What are the Different Types of Contracts in Business law?

Types of Contracts in Business law

After discussing the definition of a contract and the essentials of a valid contract, you got the idea about the contract that a contract is a legal agreement between parties that creates mutual obligations. Now, a question comes to mind that what are the different types of contracts? So, we are going to discuss the different types of contracts in business law and I am sure that after reading this article, you will read about all kinds of contract in Indian contract act, 1872 and will be able to decide that which type of contract you should use for your benefit.

Types of Contracts

There are various types of contracts in business law. We will discuss them one by one and, if you want to learn more about them, you can read full articles on every type of contract. So, let’s start the topic.

Express contracts

Almost all the contracts are made with this category. Express contracts are those contracts that are made by the parties with offer and acceptance and agreeing to be bound in the contract by Oral, written or with the combination of oral and written.

Example of express contract

A offers B to take his car worth $1000. B accepts the offer and sells this to A. Here, they both did the contract orally and hence, it is an express contract.

Implied contracts

The implied contract comes into the existence with the actions of the parties involved. These types of contracts are not written down or are now even orally discussed between the parties. Once a party takes the designated action, it is considered that it has come into the implied contract. Let us understand with an example.

Example of Implied contract

The simplest example of an implied contract is the warranty of a product. Whenever you buy a product, the warranty of that product comes into effect automatically that it should work as expected. This is an implied contract because it came into existence by your action of buying that product not by writing it down.

Valid contracts

The agreement made between two or more than two parties that is following all the essential elements of a valid contract are known as a valid contract. The main essentials are:

  • Offer and acceptance
  • Lawful consideration
  • Lawful object
  • The parties competent for the contract
  • The consent of the party is free.

Example of a valid contract

A offers B to take his bike worth $500. B accepts the offer and sells it to him with the same price paid by A.

You can visit our article on the essentials of a valid contract to gain more knowledge.

Void Contracts

Section 2(j) of the Indian contract act clearly says that an agreement that is not enforceable by law is a void contract. It means a void contract cannot be enforced by the court of law. It is not a contract at all, but to identify this, we count it in the types of contract.

Example of Void contract

Mr X made the contract with Z to write a book on Contract law. But before completing the book, Z dies. Here, the contract becomes void, as the performance of the contract is not possible.

Voidable contracts

It is given under section 2(i) that if an agreement which is made between parties is enforceable by law only at the options of one or more than one party but not at the option of another party, the contract will be considered a voidable contract.

In such types of contracts, the possibility is that the consent is taken forcefully or the consent is not free consent. Let us read an example to make this easy to understand.

Example of Voidable contract

Aman points out the gun and asks Priya to marry him. Priya is not ready to marry him but due to the coercion, she accepts to marry him. Now, the contract of marriage is voidable at the option of Priya as her consent was taken forcefully. If she wants, then she can break the marriage to the point that the consent was taken forcefully.

Read the full article about the Difference between Void and Voidable Contracts

Illegal contracts

An agreement between the parties which is breaking the law or the agreement is against the public policy is deemed to be an illegal contract. The illegal contract is not enforceable by law and considers a void contract. Even if the consideration is not lawful, the contract will be considered an illegal contract.

Example of the illegal contract

A offers B to take his bike in exchange for Alcohol and drugs. Here, the consideration is not lawful. Hence, the contract is illegal.

Unenforceable contract

A contract which is following all the conditions of the contract but has a technical issue is called an unenforceable contract. This contract cannot be enforced against either party.

Example of Unenforceable Contract

Ramesh makes a contract with Suresh that he will buy his horse on Saturday. But the horse dies on Friday. The contract cannot be completed now.

Contingent contracts

Contingent contracts are those contracts where a promise is conditional and performs on the happening and non-happening of an uncertain event.

Example of a Contingent contract

Rahul promises Rohan to pay 10 thousand if his horse dies. Here, at present, the horse is alive. Rahul has made a future promise which will be performed if the horse dies.

Read the full article about: What is a Contingent contract? Types of contingent contracts

E-Contracts

Where a formation of the contract is fulfilling all the essentials of a valid contract in an electronic form is called e-contract of electronic contract. These contracts are not paper-based contracts because they are electronic in nature. These types of contracts are used for the speedy entry into a contract. We use electronic contracts in our daily life.

