Page 13 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes implied contracts. If the terms of a contract are expressly agreed upon (whether by words
spoken or written) at the time of the formation of the contract, the contract is said to be an
express contract. An implied contract is one which is inferred from the acts or conduct of
the parties or the course of dealing between them.
(a) Quasi-contract: As soon as the offer intended to create legal relationship is accepted
by the other party in absolute and unqualified terms, a contract is deemed to be
formed or concluded. When the obligations are imposed on the party by the law and
action is allowed to be brought by another party. Such obligations are known as
quasi-contracts but the Act (Ss.68-72) describes them as “certain relations resembling
those created by the contracts".

Example: A tradesman X leaves the goods at the Y’s warehouse by mistake. Y treats the
goods as his own. He is bound to pay to X for them.

A contract implied by the law is an obligation imposed by the court to do justice
between the parties even though they never exchanged or intended to exchange
promises. In this instance, a court implies a contract to prevent one party’s unjust
enrichment at the other’s expense.
(b) Formal and informal contracts: This is another way of classifying contracts on the basis
of their formation. 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. A negotiable
instrument has legal characteristic that differ from those of ordinary contracts.
Informal contracts are those for which the law does not require a particular set of
formalities or special language. The parties may use any style or language they
please, as long as the usual requirements for contract (mutual assent, consideration,
and so on) are met. The contract may be oral, or it may even be inferred from the
parties’ conduct in the absence of a statute requiring writing. Sometimes informal
contracts are called ‘simple’ contracts.

2. Classification according to validity: Contracts may be classified according to their validity
as (i) Valid, (ii) Voidable, (iii) Void, (iv) Unenforceable.
(a) A contract to constitute a valid contract must have all the essential elements of the
contract. If one or more of these elements are missing, the contract is either voidable,
void, illegal or unenforceable. As per s.2 (i) 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.
(b) A voidable contract may be inferred as a valid and binding on both the parties till it
is avoided by the aggrieved party. It can be avoided only by one party, and not by
the other. The party at whose option the contract is voidable, is not bound to
repudiate it. It may choose to affirm it, and thereby be bound by it as well as bind the

6 LOVELY PROFESSIONAL UNIVERSITY