Types of ContractLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

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Classification of contracts

Legal Effects Performance Formation

1. Valid Contract2. Void Contract3. Voidable contract4. Unenforceable

contract5. Illegal contract

1. Unilateral Contract2. Bilateral contract3. Executed contract4. Executory contract

1. Express Contract2. Implied contract3. Quasi contract

Classification based on legal effects

Valid Contract – Anagreement enforced bylaw is a valid contract.An agreement becomesa valid contract when itfulfils all the essentialsof a contract as laiddown in section 10.

Example

• Sophi offers Arun to sell his house for Rs 3Lakhs. B agrees to buy the house for this price.It is a valid contract.

Classification based on legal effects

Void Contract – Acontract coming outfrom a void agreementis a void contract. Acontract becomes voidwhen it ceases to beenforceable by law.

Classification based on legal effects

Voidable contract – Anagreement which isenforceable by law at theopinion of one or more ofthe parties there to butnot at the opinion of theother or the others is avoidable contract. Avoidable contract remainsto be good till it isavoided by the partyentitled to do so.

Example

• If the consent of the party was caused bycoercion, the contract is enforceable at theoption of the party whose consent was notfree.

Classification based on legal effects

Unenforceable contract– An unenforceablecontract is one whichcannot be enforced in acourt of law because ofsome technical defectssuch as absence ofwriting, time barred,want of stamps etc.

Example

• When the promissory not is under – stamped,the agreement therein becomesunenforceable because of that technicaldefect.

Classification based on legal effects

Illegal Contract – Anillegal agreement is onewhich criminal in natureor which is immoral orwhich is against publicpolicy.

Example

• A contract to commit dacoity is an illegalcontract.

Classification based on Performance

Unilateral contract – Aunilateral contract is onein which only one partyhas to fulfill his obligationat the time of theformation of the contractand the other partyhaving fulfilled hisobligation at the time ofthe contract or beforecontract comes intoexistence.

Example

• Amina permits a coolie to put his luggage to acarriage. The contract comes into existence assoon as the coolie puts the luggage. So Aminahas only to fulfill his part.

Classification based on Performance

Bilateral Contract – Abilateral contract is onein which the obligationon the part of both theparties to the contractare outstanding at thetime of the contract.

Example

• Athulya promises to paint a picture in returnfor which Saranya promises to Rs 1000.

Classification based on Performance

Executed Contract – Ifboth parties of acontract haveperformed theirrespective obligation,contract is known as anexecuted contract.

Example

• Amal contracts with Bessy to buy a house forRs 1,00,000. Amal paid Rs. 1,00,000 to Bessy.Bessy executed the sale deed and delivered itspossession.

Classification based on Performance

Executory contract – Anexecutory contract isone in which bothparties have not yetperformed theirobligations eitherwholly or in which thereremains something tobe done on both sides.

Example

• Rahul agrees to paint a picture for Rejith forRs. 500. Rahul has not painted the picture andRejith has not paid the price also.

Classification based on Formation

Express contract – If theterms of a contract areexpressly agreed upon(whether orally or inwriting) at the time ofthe formation of thecontract, the contract issaid to be an expresscontract.

Example

• Collin writes to Aby “ I am willing to sell mycar to you for Rs 50,000”. Aby accepts Collin’soffer by another letter.

Classification based on Formation

Implied contract – Animplied contract is onewhich is inferred fromthe act or conduct ofthe parties or course ofdealings between them.

Example

• Diljith gets into a public bus. Then he entersinto an implied contract with the authoritiesof the bus that he wishes to travel in the bus.

Classification based on Formation

Quasi Contract – Undercertain circumstances,law itself creates legalrights and obligationsagainst the parties. Theseobligations are known asquasi contracts. It iscreated by law and it onlyresembles a contract.

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Example

• Aiju , a tradesman leaves goods at Sajid’shouse by mistake. Suppose Sajid treats thegoods as his own, then Sajid is bound to payto Aiju a reasonable price for the goods.

• Types of contract