Business Laws

Contract Formation

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Prof. Joshua N. Aston

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What is Contract

A contract is a written or spoken agreement, concerning employment, sales, or tenancy, that is intended to be enforceable by law. Itis anagreemententered into voluntarily bytwo parties or morewith theintentionof creating a legal obligation, which may have elements in writing. Contracts can also be made orally. It is a relationship evidenced by an offer, acceptance and a valid or legal consideration. Each party acquires rights and duties and fair benefit from the contract

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Kinds of Contract

A Contract can be classified based on their:

v v v

Validity Formation Performance

Contracts are further classified into following:

v v v v v v v v v

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v v

Valid Contract Voidable contract Void contract Unenforceable contract Express contract Implied contract Quasi contract Executed contract Executory contract Unilateral contract

Based on Validity

Based on Formation

Based on Performance 33

Valid Contract

An

agreement

which

has

all

the

essential

elements of a contract is called a valid contract.

It is anagreementenforceablebylaw An agreement becomes enforceable by law when all the essential elements ofa valid contract are present

Ifoneormoreoftheseelementsis/are missing, the contract is either void, voidable, illegal or unenforceable.

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Voidable contract

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. It is enforceable by law at the opinion of one of the parties only. It is voidable when one of the parties does not exercise free consent. It is voidable when the consent ofone of the parties to the contract is obtained by coercion, undue influence, misinterpretation or fraud.

The contract is valid until the party whose consent is obtained by coercion, undue influence, misinterpretation

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Void contract

A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. A void contract is a nullity/void from its inception. A contract may be valid when originally entered into but subsequently it becomes invalid due to change in the events or circumstances. A void contract is no contract at all.

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Unenforceable contract

An Unenforceable contract is one which is valid in itself, butis not capable ofbeing enforced ina court of law.

The reasons being some technical defect such as absence of writing, registration, requisite stamp etc. or timely barred by law of limitation.

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Illegal Contract

Theterm lawandthe

illegal term

means contract

contrary means

to an

agreement enforceable by law

An

illegalcontract

involves

contradiction

of

terms.

It is an agreement enforceable by law and contraryto law.

This agreement does not attain the status of a contract.

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Express, Implied and Quasi contract

Express contract: The terms of the contract are expressly agreed upon in words (written or spoken) at the time of formation. Implied contract: It is inferred from the acts or conduct of the parties or from the circumstances of the cases. A proposal or acceptance is made otherwise than in words, promise. Quasi contract: A quasi contract is created by law. Thus, quasi contracts are strictly not contracts as there is no intention of parties to enter into a contract. It is legal obligation which is imposed on a party who is required to perform it. It is based on the principle that
99 a person shall not be allowed to enrich himself at the

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Executed, Executory, Unilateral and Bilateral contract

Executed contract: An executed contract is one in which both the parties have performed their respective obligation. Executory contract: It is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is an Executory contract. Unilateral contract: It is one in which only one party has to perform his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence. Bilateral contract: It is one in which the obligation on both the parties to the contract is outstanding at the time of the formation of the contract. Such contracts are also known as contracts with 8/12/12 executory consideration 10

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Parties to contract

The parties must be competent to contract (Sec 10 Indian Contract Act)

Every person is competent to contract, if:

v

A person attains the age of majority, i.e., 18 years of age A person is of sound mind A person not disqualified by law

The persons are incapable/incompetent to contract, if:

v

Person is a minor Person of unsound mind 11

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Person disqualified by law 8/12/12

v

Essentials of Contract

The essential elements of a Contract are:

v

Offer Acceptance Consideration Free Consent Capacity to enter into contract Legality of object

A contract should also contain

v

Writing and Registration, if required by law Certainty Possibility of Performance Enforceable by law 12

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Misrepresentations

1. Fraudulent

2. Negligent

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Thank you!!
ANY QUESTIONS PLEASE?

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