Contract and Laws- lecture no-1- Industrial Law and Finance
Subject: Industrial
Law and Finance
Subject Code: HUM4603
Topic: Contract and Laws- lecture no-1
Lecturer: Md.
Ridwanul Hoque
What is a contract?
A contract is a legally binding or valid agreement between two parties. The law will consider a
contract to be valid if the agreement contains all of the following elements:
1. offer and acceptance;
2. an intention between the parties to create binding relations;
3. consideration to be paid for the promise made;
4. legal capacity of the parties to act;
5. genuine consent of the parties; and
6. legality of the agreement.
An agreement that lacks one or more of the elements listed above is not a valid contract.
Each of these elements is dealt with in more detail in this section.
Contracts on the basis of creation:
a) Express contract: Express contract is one which is made by words spoken or written.
Example No. 1: X says to Y, will you buy a car for Rs. 100000? Y says to X, I am ready
to buy you car for Rs. 100000. It is an express contract made rally. Example No. 2:X
writes a letter to Y, I offer to sell my car for Rs. 100000 to you. Y send a letter to Y, I am
ready to buy you car for Rs. 100000. It is an express contract made in writing.
b) Implied contract: An implied contract is one which is made otherwise than by works
spoken or written. It is inferred from the conduct of a person or the circumstance of the
particular case. Example: X, a coolie in uniform picks up the bag of Y to carry it from
railway platform to the -- -- -- without being used by Y to do so and Y allow it. In this case
there is an implied offer by the coolie and an implied acceptance by the passenger. Now,
there is an implied contract between the coolie and the passenger is bound to pay for the
services of the coolie.
c) Quasi or constructive contract: It is a contract in which there is no intention either side to
make a contract, but the law imposes contract. In such a contract eights and obligations
arise not by any agreement between the practice but by operation of law. e.g where
certain books are delivered to a wrong address the addresses is under an obligation to
either pay for them or return them.
Contracts on the basis of execution:
a) Executed contract: It is a contract where both the parties to the contract have fulfilled
their respective obligations under the contract. Example: X offer to sell his car to Y for
Rs. 1 lakh, Y accepts X offer. X delivers the car to y and Y pays Rs. 1 lakh to X. it is an
executed contract.
b) Executory contract: It is a contract where both the parties to the contract have still to
perform their respective obligations. Example: X offers to sell his car to y for Rs. 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.
c) Partly executed and partly executory contract: It is a contract where one of the parties to
the contract has fulfilled his obligation and the other party has still to perform his
obligation. E.g X offers to sell his car to y for Rs. 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:
a) 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.
b) Void Contract: 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. E.g. 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.
c) Void Agreement: 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. E.g. in agreement with a minor or a person of unsound mind is void
–ab-initio because a mino or a person of unsound mind is incompetent to contract.
d) Voidable contract: An 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 e.g. a contract is treated as voidable at the option of the
party whose consent has been obtained under influence or fraud or misinterpretation. E.g.
X threatens to kill Y, if the does not sell his house for Rs. 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 the aggrieved party. If Y decides to avoid the
contract he will have to return Rs. 1 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.
e) 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 Rs. 1 lakh Y kills Z. Y kill
and claims Rs. 1 lakh. Y cannot recover from X because the agreement between X and Y
is illegal and also its object is unlawful.
f) 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.
Termination of Contract
Contract creates relation between the parties and binds them over. Termination of such
contractual relations is called discharge of contract. The following are different modes of
discharge or termination of contract.
1. Discharge by Performance.
2. Discharge by Breach of Contract.
3. Discharge by Impossibility.
4. Discharge by Operation of Law.
5. Discharge by Lapse of Time.
6. Discharge by Mutual understanding or by Agreement.
Discharge of contract by Performance
Contract creates obligations to parties. If both parties perform their contractual obligations
promptly, the contract is said to be discharged by performance. It is the ideal method that number
of contracts gets terminated in this way.
Discharge of contract by Breach
Failure in performance of contractual obligation is called breach of contract. Discharge of
contract takes place by breach of contract also. Breach of contract is of two types. Namely;
Actual breach and
Anticipatory breach.
In case where contract is breached by party on the date of performance, it is called actual breach.
If breach of Contract takes place before data of performance, it is called anticipatory breach.
Discharge of contract by Impossibility
The element of impossibility terminate contractual relations. impossibility is of two types.
