Law relating to Contracts in India are governed by the Indian Contract Act, 1872(hereinafter referred to as “Act”). As per the Act, an agreement enforceable by law becomes a contract. It is evident that only those agreements which have the support of the law and only those contracts which do not violate any law are to be called contracts. The Act defines illegal contracts also. Hence in this post, we deal with the different kinds of contracts mentioned in the Act.
Contracts can be broadly classified on the basis of (A) Creation, (B) Validity, (C) Execution, (D) Liability.
A. Contracts on the basis of Creation
1. Express Contracts
Section 9 of the Act defines promises which are expressly made. If the proposal or acceptance of any contract/promise is made by the parties in words, it is said to be express.
Example: The contract of sale of a property is made expressly by using clear words written on a stamped paper.
The express contract need not be a written one.
Example: If A asks B whether he will purchase his pet dog and B accepts it, it can also be termed express contract. Oral promise and acceptance, if made clearly, constitute a legal contract expressly made.
Express contracts reduced into writing are easier to prove in law than oral contracts.
2. Implied Contracts
Again, Section 9 of the Act states that any promise or acceptance which is made otherwise than in words, they are said to be implied contracts. If a contract can be inferred from the conduct of the parties or circumstances, they are called implied contracts. When the intention of parties is known by the specific circumstances or their behavior, a contract can be implied.
Example: If a person boards a bus, the law implies a promise on his part to pay the fare and also on the part of the bus operator to carry him safely to the required destination. This is inferred from the conduct of the parties and is accepted by law in the form of implied contract.
The honorable Supreme Court of India, in Haji Mohammed Ishaque wd S.K.Mohammed and others versus Mohammed Iqbal and Mohammed Ali and Co[1], dealt with the implied contract. Short facts of the case are given below:
Plaintiffs are registered partnership firm. Defendants are bidi manufacturers. The plaintiffs supplied 630 bags of tobacco to the defendants. Defendants paid only part of the price. Rest remaining due and the plaintiff filed a case against them for recovery of balance payment. There was no mention of an express contract in the plaintiffs’ case. The defendant’s case was that they had no real business with the plaintiffs. The defendant usually transacted with one Rahim who helped them get the sale from the plaintiffs. But the railway consignment receipts showed the plaintiff’s name and one of the plaintiff partner personally went to the defendant’s office and handed over the receipts and received some payment. Thus the Court observed that there is an implied contract between the parties as can be inferred from the conduct of the defendants. Even if Rahim played a major role in the transactions, the defendants accepted the order and consignment receipts and had given cheques and money to the plaintiffs. They had not even repudiated any claims, letters from the part of the plaintiff for payment. This shows that they have agreed to have governed by an implied contract.
3. Quasi-Contracts
Quasi means “that appears to be something but is not really so” and “partly; almost”[2]. Quasi-contracts are created by law. These are based on the principle that no one shall be allowed to be rich at the expense of another. The famous English case Fibrosa SA versus Fairbairn Lawson Combe Barbour Ltd[3] deals with this principle.
The respondent company in England agreed to sell to the Poland company of appellants some machinery for a certain sum. One-third of the price was paid. Before the deadline for delivery of machines, a war was declared by Great Britain on Germany. Gdynia in Poland, to where the machines were agreed to be despatched, was occupied by Germans. The respondents’ company in England refused to dispatch the goods. The Poland company claimed the amount paid as advance. When the Court of Appeal ruled in favor of English company, the Poland company moved House of Lords. It was held that as there was a total failure of consideration, the appellants are entitled to recover the sum from the English company.
In India, Section 68 to 72 of the Act deals with Quasi Contracts.
4. Tacit Contracts
The term ‘tacit’ means expressed or carried on without words or speech[4]. Tacit contracts are again such type of contracts which can be inferred from the conduct of parties.
The term ‘tacit’ means expressed or carried on without words or speech[4]. Tacit contracts are again such type of contracts which can be inferred from the conduct of parties.
