Types of Contracts

Signing a contract ties up an individual to a set of duties that needs to be unconditionally met in order to achieve an end goal. Breaching the contracts can bring about serious implications to each of the signatories. Learn about the different types of contracts in this blog.

Introduction

This article focuses on the various classification of contracts existing in India. Go through the exhaustive list to grab a decent idea of this segment of law.

The terms and conditions of contract seem to vary based on the classification of contracts we are considering. In this regard, each contract is bound to be unique, also they fulfil a particular purpose. Therefore, you should know the specific applications as you may need to draft them in future. Some similarities are also noted besides the vast range of disparities.

Classification of contracts is made based on their drafting procedure, applicability, highlighted characteristics and nature of execution. In this article, you may find a few types of contracts that coincide with each other. For instance, you can come across a contract that is verbal, unilateral and valid at the same time. Usually, all these adjectives describe different contracts but at times they represent a specific class.

Factors of Classification of Contracts

The Indian Contract law classification all contracts depending on several factors that we are about to discuss here. Contracts are drawn to legally acknowledge the transfer of resources, and provide proof of employment, tenancy, etc. Here, we have listed the fundamental criteria governing the classification of contracts:

• Formation
• Consideration ground
• Execution
• Validity

Classification of Contracts Based on Formation

1. Express Contract

Express contracts are clear agreements, spoken or written, between two parties. Both parties agree to the terms and fulfill their promises (consideration), which can be something other than money.

2. Implied Contract

In the world of contracts, there are two main types: express and implied. While express contracts are clear, written or spoken agreements between parties, implied contracts are a bit different. They’re essentially unwritten agreements based on the conduct of the involved parties.

The key idea behind implied contracts is to prevent someone from unfairly benefiting by exploiting a system. Imagine you buy a new phone. There’s no written warranty, but it’s generally understood that the phone should function properly. This unspoken expectation is an example of an implied warranty, a type of implied contract.

3. Quasi Contract

Much dissimilar to other contracts, Quasi-contracts tend not to legally bind the involved parties. The court of law has set the regulations for a quasi-contract.

Limited circumstances are dealt with the help of quasi-contracts:

• Situations where you pay on behalf of another individual
• Wherever supply of essentials takes place
• Under conditions where someone profits from the efforts put by another
• Upon wrongly made payments
• When someone finds lost items

4. E-Contract

E-contracts, or Electronic Data Interchange agreements, are digital contracts used in modern business. Sent via email, they collect recipient info, consent, and a digital signature. Like clear express contracts, they’re legally binding.

5. Verbal Contract (Oral Contract)

Verbal contracts are legally binding agreements that are formed through spoken words and are not necessarily recorded in writing. While these contracts are enforceable, proving the terms and conditions can be challenging in the absence of written evidence.

6. Written Contract

Written contracts are formal agreements that are documented in writing and signed by all involved parties. These contracts are typically more straightforward to enforce and provide a clear record of the agreed-upon terms.

Classification of Contracts Based on Consideration Ground

Under this head, we have bilateral and unilateral contracts. Bilateral contracts involve two signatories who mutually agree to the terms put forward by the opposite person. Whereas, in unilateral contracts, one person or entity proposes a commitment. This promise can be availed by any individual who wishes to participate in the plan.

1. Bilateral Contracts

Bilateral contracts involve an exchange of promises between two parties, where both parties are legally obligated to fulfil their promises. For example, in a sales contract, the buyer promises to pay, and the seller promises to deliver the goods.

2. Unilateral Contracts

Unilateral contracts are agreements in which one party makes a promise in exchange for a specific action or performance by the other party. These contracts are only formed when the action is completed. For instance, a reward offer for finding a lost item is a unilateral contract.

3. Unconscionable Contracts

Unconscionable contracts are those that are so one-sided and unfair that they shock the conscience. Courts may deem such contracts void or unenforceable due to their oppressive nature.

4. Adhesion Contracts

Adhesion contracts are typically presented on a take-it-or-leave-it basis, with one party having significantly more bargaining power. These contracts are often used in consumer transactions and may have terms that favour the party with more leverage.

5. Aleatory Contracts

Aleatory contracts are those where the performance of one or both parties depends on an uncertain event, such as an insurance contract where the payout depends on the occurrence of an insurable event.

6. Option Contracts

Option contracts provide one party with the right to choose whether to enter into a contract at a later date. This gives the option holder the flexibility to decide if they want to proceed with the contract.

Classification of Contracts Based on Execution

Based on the execution clause, there is an executed contract. Terms entered in an contract get capitalized only when the performance markers prescribed under it get fulfilled by each member of the contract. You can experience the instantaneous application of these agreements when you avail services from the market or purchase commodities.

Next, you get to see executory contracts. This contract is based on the future performance of the highlighted product or service. If the traded item or facility fails to live up to the commitments, the terms agreed in an executory contract turn into void.

1. Executory Contract

Executory contracts are agreements in which one or more parties have not yet fulfilled their obligations. The promises made in the contract are to be performed at a later date.

2. Executed Contract

Executed contracts are those in which all parties involved have fulfilled their obligations as per the contract terms. The contract is considered completed.

Classification of Contracts Based on Validity

1. Valid Contract

Valid contracts meet all the essential elements required by law, such as offer, acceptance, consideration, legal capacity, and a lawful purpose. These contracts are legally enforceable.

2. Void Contract

Void contracts are agreements that are considered null and void from the outset because they lack a legal purpose or involve illegal activities. They have no legal effect.

3. Voidable Contract

Voidable contracts are valid agreements but can be voided by one of the parties due to factors like misrepresentation, duress, undue influence, or lack of capacity. The contract is valid until one party chooses to void it.

 4. Void-ab-initio Contract

Void-ab-initio contracts are those that are void from the beginning. These often involve illegal activities or unlawful subjects that cannot form the basis of a contract.

5. Unenforceable Contract

Unenforceable contracts are technically valid but cannot be enforced due to certain legal defects, such as the absence of a written agreement required by the statute of frauds.

6. Illegal Contract

Illegal contracts involve agreements to perform unlawful activities. These contracts are both void and illegal and cannot be enforced by any party.

Conclusion

Contracts encourage smooth execution of a process by legally binding the multiple individuals who accept a set of regulations. Written contracts are most popular while there are even verbal contracts enforceable in the modern world. The detailed classification of contracts however relies on numerous components which we have discussed about in this article. To go through relevant textual references, consider following Vakilsearch.

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