Types of Contracts Based on Validity

Contracts based on validity are defined as a legally binding agreement between two or more parties that is considered legally enforceable because it meets certain criteria of validity. For a contract to be valid, it must typically include four key elements, offer and acceptance, a mutual meeting of the minds, consideration, and legality of purpose. Without these elements, a contract may be deemed invalid and unenforceable in a court of law. Additionally, the contract should be voluntarily entered into, with all parties having the legal capacity to make such an agreement.

Types of Contracts Based on Validity

I. Valid Contract

Valid Contract is defined as a legally binding agreement between two or more parties that meets specific criteria under Contract Law. To be considered valid, a contract must satisfy four essential elements: offer, acceptance, consideration, and the intention to create legal relations.

• Firstly, there must be a clear and definite offer made by one party to another. This offer outlines the terms and conditions of the agreement, and it should be communicated in a manner that is reasonable and specific.
• Secondly, the other party must accept the offer without any significant modifications, creating mutual assent or a meeting of the minds. This acceptance should mirror the terms of the offer.
• Thirdly, there must be consideration, which refers to something of value exchanged between the parties as part of the agreement. It can be in the form of money, goods, services, or a promise to do or not do something.
• Lastly, both parties should have the intent to create a legally binding relationship. In other words, they must understand and acknowledge that the contract can be enforced in a court of law.

For example: Imagine that Alice wants to sell her car, and Bob is interested in buying it. They agree on the following terms:

• Offer and Acceptance: Alice offers to sell her 2018 Toyota Camry for ₹15,000. Bob accepts the offer, agreeing to pay ₹15,000 for the car.
• Consideration: They both exchange something of value, Bob promises to pay ₹15,000, and Alice agrees to transfer ownership of the car to Bob once she receives the payment.
• Intention: Both Alice and Bob intend for this agreement to be legally binding, and they have the capacity to enter into a contract (they are of sound mind and legal age).

As a result, this is a valid contract, and if either party fails to fulfill their obligations (e.g., Alice does not transfer the car, or Bob does not pay the agreed-upon amount), the other party can seek legal remedies to enforce the contract.

II. Void Contract

Void Contract is defined as an agreement that lacks legal validity from the moment it is created. Such contracts are considered unenforceable and have no legal effect because they typically violate specific legal principles or are fundamentally flawed. Void contracts may arise due to several reasons, including illegal subject matter, a lack of essential elements, or a contract involving parties who are incapable of contracting. Because void contracts are inherently invalid, they cannot be enforced by either party, and any property or consideration transferred under such agreements is generally required to be returned or restored.

For Example: Suppose two individuals enter into a contract to distribute illegal drugs. This agreement is considered void because it involves an illegal subject matter, namely the distribution of controlled substances, which is a violation of the law. Since the contract’s purpose is unlawful, it lacks legal validity and cannot be enforced.

III. Voidable Contract

Voidable Contract is defined as a type of contract that is initially valid and enforceable, but it contains certain defects or elements that allow one of the parties to void or cancel the contract if they choose to do so. These defects can include fraud, misrepresentation, undue influence, coercion, or a lack of capacity to understand the contract’s terms. Essentially, a voidable contract gives the disadvantaged party an option, they can either affirm the contract and proceed with it as originally agreed, or they can choose to void it and treat it as if it never existed. Once the party with the power to void decides not to do so and continues to perform under the contract, it becomes fully valid and enforceable.

For example: An example of a voidable contract could involve a situation where an individual sells a valuable antique to another person who falsely claims to be an antique dealer. The buyer, posing as an expert, assures the seller that the item is worth significantly less than its actual value, leading the seller to accept a much lower purchase price. Unbeknownst to the seller, the antique is a rare, highly valuable piece.

IV. Illegal Contract

Illegal Contract is defined as an agreement between two or more parties that violates the law and is therefore unenforceable in a court of law. Such contracts often involve activities that are deemed unlawful or against public policy. Common examples of illegal contracts include those related to drug trafficking, gambling, prostitution, or any other criminal activities. Additionally, contracts that infringe upon statutory regulations, such as agreements that involve price-fixing or discrimination, are also considered illegal. The fundamental principle behind the illegality of these contracts is that the legal system does not support or uphold actions that contravene established laws or public morals. When parties enter into an illegal contract, they are not entitled to the usual legal remedies, and the court will generally not enforce the contract’s terms.

For example: Contract for the sale of illegal drugs. When two parties enter into an agreement to buy or sell illegal substances, such as narcotics like cocaine or marijuana, they are engaging in an illegal contract. This contract is unenforceable under the law because it involves an activity that is not only against the law but also poses serious risks to public health and safety.

V. Unenforceable Contract

Unenforceable Contract is defined as a legal agreement that, while it may initially appear valid, cannot be enforced in a court of law due to specific legal deficiencies or violations. This typically occurs when a contract fails to meet certain legal requirements or standards. Common reasons for a contract to be deemed unenforceable include the absence of essential elements such as mutual consent, lawful purpose, or competent parties, as well as issues like fraud, duress, or unconscionability. Additionally, contracts that violate public policy, such as agreements to engage in illegal activities or discriminatory terms, are also considered unenforceable. When a contract is deemed unenforceable, the parties involved cannot seek legal remedies, such as damages or specific performance, in the event of a breach.

For example: If a 16-year-old enters into a contract to purchase a high-end gaming system, the seller may not be able to enforce the contract against the minor because the minor lacks the legal capacity to contract. The minor could void the contract, and the seller would have to return any consideration (payment or goods) received. This rule is designed to protect minors from making potentially harmful agreements due to their limited legal capacity and vulnerability. It is an example of when a contract may be unenforceable because one of the parties lacks the legal capacity to enter into it.