Namely;
Pre Contractual impossibility and
Post Contractual impossibility.
If impossibility has already come into force before the contract itself, it is called Pre-Contractual
impossibility. Here discharge of Contract takes place soon after formation of Contract. The
impossibility which comes into force after the contract is called Post-Contractual Impossibility.
Here contractual relations will exists only up to occurrence of impossibility.
Discharge of contract by lapse of time
Limitation act has specified duration to perform different contracts. The duration thus specified is
called limitation period. Soon after expiry of limitation period, the contract gets discharged.
Example: There is a contract of loan between A and B. Her limitation period is 3 years. After
completion of 3rd year discharge of contract takes place and debtor – creditor relationship comes
an end. Thus it becomes time bared debt which cannot be recovered by means of legal
proceedings.
Discharge of contract by Operation of law
This can be as following;
By Death: Whenever one of the parties comes across death, contractual relations will come to an
end.
By Insolvency: When one of the parties to the contract becomes insolvent, he forgoes capacity to
contract and those contracts which were made by that person will get discharge.
By lunacy: When one of the parties gets attached by lunacy discharge of contract takes place.
Right and liability going into the hands of same party: Contract creates right to one party and
liability to the other when right and liability reach the same person, the result is discharge of
contract.
Example: X has drawn a bill on Y. Here X has right to collect amount on the bill and Y has
liability to pay. There after X has endorsed the bill to Z. Where Z has got the right and liability is
with Y. Assume that Z has endorsed the bill to Y. Now right as well as liability are with Y. This
situation discharges the contract.
Discharge of contract by Agreement
This can be as following;
By Alterations: Whenever Material alterations in contract are made, then it is said that old
contract has got discharged and a new contract has come into force.
By Renewal: At times parties to the contracts may substitute completely new contract in the place
of old contract. Now the old contract has got discharged.
By Recession: In case of recession old contract gets discharged and there will be no formation of
new contract.
Example: There is a contract between A and B according to which A has to supply 100 pairs of
ready made dresses to B on 10th January. Where date of formation of contractee`s 1st January.
On 2nd January A says to B that those dresses have become out of fashion and hence not possible
to assemble 100 pairs. Still B says that though he (B) supplies 100 pairs by taking a lot of risk, B
cannot sell them because they are outdated. Thus by mutual understanding, they have terminated
their contract.
A contract is a legally binding or valid agreement between two parties. The law will consider a
contract to be valid if the agreement contains all of the following elements:
1. offer and acceptance;
2. an intention between the parties to create binding relations;
3. consideration to be paid for the promise made;
4. legal capacity of the parties to act;
5. genuine consent of the parties; and
6. legality of the agreement.
An agreement that lacks one or more of the elements listed above is not a valid contract.
Each of these elements is dealt with in more detail in this section.
Contracts on the basis of creation:
a) Express contract: Express contract is one which is made by words spoken or written.
Example No. 1: X says to Y, will you buy a car for Rs. 100000? Y says to X, I am ready
to buy you car for Rs. 100000. It is an express contract made rally. Example No. 2:X
writes a letter to Y, I offer to sell my car for Rs. 100000 to you. Y send a letter to Y, I am
ready to buy you car for Rs. 100000. It is an express contract made in writing.
b) Implied contract: An implied contract is one which is made otherwise than by works
spoken or written. It is inferred from the conduct of a person or the circumstance of the
particular case. Example: X, a coolie in uniform picks up the bag of Y to carry it from
railway platform to the -- -- -- without being used by Y to do so and Y allow it. In this case
there is an implied offer by the coolie and an implied acceptance by the passenger. Now,
there is an implied contract between the coolie and the passenger is bound to pay for the
services of the coolie.
c) Quasi or constructive contract: It is a contract in which there is no intention either side to
make a contract, but the law imposes contract. In such a contract eights and obligations
arise not by any agreement between the practice but by operation of law. e.g where
certain books are delivered to a wrong address the addresses is under an obligation to
either pay for them or return them.