B. Contracts on the basis of Validity
1. Valid Contract
A contract which meets all the requirements prescribed by law is called a valid contract. For a valid contract, the requirements mentioned in Section 10 of the Act must be satisfied. Agreements made by the free consent of parties who are competent to contract are called valid contracts. Apart from that, it must be made for a lawful consideration with a lawful object. Further, it should not be expressly declared void by the Act.
A contract which meets all the requirements prescribed by law is called a valid contract. For a valid contract, the requirements mentioned in Section 10 of the Act must be satisfied. Agreements made by the free consent of parties who are competent to contract are called valid contracts. Apart from that, it must be made for a lawful consideration with a lawful object. Further, it should not be expressly declared void by the Act.
2. Void Contract
Void contracts are one which is expressly declared to be void under the Act. Agreements shown below are void as per the Act:
Void contracts are one which is expressly declared to be void under the Act. Agreements shown below are void as per the Act:
- An agreement made by an unsound person.
- An agreement made by mistake of fact.
- An agreement made with unlawful consideration.
- An agreement made with an unlawful object.
- An agreement made without consideration.
- An agreement in restraint of marriage.
- An agreement restrains trade or profession.
- An agreement which restrains legal proceedings.
- An uncertain agreement.
- Any wagering agreement.
- Any contingent agreement to do or not to do something in case of happening of an impossible event.
- An agreement to do an impossible act.
Read the law notes on void contracts in this link.[https://senseoflaw.blogspot.com/2019/07/void-agreements-law-notes-contract-act.html]
3. Voidable Contract
An agreement which is enforceable by law at the option of one or more of the parties to the contract, but not at the option of other or others is a voidable contract[5]. Thus it means that such contracts can become void due to its illegality. But if the suffering party chooses to continue the contract, it is enforceable by law. Such contracts are voidable ones. In Swiss Timing Limited versus Commonwealth Games 2010 Organising Committee[6], Supreme Court observed that contracts mentioned in Section 15(coercion), 16(undue influence), 17(fraud), 18(misrepresentation), et cetera of the Act will come within voidable contracts.
An agreement which is enforceable by law at the option of one or more of the parties to the contract, but not at the option of other or others is a voidable contract[5]. Thus it means that such contracts can become void due to its illegality. But if the suffering party chooses to continue the contract, it is enforceable by law. Such contracts are voidable ones. In Swiss Timing Limited versus Commonwealth Games 2010 Organising Committee[6], Supreme Court observed that contracts mentioned in Section 15(coercion), 16(undue influence), 17(fraud), 18(misrepresentation), et cetera of the Act will come within voidable contracts.
Example: A being the father of B asks him to enter into a contract with C which B believes to be not worthy. Yet B could continue the contract despite the undue influence of his father A. Thus the contract is voidable at the option of B as he could repudiate the contract and prove the undue influence of his father.
If A forced B to enter into a contract, B can choose to repudiate it or continue the contract despite the compulsion from A.
4. Unenforceable Contracts
Unenforceable contracts are such contracts which are not enforceable in law due to some technical defects. If the law requires a contract to be in writing, an oral contract in its place cannot be enforced. For instance, Section 54 of the Transfer of Property Act, 1882 mandates that sale of tangible immovable property of the value of One Hundred Rupees and upwards can be made only by a registered instrument. Here it is necessary that the sale agreement must be in writing. If it is not a written agreement, such contract will be unenforceable.
Another example of the unenforceable contract is one of ‘not duly stamped’ instruments.
Some instances of specifically unenforceable contracts are mentioned in Section 14 of the Specific Relief Act, 1963. For example, a contract for the non-performance of which compensation in money is an adequate relief cannot be specifically enforced.
Unenforceable contracts are such contracts which are not enforceable in law due to some technical defects. If the law requires a contract to be in writing, an oral contract in its place cannot be enforced. For instance, Section 54 of the Transfer of Property Act, 1882 mandates that sale of tangible immovable property of the value of One Hundred Rupees and upwards can be made only by a registered instrument. Here it is necessary that the sale agreement must be in writing. If it is not a written agreement, such contract will be unenforceable.
Another example of the unenforceable contract is one of ‘not duly stamped’ instruments.
