Types of Contract - Based on Validity, Formation, Performance

A Contract according to the Indian Contract Act 1860 means a mutual agreement between two competent parties. This agreement consists of promises liabilities and obligations which both parties are bound to perform in a contract to make the discharge of the contract successful. A contract formed through mutual agreement and the parties to the contract are competent to contract is a valid contract and a valid contract is enforceable by law. Both parties to a contract are bound by the law to perform all the promises made in an agreement,

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This Story also Contains

1. Essentials of a Valid Contract
2. Different types of Agreements
3. Types of Contracts formed based on the Validity of the contracts
4. Types of Contracts based on the formation of the contracts
5. Types of Contracts Based on the Performance of Contracts
6. Case laws
7. Conclusion

Essentials of a Valid Contract

For the formation of a valid contract, there are some essential conditions which must be fulfilled, they are given below-

• There must be two parties to a mutually accepted agreement. And there should be acceptance and a valid offer between the two parties.

• Both the parties entering into the contract should be competent enough to enter into a contract. None of them should be of unsound mind or minor, or any person legally disqualified to enter into a contract.

• In a valid contract, there should be lawful consideration and a lawful object.

• Free consent is essential for a valid contract. Neither party to a contract should be forced.

• The contract will be termed invalid when the contract is expressly declared to be invalid in the initial process of the agreement

Different types of Agreements

From the point of view of legality, the different types of contracts are

1. Contracts

A contract is a mutually accepted agreement between two parties to perform any act as mentioned in the contract. The parties to a contract make promises to some act which brings obligations and liabilities that the parties to the contract are bound to follow according to the law. A contract is an agreement that is enforceable by law.

For a valid contract to take place the parties to a contract should follow the terms and conditions that is given in the Indian Contract Act 1872. The parties to a contract should be compatible enough to enter into a contract. A party shouldn’t be a minor to enter into a contract, a person of unsound mind cannot form a contract, a person who is disqualified by law cannot enter into a contract, and the object on which the contract is been established shouldn't be unlawful to constitute a valid contract.

2. Void Agreements

Section 2(g) of the Indian Contract Act 1872 deals with void agreements, which say that an agreement that is not enforceable by law is void. For instance, an agreement with a person of unsound mind will be void agreement, as according to the Indian Contract Act 1872 a person of unsound Mind cannot enter into a contract. According to Sections 24 and 30 of the Indian Contract Act 1872, a void agreement lacks a valid consideration, free consent, a valid object, etc.

3. Voidable contracts

Section 2(I) of the Indian Contract Act 1872 deals with voidable contracts which says that Voidable contracts are the ones that are enforceable by law but at the condition that it is only valid for one or more parties but not for others. A voidable contract can be avoided by a party at the initial stage of the contract.

4. Illegal agreements

Agreements which are not enforceable by law an illegal agreements, the doing of such an agreement according to law is a crime. For instance, an agreement between two parties to commit a civil wrong or a tort is an illegal agreement which is a crime in law.

An illegal agreement is a void agreement which is forbidden by law. According to Section 23 of the Indian Contract Act 1872, an illegal agreement is a void agreement.

Types of Contracts formed based on the Validity of the contracts

1. Valid Contracts

A contract that is formed by mutual consent of the parties and has met all the criteria of a competent contract is enforceable by law and is known as a valid contract. Essential criteria of competency such as the capacity to contract, legal object, legal person, free consent etc.

According to section 10 of the Indian Contract Act 1872, any contract that meets all the required criteria is valid.

2. Void Contracts

Void contracts are the ones that the law does not claim and are unenforceable by law. And void contracts are the ones which the Indian Contract Act 1872 terms as illegal are void contracts.

According to section 2(J) of the Indian Contract Act 1872 a contract which cannot be enforceable by law is void ab initio.

3. Voidable Contracts

Voidable contracts are the ones that are enforceable by law but at the condition that it is only valid for one or more parties but not for others. A voidable contract can be avoided by a party at the initial stage of the contract.

4. Void-ab-initio Contracts

The meaning of Void-ab-initio means something illegal or void from the very beginning of the contract formation. A contact can be illegal from the beginning for various reasons like unlawful objects, incompetent parties etc. Those contracts which do not meet the requirements of a valid contract fall in the category of void ab initio.

5. Unenforceable Contracts

A contract which is illegal and cannot be enforced by law is unenforceable. A contract can be unenforceable for many reasons like if it does not meet the requirements of a valid contract or is termed illegal by the court itself.

6. Illegal contracts

A contract which the law forbids and terms as illegal is known as an illegal contract. Section 23 of the Indian Contract Act 1872 marks an illegal contract as a void contract.

For instance, an agreement between two parties to commit a civil wrong or a tort is an illegal agreement which is a crime in law.

