TYPES OF CONTRACT

The definition of Contract is given under section 2(h) of the Indian Contract Act, which provides ‘a contract is an agreement enforceable by law’. Thus a contract is an agreement made between two or more parties which the law will enforce.

From the above definition it could be seen that the definition of contract consists two elements-

1. An agreement and, 2. Its enforceability by law.

An agreement is defined under section 2 (e) as ‘every promise and every set of promises, forming consideration for each other. When a proposal is accepted it becomes a promise. Thus an agreement is an accepted proposal. Therefore, in order to form an agreement there must be a proposal or an offer by one party and its acceptance by other party. In short Agreement=Proposal + Acceptance.

 The second part of the definition deals with enforceability by law. An agreement is enforceable under section 10 if it is made by competent parties, out of their free consent and for lawful object and consideration. Therefore, a Contract = Agreement + Enforceability. Thus all contracts are agreements but all agreements are not necessarily contracts.

1. Void Contract:- It is a contract without any legal effect and cannot be enforced in a Court of Law. 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".     

Examples: Where both parties to an agreement are under a mistake of fact, (Section 20), when the consideration or object of an agreement is unlawful, (Section 23), an agreement made without consideration, (Section 25), agreement in restraint of marriage (Section 26), trade (Section 27), legal proceedings (Section 28), agreement by way of wager (Section 30) are instances of void contract.

2.Voidable Contract:- As per Section 2(i), "an agreement which is enforceable by law at the option of one or more the parties but not at the option of the other or others is a voidable contract."

Examples:- A contract brought about as a result of Coercion, Undue influence, Fraud or misrepresentation would be voidable at the option of the person whose consent was caused by anyone of these factors.

Void and Voidable contract: Distinction

(a) Definition:- As per Section 2(j) and (i) a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable and a voidable contract is an agreement which is enforceable by law at the option of one or more of the parties thereon, but not at the option of other or others.

(b) Nature:- A void contract is valid when it is made but subsequently becomes unenforceable on certain grounds such as supervening impossibility, subsequent illegality, repudiation of a voidable contract, a contingent contract depending upon happening of an uncertain event, when occurrence of such event becomes impossible.

A voidable contract on the other hand is voidable at the option of the aggrieved party, and remain valid until rescinded by him. Contract caused by coercion, undue influence, fraud, misrepresentation are voidable. But in case contract is caused by mistake it is void.

(c) Rights:- A void contract does not provide any legal remedy for the parties to the contract. They even cannot get it performed when they so desire. The aggrieved party in a voidable contract gets a right to rescind the contract. When such party rescind it, the contract becomes void. In case aggrieved party does not rescind the contract within a reasonable time, the contract remains valid.

3.Illegal contract :- Itis a contract which the law forbids to be made. The court will not only enforce such a contract but also connected contracts. All illegal agreements are void but all void agreements or contracts are not necessarily illegal.

Examples: Contract to commit crime. Contract that is immoral or opposed to public policy are illegal in nature.

Void and Illegal agreements: distinction.

According to Section 2 (g) of the Indian Contract Act, an agreement not enforceable by law is void. The Act has specified various factors due to which an agreement may be considered as void agreement. One of these factors is unlawfulness of object and consideration of the contract i.e., illegality of the contract which makes it void. Despite the similarity between an illegal and a void agreement that in either case the agreement is void and cannot be enforced by law, the two differ from each other in the following two respects:-

(a) Scope:- An illegal agreement is always void while a void agreement may not be illegal being void due to some other factor e.g., an agreement the terms of which are not uncertain is void but not illegal.

(b) Effect on collateral transaction:- If an agreement is merely void and not illegal, the collateral transactions to the agreement may be enforced for execution but collateral transaction to an illegal agreement also becomes illegal and hence cannot be enforced.

(c) Punishment:- Unlike illegal agreements, there is no punishment to the parties to a void agreement.

(d) Void-ab-initio:- Illegal agreements are void from the very beginning, but sometimes valid contracts may subsequently become void.

4. Unenforceable contract:- Where a contract is good in substance but because of some technical defect i.e., absence in writing, barred by, imitation etc. one or both the parties cannot sue upon it, it is described as an unenforceable contract. Contracts may also be classified according to formation namely, Express Contracts and Implied Contracts.

5. Express Contracts:- A contract which is made by words either spoken or written is said to be an express contract. According to Section 9 insofar as the proposal or acceptance of any promise is made in words, the promise is said to be express.

6. Implied Contract:- By implied contract means implied by law (i.e.) the law implies a contract though parties never intended. According to Section 9 insofar as such proposal or acceptance is made otherwise than in words, the promise is said to be implied. For example, A delivers by mistake goods at B's warehouse instead of at C's place. Here there is an obligation on the part of B to return the goods to A, though they never intended to enter into a contract.

7. Tacit Contract:- A contract is said to be tacit when it has to be inferred from the conduct of the parties. Examples obtaining cash through automatic teller machine, sale by fall of hammer at an auction sale. Besides contracts may be classified on the basis of performance. Such contracts may be executed, executory, unilateral and bilateral.

8.Executed Contract:- If the consideration for the promise in a contract (i.e., any act or forbearance) is given or executed, such type of contract is called contract with executed consideration.

9. Executory Contract:- It is so called because the reciprocal promises or obligation which serves as consideration is to be performed in future.

10. Unilateral Contract: A unilateral contract is a one-sided contract in which only one party has to perform his promise or obligation to do or forbear.

11.  Bilateral Contract: Where the obligation or promise in a contract is outstanding on the part of both the parties, it is known as bilateral contract.

Formal Contracts :-

The English Law classifies the contract into (i) formal contracts, and (ii) simple contracts.

Formal Contracts include (a) Contract of record and (b) Contract under Seal.

(a) Contract of Record:- A contract of record is either a judgement of a court or a recognisance. A judgement is an obligation imposed by a Court upon one or more persons in favour of another or others. As a matter of tact it is not a contract in the real sense, since it is not based upon any agreement between the two parties. A recognisance is a written acknowledgement of a debt due to the State. It is usually met with the connection with criminal proceedings.

Contracts of record derive their binding force from the authority of the Court.

(b) Contract under Seal:- A contract under seal is one which derives its binding force from its form atone. It is writing and is signed, sealed and delivered by the parties. It is also called a deed or a specialty contract

Courtesy:- Legal Point Foundation