TYPES OF CONTRACTS ACCORDING TO INDIAN CONTRACT ACT, 1872

ABSTRACT

Contracts are the cornerstone of modern legal and commercial interactions, providing a framework for enforceable agreements between parties. Contracts are further classified according to their making, performance, and enforcement in Indian Contract Law which is primarily governed by the Indian Contract Act of 1872. This regards the norms that are used for understanding the concept of a contract in Indian law, and its classification amongst its major types; valid, invalid, voidable, lawful, and enforceable, or not to mention subsets such as express, implied, quasi, and contingent contracts.

The study elaborates on the characteristics of the category and the purpose and application of that category by providing the test of each kind developed through case law and statutory provisions. It focuses on the usability of practical extremes in ensuring that fairness and clarity are maintained for interpretation and implementation in commercial activities. This paper attempts to provide a better understanding of all forms of contracts in Indian contract law with a view of supporting a wider debate on how contract law develops and adapts concerning ever changing economic scenery in India.

Keywords

Contract, Express, Implied, Valid, Void, Voidable, Illegal, Unenforceable, Executed, Executory.

INTRODUCTION

This Indian Contract Act of 1872 was kept as a fundamental legal framework for India, as it is representative into a fully grand scope concerning the dense agreements by which we engage every day. It’s not just some obscure legal text but lives like a living document which changes with human relationships and trade. The borrowing of a book from a friend or the negotiations that go into sorting out a multi-million dollar business deal are all governed under this Act. The importance of such contracts is seen in everyday living. Every day, we unconsciously enter into countless contracts, whether it is to buy a newspaper, take a bus ride, or call someone to do home repairs. The intensity of these everyday interactions points out the inextricable nature of contract law in our society, as it provides the necessary legal underpinning for fairness and accountability. This Act aimed at furnishing clarity and uniformity to the chaos that earlier existed with regard to local customs and English common law. The principal features of a valid contract are offer and acceptance, free consent, lawful consideration, and legal objective. With such pointers in hand, a man or woman may find his or her way into the many contractual relationships without running into trouble. Not just to meet legal obligations, but also to understand his or her rights and duties, it is necessary to understand these principles. Moreover, the Indian Contract Act has chronologically changed with time according to the needs of society and business. It covers several forms of contracts like indemnity, guarantee, bailment, and agency; each type caters to the purposes of different situations. Further into these kinds and aspects, we would understand how they streamline transactions across these major contracts and thereby nurtures an atmosphere of trust among the parties. The Indian Contract Act, 1872 is more than a mere framework of law; it is essentially a breathing space for the relationship between the people and is a need-driven guideline regarding the economic activities through which society progresses. It suffices to know the provisions so that one can appreciate the delicate choreography of agreements that characterizes most of the existence and the broader repercussions they hold for social relations and commercial interactions with other parties.

CLASSIFICATION OF CONTRACT

Based on Creation
Based on Execution
Based on Enforceability

Based On Creation

A contract can be classified in several ways and in that connection, first, it may be a contract made in writing or word of mouth or it may be a contract which is inferred from the conduct of the parties or the circumstances of the case. The first category of contract is termed an ‘express contract and the second as an implied contract.

Express contract – An express contract is an agreement in which the terms are manifested in spoken or written words or both. For example, Z wrote to B saying “I am offering to you a plot (a piece of land) that belongs to him worth Rs. 30,00,000,” this is an express agreement, and for this, B replies to the letter addressed to Z accepting the offer. Considering the same example of selling the car where A writes to B offering her vehicle for sale seeks to clarify the offer and as such. A goes to a scooter mechanic who has drummed up her scooter and explains what needs to be done, such exchanges are therefore verbal contracts.
Implied Contract: An implied contract as the situation may warrant – is also made by the performance of the parties. Implied agreements may be inferred from a consistent pattern of behavior of the parties over time. The law suggests that A has accepted to pay for the coolie’s services when, for instance, a coolie in uniform carries A’s bags out of a train station without A’s request and A consents. In this instance, A and the coolie have an implicit contract. Likewise, an implicit contract is formed when you get on a bus or metro train. You must pay the fare that is displayed.

Yet another significant category of implied contracts recognized by the Indian Contract Act is quasi-contracts, which are explained under Sections 68 to 72[1]. In contrast to ordinary contracts, where rights and liabilities result from mutual agreements, rights and liabilities under quasi-contracts arise through the operation of law. This means that in the absence of a formal agreement, the law recognizes certain relationships that create rights and liabilities. In essence, quasi-contracts provide justice and fairness in a system where one party gains benefit at the expense of the other, thereby giving responsibility and obligation to the general public.

For in, merchant Z unintentionally left some items at B’s residence. B ate the items as if they were his own. In this case, even if B did not request the products, he is nonetheless obligated to pay for them.

Chappel v. Cooper, (1844) 13 M&W 252[2]: the court defined “necessaries” as those items essential to living that a person could not reasonably abstain from. Necessities therefore include things like food, clothing, and shelter. In short, they represent the essential goods and services that provide for our lives and welfare.

