties perform the
agreement, it will be valid, but the court will not compel them if they do not.
Example: For example, an oral contract to buy land would not be enforceable
because the Statute of Frauds requires such an agreement to be in writing.
Express Contract: A contract is express when the parties state its terms &
condition and show their assent by words, either oral or written. [Sec.9] Such
contract made by parties face to face or with the help of letters, telegraph, phone,
telex, fax, e-mail etc.
Implied Contract: A contract made otherwise than in words, is called implied
contract [Sec. 9]. An implied contract is inferred from the acts or conduct of the
parties or by their surrounding circumstances but not by the written or spoken
works of the parties.

10. Quasi Contract: It is not a real contract because it does not result from any
intentional result agreement. It is not a result of exchange of promises by the
parties. Therefore, it does not have all the essentials of a valid contract. Thus, a
quasi contract is implied by law. It is not made by the parties but imposed by the
parties by the law on the ground of principle of equity.
Example:
• A person orders some perishable items online by providing his address and paid
for the same. At the time of the delivery of the goods, the delivery man delivers it
to the wrong address. The receiving party then, instead of denying the delivery,
accepts the order and consumes the same.
• The case went to the court and the court then ordered to issue a quasi-contract
according to which the recipient has to pay back the cost of the item to the party
who the person who paid for the item initially. So, in this case, the benefits of the
goods have been enjoyed by the receiving party, so such a receiving party is
bound to give compensation to the former party.

11. Executed Contract: A contract in which all the parties to the
contract have performed their respective obligation. Nothing
remains to be done by any party under such contract. It is a
completely performed contact..
Executory Contract: An executory contract is one in which all or
something still remains to be performed by the parties.
Bilateral Contract: It is one in which both the parties exchange a
promise to each other. In such a contract, one party promises to
perform something in the future in exchange of other party’s
promise to do something. Thus, it is similar to an executory contract.
Unilateral contract: A unilateral contract is one in which offeror
promises to do something only when the offeree has done his
desired task or act.

12. BASIS FOR COMPARISON VOID AGREEMENT VOID CONTRACT
Meaning Void agreement refers to an
agreement which as per law, is
unenforceable and has no legal
consequences.
Void contract implies a valid
contract, that ceases to be
enforceable by law, becomes a
void contract, when it lacks
enforceability.
Void ab-initio It is void from the very beginning. It is valid at the beginning but
later on becomes void.
Period of validity It is never valid. It is valid, till it does not cease to
be enforceable.
Causes Due to absence of one of more
essentials.
Due to impossibility of
performance.
Prerequisite of contract When the agreement is created, all
the prerequisite of the contract are
not satisfied, thus making it void.
When the contract is entered into,
all the prerequisite of the contract
are satisfied, which due to certain
circumstances, subsequently
becomes void.

13. BASIS FOR COMPARISON VOID CONTRACT VOIDABLE CONTRACT
Meaning The type of contract which cannot be
enforceable is known as void
contract.
The contract in which one of the two
parties has the option to enforce or
rescind it, is known as voidable
contract.
Defined in Section 2 (j) of the Indian Contract
Act, 1872.
Section 2 (i) of the Indian Contract
Act, 1872.
Nature The contract is valid, but
subsequently becomes invalid due to
some reasons.
The contract is valid, until the party
whose consent is not free, does not
revokes it.
Reasons Subsequent illegality or impossibility
of any act which is to be performed
in the future.
If the consent of the parties is not
independent.
Rights to party No Yes, but only to the aggrieved party.
Suit for damages Not given by any party to another
party for the non-performance, but
any benefit received by any party
must be restored back.
Damages can be claimed by the
aggrieved party.

14. BASIS FOR COMPARISON VOID AGREEMENT ILLEGALAGREEMENT
Meaning An agreement, which lacks legal
enforceability is void agreement.
An agreement whose creation is
forbidden by the court of law is an
illegal agreement.
Consequence An agreement becomes void when
it loses its enforceability by law.
An illegal agreement is void ab
initio i.e. void from the very
beginning.
Prohibition by IPC No Yes
Scope Wide Narrow
Penalty Parties to void agreement are not
liable for any penalty under law.
Parties to illegal agreement are
penalized.
Connected agreements May not necessarily be void, they
may be valid also.
All connected agreements are
void.