Types of Contracts under Indian Contract Act, 1872

A contract is an agreement between two or more people. Contract forms the essence of relationship between two or more parties. Indian Contract Act 1872 (Hereinafter: the Act) is the bylaws of contract that every corporate and non-corporate body in India practices. Contract is defined as “An agreement in which is enforceable by the law”[1]. Similarly, an agreement makes the relationship/commitment made to the other party or parties legitimate.

There are various types of contract under the Indian Contract Act. We are going to be discussing all of it in its depth and essence.

1. Types of Contracts on the basis of its enforcement:

I. Valid Contract

A valid contract is an agreement which is made with consideration of all necessary elements to make in enforceable by law. To make it enforceable in the court of law, it should satisfy few requirements as discussed in the Act § 10. The requirements are,

II. Voidable contract

A voidable contract is a contract that enforceable by law at the option of one or more of the parties thereto, but not at the option of the other, is voidable contract[3]. As mentioned above free consent is an essence of a valid contract but a non-free consent i.e consent by coercion[4], undue influence[5], fraud[6] or misrepresentation[7] make a contract voidable. It is voidable at the discretion of the grieving party and until rescinded a voidable contract remains validVoid Contract

A void contract is a contract that is not enforceable by law even at the discretion of either party[8]. “A contract which ceases to be enforceable by the law becomes void when it ceases to be enforceable”[9]. Such contract has no obligation or rights arising from it.

When consent to a contract is through a mistake, the agreement is void. As provided in § 20 of the Act. If parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

Section 24-30 of the act deals with void contracts. The following types of contract are considerably void under the Act;

1. Agreements unlawful in part (S. 24):[7] Part of the agreements that are illegal in nature.
2. Agreement without consideration (S. 25): – When either or one of the party’s consideration is unseen.
3. Agreement restricting Marriage (S. 26), restricting trade (S. 27), restricting legal proceeding(S. 28): If any contract restricts two individuals for marriage or restricts fair trade is considerably void. Any agreement which restricts an individual to take matters to court in case of conflict is void ab initio.
4. Wagering contract (S. 30): If a contract is wagering contract it is void ad initio. For example- If two parties come together into an agreement on the contention with completely opposite view on a future event which remains uncertain.

III. Unenforceable Contract

Unenforceable Contract is the contract which is good in substance but has certain essential elements missing and has technical defect. Defects like absence of writing, registration, time barred by the limitations act etc.

 2. Types of Contracts on the basis of its formation:

I. Express Contracts

An agreement that forms by expressly made promises. § 9 of the Act deals with such expressly formed contracts. “insofar as the proposal or acceptance of any promise is made in words, the promise is said to be express”[10]. Such contract is entered into by words spoken or written are known as express contracts. For example – A says to B that she will return B’s belongings safe and sound. Without any paper or signature, it still expresses that A shall return the belonging in its proper condition to B.

II. Implied Contracts

The second part of § 9 of the Act says “insofar as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.”[11]. Such contracts are entered into by the virtue of their respective conducts are called implied contracts. The terms of agreement are not expressed in written or oral form; but inferred from their conduct. For example – A orders food in a restaurant, it becomes implied that the restaurant serves the food to A.

III. Quasi Contract

A quasi contract is a very different type of contract. It is a contract that is not formed because of any agreement between parties; but due to special circumstances that law recognizes as a contract. Such contracts come into existence because of interference from courts in the interest of justice. The Indian Contract Act does not define the term Quasi-contract. It does not mean that the principle behind the same hasn’t been recognized. Chapter V of the Act deals with such situations under the heading of “Of Certain Relations Resembling Those Created by Contract”[12]

3. Types of Contract on the basis of the extent of execution:

I. Executed Contracts

Contracts that have been executed and completely performed are called executed contracts. Such contracts are usually ‘buy and sell’ contracts. Such contracts are immediately enforceable and completed immediately too.

II. Executory contract

An executory contract is one where one or both parties are yet to perform. Another term to simply define such contract are ‘future contract’. The consideration in such contracts carry in the future. For example – A lease agreement.

III. Unilateral Contract

A one sided contract where one party promises while the other party carries out the action. Such promises only carry out once the other party carry out their promised act as desired or expressed by the promisor.

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References:

[1] Sec. 2(h) of the Indian Contract Act, 1872.

[2] Sec. 14 of the Indian Contract Act, 1872.

[3] Sec. 2(1) of the Indian Contract Act, 1872.

[4] Sec. 15 of the Indian Contract Act, 1872.

[5] Sec. 16 of the Indian Contract Act, 1872.

[6] Sec. 17 of the Indian Contract Act, 1872.

[7] Sec. 18 of the Indian Contract Act, 1872.

[8] Sec. 2(g) of The Indian Contract Act, 1872.

[9] Sec. 2(j) of The Indian Contract Act, 1872.

[10] Sec. 9 of The Indian Contract Act, 1872.

[11] Ibid.

[12] The Indian Contract Act, 1872.