Different Types of Contract on the Basis of Classification: Meaning and Examples

The Indian Contract Act classifies contracts based on several criteria, each of which is crucial for understanding the legal framework of agreements. A contract is a written or spoken agreement that is enforceable by law and commonly applies to employment, sales, or tenancy. Unilateral contracts, where one party makes a promise that anyone willing to fulfil the stated conditions can accept, serve as an example of how diverse contracts can be. This article will explain the different types of contracts under the Indian Contract Act and provide an overview for businesses looking to navigate the details of legal agreements.

Basis of classification

Contracts are classified based on the following criteria:

• Formation: How the contract is created—whether explicitly agreed upon or inferred from actions
• Nature of consideration: The promises exchanged between the parties
• Execution: The stage of performance of the contractual obligations
• Validity: The enforceability of the contract under the law

Each classification serves a distinct purpose and provides clarity on the rights and responsibilities of the involved parties. This article will explain these categories, offering examples for better understanding.

On the basis of formation

Contracts can be categorised by how they are formed:

Express contract: An express contract is one where the terms are explicitly stated, either in writing or verbally, leaving no room for ambiguity.

• Example: Ajay offers to buy Tushar’s laptop for Rs. 50,000. Tushar explicitly agrees by either saying, “I accept your offer,” or providing a written receipt. Their clear terms form an express contract

Implied contract: An implied contract is not expressed verbally or in writing but is inferred from the actions or circumstances of the parties.

• Example: When a person visits a doctor, there is an implied contract that the doctor will provide medical services, and the patient will pay for them, even without an explicit agreement

On the basis of consideration

Contracts based on consideration focus on the mutual exchange of promises:

Bilateral contract: A bilateral contract involves mutual promises from both parties. Each party is both a promisor and a promisee.

• Example: A construction company agrees to build a house for a client, and the client agrees to pay Rs. 50 lakh. Both parties are bound to fulfil their commitments

Unilateral contract: A unilateral contract involves a promise made by one party that can be accepted by anyone willing to fulfil the stipulated conditions.

• Example: A company offers a reward for information leading to the recovery of lost property. Only those who provide the information fulfil the contract

On the basis of execution

Contracts are further divided based on their execution:

Executed contract: An executed contract is one where the obligations are fully performed by one or both parties.

• Example: Purchasing a product from a store is an executed contract where payment and delivery occur simultaneously

Executory contract: An executory contract is one where the obligations are yet to be performed by one or both parties.

• Example: A publishing company agrees to publish an author’s book in 6 months. The agreement remains executory until the book is published and payment is made

On the basis of validity

Contracts can also be classified based on their legal enforceability:

Valid contract: A valid contract satisfies all legal requirements and is enforceable by law.

• Example: Meghna agrees to lease her apartment to Laila for Rs. 24,000 per month for one year. Since the terms are clear and both parties are of legal age, the contract is valid

Void contract: A void contract lacks legal enforceability due to missing critical elements or an illegal purpose.

• Example: An agreement to commit an illegal act, such as a bank robbery, is void

Voidable contract: A voidable contract is initially valid but can be annulled by one party due to specific circumstances like misrepresentation or undue influence.

• Example: Jay is coerced into selling his car to Mayukh for a much lower price. Jay can later void the contract

Unenforceable contract: An unenforceable contract may appear valid but cannot be enforced in a court due to legal deficiencies.

• Example: An oral agreement to sell real estate, which the law typically requires to be in writing, is unenforceable

Conclusion

Understanding the different types of contract is essential for businesses and individuals alike. These classifications provide a framework for navigating the complexities of legal agreements and ensuring compliance with the law. For businesses looking to secure a strong financial foundation, a Bajaj Finserv Business Loan can offer the necessary support to meet contractual obligations or expand operations. With quick approvals and flexible repayment options, these loans are ideal for addressing diverse business needs.

Whether forming contracts or exploring financial solutions, a clear understanding of rights and obligations helps businesses thrive. Explore Bajaj Finserv Business Loans today to empower your journey towards success.