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Types of Contract based on Enforceability or validity-CA Foundation Business Law

Unit-1 Nature of contract

Chapter-1 The Indian Contract Act 1872

Contract on the basis of validity means it describes what can be legality status of any contract. Based on legality or enforceability, a contract can be valid, void, illegal, etc. So let’s understand each type one by one. (Types of Contract based on Enforceability or validity-CA Foundation Business Law)

  • Valid Contract

A contract can be called valid when it has existence in the eye of law and binding impact on parties. A valid contract contains all essentials which a valid contract must have.

  • Void Contract

As per section 2(j),

A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”

In simple words, a void contract is a contract that cannot be enforced by a court of law. A contract can be void-

  • From the very beginning when the contract was created, this is called as void-ab-initio,

Example Illegal contracts are void but this type of contracts are void from the inception hence these will be called contract void-ab-initio. Or

  • This can become void afterward due to changes in circumstances.

For example, Ram creates a contract with Shyam. Before performing his part of the contract Ram died. Here the performance of the contract became impossible. Hence the contract will be void due.

  • Voidable Contract

As per section 2(j),

“An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.”

The voidable contract stays on the edge of legality. It can be converted into a void contract or a valid contract, depending upon the wish of one or more parties of the contract. A contract may become voidable when the consent is influenced by coercion, fraud, etc. Let’s understand this better with the help of an example.

Example- Shyam threatened Ram to sell his house to him. Under the fear of death, Ram signed the contract. In this situation, the law makes this contract voidable and gives Ram (Suppressed party) a right to change the status of the contract. Here Ram has two options, first to make the contract valid by accepting it legally or second to make the contract void.

  • Illegal Contract

An illegal contract is that contract which is forbidden by law. For Example, a contract which is against the public policy, contract to harm any person or his asset or any person related to him, etc. A contract that is illegal in nature due to his illegal object or consideration or any other element always is void-ab-initio (void from the inception). Let’s know some characteristics of illegal contracts-

  • These are void from inception.
  • These are different from void contracts as void contracts are not forbidden by law.
  • All collateral contracts related to illegal contracts are also void.
  • Illegal contracts are punishable under law.

Illegal contracts are forbidden by law and void too but void contracts are not forbidden. Hence it is said, all illegal contracts are void but all void contracts are not illegal.

  • Unenforceable Contract

When a contract is good in substance but cannot be enforced by a court of law due to some technical errors, are called an unenforceable contract. These technical errors may be an error in writing the contract, non-compliance of the requirement of other law, etc.

Types of Contract based on Enforceability or validity-CA Foundation Business Law

Read More: Types of the Contract on the basis of formation

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