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A contract is an agreement between two or more persons, which may be enforced if the law is properly invoked. In every contract, therefore, it may be inferred that some right is acquired by one party and a correlative obligation or liability is undertaken by the other. Rights and obligations may attach to each party, but the nature of the contract must be considered in order to determine in whom the primary right resides.

It will be shown later that for a contract to be valid certain essentials must be satisfied; and if any one of such essentials is deficient, the contract may be either voidable or void. And even if every essential of a valid contract is satisfied, it may be unenforceable by reason of non-compliance with certain formal requirements.

A voidable contract is one which is capable of affirmation or repudiation at the option of one of the parties, such as the contract entered into by an infant which confers rights of a continuous nature on him, e.g., the purchase of shares in a limited company.

A void contract is one that is destitute of legal effect, e.g., a wagering contract for "differences" on a stock exchange, and is therefore, in reality, no contract at all. From the usually accepted definition, it might be inferred that a void contract is illegal, but whilst it is true that an illegal contract, i.e., one which contravenes the law, whether common law or statute law, is void, the latter term is much wider in its application and a contract may be void though not illegal.

An unenforceable contract is one that is not capable of proof, e.g., where the necessary memorandum required by statute has not been brought into existence, or where a contract in writing has not been properly stamped though this may be received on payment of a fine lo the revenue authorities, or where the remedy has been barred by lapse of time. The contract itself may be perfectly valid and may be honourably carried out by the parties concerned; but in the event of breach or repudiation the legal remedies to secure performance or obtain damages are barred by reason of the absence of evidence or the other circumstances which render the contract unenforceable.

CLASSIFICATION OF CONTRACTS

Contracts are divisible into three classes, i.e.:

Contracts of record;

Specialty contracts;

Simple or parol contracts.

(A) A CONTRACT of RECORD is the obligation which is imposed by the entry of the proceedings in the parchment rolls in a court of record. The principal classes of record, which are now found are (1) judgments, and (2) recognizances.

Judgments

A judgment is an obligation imposed upon one or more parties, in favour of another or others, by a court of record; and it depends for its binding force, not upon the consent of the parties, but upon the authority of the judicial representative of the Sovereign delivering the judgment. A judgment is therefore an order of the court, and since it is an obligation imposed upon a party, it is not strictly a contract which rests upon agreement.

Recognizances

A recognizance is a contract made with the Sovereign through her judicial representative. It is, generally, in the nature of a promise to do some particular act, or to answer to a penalty stated in the recognizance; such as an undertaking by a person tried upon a criminal charge to come up for judgment if called upon, or a promise to pay a specified sum of money if an accused person out on bail, does not appear at the trial.

The terms of a contract of record admit of no dispute, but are conclusively proved by the record itself. It also merges within itself any previously existing contract relating to the same matter, and is the highest form of contract in English law.

(B) SPECIALTY CONTRACTS

A specially contract, or deed, is one which is not only reduced to writing, but is also executed under seal, and delivered. Both sealing and signature arc essential for the proper execution of a deed (Law of Properly Act, 1925, §73).

The delivery may be actual or constructive; as a general rule it is made simultaneously with execution. The modern method is to affix a paper wafer, forming a facsimile of a seal, which the party executing will touch with his finger, saying "I deliver this as my act and deed".

(C) SIMPLE CONTRACT

A simple contract is one which is created, either by an oral promise, by writing not under seal, or by implication. A parol contract is, strictly, a contract entered into by word of mouth; but the term is frequently used to denote all simple contracts, and this is due to the fact that before the Statute of Frauds was passed there was no difference at common law between an agreement by word of mouth and an agreement by writing not under seal.

Most contracts entered into in ordinary commercial transactions fall within this classification.

A contract by implication arises where either there is no express contract in existence but some right and correlative obligation are inferred by reason of the circumstances, or the parties are already in contractual relationship upon some matter and collateral terms are to be inferred therefrom. As an illustration of the former class, a surety who has been called upon to pay a debt which the debtor has failed to discharge can claim contribution from a co-surety; or an agent of necessity can claim reimbursement from the person in whose interests he has acted. The right of an agent to remuneration where the contract had made no specific provision affords an example of the latter class; the law often assumes a promise to pay a reasonable or customary amount for the services rendered. Contracts may also be implied where a party indicates his intention by a mere act, e.g., boarding an omnibus.

In certain cases law imposes an obligation, analogous to a contractual obligation, on a person, who has not agreed, expressly or implicitly, to be bound thereby. An example is the obligation which rests on a person to repay money which has been paid to him for a consideration which has wholly failed. Such obligations are said to arise quasi ex-contracts.