This article is written by Sanket Vishwas Waman, DY Patil Law College Pune, LLB 3 Years during his internship.
Introduction
Contracts form the foundation of most legal and business transactions, offering structure, predictability, and accountability to personal, professional, and commercial relationships. Whether you’re entering a business deal, purchasing goods, or signing a lease, contracts play a pivotal role in formalizing the terms of the agreement and ensuring that the obligations of all parties involved are legally enforceable. Understanding the various types of contracts is essential for anyone dealing with legal agreements. Contracts are broadly categorized based on how they are created, the obligations they impose, and their legal validity. This article explores bilateral and unilateral contracts, express and implied contracts, and void, voidable, valid contracts, along with other key types like contingent contracts and quasi-contracts. By examining these categories, we aim to equip the reader with the knowledge necessary to navigate legal obligations in both personal and business contexts.
1. Bilateral vs. Unilateral Contracts
Contracts can generally be classified into two broad categories based on the exchange of promises: bilateral and unilateral. Both forms have distinct features and implications in terms of the duties and responsibilities of the parties involved. Bilateral Contracts In a bilateral contract, both parties make reciprocal promises. The essence of a bilateral contract is that both parties are bound to full fill their promises, making it a mutual agreement. This type of contract is common in business transactions, where each party agrees to perform a duty in exchange for the other party’s obligation. For example, in a sales contract, the buyer promises to pay, while the seller promises to deliver the goods or services. In a bilateral contract, each party’s promise serves as sufficient consideration for the other party’s promise, meaning that the contract is enforceable as soon as both parties agree to the terms.
Case Law: The case of Carlill v. Carbolic Smoke Ball Co. [1893] is often cited as a distinction between bilateral and unilateral contracts. The court in this case recognized that most contracts are bilateral, with both parties exchanging promises that create enforceable legal obligations. Illustration Imagine a scenario where a homeowner contracts with a builder to renovate their house. The homeowner promises to pay $10,000, and the builder promises to complete the renovation by a specific date. Both parties are obligated to full fill their respective promises under this bilateral contract. Unilateral Contracts .In contrast, a unilateral contract involves one party making a promise that the other party can accept only by performing a specific act. In this case, only one party is bound by a contractual obligation until the other party completes the action. Unilateral contracts are less common than bilateral contracts and often arise in situations where a reward is offered for a particular act. For example, a reward for finding a lost pet is a classic example of a unilateral contract, where the person offering the reward is obligated to pay only if the act (finding the pet) is performed. Illustration An advertisement offering a $500 reward for information leading to the return of a lost cat would be a unilateral contract. The person making the offer is not obliged to pay unless someone finds and returns the lost pet. The key difference between this and a bilateral contract is that the person searching for the pet is not obligated to take action, but if they do, the offeror must full fill their promise.
2. Express vs. Implied Contracts
Contracts can also be categorized based on how they are formed—whether the terms are explicitly stated or implied through actions or circumstances. Express Contracts An express contract is one where the terms of the agreement are clearly communicated, either in writing or orally. Both parties know exactly what is expected from them, and the terms and conditions are explicitly outlined. Express contracts are often used in formal agreements such as employment contracts, real estate deals, or service agreements, where the details are thoroughly discussed and documented.
Case Law: McPherson v. Buick Motor Co. [1916]This case involves an express warranty agreement in a contract. The express terms of the contract allowed the buyer to hold the manufacturer liable for the defective product, even though the manufacturer had no direct relationship with the buyer. Illustration A contract for buying a car where the price, payment terms, delivery date, and warranty are clearly laid out is an example of an express contract. The buyer and seller know exactly what is expected of them, and any deviation from these terms can be legally challenged. Implied Contracts In contrast, implied contracts are formed based on the actions, conduct, or circumstances of the parties, rather than explicit words. These contracts are not formally written or spoken but are inferred from the situation or behaviour of the parties involved. Implied contracts can be further divided into: Implied-in-Fact Contracts: These arise when the parties’ conduct or actions imply that they intend to form a contract. For example, if you hire a plumber to fix a leaking pipe, there may not be a written contract, but it is implied that you will pay the plumber for their services. Implied-in-Law Contracts (Quasi-Contracts): These are not true contracts but are obligations imposed by law to prevent one party from being unjustly enriched at the expense of another. Illustration If you visit a doctor for treatment, there may not be a written or verbal agreement outlining the payment terms. However, it Is implied that you will pay the doctor for their services, creating an implied contract based on the circumstances.
3. Void, Voidable, and Valid Contracts
Contracts can also be categorized based on their enforceability under the law.
Void Contracts
A void contract is one that is not legally enforceable from the outset. These contracts are null and void from the beginning and have no legal effect. They may involve illegal activities or agreements that are impossible to perform. Contracts that violate public policy or laws are void, meaning that the parties involved cannot seek legal enforcement of the agreement.
Case Law: Section 23 of the Indian Contract Act Contracts that involve illegal objectives, such as smuggling or illegal drug deals, are considered void under Section 23 of the Indian Contract Act. Such contracts are unenforceable because they are against public policy. Illustration If a contract involves the sale of illegal substances, it is void from the start. Neither party can sue the other for breach of contract because the agreement itself is unlawful.
Voidable Contracts
A voidable contract is one that is valid and enforceable unless one party decides to void it. These contracts are often formed under circumstances of duress, undue influence, fraud, or misrepresentation. The party that has been wronged has the option to either enforce or void the contract. However, if they choose to enforce it, the contract remains valid.
Case Law: Ranganayakamma v. Alwar Setti [1889]In this case, the contract was voidable due to undue influence. A woman was forced to sign a contract under pressure, and the court allowed her to void the agreement based on the undue influence exerted on her.
Illustration
If a person is tricked into signing a contract under false pretences, such as being misled about the nature of the contract, they may have the option to void the contract and avoid being legally bound by it.
Valid Contracts
A valid contract is one that meets all the essential elements required for a legally enforceable agreement: offer, acceptance, consideration, capacity, and lawful object. Valid contracts are binding and enforceable in a court of law, provided that both parties full fill their obligations.
Illustration
A contract for the sale of goods, where both parties have agreed on the price, quantity, and delivery terms, is considered valid if all legal requirements are met.
4. Contingent Contracts
A contingent contract is a type of contract where the performance is dependent on the occurrence or non-occurrence of a specific future event. These contracts are only enforceable if the condition is met, making them highly dependent on external circumstances. Characteristics of Contingent Contracts Depends on an Event: The contract is enforceable only when the specified event occurs. Uncertainty: The event must be uncertain or unpredictable. Legal Enforceability: The contract becomes legally enforceable only after the contingent event occurs. Example: Insurance Contracts Insurance policies are a prime example of contingent contracts. The insurer agrees to pay a certain sum of money only if a specified event, such as an accident or natural disaster, occurs. Until that event takes place, the contract remains contingent and unenforceable. Case Law: Nand Lal Harbans Lal v. U.P Government In this case, the contract was contingent on the successful completion of a government project. The court upheld that the contract would only become enforceable once the event (project completion) occurred, demonstrating the nature of contingent contracts.
5. Quasi-Contracts
A quasi-contract is a legal contract, not an actual contract. These obligations are imposed by law to prevent unjust enrichment, ensuring that one party does not unfairly benefit at the expense of another. Even though no formal agreement exists between the parties, the court can impose a quasi-contract to ensure fairness. Key Features of Quasi-Contracts Absence of a Contract: There is no formal agreement between the parties
