Page 14 - DMGT407Corporate and Business Laws

Unit 1: Laws of the Contract

other party. The party repudiating the contract is entitled to get damages for any Notes
loss that he may have suffered. In case he had received some benefit under the
contract, he must restore it to the person, from whom it was received. Thus, the
aggrieved party has twofold rights, i.e., (i) to repudiate the contract, and therefore
not to be bound there under and (ii) to carry out the transaction as stipulated in spite
of the flaw therein.

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.
(c) An illegal agreement is one which transgresses some rule of basic public policy or which
is criminal in nature or which is immoral. Such an agreement is a nullity and has a much
wider import than a void agreement. All illegal agreements are void but all void agreements
(or contracts) are not necessarily illegal.

Example: A, B and C enter into an agreement for the division among them of gains
acquired or to be acquired, by them by fraud. The agreement is illegal as per s.23 of the Act.
An illegal agreement is not only void as between the immediate parties but has this
further effect that even the collateral transactions to it become tainted with illegality.

Example: A borrows ` 15,000 from B, and enters into a contract with F, a foreigner, to
import goods which are prohibited under the law. B has knowledge of the purpose of the loan.
The agreement between A and B is collateral to the main agreement between A and F. Since the
main agreement is illegal, therefore, the collateral agreement is also tainted with illegality.
3. Classification of contracts according to performance: On the basis of the extent to which
they have been performed, contracts may be: (i) Executed and executory, or (ii) Unilateral
and (iii) bilateral.

(a) An executed contract is one which has been wholly performed. Nothing remains to
be done in terms of the contract.

Example: A buys a bicycle from a dealer. A pays cash. The dealer delivers the bicycle.
(b) An executory contract is one which remains wholly unperformed, or in which there
remains something further to be done.

Example: On June 1, A enters into a contract with a dealer to buy a bicycle. The contract
is to be performed on June 15.
(c) The executory contract becomes an executed one when it is completely performed.

Example: In the above example, if both - A and the dealer performs their obligations on
June 15, the contract becomes executed. However, if in terms of the contract performance of
promise by one party is to precede performance by another party, then the contract is still
executory, though it has been performed by one party.

On June 1, A agrees to buy a bicycle from a dealer. The dealer has to deliver the
bicycle on June 15 and A has to pay price on July 1. The dealer delivers the bicycle on
June 15. The contract is executory as something remains to be done in terms of the
contract.

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