Types of Contracts
1. Introduction to Contracts
A contract is an agreement that creates legal obligations between two or more parties.
According to Section 2(h) of the Indian Contract Act, 1872:
"A contract is an agreement enforceable by law."
For a contract to be valid, it must contain the following essential elements:
• Offer and acceptance
• Lawful consideration
• Intention to create legal obligations
• Competent parties
• Free consent
• Lawful object
• Certainty and possibility of performance
2. Types of Contracts
A) Based on Formation
1. Express Contract
A contract where the terms are clearly stated, either in writing or orally.
Example: A written employment contract between a company and an employee in India,
mentioning salary, responsibilities, and conditions.
2. Implied Contract
Formed by the conduct of the parties rather than written or spoken words.
Example: When you visit a restaurant in India and place an order, there is an implied
contract to pay for the food.
3. Quasi Contract
Not a true contract but imposed by law to prevent unjust enrichment.
Example: If a person in Mumbai mistakenly receives a parcel and uses it, they are bound to
pay for it.
B) Based on Execution
1. Executed Contract
A contract where both parties have fulfilled their obligations.
Example: A person buys a laptop in Delhi, pays immediately, and takes the product.
2. Executory Contract
A contract where one or both parties are yet to fulfill their obligations.
Example: A company in Hyderabad signs a contract with a vendor for office supplies to be
delivered next month.
3. Partly Executed and Partly Executory Contract
When one party has performed their part, but the other party is yet to do so.
Example: A client pays an advance for website development, but the service is yet to be
delivered.
C) Based on Validity
1. Valid Contract
A contract that meets all the essential legal requirements and is enforceable by law.
Example: A rental agreement in India with proper stamp duty and legal terms is a valid
contract.
2. Void Contract
A contract that was valid initially but becomes unenforceable due to some legal issues.
Example: A contract to import a product becomes void if the government bans its import.
3. Voidable Contract
A contract that is enforceable at the option of one party but not the other.
Example: A contract signed by a minor is voidable at the minor's option.
4. Illegal Contract
A contract involving unlawful activities, making it unenforceable.
Example: A contract for smuggling drugs is illegal.
5. Unenforceable Contract
A valid contract that cannot be enforced due to technical defects (e.g., lack of proper
documentation).
Example: An unstamped sale deed for property transfer is unenforceable.
D) Based on Obligation
1. Unilateral Contract
Only one party makes a promise, and the other party performs an act.
Example: A reward contract, where a person offers ₹10,000 for finding their lost dog. Only
the finder has to perform.
2. Bilateral Contract
Both parties exchange promises and are obligated to fulfill them.
Example: A supply contract where the supplier agrees to deliver goods and the buyer
promises to pay.
E) Special Contracts under the Indian Contract Act
1. Contract of Indemnity (Section 124)
One party promises to compensate the other for any loss suffered due to the promisor’s
conduct.
Example: An insurance contract where the insurer promises to indemnify the insured
against loss.
2. Contract of Guarantee (Section 126)
A contract involving three parties: the principal debtor, the creditor, and the guarantor.
Example: A person guarantees repayment of a loan taken by a friend.
3. Contract of Bailment (Section 148)
Delivery of goods from one party (bailor) to another (bailee) for a specific purpose.
Example: Giving clothes to a dry cleaner in India.
4. Contract of Pledge (Section 172)
A type of bailment where goods are delivered as security for a debt or loan.
Example: Pawning gold jewellery in India as collateral for a loan.
5. Contract of Agency (Section 182)
One party (agent) is authorized to act on behalf of another party (principal).
Example: A real estate agent in India selling property on behalf of the owner.
Conclusion
Understanding the different types of contracts is crucial for interpreting legal obligations in
business and personal agreements. Contracts ensure fair dealings, define rights and
obligations, and protect against legal disputes.
