Contracts Project

Types of Agreements

Compiled by
Taiyeba Noor Fatima
B.A LL.B
Self Financed
Meaning of Agreement
An agreement is defined us 2 (e) as every promise and every set of promises, forming
consideration for each other. When a proposal is accepted it becomes a promise. Thus an
agreement is an accepted proposal. Therefore, in order to form an agreement there must be a
proposal or an offer by one party and its acceptance by other party. In short

Agreement = Proposal + Acceptance.

The second part of the definition deals with enforceability by law. An agreement is enforceable
u/s 10 if it is made by competent parties, out of their free consent and for lawful object and
consideration. Therefore, a Contract = Agreement + Enforceability. Thus all contracts are
agreements but all agreements are not necessarily contracts.

Types of Agreements

1. Valid Agreements
2. Void Agreements
3. Voidable Agreements
Valid Agreement
All contracts are Agreement but all agreements are not contract.

Valid contract=Agreement

1. Offer.
2. Acceptance
3. Consideration
4. Capacity of the parties in terms of age and mental ability
5. Intent of both parties to carry out their promise
6. Object of a contract is legal and not against public policy or in violation of law

The valid contract is when A offers B commodity and B accepts it and pays consideration. Both
A and B should be Major and mentally stable while doing the procedure from 1 to 3 and both A
and B must be intend to carry out the promised. Last but not the least the commodity there are
offering and accepting must be legal as per Indian laws Example Contract of Guns, bombs ,
Drugs etc. are illegal to sell for business without prior authorization from Government agencies.

Example:
1. A promised to sell 20 books to B. It is not clear which books A has promised to sell. The
agreement is void because the terms are not clear.

2. A agrees to sell B a hundred tons of oil. It is not clear what is the kind of oil. The agreement is
void because of it uncertainty.

3. O agreed to purchase a van from S on hire-purchase terms. The price was to be paid over two
years. Held there was no contract as the terms were not certain about rate of interest and mode of
payment.
Void Agreement
An agreement not enforceable by law is said to be void [Sec.2(g)]. Thus a void agreement does not
give rise to any legal consequences and is void ab-initio. In the eye of law such an agreement is no
agreement at all from its very inception.
Examples of Void Agreement
1. Agreements by a minor or a person of unsound mind (Sec. 11).
2. Agreements made under a bilateral mistake of fact material to the agreements(Sec. 20).
3. Agreements of which the consideration or object is unlawful (Sec. 23).
4. Agreements of which the consideration or object is unlawful in part and the illegal part cannot be
separated from the legal part (Sec. 24).
5. Agreements made without consideration (Sec. 25).

Expressly Declared Void Agreements

The last essential of a valid contract as declared by Section 10 is that it must not be one which is
‘expressly declared’ to be void by the Act. Thus, there arises a question, as to what are ‘expressly
declared’ void agreements? The following agreements have been ‘expressly declared’, to be void by
the Indian Contract Act:
1. Agreements in restraint of marriage (Sec. 26).
2. Agreements in restraint of trade (Sec. 27).
3. Agreements in restraint of legal proceedings (Sec. 28).
4. Agreements the meaning of which is uncertain (Sec. 29)
5. Agreements by way of wager (Sec. 30).
6. Agreements contingent on impossible events (Sec. 36).
7. Agreements to do impossible acts (Sec. 56).
Voidable Agreements
When a contract is voidable, a party to the contract is able to cancel or revoke the contract.
Contracts can become voidable due to:
 Mistake:
A contract can be canceled on the grounds of a mutual mistake of fact. But remember,
failure to read the contract doesn't make a contract voidable.
 Lack of capacity:
A person must have the legal ability to form a contract in the first place. A person who is
unable, due to intoxication or mental impairment, to understand what she is doing when she
signs a contract may lack capacity to enter into a contract.
 Coercion, undue influence, misrepresentation and fraud:
 Getting consent for a contract in a number of shady ways can make a contract voidable.
Contracts entered into based on coercion, threats, false statements, or improper persuasion
can be voided by the party who was the victim of the unfairness.
 Minor:
Falling under the umbrella of capacity, a contract entered into by a minor typically may be
voided by the minor or by his or her guardian. After reaching the age of majority (18 in most
states), however, if he or she doesn't cancel the contract within a reasonable period of time,
the contract can become binding and enforceable.
Difference between Void, Valid and
Voidable Agreements

1. VALID CONTRACT:-
Valid contract is that which is enforceable at law. It creates legal obligations
between the parties. It enables one party to compel another party to do something
or not to do something.

Parties Obligations:-
In case of valid contract all the parties to the contract are legally responsible for
the performance of a contract. If one party breaks the contract other has right to be
enforced through the court.

Example:- Aman proposes sell his one acre land to Nasir for one lac and the
parties are capable to do the contract by law. So this contract is valid. If Aman
fails to deliver the land Nasir can sue him in the court for the delivery of land. On
other hand Nasir fails to make the payment, Aman can sue him for the recovery of
payment.

2. 2. VOID CONTRACT:-

Definition :- "An agreement not enforceable at law is a void contract".

Originally it is a valid contract but due to certain reasons it becomes void after its
formation. A void contract cannot be enforced by either party.

Features of Void Contract:-

a. It is not enforceable by law.
b. It creates no legal rights.
c. It creates no obligations on any party.
d. An agreement which is against the public policy or against any law is also void.
e. Under this contract no compensation can be paid to any party.
An agreement in restraint of marriage and trade are common examples of void
contract.

Example:- Sachin and Isha contract to marry on next Sunday. Isha dies before the
Sunday. The contract becomes void.

Rights and Duties:-

In this case the parties are not legally responsible to fulfill the contract. If any party
has received any benefit is bound to return.
This contract takes place when consent of one of the parties is not free.

3. VOIDABLE CONTRACT:-
"An agreement which is enforceable by law at the option of one or more of the
parties, there to but not at the option of the other or others is a voidable contract".

Features of Voidable Contract:-

a. It is enforceable at law at the option of one or more of the parties.
b. A voidable contract can only be objected by the party who has been subject to
fraud, coercion, misrepresentation and undue influence.
c. If the contract is revoked by a person rightfully then he can also receive the
compensation.
d. The contract is voidable at the option of the party whose consent is caused.
e. Contracts caused by fraud, undue influence, misrepresentation or by coercion are
voidable contracts.

Example:- Mr. Qadir threatens to shoot Mr. Shah to purchase a car for one lac. Mr.
Shah agrees the contract was made by coercion and is voidable at the option of Mr.
Shah.

Rights and Duties:-

The aggrieved party can cancel such contract within a reasonable time. It is also
entitled to be compensated by the other party.

Burden of Proof:-
It is the responsibility of the aggrieved party to prove that her consent was obtained
by fraud or coercion. If it fails to prove in the court then contract will remain valid.
If the contract is not written or not registered it cannot be enforced. But as you will
remove this defect the contract can be enforced.

Example:- Suppose "A" borrows the money from "B" and writes a pro note but
proper amount stamps are not posted on the pro note. Now in this case contract is
valid but not enforceable by law.
4. UNENFORCEABLE CONTRACT:-
Contract is called unenforceable when due to some technical difficulty or lack of any
formality required by the special provisions of law a valid contract is not enforced by
the court.