Example of electronic contract

Whenever we click I agree while opening any website or giving permission to any website, we genuinely enter into the contract. Installing a window in the computer is also an example of an electronic contract.

Read the full article about E-Contracts, Types of E-contracts

Quasi-contracts

Quasi-contracts are the agreements that are imposed by the law, to outline the obligation of one party towards the second party in case the one possesses the property of the second party. In simple words, when one person mistakenly received the thing of another, it is his duty to return the thing back, otherwise, he has to pay the benefits enjoyed by him.

The definition of quasi-contracts is not given in the Indian contract act, but its provisions are covered under section 68 to section 72 of the Indian contract act. Quasi-contracts are the mixture of two words which are “Quasi” and “Contract”. Quasi means the partly or almost and contract means any agreement which is enforceable by law. In the quasi-contract, the proposal and acceptance are missing but they are still enforceable by law.

Quasi-contract meaning

Quasi-contracts are exceptional types of contracts in which, one party is legally bound to pay the money in consideration of something done or suffered by another party not based on the actual promises.

In simple words, quasi-contracts are such types of contracts that bound the one party to pay the consideration to another person who has done something to fulfil his necessity.

Quasi-contract example

Ram is a lunatic person and Shyam is his friend. Shyam delivers the necessary food and other supply for Ram and his family. Now, according to the quasi-contract, Shyam is entitled to be reimbursed from Ram’s property.

This is an example of a quasi-contract. There is no proposal and acceptance but still, it is enforceable by law. In the quasi-contract, the one person provides the basic necessity to another person or do any work which is defined in section 68 to 72 of the Indian contract act, that person is entitled to take the consideration from the person to whom he provides the basic necessity.

Elements of a Quasi Contract

There are various types of contracts that follow the essentials of a valid contract which makes the contract a valid contract but, the Elements of a Quasi Contract are different from the simple contract. There are fewer requirements for Quasi Contracts. In quasi-contracts, there is no proposal and acceptance in the quasi-contracts. There is just considered that made this enforceable by law. The four main elements of a quasi-contract are:

  • The plaintiff must-have pieces of evidence of the goods or services which he provided to the defendant and his family.
  • The defendant must have taken the benefit from the goods and services provided by the plaintiff.
  • A defendant must have accepted the goods or services under the unfair circumstances
  • The plaintiff must not have compensated for the services and goods provided by him.

The court plays its role in the cases of quasi-contract for the reimbursement of the plaintiff.

When quasi-contract arises?

The quasi-contracts arise when:

  • One person has done something for another person or
  • The person paid the money on the behalf of another third party

In these two situations, the court plays its role on the ground of “equity”. According to the court, the person who is receiving the benefits, due to the person, must compensate that person otherwise he would become rich on the expenses of the other person.

For example, Ram is a lunatic person and Shyam is his friend. Shyam delivers the necessary food and other supply for Ram and his family. Now, the Ram must compensate the Shyam for his work. He has to pay the consideration which Shyam spent on him and his family.

Features of quasi-contracts

There are mainly three features of the quasi-contracts:

  • It is a right to a sum of money

The person done a payment on the behalf of one person who was liable to pay that money.

  • The right is imposed by the law, not by any agreement between the parties

A quasi-contract is not made by any agreement between the two parties but the quasi-contract arises due to the law.

  • The right is available only against the particular person or persons

The person can ask for reimbursement from the person or his family to whom he has supplied the basic necessities.

Provisions of quasi-contracts (Section 68-72)

Now, let us discuss the provisions of the contracts given under the Indian contract act:

Section 68 of the Indian contract act

Section 68 talks about the claim for necessaries supplied to the person or his family who is not capable to contract.

It means, if one person (capable) helps the other person (who is not capable of entering into the contract) by providing him necessary things that are suited to his conditions in life, that person (capable) is entitled to be reimbursed from the other person’s property(incapable person’s property).

For example, A and B are both partners in a company. The company took the losses and due to this, A becomes a lunatic. Now, the B takes care of him and his wife and husband, till the A becomes able to support his family. Here, according to section 68 of the Indian contract act, B is entitled to take that money from the property of A which he spent on them to provide the necessary things(suited to their conditions in life).

