Page 12 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 1: Laws of Contract

(iv) Mortgage and charges of properties by a company. Notes

(v) Documents coming within the purview of the Registration Act, 1908.
An implied contract may be implied in fact or implied in law. Contracts implied in fact and
contracts implied in law are not really contracts at all.

Formal and Informal Contracts

A formal contract is one to which the law gives special effect because of the formalities or the
special language used in creating it. The best example of formal contracts is negotiable instruments,
such as cheques. Informal contracts are those for which the law does not require a particular set
of formalities or special language. Sometimes informal contracts are called ‘simple’ contracts.

1.2.2 Classification According to Validity

Contracts may be classified according to their validity as (i) Valid, (ii) Voidable, (iii) Void,
(iv) Unenforceable (v) illegal.
A contract to constitute a valid contract must have all the essential elements discussed earlier.
A voidable contract is one which may be repudiated (i.e., avoided) at the will of one or more of
the parties, but not by others. Until it is so repudiated it remains valid and binding. It is affected

by a flaw (e.g., misrepresentation, fraud, coercion, undue influence), and the presence of any of

these defects enables the party aggrieved to take steps to repudiate the contract. It shows that the
consent of the party, who has the discretion to repudiate, was not free.

Example: A, a man enfeebled by disease or age, is induced by B’s influence over him, as
his medical attendant to agree to pay B an unreasonable sum for his professional services. A can
avoid the contract. A’s consent is not free; it is affected by undue influence employed by B. A can

take steps to set the contract aside.
If the party entitled to avoid the contract fails to do so within a reasonable time, he will be
estopped from avoiding it if the other party has altered his position to his prejudice or a third
party has acquired some rights in a bona fi de manner.

Example: A purchased certain goods from B by making a misrepresentation of some
facts. Later B comes to know about the representation made by A. However, B does not, within
a reasonable time, repudiate the contract. A sells those goods to C, a bona fi de purchase for value.
C’s title shall be a good title.
An agreement which is not enforceable by either of the parties to it is void ab initio such an
agreement is without any legal effect. Under s.11, an agreement with a minor is void. Sometimes,
a contract is valid at the time of formation, but may become void afterwards.

Example: A contracts to take indigo for B to a foreign port. A’s government afterwards
declares war against the country in which the port is situated. The contract becomes void when
war is declared.

An illegal agreement is one that the courts will not enforce because the purpose is to achieve
an illegal end. Illegal contract are those contract that are forbidden by law. All illegal contracts
are void. Because of the illegality of their nature they cannot be enforced by any court of law.
Infact even associated contracts cannot be enforced. Contracts which are opposed to public
policy or immoral are illegal. Similarly contracts to commit crime like supari contracts arte illegal
contracts.

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