A Contract is a legally binding agreement between two or more parties that outlines the terms and conditions governing their mutual rights and obligations. Contracts can be verbal or written, but written contracts are typically preferred as they provide a clearer record of the agreement and are easier to enforce in a court of law. A valid contract typically consists of four essential elements: an offer, acceptance, consideration, and an intention to create legal relations. An offer is a proposal to agree, acceptance is the agreement to the terms of the offer, consideration is something of value exchanged between the parties, and the intention to create legal relations means that the parties must intend for the contract to be legally enforceable.
Meaning of ‘Contract’ as per The Indian Contract Act, 1872
The Indian Contract Act, 1872 defines the term “Contract” under its section 2(h) as “An agreement enforceable by law”. In other words, we can say that a contract is anything that is an agreement and enforceable by the law of the land.
Geeky Takeaways:
- A Contract lays out the terms and conditions that govern the mutual rights and obligations of the parties.
- Contracts have been classified differently on different basis.
- Type of contract based on validity includes; valid contract, void contract, voidable contract, unenforceable contract and illegal market.
- Types of contract based on formation includes; express contract, implied contract and quasi contract.
- Types of contract based on performance includes; executed contract and executory contract.
Table of Content
Types of Contracts on Different Basis
I. Types of Contracts Based on Validity
Contracts based on validity are defined as legally binding agreements between two or more parties that are considered legally enforceable because they meet certain criteria of validity. For a contract to be valid, it must typically include four key elements, offer and acceptance, a mutual meeting of the minds, consideration, and legality of purpose. Without these elements, a contract may be deemed invalid and unenforceable in a court of law. Additionally, the contract should be voluntarily entered into, with all parties having the legal capacity to make such an agreement.
Based on Validity, there are five different kinds of contracts. These are:
1. Valid Contract
A valid Contract is defined as a legally binding agreement between two or more parties that meets specific criteria under Contract Law. To be considered valid, a contract must satisfy four essential elements: offer, acceptance, consideration, and the intention to create legal relations.
- Firstly, there must be a clear and definite offer made by one party to another.
- Secondly, the other party must accept the offer without any significant modifications, creating mutual assent or a meeting of the minds.
- Thirdly, there must be consideration, which refers to something of value exchanged between the parties as part of the agreement.
- Lastly, both parties should have the intent to create a legally binding relationship.
2. Void Contract
- A void Contract is defined as an agreement that lacks legal validity from the moment it is created.
- Such contracts are considered unenforceable and have no legal effect because they typically violate specific legal principles or are fundamentally flawed.
3. Voidable Contract
- A voidable Contract is defined as a type of contract that is initially valid and enforceable but contains certain defects or elements that allow one of the parties to void or cancel the contract if they choose to do so.
- These defects can include fraud, misrepresentation, undue influence, coercion, or a lack of capacity to understand the contract’s terms.
4. Illegal Contract
- An illegal Contract is defined as an agreement between two or more parties that violates the law and is therefore unenforceable in a court of law.
- Such contracts often involve activities that are deemed unlawful or against public policy.
5. Unenforceable Contract
- An unenforceable Contract is defined as a legal agreement that, while it may initially appear valid, cannot be enforced in a court of law due to specific legal deficiencies or violations.
- This occurs when a contract fails to meet certain legal requirements or standards.
II. Types of Contracts Based on Formation
Contracts based on formation refer to the various ways in which contracts can come into existence. It pertains to the methods and circumstances under which contractual agreements are established and the nature of those agreements. The different types of contracts based on formation encompass the specific conditions, actions, or elements that must be present for a contract to be legally binding. Understanding these categories is essential in contract law to determine the enforceability and obligations of the parties involved.
Based on Formation, there are three different types of contracts. These are:
1. Express Contract
- An express contract is a legally binding agreement in which the terms and conditions of the contract are explicitly stated, either in written or verbal form.
- The parties involved clearly outline and mutually agree upon the specific terms, obligations, rights, and responsibilities that govern the agreement.
2. Implied Contract
- It is a legally binding agreement that is not explicitly documented in writing or verbally expressed but is inferred from the actions, conduct, or circumstances of the parties involved.
- This type of contract is often based on the principle of fairness and common expectations. I
3. Quasi-Contract
- Quasi-contract is a legal concept that allows a court to impose an obligation or duty on a party, even in the absence of a formal written or verbal contract.
- This typically occurs when one party receives a benefit at the expense of another.
III. Types of Contracts Based on Performance
Contracts based on Performance are defined as contracts where the activity of discharging obligations by the concerned parties is considered. Executed Contracts and Executory Contracts are the major classifications of Contracts when studied concerning performance. Executory Contracts can be further classified as Unilateral Contracts and Bilateral Contracts.
Based on Performance, there are two types of contracts. These are:
1. Executed Contracts
- Executed Contracts are defined as those contracts where every party related to the contracts has fulfilled their respective and agreed obligations, as specified in the agreement.
- The contract executes at the time when both parties have discharged their legal obligations.
2. Executory Contracts
- Executory Contracts are defined as contracts where both the parties in a contract are yet to perform their agreed obligations and duties.
- Executory Contracts can be further classified into two types; Unilateral and Bilateral Contracts.
Conclusion
For a contract to be legally valid, all the essential elements should be present. The contract acts as a shield for workers where employers fail to abide by the terms and conditions of the contract by making false promises to the employees and misguiding them.
Frequently Asked Questions (FAQs)
1. What is a Contract?
Answer:
A Contract is a legally binding agreement between two or more parties that outlines the terms and conditions governing their mutual rights and obligations.
2. What is the essence of the Indian Contract Act, 1872?
Answer:
The Indian Contract Act, 1872, specifically states in Section 55 that “time as the essence of a contract” applies to contracts where the parties intended for the contract to be voidable and something is promised to be done at a certain time but is not performed at that time.
3. What is the nature and objectives of Indian Contract Act, 1872?
Answer:
Members are legally obligated by contracts, which also place legal restrictions on their behaviour. In this way, a person’s relationship with another person becomes more official and legally binding, and anyone who violates the terms of the contract faces legal repercussions for their actions.