Contracts on the basis of execution:
a) Executed contract: It is a contract where both the parties to the contract have fulfilled
their respective obligations under the contract. Example: X offer to sell his car to Y for
Rs. 1 lakh, Y accepts X offer. X delivers the car to y and Y pays Rs. 1 lakh to X. it is an
executed contract.
b) Executory contract: It is a contract where both the parties to the contract have still to
perform their respective obligations. Example: X offers to sell his car to y for Rs. 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.
c) Partly executed and partly executory contract: It is a contract where one of the parties to
the contract has fulfilled his obligation and the other party has still to perform his
obligation. E.g X offers to sell his car to y for Rs. 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:
a) 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.
b) Void Contract: 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. E.g. 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.
c) Void Agreement: 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. E.g. in agreement with a minor or a person of unsound mind is void
–ab-initio because a mino or a person of unsound mind is incompetent to contract.
d) Voidable contract: An 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 e.g. a contract is treated as voidable at the option of the
party whose consent has been obtained under influence or fraud or misinterpretation. E.g.
X threatens to kill Y, if the does not sell his house for Rs. 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 the aggrieved party. If Y decides to avoid the
contract he will have to return Rs. 1 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.
e) 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 Rs. 1 lakh Y kills Z. Y kill
and claims Rs. 1 lakh. Y cannot recover from X because the agreement between X and Y
is illegal and also its object is unlawful.
f) 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.
Termination of Contract
Contract creates relation between the parties and binds them over. Termination of such
contractual relations is called discharge of contract. The following are different modes of
discharge or termination of contract.
1. Discharge by Performance.
2. Discharge by Breach of Contract.
3. Discharge by Impossibility.
4. Discharge by Operation of Law.
5. Discharge by Lapse of Time.
6. Discharge by Mutual understanding or by Agreement.
Discharge of contract by Performance
Contract creates obligations to parties. If both parties perform their contractual obligations
promptly, the contract is said to be discharged by performance. It is the ideal method that number
of contracts gets terminated in this way.
Discharge of contract by Breach
Failure in performance of contractual obligation is called breach of contract. Discharge of
contract takes place by breach of contract also. Breach of contract is of two types. Namely;
Actual breach and
Anticipatory breach.
In case where contract is breached by party on the date of performance, it is called actual breach.
If breach of Contract takes place before data of performance, it is called anticipatory breach.
Discharge of contract by Impossibility
The element of impossibility terminate contractual relations. impossibility is of two types.
Namely;
Pre Contractual impossibility and
Post Contractual impossibility.
If impossibility has already come into force before the contract itself, it is called Pre-Contractual
impossibility. Here discharge of Contract takes place soon after formation of Contract. The
impossibility which comes into force after the contract is called Post-Contractual Impossibility.
Here contractual relations will exists only up to occurrence of impossibility.
Discharge of contract by lapse of time
Limitation act has specified duration to perform different contracts. The duration thus specified is
called limitation period. Soon after expiry of limitation period, the contract gets discharged.
Example: There is a contract of loan between A and B. Her limitation period is 3 years. After
completion of 3rd year discharge of contract takes place and debtor – creditor relationship comes
an end. Thus it becomes time bared debt which cannot be recovered by means of legal
proceedings.
Discharge of contract by Operation of law
This can be as following;
By Death: Whenever one of the parties comes across death, contractual relations will come to an
end.
By Insolvency: When one of the parties to the contract becomes insolvent, he forgoes capacity to
contract and those contracts which were made by that person will get discharge.
By lunacy: When one of the parties gets attached by lunacy discharge of contract takes place.
Right and liability going into the hands of same party: Contract creates right to one party and
liability to the other when right and liability reach the same person, the result is discharge of
contract.
Example: X has drawn a bill on Y. Here X has right to collect amount on the bill and Y has
liability to pay. There after X has endorsed the bill to Z. Where Z has got the right and liability is
with Y. Assume that Z has endorsed the bill to Y. Now right as well as liability are with Y. This
situation discharges the contract.
Discharge of contract by Agreement
This can be as following;
By Alterations: Whenever Material alterations in contract are made, then it is said that old
contract has got discharged and a new contract has come into force.
By Renewal: At times parties to the contracts may substitute completely new contract in the place
of old contract. Now the old contract has got discharged.
By Recession: In case of recession old contract gets discharged and there will be no formation of
new contract.
Example: There is a contract between A and B according to which A has to supply 100 pairs of
ready made dresses to B on 10th January. Where date of formation of contractee`s 1st January.
On 2nd January A says to B that those dresses have become out of fashion and hence not possible
to assemble 100 pairs. Still B says that though he (B) supplies 100 pairs by taking a lot of risk, B
cannot sell them because they are outdated. Thus by mutual understanding, they have terminated
their contract.
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