A contract is an agreement that creates a binding obligation on two or more parties entering into it, and the law establishes the obligation in a contract.
The Indian Contract Act, 1872 governs a contract in India.
According to section 2(h) of the Indian Contract Act 1872, A contract gets defined as “an agreement enforceable by law is a contract”.
Types of Contracts
There are various types of contracts which has their objective to achieve. These are:-
Based on creation
The types of contracts get divided into three types based on their creation. Let’s discuss:
- Express Contract: An express contract gets formed by spoken words or a written document. It is termed as ‘express’ because the terms and conditions of these contracts are expressly mentioned either orally or in written form.
For Ex:- A signed a contract of employment with B. It expressly mentioned that A could not leave the company before completing two years; if A fails to comply, legal action will get initiated against him.
- Implied Contract: A person enters into an implied contract in any way other than a verbal agreement or a written record.
In an implied contract, the contract is formed by the conduct of a person or from that of any given circumstance.
For Ex:- A person uses a metro service for travelling and pays for the same. His act of making payment makes him enter into a contract of travelling, and the metro will be liable to oblige with such a contract and follow all the obligations on his part like maintaining safety while travelling and does not impede the services arbitrarily,
- Tacit Contract: It is a type of contract made in silence because there is an understanding between the two parties that there is no contradiction or objection from the circumstances.
Example: Use of an ATM.
Based On Execution
A contract gets divided into three categories based on its execution. These categories are:-
- Executed Contract:- This is a contract between two parties who have already performed their legal obligations under the contract.
For Ex:- A sold his bike to B, and in return, B paid him the price of the bike demanded by A.
- Executory Contract: Under this contract, the parties entered into the contract, but they are left to perform their obligations.
For Ex:- A offers to sell his house to B in 20 lakhs and enters into a contract with B on B’s acceptance but, B and A both are left to perform their part yet.
- Partly Executed Contract:- This is a contract signed between two parties where one party has completed his legal obligations under the contract. In contrast, the other party is left to perform his obligations under the contract.
For Ex:- A sold his house to B in 20 lakhs, B paid A Rs 20 Lakhs, but A hasn’t delivered the possession of the house to B yet.
Based On Enforceability
- Valid Contract: A contract is a valid contract that complies with the due procedure established by law. A valid contract has legal enforceability. A person can approach the court of law to enforce the terms of the agreement or seek compensation for non-performance of the contract terms.
Example- Two people enter into a contract to trade steel against a valid consideration amount.
- Void Contract: A void contract is not enforceable by law. A contract can be void-ab-initio (i.e., from the beginning) or void in the future.
A void-ab-initio contract is void from the beginning and is not valid due to its terms and conditions. It is possible when the contract terms are for some illegal act or omission.
A void contract gets defined under section 2(j) of the Indian Contract Act 1872.
For Ex:- A contract between two-person for murder for some third person is void-ab-initio.
A void contract is not valid and cannot get enforced in a court of law due to non-performance of its terms. It can be void even after entering into a contract due to performance against the terms and conditions of the agreement, omission to perform an act prescribed in the contract, subsequent amendment, unforeseeable circumstances, contract with a minor or with a person of unsound mind, etc.
For Ex:- A person Z agrees to handle the management of the store of C, but due to an earthquake, the store collapses, and the contract they entered, which was initially valid, becomes void.
A contract with a drunk person is void as he would not be sound when drunk.
- Voidable Contract:- A voidable contract is defined as an agreement enforceable at the option of one of the parties. This contract is valid only at one of the parties but not at the other party’s option.
The voidable contract gets defined under section 2(i) of the Indian Contract Act 1872.
It is a type of contract that can be void if the party whose option the contract is enforceable refuses to perform the terms.
For Ex:- A threatens to Kill B if B doesn’t sell his house to C. It is a voidable contract, and B can refuse to perform the terms of this contract, and the contract will be declared void.
Based On Duration
- Full-time And Part-time Contracts:- It is a type of contract primarily used to enter in the course of employment.
A full-time contract usually includes total working hours scheduled of the particular company or assigned by the employer while,
A part-time contract generally covers a part-time work schedule of the total work time in a contract. A person entering into such a contract will work only part-time of the full work schedule.
For Ex:- A college graduate can be a full time working employee while a student currently pursuing his studies can be a part-time employee.
- Fixed-term Contracts:- A fixed-term contract is a type of contract made for a certain period in which the particular work assigned to another party must get completed.
The time fixed for accomplishing the task must be reasonable.
Example- A person enters into a contract with a builder to finish constructing a house on his land within six months.
- Agency Staff Contracts:- It is a contract made by the agencies that hire staff or employees temporarily.
It is mostly a contract for service that can be provided to staff to provide services on the company’s instruction to larger or smaller corporations.
In return for the services of the staff, the agency gets paid the remuneration against their services which ultimately pays staff their salary.
Example- Security agencies, household care agencies, babysitting agencies, etc.
- Zero Hour Contracts:- It is a type of contract which deals with workers for professional services, and these workers are free to work for different kinds of workers.
They are under the control of some corporation or company or independent of their work.
The workers entering these contracts work based on works assigned to them, unlike full-time or part-time employees.
The workers get paid according to work and effort and don’t have a fixed salary.
They are also called freelancers and are often associated with some companies that act as agents to provide them with work.
For example, companies like Urban company enter into contracts with workers to assign them to work at zero hours.
Conclusion
There are many types of contracts, but their use depends on the terms of the contract and the purpose for which it gets formed. Any form of the contract made should be per the Indian contract act brought by Britishers in India and based on the English common law system.
People should be aware that they should not enter into a contract with an illegal objective and is void-ab-initio because one cannot claim or enforce such a contract in case of a loss suffered.
FAQs
Under which section of the Indian contract act, 1872 conditions for contract voidability get laid down?
The circumstances for contract voidability get laid down in section 19 of the act of 1872.
What will be the status of the agreement if both the parties are under the mistake of fact?
The agreements formed under a mistake of fact will be void as per section 20 of the act.
An agreement without consideration is valid under which condition?
An agreement without consideration is valid if such agreement is formed with a purpose to compensate for something or to pay a debt barred by limitation law.
Where are the types of void agreements prescribed under the act of 1872?
Sections 24 to 30 under the Indian Contract act 1872 prescribed the types of void agreements.
