Types Of Contract

Contracts play a vital role in both personal and professional interactions, providing a framework to ensure agreements are legally enforceable. From buying a product to entering into complex business arrangements, various types of contracts cater to different situations and legal requirements. Each contract type has distinct characteristics based on its formation, execution, enforceability, performance, and specific objectives.

In this blog, we explore the types of contracts in detail, including express and implied contracts, valid and void contracts, unilateral and bilateral contracts, and more. Understanding these classifications can help individuals and businesses navigate legal agreements confidently and ensure compliance with applicable laws.

Types Of Contracts Based On Formation

Contracts based on formation are as follows -

Express Contracts

An express contract is one where the terms and conditions are explicitly stated, either orally or in writing. Both parties clearly communicate their intentions, leaving no ambiguity regarding their obligations.

For example, a business agreement between a supplier and a retailer specifying the quantity of goods, payment terms, and delivery deadlines is an express contract. Similarly, a lease agreement for renting a property where all terms are laid out in writing is another example.

Implied Contracts

Implied contracts are those formed through the conduct or actions of the parties rather than direct communication. These contracts rely on the behavior or circumstances surrounding the interaction, which indicate a mutual understanding.

For instance, when you visit a restaurant and order a meal, it is implied that you will pay for the food after consuming it. There is no explicit agreement, but the conduct of ordering and serving food creates a legally enforceable contract.

Quasi-Contracts

Quasi-contracts are not contracts in the traditional sense but are obligations imposed by law to prevent unjust enrichment of one party at the expense of another.

For example, if a person receives goods mistakenly delivered to their address and chooses to keep them, the law imposes an obligation on them to pay for the goods, even though no formal agreement was made.

Types Of Contracts Based On Execution

Contracts based on execution are as follows -

Executed Contracts

Executed contracts are those where both parties have fully performed their respective obligations under the agreement. These contracts signify the completion of all terms and conditions.

For instance, purchasing an item at a store and receiving the goods in exchange for payment is an executed contract. Both parties have fulfilled their obligations—the buyer has paid, and the seller has delivered the product.

Executory Contracts

Executory contracts are those in which some or all obligations are yet to be fulfilled by one or both parties.

An example of an executory contract is an employment agreement where an employee agrees to work for a company for a specified duration, and the employer promises to pay the agreed salary at the end of each month. Until the obligations are fully performed, the contract remains executory.

Types of Contracts Based On Enforceability

Contracts based on enforceability are as follows -

Valid Contracts

A valid contract is enforceable by law, containing all essential elements: offer, acceptance, consideration, capacity, free consent, and a lawful object.

For example, a contract to sell a property where both parties agree on the price, terms, and transfer of ownership is a valid contract.

Also Read : How To Know If My Contract Is Valid

Void Contracts

A void contract is an agreement that ceases to be enforceable by law. It may initially meet all the criteria of a valid contract but becomes void due to changes in circumstances or violations of legal requirements.

For instance, a contract to sell land that is later acquired by the government for public purposes becomes void, as the seller can no longer fulfill their obligation to transfer ownership.

Voidable Contracts

Voidable contracts are those that remain enforceable until one of the parties chooses to void them due to specific reasons such as misrepresentation, coercion, or undue influence.

For example, if a person is pressured into signing a contract under threat, they have the legal right to declare it void.

Illegal Contracts

Illegal contracts are agreements that involve unlawful activities and are unenforceable from the outset. These contracts violate the law or public policy.

For instance, a contract to smuggle goods across borders is illegal and cannot be enforced in a court of law.

Unenforceable Contracts

Unenforceable contracts are valid in their formation but cannot be enforced due to technical deficiencies, such as the lack of required documentation or failure to comply with legal formalities.

Types Of Contracts Based On Nature Of Consideration

Contracts based on nature of consideration are as follows -

Unilateral Contracts

A unilateral contract is one where only one party makes a promise, and the other party performs an act in response. The obligation lies solely with the promisor until the promisee fulfills their end.

Bilateral Contracts

Bilateral contracts involve mutual promises between two parties, where each is bound by their respective commitments. These are the most common type of contracts in business and personal transactions.

Types Of Contracts Based On Performance

Contracts based on performance are as follows -

Contingent Contracts

Contingent contracts depend on the occurrence or non-occurrence of a specific event. These contracts are enforceable only when the condition is met.

For example, an insurance policy is a contingent contract where the insurer agrees to compensate the policyholder only if a specified event, such as an accident or fire, occurs.

Wagering Contracts

Wagering contracts are based on the outcome of uncertain events and involve mutual promises where one party stands to gain, and the other loses, depending on the event’s result.

For instance, betting on the outcome of a cricket match is a wagering contract. However, these are not legally enforceable in many jurisdictions.

Types Of Contracts Based On Specific Objectives

Contracts based on specific objectives are as follows -

Contract Of Indemnity

A contract of indemnity involves one party promising to compensate the other for losses incurred due to the actions of a third party.

For example, insurance contracts where the insurer agrees to indemnify the insured for damages resulting from accidents, theft, or natural disasters fall under this category.

Contract Of Guarantee

A contract of guarantee involves three parties: the creditor, the principal debtor, and the guarantor. The guarantor assures the creditor that the debtor will fulfill their obligations.

For instance, a bank loan guaranteed by a third party is a contract of guarantee, where the guarantor agrees to repay the loan if the borrower defaults.

Contract Of Bailment

A contract of bailment occurs when one party (the bailor) delivers goods to another (the bailee) for a specific purpose, with the understanding that the goods will be returned once the purpose is fulfilled.

For example, leaving your car with a valet parking service is a contract of bailment.

Contract Of Agency

A contract of agency involves one party (the agent) acting on behalf of another (the principal) to establish legal relationships with third parties.

For instance, a real estate agent negotiating the sale of a property on behalf of the owner operates under a contract of agency.

Conclusion

Contracts are essential to establishing and maintaining legal relationships across personal, professional, and commercial settings. From express agreements to implied obligations and specialized arrangements like indemnities or guarantees, contracts provide clarity, accountability, and enforceability. Understanding the diverse types of contracts helps individuals and businesses navigate legal complexities and safeguard their rights effectively.

FAQs On Types Of Contract In Business law

A few FAQs based on types of contract are as follows:

Q1. What is an express contract?

An express contract explicitly outlines terms and conditions, either orally or in writing. Both parties clearly state their intentions, ensuring no ambiguity. For example, a lease agreement or a written business contract is an express contract.

Q2. What is the difference between executed and executory contracts?

Executed contracts are fully performed by all parties, while executory contracts have outstanding obligations yet to be fulfilled. For example, a paid purchase is executed, while a service contract in progress is executory.

Q3. Are wagering contracts enforceable?

Wagering contracts, based on uncertain events like betting on sports outcomes, are generally not legally enforceable in many jurisdictions as they conflict with public policy and legal norms.