Now that you know what a contract is, can you identify the various Types of Contracts? Proper knowledge of the types of contracts is essential as it will allow you to decide the legal ramifications of an agreement. Here we will see the different Types of Contracts classified as per their validity.
Types of Contracts On The Basis Of Validity
Chapter 2 of the Indian Contract Act, 1872 discusses the voidable contracts and void agreements. On the basis of validity or enforceability, we have five different types of contracts as given below.
The Valid Contract as discussed in the topic on “Essentials of a Contract” is an agreement that is legally binding and enforceable. It must qualify all the essentials of a contract.
Void Contract Or Agreement
The section 2(j) of the Act defines a void contract as “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”. This makes all those contracts that are not enforceable by a court of law as void.
We have already stated examples of these kinds of contracts in the “Essentials of a Contract”.
Example: A agrees to pay B a sum of Rs 10,000 after 5 years against a loan of Rs. 8,000. A dies of natural causes in 4 years. The contract is no longer valid and becomes void due to the non-enforceability of the agreed terms.
These types of Contracts are defined in section 2(i) of the Act: “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.” This may seem difficult to wrap your head around but consider the following example:
Suppose a person A agrees to pay a sum of Rs. 10,0000 to a person B for an antique chair. This contract would be valid, the only problem is that person B is a minor and can’t legally enter a contract.
So this contract is a valid contract from the point of view of A and a “voidable” contract from the point of view of B. As and when B becomes a major, he may or may not agree to the terms. Thus this is a voidable contract.
A voidable contract is a Valid Contract. In a voidable contract, at least one of the parties has to be bound to the terms of the contract. For example, person A in the above example.
The other party is not bound and may choose to repudiate or accept the terms of the contract. If they so choose to repudiate the contract, the contract becomes void. Otherwise, a voidable contract is a valid contract.
An agreement that leads to one or all the parties breaking a law or not conforming to the norms of the society is deemed to be illegal by the court. A contract opposed to public policy is also illegal.
Several examples may be cited to illustrate an illegal contract. For example, A agrees to sell narcotics to B. Although this contract has all the essential elements of a valid contract, it is still illegal.
The illegal contracts are deemed as void and not enforceable by law. As section 2(g) of the Act states: “An agreement not enforceable by law is said to be void.”
Thus we can say that all illegal contracts are void but the reverse is not true. Both the void contracts and illegal contracts can’t be enforceable by law. Illegal contracts are actually void ab initio (from the start or the beginning).
Also because of the criminal aspects of the illegal contracts, they are punishable under law. All the parties that are found to have agreed on an illegal promise are prosecuted in a court of law.
Unenforceable contracts are rendered unenforceable by law due to some technical. The contract can’t be enforced against any of the two parties.
For example, A agrees to sell to B 100kgs of rice for 10,000/-. But there was a huge flood in the states and all the rice crops were destroyed. Now, this contract is unenforceable and can not be enforced against either party.
Solved Examples on Types of Contracts
Q1: List the main differences between a void and a voidable contract?
Answer: The following table will illustrate the major differences between a void and a voidable contract.
|Void Contract||Voidable Contract|
|“A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”.||“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 becomes void if either it lacks the essential elements, the law changes drastically or the terms of the contract change such that it is no longer possible to enforce the contract in a court of law.||A contract becomes a voidable contract when at least one of the parties reserves its consent or the consent of one of the parties was not free at the time of the formation of the contract.|
|Void contracts can’t be fulfilled.||The validity and enforceability of the voidable contract depend on the choice of the unbound party. If the unbound party decides to repudiate the contract it becomes void.|
|This type of contract can’t grant any rights or considerations to any of the involved parties.||The right to rescind a voidable contract is retained by the unbound party.|