Classification of Contract

11/03/2020 2 By indiafreenotes

A. Classification according to validity:

1. Void contracts:

A void contract is a contract which is not enforceable by law. As a matter of fact, a void contract is not at all a contract, as it is without any legal effect.

The term void contract is defined in Sec2 (j) of the Indian Contract Act, which reads as under: “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable “.

Thus, when a valid and enforceable contract subsequently becomes legally unenforceable due to some reasons which may be:-

(i) Due to some emergent impossibility or the operation of law, contract may become void (Sec 56);

(ii) Voidable contract becomes void when the concerned party uses his right to repudiate it; and

(iii) A contingent contracts becomes void when the possibility of happening of the concerned event is over.

2. Voidable contracts:

Under Sec 2 (i), “All agreements which are enforceable at the option of any one of the parties, and other party has no such option, are known as voidable contracts.”

It may also be said that a voidable contract is an agreement that is binding and enforceable, but because of the lack of one or more of the essentials of a valid contract, it may be repudiated.

3. Illegal agreement:

An agreement which goes beyond the rule of basic public policy and is criminal in nature or immoral

It is not only void as between the immediate parties but it is also paints the collateral transactions with illegality.

B. Classification according to formation or creation:

1. Express contract:

A contract in which the terms are stated by parties in words, written or spoken.

Sec 9 of the Indian Contract Act contains this provision which reads as under: “So far as the proposal or acceptance of any promise is made in words, the promise is said to be express”.

Thus, a promise made in words is called an express promise. And the express promises result in express contracts.

2. Implied contract:

A contract in which the terms are inferred from the circumstances of the case or conduct of the parties.

Thus, an implied contract is that which is not made in words. Such contracts came into existence on account of act or conduct of the parties. In a continuing course of dealing, the acts or conduct of the parties may give rise to implied contracts.

3. Quasi contract or constructive contract:

It is an obligation created by law regardless of agreement between the parties. As a matter of fact, quasi-contracts are not contracts as there is no intention of the parties to enter into a contract.

In fact, it is an obligation which the law creates in the absence of any agreement. A quasi-contract is based upon the equitable principle that a person shall not be allowed to enrich himself at the expense of another.

C. Classification according to performance:

1. Unilateral contract:

A contract in which one party has performed his obligation while the other party has yet to perform his obligation

Thus, a unilateral contract is a one-sided contract in which only one party has to perform his obligation. In such contracts, promise on one side is exchanged for an act on the other side.

2. Bilateral contract:

A contract in which both the parties have yet to perform their obligations. A bilateral contract is a two-sided contract in which both the parties have to perform their respective obligations, i.e. at the time of .formation of a contract the obligations of both the parties are outstanding.

In such contracts, promise on one side is exchanged for a promise on the other. The bilateral contracts are also known as contracts with executor consideration.

3. Executory contract:

A contract in which the promises of both the parties have yet to be performed. Thus, executory contract is that where under the terms of a contract something remains to be done by the parties.

In other words, where one or both the parties to the contract have still to perform their obligations in future, the contract is termed as executory contract.

4. Executed Contract:

A contract in which both the parties performed their respective promises. When a contract has been completely performed, it is termed as executed contract, i.e. it is a contract where, under the terms of a contract, nothing remains to be done by either party. A contract may be executed at once i.e. at the time when it is made.

For example, in case of cash sales, the contract is executed at once. It may become executed in some future date when the terms of the contract are carried out.

D. Classification on the basis of enforceability:

1. Valid contract:

A valid contract is one which complies with all the elements of a valid contract as provided under Section 10. A valid contract is an agreement which is binding and enforceable at law.

2. Unenforceable contracts:

The unenforceable contracts are those which cannot be enforced in a Court of Law because of some technical defects. In certain cases, there are special provisions of law which require some formalities to be fulfilled, e.g. there are special provisions which provide that a contract must be in writing, or it must be registered, or it must be properly stamped or it must be attested etc.

If such formalities are not properly observed, the contract cannot be enforced in a Court of Law. Otherwise, such a contract is perfectly valid and has all the requirements of a valid contract.

Some of such contracts can be enforced if the technical defect is removed e.g. where a document requires to be stamped and it is understamped (i.e. the stamp affixed is of less value), the contract as such is unenforceable. But if the required stamp is now affixed, the document becomes enforceable.

E. Classification according to English Law:

1. Formal Contracts:

English Contract Act recognizes formal contracts. Validity of these contracts depends upon their form and they are valid even without consideration. They are of two types:-

(i) Contracts under Seal, and

(ii) Contracts of Record.

(i) ‘Contracts under seal’ are in writing and signed by the parties to them. The following contracts should be under seal, otherwise they will not be valid:-

(a) Contracts without consideration;

(b) Lease of land for a period of more than three years;

(c) Contracts by corporations; and

(d) Contracts with British Shipping.

(ii) ‘Contracts of Records’ include the court judgments and recognisances. Obligations in such cases arise out of court judgments and not under contracts.

2. Simple Contracts:

All contracts other than the formal ones are called simple contracts. They may either be in writing or oral. Consideration is also necessary for their validity. Indian Contract Act, 1872 does not recognize ‘Formal Contracts’, but provides for Simple Contracts only.