Definition: A contract is nothing but an agreement which is supported by law, i.e., the concerned parties have to necessarily fulfil their obligations as they are lawfully enforced to do so. Every contract emerges out of an agreement where the two parties promise each other to meet their duties effectively.
No trade practice or business activity is possible without entering into an agreement or a contract.
Content: Types of Contracts
- Different Kinds of Contracts
Different Kinds of Contracts
Based on Validity
The extent to which parties to a contract are legally bound puts it into any of the following categories:
The legally enforceable agreement which satisfies all the essentials of becoming a contract is termed as a valid contract.
For Instance; Mr A proposes to sell his car for ₹150000. Mrs B accepts this offer and makes the payment. Mr A hands over the possession of his car to Mrs B.
An agreement which is legally unenforceable and impossible to execute from the very start itself is termed as a void agreement.
For Instance; Mr X asked Mr Y to jump off the cliff of a mountain, and the former would pay ₹10000 to the latter.
A contract which has been valid earlier but abrogates later on due to unavoidable circumstances is known as a void contract.
For Instance; Mr Q (when he was minor) promised to buy Mr R’s farmhouse after two years. On the due date, Mr Q attained the age of 18 years but denied to fulfil his obligations.
When a contract is formed without the consent of one of the two parties, i.e., the aggrieved party; it becomes a voidable contract.
For Instance; Mr B made Mrs A sell her antique jewellery to him, at gunpoint. The contract was signed in the absence of free consent of Mrs A.
It is void ab initio, i.e., such an agreement is outlawed right from the very beginning and thus, never tends to become a contract.
For Instance; Mr X bribed Mr Y with ₹500000 to acquire a construction project.
The contract, which is though valid but cannot be presented in the court of law due to specific technical issues or legal problems. These issues relate to insufficient documents or improper registration. It is termed as an unenforceable contract.
For Instance; Mr Q lent a sum of ₹25000 to Mr R, which the latter has to repay after two years with ₹5000 as interest.
Based on the Extent of Execution
In simple terms, we can distinguish the contracts in terms of their accomplishment also. Based on performance, the contracts can be classified as follows:
A contract which has already been performed, i.e., each party to the contract has fulfilled its obligations effectively, is known as an executed contract.
For Instance; Mrs A bought land from Mr B, and the latter transferred the ownership of the land to the former.
The contract which is still to be accomplished since one or both the parties to the contract have not yet fulfilled their obligations is called as an executory contract.
Following are the two forms of executory contracts:
Unilateral Contract: When one party have met its obligations while the other still needs to perform its part of the contract, it becomes a unilateral contract.
For Instance; I went to the bakery, ordered a birthday cake to be delivered the day after. However, I have made the advance payment; the bakery would fulfil its obligation the next day.
Bilateral Contract: When both the involved parties have yet to carry out their contractual obligations, such a contract is considered to be a bilateral contract.
Based on the Formation
The contracts can also be classified on the grounds of their creation. Following the most significant types of contracts on this basis:
As the word, ‘express’ itself says, in this type of contract, every clause is articulated in words to maintain transparency. This disclosure can be in either way, i.e., in written or oral. However, a written contract is mostly prefered to avoid any default or mistake in future.
For Instance; Oral Contract: Mrs X bought vegetables worth ₹75 from a hawker.
Written Contract: Mrs X bought a gold necklace from ABC jewellers and received an invoice along with the hallmark card from the latter.
When the conduct of both the parties bind them into a contractual obligation, without any verbal expression, it is known as an implied contract. Briefly, here, the offer and its acceptance are based on the conduct of the parties rather than words.
For Instance; I had dinner in the restaurant, and it is apparent that i need to pay the bill.
When the parties require to fulfil the obligations as compliance with the orders of the court of law, it becomes a quasi or constructive contract. However, the parties do not intentionally enter into such a contract.
For Instance; Mr A bought a new washing machine from XYZ electronics, but it was mistakenly delivered to Mrs B who thought it to be a gift from her husband. She got it installed and used it.
After a few hours when Mr A enquired the status and everything was cleared out, he refused to accept the used machine.
Now, XYZ electronics provided a new washing machine to Mr A. The company claimed a sum of ₹10000, i.e., the price of the washing machine from Mrs B.
Such a contract is created without any exchange of words or actions, i.e., neither it is verbally expressed, nor it is implied on the involved parties. The obligations of both parties are apparent or inherent.
For Instance; A painting kept for auction when sold to Mr Z on the fall of the hammer after the final call, at ₹210000.
One of the most popular means of entering a contract is through the internet. In an e-contract, the offer and its acceptance among the parties are done through an online medium, whether it is email, social media or e-commerce and the company’s website.
For Instance; I place an order of printing 1000 visiting cards through email, to ABC printers, who accepted it via email. The latter couriered my package, and I transferred the full payment through mobile banking.
When it comes to corporate law, a contract is a base for every business dealing.
Knowing about the different kinds of contracts can help us to beware of false business practices such as fraud, coercion, misleading and illegal actions.