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DIFFERENT TYPES OF CONTRACTS

Written by: Anushka Patil



Introduction


As per Indian contract act, 1872 section 2(h) a ‘contract’ is “An arrangement enforceable by law.” In other words, a contract is a written or spoken agreement which is enforceable by law. The Indian Contract Act which we see today was originally drafted by the third Indian Law Commission in 1861 in England.

For a contract to be recognized as legitimate contract it should consist of an offer and acceptance, it should have free consent, valid consideration, lawful object and parties should be competent to contract.

All the above requirements are curated in order to ensure that both the parties that are entering the legally binding contract are of legal age, and are freely and legally doing so. Contracts can further be categorized as per requirement and purpose.


Types of contracts


Different types of contracts are drafted as per requirement. Essentially customizing the structure and the details of the documents, its associated risks, and its requirement to be legally enforceable. Each contract has its own structure and format based on the agreements.


VALIDITY BASED


1. Valid contracts

2. Void contracts

3. Voidable contracts

4. Unenforceable contracts

5. Illegal contracts


FORMATION BASED


1. Implied contracts

2. Express contracts

3. Quasi contracts


VALIDITY BASED


VALID CONTRACT


A valid contract is a contract that is enforceable by the law. For a contract to be enforceable, it must meet the requirements of section 10 of the Indian contracts Act 1872, which states that a lawful offer and acceptance must take place for the formation of a valid contract. According to Section 2(a) of The Indian Contract Act, 1872 the word ‘offer’ is defined as “An offer refers to a promise that is dependent on a certain act, promise, or forbearance given in exchange for the initial promise.” While section 2(b) of The Indian Contract Act, 1872 the word ‘acceptance’ is defined as “When the person to whom the proposal is made, signifies his assent thereto, the offer is said to be accepted. A proposal, when accepted, becomes a promise." And section 2(d) of The Indian Contract Act, 1872 defines ‘consideration’ as "When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing something, such act or abstinence or promise is called consideration for the promise". For a contract to be held as valid its shall also ensure that both the parties agreeing to get in a contract are of legal age that is 18 years and are of sound mind. Neither of the parties should be disqualified by the law and both the parties should have free consent to enter the contract.


VOID CONTRACT


A void contract is defined in The Indian Contract Act, 1872; section 2(j) as “A contract becomes void when it ceases to be enforceable by law.” A valid contract becomes a void contract if the original terms of the agreements change. A contract can also be considered as a void contract if the legal rights of either party is challenged in the contract. Any contracts including Wagering or gambling are considered void as well.


VOIDABLE CONTRACT


A voidable contract has all the features that a valid contract has, but due to some flaws in the contract either of the party can bargain their way out from their end of the agreement hence, making the contract void. A valid contract can be considered voidable if either of the parties entering the contact was/is minor or if an injured party is included. If the consent of either parties was not free or were suffering from a legal disability. The contract can also be held as voidable if during the time of execution of the contract either party was a victim of fraud. Therefore, a voidable contract is treated as a valid contract up until one of the parties decides to oppose the enforcement of the contract.


UNENFORCEABLE CONTRACT


An unenforceable contract can be a written or oral agreement, but they are not enforced by the court, meaning the court will not compel any party to compensate due to the unfulfillment of the contract. The contract becomes unenforceable due to some technicalities in drafting the contract. There can be various reasons as to why court would not enforce a contract, some of which are listed below:

  • Lack of capacity

  • No registration

  • Duress or undue influence

  • Time-barred due to the law of limitation

  • Ambiguous terms of the contract

  • One of the parties has a voidable contract

  • Misinterpretation

An example of unenforceable contract can be, a contract negotiating the sell of electronic headphones for $50, although is the responsibility of both the parties to read the document thoroughly before signing it but considering human nature, mistakes are only natural and therefore, in the contract $50 was misprinted as $500; in such case the court will not enforce the contract resulting in a need to draft a fresh contract.


ILLEGAL CONTRACT


Any agreement that is in violation of public policies or involves any activity of breaking the law is deemed illegal. Although the difference between void and illegal contracts should be clear as all illegal contracts are considered void but not all void contracts are illegal, but neither of the contracts are enforceable by law.


An example of illegal contract is a contract where in the sell of illegal substance such as drugs is promised as a part of the transaction, such a contract will automatically be deemed as illegal.


FORMATION BASED


IMPLIED CONTRACTS


An implied contract is a legally binding contract where in no form of written or verbal confirmation is needed in order to make it legally enforceable. An example of implied contract can be, if a person orders a dish at a restaurant, it is implied or presumed that he is supposed to pay for it.


EXPRESS CONTRACT


An express contract is an exchange of promise by the means of spoken words or written or a combination of both at the time the contract was made. This oral or written agreement results in an instant or express contract.


QUASI CONTRACT


A quasi contract is a retroactive arrangement imposed by the law to prevent unjust enrichment. Also known as constructive contract. A quasi contract is not necessarily a mutual contract as it imposed by a judge/court.

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