Based On Execution

Contracts are categorized as either executory or executed, depending on how well they are executed.

Executed Contracts: A contract is considered executed when both parties have fulfilled their obligations under it. To sell his book to B for fifty rupees, for instance, A gives it to B, who then pays fifty rupees. The deal has been executed.
Executory Contracts: A contract between the parties has not been performed yet. For example, A wants to sell a book to B for 50 rs. But, A has yet to deliver the book and B has not paid the price. The contract is executory.

At times a contract could be partially performed and partially executory whereby only one party has performed their obligation, the other party does not. For instance, in the above example, if B has not paid for the book yet A has given it to B, then the contract is said to be partially executed by B and completed by A.

Counting upon the performance or the execution aspects, a contract may be categorized as a unilateral contract or bilateral contract. In respect of a unilateral contract, there is only a single party who has to execute a certain part of the performance while the other party has performed his obligation at the point of the agreement.

Based On Enforceability

A contract can come from a negotiation, these are valid (the law is included), illegal, unenforceable, and other factors accepted in the agreement: All these can be respectively determined and classified quite often in any courses or lessons, that is why it always is a super point to understand the fundamental meanings of respective terms’ definitions.

Valid Contract: In case all the criteria specified and generated in accordance with the constitutional rules are conducted and dealt with appropriately then a contract is said to have come into existence and also considered to all the managing and legal contracts. What may be viewed here is contracts can be turned seed, burnt, or undone.
Void Contract: In succeeding cases, all along with the proceedings of law must be banned, activities must have completely diminished or ceased for some time, and a duration dissolution and termination has occurred then a contract can and thus be considered void lawfully. The definition here is indeed believable. The logical approach makes sense when the final sentence of the statement is read first because both buy and transfer must work that way. Section 2(g) of the Indian Contract act 1872 says that an agreement not enforceable by law is said to be void. In the world of contracts, a void agreement means that no contract has ever been. Such an agreement confers no rights or obligations to anyone involved because it is deemed void from the very beginning this is what we mean by “void ab initio.” For example, if someone agrees with a minor, that agreement is void because minors lack the legal capacity to contract.

It must be understood that a void agreement is different from a void contract. A void agreement is incapable of coming into existence or taking effect and never develops into a valid contract. In contrast, a void contract starts as a valid agreement but later on becomes incapable of being enforced due to certain circumstances. Though an agreement can be void ab initio, a contract cannot; only agreements can be considered void from the very beginning. This difference distinguishes the intricacies of contractual relationships and underlines the significance of legal capacity in the formation of valid agreements.

The case of Mohori Bibee v. Dharmodas Ghose in 1903[3] marked the most critical moment in the history of Indian contract law. It held that all contracts entered into with minors are declared void from the very inception, or “ab initio.” It clarified that persons under the age of 18 years are said to lack legal capacity, and all such contracts are invalid and unenforceable from the start. This decision reflects the need for the protection of minors in legal matters and not letting them sign agreements they might not comprehend.

Voidable Contract: According to Section 2(i) of the Contract Act, A voidable contract is an agreement that can be enforced by law through one or two parties, but not at the discretion of others. So, to surmise how a voidable contract can be defined in simple terms, it is a contract that can be canceled or negated by one party who has the right to do so. Until it is set aside or avoided by an appropriate person, a contract holds until such time. Condonation in contracts is a key issue often addressed in cases involving undue duress, force, and suchlike, making it a cause of action if not attended to. The terms of the contract are considered voidable at the request of the party who was under undue duress or pressure. For example, A abuses B so that he would sell his brand new scooter for Rs 5,000. B sells his scooter to A. B was forced to consent to this. This means that the treaty can be annulled at B’s discretion.

But if, on the other hand, B fails to give notice of his intention to set aside the contract within a reasonable time and in the meantime while a third party acquires a right about the subject matter for some consideration, the contract cannot be avoided. As an example, let A be who got a ring through fraud. In this case, B entered into this contract not freely and therefore he is entitled to cancel this contract.

In American law, however, if, before this option, B has this option, A sells the ring to C who buys it for value, and in good faith, such a contract cannot be set aside. It is important to note that there is no such option for the other party of the contract. Hence, if the aggrieved party chooses to regain the contract, it remains enforceable by law. If however, the aggrieved party avoids the contract, the other party is also freed from his obligation to perform the contract and if the party avoiding the contract has received any benefit under the contract, he must restore such benefit to the person from whom it was received (Section 64)[4].

Illegal or unlawful contract:

Since a contract is a legally binding agreement, it cannot be unlawful. Only the arrangement itself qualifies as unlawful or illegal. Therefore, “illegal agreement” is a better phrase to employ instead of “illegal contract.”

