TYPES OF CONTRACT

INDIAN CONTRACT ACT, 1872

What is a Contract?
An agreement between two private parties that creates mutual legal obligations. A contract
can be either oral or written.

Types of Contract

Based on

Legal Validity Formation Performance

BASED ON LEGAL VALIDITY

VALID CONTRACT

VOID CONTRACT

VOIDABLE CONTRACT

UNENFORCEABLE CONTRACTS
  VALID CONTRACT: Section 2(h) of the Indian Contract Act, 1872 defines a valid contract
as “an agreement enforceable by law”. The Valid Contract is an agreement that is legally
binding and enforceable. It must qualify all the essentials of a contract. To be enforceable it
must satisfy the requirements under Section 10 of the Indian Contract, 1872. They are:

 There is some consideration for it.

 The parties are competent to contract
 Their consent is free.
 Their object is lawful.

For example: A homeowner (who is over the age of 18 and sound mind) signed a contract with the
store to buy a refrigerator.

 VOID CONTRACT: Section 2(j) defines a void contract as “a contract which ceases to be
enforceable by law becomes void when it ceases to be enforceable”. No obligation or right
arises from a void contract. They are not covered by the law. Such contracts cannot be made
valid by the parties to the contract by giving their consent.

Sections 24-30 of the Act deals with void agreements. An agreement may be void if any of the
following:

 Made by incompetent parties (e.g., under the age of consent, incapacitated)

 Has a material bilateral mistake
 Has unlawful consideration (e.g., promise of sex)
 Concerns an unlawful object (e.g., heroin)
 Has no consideration on one side
 Restricts a person from marrying or remarrying
 Restricts trade
 Restricts legal proceedings
 Has material uncertain terms
 Incorporates a wager, gamble, or bet
 Contingent upon the happening of an impossible event
 Requires the performance of impossible acts

For Example:

I. Arun agrees to pay Yasif a sum of rupees 10,000 after 5 years against a loan of rupees 8,000.
Arun dies of natural causes in 4 years. Then the contract is no longer valid and becomes void
due to the non-enforceability of the agreed terms.
II. A contract between drug dealers and buyers is a void contract simply because the terms of
the contract are illegal. In such a case, neither party can go to court to enforce the contract.
III. Bob enters into an agreement with a music label to split royalties from his new album 50/50.
However, at the time of this agreement, Bob has been drinking at the bar for several hours
and is heavily inebriated. Since Bob was incompetent at the time the contract was agreed to,
it is a void contract.
  VOIDABLE CONTRACT: Section 2(i) of the Act defines a voidable contract “An
agreement which is enforceable by law at the option of one or more of the parties thereto,
but not at the option of the other, is a voidable contract”. It is different from a void contract
in the fact that a voidable contract is voidable at the option of the aggrieved party and
remains valid until rescinded by him.
The voidable contract in general is a valid agreement between two or more parties, where
one of the parties are bound to the contract terms. The Contract may have joint promisors
and can be performed lawfully. However, it is voidable at the option of the aggrieved party
but not at the option of other parties. The contract may be voidable if any legal defects such
as fraud , misrepresentation, undue influence, mutual mistakes etc.

For Example:

I. A comes in contract with B but due to coercion, undue influence, misrepresentation, or

fraud will be considered as a voidable contract.
II. A, a singer contracts with B to sing in his theatre for two nights every week, for the next two
months. And B promises to pay Rs 5000 for each night performance.
 A wilfully absents her on 6th night from the theatre, B can avoid the contract
at his option.
 If B prevented A from coming to the theatre, it is voidable at the option of A
and A can avoid or terminate the contract.
 If B wants A to perform every Monday necessarily, due to more crowd on
the day but if A refuses to do so, then it is voidable at the option of B as it
was the key element of the contract.

In difference a void contract is illegal and unenforceable but voidable contract is also illegal, but it is
enforceable by court of law.

 UNENFORCEABLE CONTRACT: An unenforceable contract or transaction is one that is valid

but one the court will not enforce. Unenforceable is usually used in contradiction to void
and voidable. If the parties perform the agreement, it will be valid, but the court will not
compel them if they do not. A contract can be rendered unenforceable for numerous
reasons related to circumstances of the signing, terms of the agreement itself, or events that
occur after the contract has been signed.

For Example:

I. Sherkhan agrees to sell to Sohail 100kgs of rice for 10,000/-. But there was a huge
flood in the states and all the rice crops were destroyed. Now, this contract is
unenforceable and cannot be enforced against either party.
II. An US company wants to ship wheat to Iran. The company makes a contract and
ships the wheat. While in sea the US government declares that no US company
should trade with Iran. So, in this situation the trade contract may be completed but
it is unenforceable in the US law even if it is legal in Iran law.
 BASED ON FORMATION

EXPRESS CONTRACT

IMPLIED CONTRACT

QUASI CONTRACT

E-COMMERCE CONTRACTS

 EXPRESS CONTRACT: According to the first part of Section 9 of Indian Contracts

Act, 1872, "insofar as the proposal or acceptance of any promise is made in words, the
promise is said to be express". It comes into existence as a result of being spelled out either
verbally or in writing.

