Basics of Contract
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What is Contract?
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Types of Contracts
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Void and Voidable Contracts
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Case Laws
What is Contract?
A contract is a legal agreement between two parties or more parties which creates obligations and rights between both the parties. In the Indian Contract Act of 1872, it says that it much contains the elements of offer, acceptance, consideration, free consent a lawful object and the competent parties to be valid. Contract guarantee clarity, trust and enforceability by providing legal remedies in the event of breach or any kind of inconvenience by the party in the contract. Contracts are the integral part of any kind of everyday transactions.
Types of Contracts
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Contingent Contract
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Wagering Contract
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Void Contract
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Voidable Contract
Contingent Contract
A contract where performance depends on the occurrence of a specific uncertain event. It is enforceable by law under Section 31 of the Indian contract Act. It depends on a collateral future event, which may or may not happen. Its enforceable if the specified event occurs. It’s a legal and valid agreement. For example: A contract to pay a sum if a ship arrives safely.
Case Law
N.P. Ramsay v. Shankar Lal, AIR 1927 All 94
N.P. Ramsay entered into an agreement with Shankar Lal, stipulating that Ramsay would receive payment only upon the occurrence of a specific future event. The contingency was the receipt of payment from a third party. Shankar Lal refused to pay Ramsay before the occurrence of the contingent event, leading to a dispute. The main issue of this case is Whether the payment was enforceable before the occurrence of the specified contingent event. The Allahabad High Court held that the contract was a contingent contract, as defined under Section 31 of the Indian Contract Act, 1872.The enforceability of the contract depended entirely on the happening of the specified event—receipt of payment from the third party. Since the contingency had not occurred, the obligation to pay under the contract could not be enforced. This case serves as an example of how contingent contracts operate under the Indian Contract Act, 1872.
Wagering Contract
An agreement where two parties bet on an uncertain events outcome. Declare void and unenforceable under Section 30 of the Indian contract Act. Purely based on chance or speculation about an uncertain event. Parties have no actual interest in the event, only in winning or losing money. It is void and not legal. Consideration is based entirely on the outcome of the wager. For example – Betting on the outcome of a horse race.
Case law
Carlill vs Carbolic Smoke Ball
The case of Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256 is one of the most important and landmark cases in contract law. It established key principles about the formation of contracts, particularly in relation to unilateral contracts, offer and acceptance, and consideration. The Carbolic Smoke Ball Company advertised in newspapers that their product, a “smoke ball,” would prevent users from catching influenza. The advertisement stated that the company would pay £100 to anyone who used the product as directed and still contracted influenza. To show their sincerity, the company claimed to have deposited £1,000 in a bank as security for paying claims. Mrs. Carlill, a consumer, used the smoke ball as per the instructions but still contracted influenza. She sued the company for the promised £100.
This case clarified the distinction between invitations to treat and offers, particularly in cases involving advertisements. It also reinforced the enforceability of unilateral contracts and laid the groundwork for understanding offer, acceptance, and consideration in contract law.
Void Contract
A void contract is not lawfully binding hence it can’t be enforced. Both parties have not mutually agreed to the terms and conditions of the contract for it to be valid. This means that there should be an offer to do something by one party and acceptance of the offer by the other party. There is no consideration in the contract. A consideration is required for a contract to be valid. Consideration means the amount or price paid by the party accepting the offer to the party who offers to do something. The terms and conditions laid by both parties are not complete, vague or ambiguous. The parties to the contract are incompetent to enter into contracts under the law or do not have the capacity to make informed decisions. Both parties are under a mistake regarding an essential fact laid down in the contract. While entering into an agreement with other parties or even drafting one by yourself, you should keep in mind the pointer mentioned in this article. You can avoid void contracts and their consequences by including all the essential elements and carefully assessing them once drafted.
Case Law
Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal 539 (PC)
Dharmodas Ghose, a minor, mortgaged his property to secure a loan from his uncle, Brahmo Dutt. The mortgage was later sold to the plaintiff, Mohori Bibee. At the time of entering into the contract, Dharmodas Ghose was a minor, meaning he was below the age of 18. The representative of Brahmo Dutt was fully aware of his legal incompetence to enter into contracts or mortgage his property. Dharmodas Ghose and his mother initiated legal action against Brahmo Dutta, arguing that the mortgage executed during Dharmodas’s minority was void and improper, requiring the contract’s revocation. During the proceedings, Brahmo Dutta passed away, and the appeal was continued by his executors. The plaintiff contended that no leniency should be granted, alleging that the defendant had knowingly misrepresented Dharmodas’s age.
The Trial Court ruled that the mortgage contract was void since it was entered into by a minor. Brahmo Dutta, dissatisfied with the verdict, appealed to the Calcutta High Court. The Calcutta High Court upheld the Trial Court’s decision, agreeing that the mortgage contract was void and dismissed Brahmo Dutta’s appeal.
Voidable Contract
A voidable contract is initially thought to be valid and enforceable, but it can be rejected by one party if faults are detected. The contract remains valid and enforceable if a party with the authority to reject it choose not to reject it despite the flaw.
Case Law
Raghunath Prasad v. Sarju Prasad AIR 1924 PC 60
Raghunath Prasad, a wealthy but illiterate man, executed a mortgage in favor of Sarju Prasad. Raghunath claimed that the transaction was induced by undue influence, as Sarju Prasad was his close relative and had a dominant position over him due to their relationship. Raghunath sought to have the mortgage declared void on the grounds of undue influence under Section 16 of the Indian Contract Act, 1872. This case is widely cited to establish the concept of undue influence in contractual transactions. It emphasizes the need for fairness and the requirement for dominant parties in fiduciary relationships to act in good faith and justify the equity of the transaction.
