Explain the different types of Contracts

• DIFFERENT TYPE OF CONTRACTS

The various bases on which the contracts can be classified are discussed below:

Contracts on the Basis of Creation

On the basis of creation, the contracts may be classified as under:

(a)       Express Contract Express contract is one which is made by words spoken or written.

Example : X says to Y “Will you buy my car for Rs 1,00,000?” Y says to X”1 am ready to buy your car for Rs 1,00,000.” It is an express contract made orally.

(b)      Implied Contract : An implied contract is one which is made otherwise than by words spoken or written. It is inferred from the conduct of a person or the circumstances of the particular case.

Example : A transport company runs buses on different routes to carry passengers. This is an implied offer by transport company. X hoards u bus. This is an implied acceptance by X. Now, there is an implied contract and X is bound to pay the prescribed fare.

(c)       Tacit Contract : A tacit contract is one which is inferred from the conduct of parties.

Example : Withdrawing cash through ATM

• Contracts on the Basis of Execution

On the basis of execution, the contracts may be classified as under :

(a)       Executed Contract It is a contract where both the parties to the contract have performed their respective obligations under the contract.

Example: X offers to sell his car to Y for Rs 1,00,000. Y accepts X offer X delivers the car to Y and Y pays Ks 1,00,000 to X. It is an executed contract.

(b)      Executory Contract It is a contract where both the parties to the contract have still to perform their respective obligations.

           Example: X offers to sell his car to Y for Rs. 1,00,000. Y accepts X’s offer. If the car has not yet been delivered by X and the price has not yet been paid by Y, it is an executory contract.

(c)       Partly Executed and Partly Executory Contract It is a contract where one of the parties to the contract has performed his obligation and the other party has still to perform his obligation.

           Example: X offers to sell his car to Y for Rs. 1,00,000 on a credit of one month. Y accepts X’s offer. X delivers the car to Y. Here, the contract is executed as to X and executory as to Y.

(d)      Unilateral Contract An Unilateral contract is one sided contract in which only one party has to perform his promise or obligation to do or forebear.

(e)       Bilateral Contract A Bilateral Contract is one in which both the parties have to perform their respective promises or obligations to do or forebear.

• Contracts on the Basis on Enforceability

On the basis of enforceability, the contracts may be classified as under :

(a)       Valid Contract : A contract which satisfies all the condition, prescribed by law is a valid contract.

Example: X offers to marry Y. Y accepts X’s offer. This is a valid contract.

(b)      Void Contract : Section 2(j) of the Indian Contract Act, 1872, “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.” In other words, a void contract is a contract which was valid when entered into but which subsequently became void due to impossibility of performance, change of law or some other reason.

Example: X offers to marry Y. Y accepts X’s offer. Later on Y dies. This contract was valid at the time of its formation but became void on the death of Y.

(c)       Void Agreement According to Section 2(g), “An agreement not enforceable by law is said to be void.” Such agreements are void-ab-­initio which means that they are unenforceable right from the time they are made.

Example: An agreement with a minor or a person of unsound mind is void-ab-initio because a minor or a person of unsound mind is incompetent to contract.

Thus, a void agreement never matures into a contract.

(d)      Voidable Contract According to Section 2(i) of the Indian Contract Act, 1872, “an agreement which is enforceable by law at the option of one or more of the parties thereon but not at the option of the other or others”, is a voidable contract. In other words, “A voidable contract is one which can be set aside or repudiated or avoided at the option of the aggrieved party.” Until the contract is set aside or repudiated by the aggrieved party, it remains a valid contract. For example, a contract is treated as voidable at the option of the party whose consent has been obtained by coercion or undue influence or fraud or misrepresentation.

           Example: X threatens to kill Y if he does not sell his house for Rs 1,00,000 to X. Y sells his house to X and receives payment. Here, Y’s consent has been obtained by coercion and hence this contract is voidable at the option of Y, the aggrieved party. If Y decides to avoid the contract, he will have to return Rs 1,00,000 which he had received from X. If Y does not exercise his option to repudiate the contract within a reasonable time and in the meantime, Z purchases that house from X for Rs 1,00,000 in good faith, Y cannot repudiate the contract.

 (e)      Illegal Agreement An illegal agreement is one the object of which is unlawful. Such an agreement cannot be enforced by law. Thus, illegal agreements are always void ab-initio (i.e. void from the very beginning).

Example: X agrees to pay Y Rs 1,00,000 if Y kills Z. Y kills Z and claims Rs 1,00,000. Y cannot recover from X because the agreement between X and Y is illegal as its object is unlawful.

(f)        Unenforceable Contract It is a contract which is actually valid but cannot be enforced because of some technical defect (such not in writing, under stamped). Such contracts can be enforced if the technical defect involved is removed.

           Example: An oral agreement for arbitration is unenforceable because the law requires that an arbitration agreement must be in writing. If the oral agreement for arbitration is reduced to writ it will become enforceable.