Section 69 of the Indian contract act

Section 69 of the Indian contract act talks about the reimbursement of a person who pays the money due by another person, in the payment of which he is interested. This section gives some conditions which are:

  • There must be the interest of the person in the payment
  • The other person should be bound to pay that money
  • The person who has interested in the money must pay that money on the behalf of another person.

If these three conditions are met in the case, the person who paid the money is entitled to reimbursement.

Let us understand this section with an example. The A own three shops in a market in which one shop is on rent to B. C had given $30000 to A and now he asks him to pay his debt by selling all his shops. Now, B has an interest in that property as he owns a rented shop. So, the B pays the A’s full debt. Now, B is entitled to reimbursement from A’s property.

Section 70 of the Indian contract act

Section 70 of the Indian contract act deals with the obligation of a person who is enjoying the benefit of a non-gratuitous act. This means, if a person enjoys the benefits of the non-gratuitous act done by another person, the person who enjoyed the benefits is liable to compensate for that.

For example, A appoints B to deliver his good to C but due to the wrong address, B delvers the good to D. D took the benefits of that goods. Now, the D is liable to pay the compensation for the goods he enjoyed.

This section gives some conditions which are:

  • A person should do something lawfully for another person

The person who is delivering something must be done lawfully for the person

  • The other person should enjoy the benefits of the goods

The person who has received the goods should have enjoyed the benefits from that goods. But if he is not enjoyed the benefits, and gives back the goods, he is not entitled to pay any compensation for the same.

  • The act must not be Gratuitous Act

It is a most important point of this section that the act done by the person must not be a gratuitous act. There must be the intention to expect payment for the same on doing some act.

Let’s take the example for this. Ankit saves Mohan’s house from fire. Ankit is not entitled to take the compensation from Mohan if the circumstances show that Ankit intended to do the act gratuitously.

Section 71 of the Indian contract act

Section 71 of the Indian contract act talks about the responsibility of the person who found the goods. According to this section, if a person finds the goods which belong to another person, and the person takes those goods into his custody, the position of the finder of goods will be the same as the bailee under the contract of bailment.

The finder of goods is entitled to take the expenses that occurred to him due to the custody of the goods and expenses to deliver the goods to the real owner of the goods.

Section 72 of the Indian contract act

Section 72 of the Indian contract act gives the idea about the liability of the person to whom the goods were delivered by mistake or coercion. According to the section, if a person receives the money for any goods by mistake or coercion, the person is liable to return that money or goods to its owner.

For example, A and B took a mutual loan of $5000 from the bank. They both are liable to pay half of their shares ($2500 each). But A becomes a good contractor and made lots of profit so he pays the full amount in the bank. The B comes to the bank and pays his $2500 to the bank without knowing that A has already paid the amount. Now, the bank is liable to return the money to B.

Unjust Enrichment

Unjust Enrichment means when a person unfairly received benefits from the goods and services of another person. The Unjust Enrichment term is used in the quasi-contract.

“Nemo debet locupletari ex aliena jactura”

This maxim somehow deals with the quasi-contracts which means that no one should be enriched by another’s loss.

Difference between contract and quasi-contracts

The quasi-contracts are different from the normal contract on some points:

  • A contract is a real agreement between two or more parties whereas, a quasi-contract is not an agreement between the parties. It resembles the contract.
  • Under the contract, both the parties to the contract give their free consent for the contract whereas, in the quasi-contract, there is no consent of the parties.
  • Under the simple contract, the liability exists only basis on the conditions mentioned in the contract whereas, in quasi-contract, the liability comes into existence through the conduct of the parties that is based on morality and natural justice.
  • The parties to the simple contract are interested in a contract voluntarily whereas the quasi-contracts are imposed by law.
  • Normal contracts deal with both rights in Rem and rights in Personam but the quasi-contracts are only dealt with rights in Personam which means these contracts are deals with a specific person.

Unconscionable contract

The unconscionable contract is a type of contract which is one-sided and unfair to either party of a contract that is deemed to be unenforceable by law. In simple words, a contract that is signed by the party with a lack of information or pressure was involved while making the contract.

If the lawsuit is filed, and the court thinks that the contract covers under an unconscionable contract, the contract will be considered as a void contract. But the damages will not be awarded to the party but the party will be free from the obligations.