For Example:

I. Written – leasing the house

II. Verbal – selling of bicycle

 IMPLIED CONTRACT: According to the second part of Section 9 of Indian

Contracts Act, 1872, "insofar as such proposal or acceptance is made otherwise than in
words, the promise is said to be implicit". The terms are inferred by the actions / behavior of
the party involved and comes into existence as a result of actions.

For Example:

I. Autorickshaw ride.
II. Hair Salon.
 OVERVIEW & COMPARISON (EXPRESS CONTRACT vs IMPLIED CONTRACT)

 An express contract is made by words   Implied contract is made by virtue of

actions

 Easy to enforce  Difficult to enforce

 Parties are aware of existence of  Parties may not be aware of contract

contract being formed
 Based on Mutually agreed terms  Terms are based on actions

 QUASI CONTRACTS: A quasi-contract is one, which is created by law. In the

quasi-contract, there is no intention on either side to make a contract. In a Quasi contract,
rights and obligations arise not by an agreement but by operations of law. The Indian
Contract Act does not define the term Quasi-contract. But Chapter V of the Act deals with
such situations under the heading of “Of Certain Relations Resembling those created by
contract".

For Example:

i. Obligation of finder of lost goods to return them to the true owner.

 E-COMMERCE CONTRACTS: An e-commerce contract or e-contract refers to the

computerized facilitation of a contract in a cross-organizational business progression. It is an
incredibly new mechanism in India and facilitates electronic trading relationships between
parties. In essence, it is modelled, executed, specified, controlled, enacted, monitored and
either fully or partially deployed by a software system. The electronic means and devices
may include emails, tests, telephones, digital signatures etc. They are also known as the
Cyber contracts, the EDI contracts, or the Electronic Data Interchange contracts.

BASED ON PERFORMANCE
 EXECUTED CONTRACT

EXECUTORY CONTRACT

UNILATERAL CONTRACT

BILATERAL CONTRACTS

 EXECUTED CONTRACTS: When both the parties have completely performed their
respective obligations under the contract, it is said to be executed contract. It means that
whatever was the object of the contract has been carried out. In most executed contracts
the promises are made and then immediately completed.

For Example:

1. Purchase of a car – Person A wants to purchase a car from person B. Terms of the contract
are that A will give money to A on delivery of the vehicle. B delivers the car on the specified
date and A gives cash to B on the same day.
2. Delivery of products through e-commerce. E-commerce companies deliver goods to the
customer after the customer has made the payment through online mode on the promised
date.

 EXECUTORY CONTRACT: An executory contract is one which is one in which one or

both parties are still to perform their obligations. Such controls are future contracts. In such
contracts, the consideration is the promise of performance or obligation. In executory
contracts, the consideration for the promise made is carried out sometime in the future.

For Example:

1. Construction of a highway. Government notifies tenders for the construction of a

highway and the tender is allotted to a certain contractor to complete the
construction.
2. Pre booking a car.
  Unilateral contract: These are one sided contract. A unilateral promise is a promise from
one side only and intended to induce some action by the other party. The promisee is not
bound to act, for he gives no promise from his side. Unilateral contract is also enforceable in
court, even though legal situations cannot arise until a party claims to finish a certain task.
Because a unilateral contract has no validity until one party completes a task, legal
contestation usually takes the form of the giving party not paying the agreed sum. A contract
breach would then be based on the clarity of the agreement, and whether one party can
prove that the task was completed. In addition, unilateral contracts can offer rewards other
than money, but cash is a primary incentive.

EXAMPLE:

 Jerry places an advertisement offering to pay $500 for the return of his missing dog. In this
instance, any person may enter into a unilateral agreement by returning the dog. This is one
of the few cases where an advertisement is considered a contract within itself.
 an insurance company can agree to pay an insured person money if certain events occur.
This is a unilateral agreement, and the insurance company will not have to pay if the events
never happen.

**Note that not all promises can create a unilateral agreement.

 Bilateral contract: A bilateral contract is an agreement between at least two groups of

people, and most people or businesses would fit into this category. In fact, you enter into
bilateral agreements when you do the following:

 Purchase a product at a store.

 Order meals at restaurants.

 Get treated by a doctor.

In each of these types of situations, a promise is made by you to perform an action involving
another person in response to that person's action.

The difference between a bilateral contract and a unilateral contract in the above types of
situations is with a unilateral contract, the person responsible for fulfilling the request is not
obligated to do so.

Broken Agreement:
Regardless of the contract form, a contract breach occurs when parties fail to honour the
agreement.

For instance, if you offer $200 to someone who returns your dog and refuse to pay because you
believe the offeree stole your pet from you, you're still in violation of the contract because you failed
to pay that individual.

Both bilateral and unilateral contracts are legally enforceable. Bilateral contracts are enforceable
from inception, as both parties have promised to fulfil the contract. Unilateral contracts are
enforceable only when a person begins fulfilling the contract, which can be at any time. In the event
there is a breach of contract, you will be required to produce proof and/or establish the following:

 There was an actual contract in place.

 The contract was breached/broken.

 Because of the broken contract, you suffered a loss.

 The person you are filing suit against is the person responsible for upholding the contract.