Types of Contracts based on the formation of the contracts

1. Verbal Contracts

In this type of contract, the terms and conditions to the contract are orally declared and a verbal contract is not written down anywhere or no party is bound to sign the contract. Verbal contracts are the types of contracts that were made in ancient times as an oral contract cannot be proved in court.. Section 10 of the Indian Contract Act 1872 makes a verbal contract enforceable by law.

2. Written contract

As the name goes by a written contract is one which is written down and signed by both the contracting parties. Written contracts are the most common types of contracts which are commonly used in every contractual agreement. A written contract provides security and surety in comparison to a verbal contract.

Essential elements of a written contract are given below-

• Mutual consent of the parties is essential

• Consideration by both parties

• The party should have the capacity to contract

• The contract should be legal along with the object.

3. Express Contracts

Whether the contract is written or oral in an expressed contract the terms and conditions of a contract are expressly mentioned. An expressed contract can be enforced by law.

Section 9 of the Indian Contract Act 1872, says expressed contracts are formed by parties after agreeing to the terms and conditions of the contract.

4. Implied contract

Implied contracts are the ones in which the terms and conditions of the contract are not expressed but it is inferred from the actions and behaviour of the parties to a contract.

According to section 9 of the Indian Contract Act 1872 an implied contract is based on the actions of the parties involved in the contract.

5. Quasi Contract

The word Quasi is derived from the Latin word ‘Pseudo’ which means ‘as if’ or ‘almost’. Quasi-contracts are a contract that is a dispute resolution clause for the parties who are in a dispute. Quasi-contracts help the parties in finding an alternative way in cases when the parties are not in a contractual relationship. Quasi-contracts are based on the values of Justice, equity and good conscience.

6. E-contract

E- Contracts are the types of contracts that are formed between parties to electronic mediums like mail, electronic signatures etc. An E-contract is a contract that is enforceable by law and is legally binding to the parties to execute the promises and obligations as mentioned in the contract.

In today's time, many business deals are done through the electronic medium, E-contracts save time and money as a party to a contract does not need to travel from one place to another for a contractual agreement.

Types of Contracts Based on the Performance of Contracts

1. Executory Contract

Contract which is yet to be performed is known as an executory contract. Which still the promises and obligations made in a contract by a party are on hold. According to Section 2(e) of the Indian Contract Act 1872, a contract in which the obligations are yet to be fulfilled are executory contract.

Executory contracts are of two types:

A. Unilateral contract

In a unilateral contract, a party to a contract makes an obligation or a promise in respect of something in exchange for a condition of achieving some specific performance from the other party to a contract. This contract starts after a either party to a contract performs their required act of a contract.

B. Bilateral Contract

A bilateral contract is a contract in which both parties to a contract complete their promises and obligations to a contract. A bilateral contract takes place after both parties have agreed to the promises obligations and terms and conditions of the contract. Section 2(h) of the Indian Contract Act 1872 deals with the bilateral contract.

2. Executed Contracts

When both the parties to a contract have completed their promises and obligations to a contract it is said to be an executed contract. A contract in which all the promises and obligations are fulfilled or discharged is known as an executed contract. It is the opposite of an executory contract. According to section 2(d) of the Indian Contract Act 1872 in an executed contract both the parties have executed their part of the contract.

Case laws

In B.P. Refinery ( Wasternport) Pty. Ltd. v. Shire of Hastings

In the following case, the court held the essential conditions that have to be taken into account to constitute an implied contract. They are as follows-

• The contract should be equitable and reasonable

• The contract should be able to prove business efficacy

• The contract should be obvious that it implies without saying

• The contract should be capable of providing a clear expression.

• The implied contract should not contradict any expressed term of the contract.

In the case of Lalman Shukla v. Gauri Dutt

In the following case, the nephew of the defendant absconded from his home. The plaintiff who was a servant to the defendant was sent to search for the boy who absconded from home. Soon after the plaintiff went to search the boy, the defendant announced that he would pay a reward of Rs. 501 if anyone could bring the boy back. The plaintiff had no idea of the reward announced by the defendant. After the plaintiff brought the boy back he was denied the reward on the condition that he was not there to accept the offer when the reward was announced. To this, the plaintiff brought a suit against the defendant for the entitlement of the reward.

The court in this case held that a person who does not know the offer and acts according to the conditions mentioned in the offer in such a situation it is not necessary whether the person was present at the time the offer was announced or not he is entitled to the reward if he has completed the task.

Conclusion

A Contract according to the Indian Contract Act 1860 means a mutual agreement between two competent parties. This agreement consists of promises liabilities and obligations which both parties are bound to perform in a contract to make the discharge of the contract successful. A contract formed through mutual agreement and the parties to the contract are competent to contract is a valid contract and a valid contract is enforceable by law. Both parties to a contract are bound by the law to perform all the promises made in an agreement. This article is about the types of contracts based on the validity, performance and execution.