Example for Unconscionable contract

Ankit, who is very experienced in making contracts, make a contract with Anil who is an average customer. Ankit used a very complex and technical language that most average customers will not understand and mislead Anil to make a contract with him.

Adhesion Contracts

A contract between two or more than two parties, where one party is with very much strong bargaining power and the other is weaker and weaker party has the option either accept or reject but no power of bargaining is called adhesion contract. We will explain this with a very easy example.

Example of Adhesion Contract

It happens many times when you download an app and must agree on the terms and conditions of that app before using this app, here you are facing the Adhesion Contract.

Executory Contracts

The contracts in which one or both the parties are yet to perform their obligations are known as executory contracts. In these types of contracts, it happens many times that the consideration of the contract is pending. The party makes the promise to give the consideration in future or in instalments. Such types of contracts can be fulfilled in future or can be half fulfilled at the time of making the contract.

Such types of contracts are mostly beneficial for the big-budget purchase items like houses and cars. The person can pay the amount in instalments instead of paying the full amount at one time.

A did contract with B to sell his car On 15 Aug. B accepts the offer and promise to pay him 2 lakhs when he will give the delivery of the car. If A is yet to deliver his car to B, it is an executory contract.

Executory Contract example

Car lease

A person wanted to buy a car but he did not have full money. so he went to the car showroom and fill the car lease form that he will pay the full money in instalments. He took the car to his home but did not pay the full money. The contract is not fulfilled yet.

Rental Lease

The house owner provides a living space to the person, now the tenant made the contract that he will pay the rent after a specified period of time(every month). A contract is an executory contract because the lease contracts are made for one year and no one gives the full money in one instalment.

Equipment lease

A person took the equipment on rent and make the monthly payment for this. Now the person who took the equipment on rest, can use the equipment according to his comfort or according to the terms mentioned in the contract. But his obligation is to pay the rent on time. Otherwise, the Owner of equipment has the legal right to take his equipment back and he can also file a civil suit for damages.

Breach of Executory Contract

If either of the party in the executory contract, fails to fulfil its obligation in the given time, it is a breach of contract. The other party has the right to take back his property and can sue another party in the civil court for the compensation of losses.

For example, if Mohit took the car and fails to give its instalments on time. The car company has the right to take the car possession back from him and they can sue him for the loss of damages.

Executed contracts

The contract where both the parties have completed their promises on time is called an executed contract. In most of the executed contracts, the promises are made and completed immediately.

It means, all the contracts where parties have fulfilled their promise made during the contract, called Executed contracts. Such types of contracts fulfil all the essentials of a contract and there is no risk for the cancellation or delay of anything. In this contract, the parties signed the document after negotiating all the aspects of the agreement. As a result, all the terms and conditions of the contracts are satisfactory for all the parties.

Example of Executed contracts

Amit makes a contract with Sunil to buy his car by paying cash. Sunil delivers his car instantly and took the cash from Amit.

In the executed purchase contract, when the seller has received the money paid by the purchaser and also, deliver the goods to the purchaser, the contract will be considered as an executed contract.

Unilateral Contract

Unilateral contracts are also known as one-sided contracts where only one party has to perform his promise. The one party makes the promise and intended to induce some action from another party. The other party is not bound to act.

Example of Unilateral Contract

Amit makes a promise to pay $100 to anyone who will find his lost dog. John finds his dog and returns it to Amit. When John found the Dog, the contract comes into existence and now Amit has to pay his promise. It is an example of a Unilateral Contract.

Bilateral Contract

A bilateral contract is a reciprocal contract. This contract is formed by reciprocal promises. In this contract, each party is a promisor, where the promise is outstanding on the party of both parties of the contract.

Example of Bilateral Contract

Any kind of sale agreement is an example of a bilateral contract where a buyer agrees to pay a certain amount in exchange for the title of the property. And, the seller agrees to give his title of the property in exchange for specified money.

A makes a promise to buy a car from B at a cost of $5000. B promises to give the possession of the car in exchange for $5000.

                                   All these are the most common types of contracts. You can use any of these to make legal contracts with anybody. Though you are using many types of contracts in your daily life.

You can suggest other types of contracts if we skipped any.

 

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