Page 12 - DCOM103_COMMERCIAL_LAW

Unit 1: Law of Contract

2. Executory contract: It is a contract where both the parties to the contract have still to Notes
perform their respective obligations.

Example: X offers to sell his car to Y for ` 1 lakh. Y accepts X offer. It the car has
not yet been delivered by X and the price has not yet been paid by Y, it is an Executory
contract.
Bilateral and Unilateral: It is a contract where one of the parties to the contract has fulfi lled
his obligation and the other party has still to perform his obligation. E.g. X offers to sell his
car to y for ` 1 lakh on a credit of 1 month. Y accepts X offer. X sells the car to Y. Here the
contract is executed as to X and Executory as to Y.
Contracts on the basis of enforceability:

1. Valid contract: A contract which satisfies all the conditions prescribed by law is a valid
contract. E.g. X offers to marry Y. Y accepts X offer. This is a valid contract.
2. Void Contract: The term void contract is described as under Section 2(j) of ICA, 1872,
A contract which cases to be enforceable by law becomes void when it ceases to be
enforceable. In other words, a void contract is a contract which is valid when entered into
but which subsequently became void due to impossibility of performance, change of law or
some other reason. For example, X offers to marry Y. Y accepts X offer. Later on Y dies this
contract was valid at the time of its formation but became void at the death of Y.
3. Void Agreement: According to Section 2(g), an agreement not enforceable by law is said
to be void. Such agreements are void-ab-initio which means that they are unenforceable
right from the time they are made. For example, in agreement with a minor or a person
of unsound mind is void-ab-initio because a minor or a person of unsound mind is
incompetent to contract.
4. Voidable contract: According to Section 2(i) of the Indian Contract Act, 1872, arrangement
which is enforceable by law at the option of one or more of the parties thereon but not at
the option of the other or other, is a voidable contract.
In other words, A voidable contract is one which can be set aside or avoided at the option
of the aggrieved party. Until the contract is set aside by the aggrieved party, it remains a
valid contract.

For example, a contract is treated as voidable at the option of the party whose consent has
been obtained under influence or fraud or misinterpretation.

Example: X threatens to kill Y, if the does not sell his house for ` 1 lakh to X. Y sells
his house to X and receives payment. Here, Y consent has been obtained by coercion and
hence this contract is void able at the option of Y lakh which he had received from X. If Y
does not exercise his option to repudiate the contract within a reasonable time and in the
meantime Z purchases that house from X for 1 lakh in good faith. Y can not repudiate the
contract.
5. Illegal Agreement: An illegal agreement is one the object of which is unlawful. Such an
agreement cannot be enforced bylaw. Thus, illegal agreements are always void-ab-initio
(i.e. void from the very beginning), e.g. X agrees to Y ` 1 lakh Y kills Z. Y kill and claims
` 1 lakh. Y cannot recover from X because the agreement between X and Y is illegal and
also its object is unlawful.
6. Unenforceable contract: It is contract which is actually valid but cannot be enforced because
of some technical defect (such as not in writing, under stamped). Such contracts can be
enforced if the technical defect involved is removed.

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