Some instances of specifically unenforceable contracts are mentioned in Section 14 of the Specific Relief Act, 1963. For example, a contract for the non-performance of which compensation in money is an adequate relief cannot be specifically enforced.
5. Illegal Contract
A enters upon a contract with B to kill C. This is an illegal Contract. This is void ab-initio and not at all enforceable in law. Money spent on such an illegal contract cannot be claimed with the help of law. In short, a contract which is immoral or opposed to public policy is illegal.
Example: A enters into an agreement with B to produce a specially brewed liquor which is banned in the State. Consequently, A cannot claim to enforce such contract or ask to repay the money paid to B.
A enters upon a contract with B to kill C. This is an illegal Contract. This is void ab-initio and not at all enforceable in law. Money spent on such an illegal contract cannot be claimed with the help of law. In short, a contract which is immoral or opposed to public policy is illegal.
Example: A enters into an agreement with B to produce a specially brewed liquor which is banned in the State. Consequently, A cannot claim to enforce such contract or ask to repay the money paid to B.
C. Contracts on the basis of execution
1. Executed Contract
As the name suggests, an executed contract is a fully completed contract which has met all the requirements of a contract as per law.
Example: A enters into a contract with B who is a videographer to cover a marriage function. The payment will be made if B delivers the video footage to A after editing. This is a fully completed contract which is executed.
Similarly, in the case of purchase of a house, the house owner signs a sale agreement with the buyer and purchase money is paid in full at the time of execution. This is a fully completed contract and is called an executed contract.
As the name suggests, an executed contract is a fully completed contract which has met all the requirements of a contract as per law.
Example: A enters into a contract with B who is a videographer to cover a marriage function. The payment will be made if B delivers the video footage to A after editing. This is a fully completed contract which is executed.
Similarly, in the case of purchase of a house, the house owner signs a sale agreement with the buyer and purchase money is paid in full at the time of execution. This is a fully completed contract and is called an executed contract.
2. Executory Contract
A wants to buy an immovable property of B. A gives token advance and enters into an ‘agreement of sale’ with B to purchase the property on or before a specific date. Here full obligations are not complete as A has not paid the full amount and B has not delivered the title to A.
3. A mix of above two (Partly executed and Partly executory)
A enters into a home equipment showroom for purchasing a refrigerator. He doesn’t have the full amount of money to buy the refrigerator. The shop owner asks him to enter into an agreement by which he could pay a token amount as advance and take home the refrigerator. It was specifically agreed that the balance amount has to be paid by A in equated monthly installments. This is called a partly executed and partly executory agreement or contract. Here, one party has fulfilled his promise while the party has to fulfill his part of the contract at a future date. Thus the contract is not fully complete on the date of purchase.
In short, in a partly executed and partly executory contract, full obligations are not complete.
D. On the basis of liability
In short, in a partly executed and partly executory contract, full obligations are not complete.
D. On the basis of liability
Contracts can be further classified on the basis of liability.
1. Unilateral Contract
As the name suggests, a unilateral contract is one-sided. Only one person/group or side has promised to perform. The other part has not really promised to do the act.
Example: A lost his gold chain and he publishes a newspaper advertisement that he will pay a certain sum to the finder of his gold chain. Here A has promised to do the act. But the other part is uncertain. This is a unilateral contract.
1. Unilateral Contract
As the name suggests, a unilateral contract is one-sided. Only one person/group or side has promised to perform. The other part has not really promised to do the act.
Example: A lost his gold chain and he publishes a newspaper advertisement that he will pay a certain sum to the finder of his gold chain. Here A has promised to do the act. But the other part is uncertain. This is a unilateral contract.
2. Bilateral Contract
A bilateral contract is a normal contract where both parties are involved by their respective promises/offer and acceptance.
Footnotes:
A bilateral contract is a normal contract where both parties are involved by their respective promises/offer and acceptance.
Footnotes:
- 1978 AIR 798
- https://www.oxfordlearnersdictionaries.com/definition/english/quasi?q=quasi
- (1943) AC 32
- https://www.merriam-webster.com/dictionary/tacit
- Section 2(i)
- Arbitration Petition No:34 of 2013
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