An “illegal agreement” refers to an arrangement that is declared illegal by the Indian Contract Act or violates any other law of the country. Such agreements are not just discouraged; they are considered void and cannot be enforced because they contravene the norms of the law. Essentially, if an agreement deals with acts prohibited by law, it cannot be treated as valid in any court of law. This underlines the need for our agreements to be lawful so that there is always fairness and order in society. Such an agreement cannot be enforced by law. For example, consider a case where A agrees to pay B ₹1,00,000 in return for hacking into C’s computer system and extracting some confidential information. After B hacks into C’s system and obtains the confidential information, A declines to pay. The contract is illegal since it consists of an act that would constitute a criminal offense-hacking. Consequently, B cannot claim any relief under this contract as the courts do not condone illegal activities.

The term ‘illegal agreement’ is wider than the term ‘void agreement’.

Not every invalid agreement is unlawful, but every unlawful agreement is void. For example, selling a bike to a juvenile is prohibited since the minor is not allowed to join into contracts, but it is still legal because the agreement’s goal is legitimate. Their effect on collateral transactions is a crucial distinction between invalid and unlawful agreements. Even the transactions or agreements that are associated with an unlawful arrangement are null and void. Suppose, for instance, that Rahul pledges to pay Suresh ₹20,000 in exchange for his damaging Ramesh’s automobile. Rahul borrows 10,000 naira from Priya, who is aware of the loan’s purpose, to carry out this commitment. In this case, Rahul and Suresh’s original agreement is unlawful, therefore the borrowing arrangement between The collateral, Rahul and Priya, is likewise null and invalid. Priya is unable to get Rahul to return the money. However, this is not the case if Rahul takes out a ₹10,000 loan from Priya to settle a friendly bet with Suresh. Although the wager is invalid (not against the law), Rahul and Priya’s loan arrangement is still in effect even if Priya was aware of the reason for the loan.

In conclusion, whereas collateral transactions associated with void agreements are likewise void, those associated with void agreements are unaffected and continue to be enforceable.

An unenforceable contract

It is legally binding but cannot be enforced due to a technological flaw. This might be because the agreement was not registered, the required stamp fee was not paid, etc. The law occasionally mandates that a certain agreement be in writing. Such an agreement loses its enforceability if it is not documented. For instance, because the law mandates that an arbitration agreement be in writing, an oral agreement is invalid. It is crucial to remember that, if the technological flaw is fixed, these contracts may often be enforced. For instance, if a contract is under-stamped, it will become enforceable after the necessary stamp is applied.

KEY DIFFERENCES

The Distinction between a Void Agreement and a Voidable Contract

Void Agreement	Voidable Contract
1) It is null and void from the start.	1) It is enforceable until the party who was wronged repudiates it.
2) If any necessary component of a legitimate contract—aside from free consent—is absent, the agreement is null and invalid.	2) If a party’s consent is not free, the contract is voidable.
3) Neither party can enforce it.	3) If the person that was wronged chose
	to do so, the contract may still be enforceable.
4) No rights are acquired by the third party.	4) Good title is obtained by an innocent person in good faith and for compensation before the contract being avoided.
5) A contract that expires before its expiration date is nonetheless invalid.	5) It could become legitimate if it is not averted in a fair amount of time.
6) There is no issue with damages.	6) Damages may also be sought by the harmed party.

The Difference between a Void Agreement and an Illegal Agreement

Void Agreement	Illegal Agreement
1) Not all null and invalid contracts are unlawful.	1) All unlawful contracts are null and void.
2) Transactions involving collateral to an invalid agreement are unaffected, meaning they remain void.	2) Transactions involving collateral to unlawful agreements are also impacted, meaning they are nullified.
3) The benefit must be returned to the opposite party if a contract later turns out to be invalid.	3) There is no way to get the money or item back.

CONCLUSION

There are a variety of contractual relationships, differentiating express contracts from implied contracts, which occur when we order a meal at a restaurant with an expectation that the services will be performed. We have also examined void and voidable contracts, which arise when some agreements are void and therefore inherently unenforceable while others are voidable, and rescindable under specific circumstances. Yet, the Indian Contract Act is not a prescription of legal stipulations; it is in itself the embodiment of humanity. It is a testimony of the innate ability of human nature to cooperate and of the absolute necessity of certainty in relations. This Act is the structured approach to disputing, where promises will be kept and obligations followed as a matter of the core principles that sustain and promote trust in our interactions. As we look ahead, we need to accept the fact that our world is in constant change. Fast-paced changes in technology, the dynamics of the global markets, and the change in social norms are continuously modifying the contours of contractual relationships. It is a challenge for us to ensure that the Indian Contract Act continues to remain relevant and responsive to the changes. This calls for an ongoing dialogue among lawmakers, legal practitioners, and society at large to address the emerging needs and complexities of modern life.

Ultimately, the Indian Contract Act transcends its role as a legal document; it is a human document—a reflection of our aspirations, values, and our shared quest for justice and equity. It reminds us that at its heart, law is not rules but people, their stories, and relationships. As we go into the future, we should continue to carry this forward with ourselves, ensuring that our legal framework evolves with us as we strive for a more equitable society.

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3. Shiksha, Types of Contract in Business Law: Meaning and Examples, https://www.shiksha.com/online-courses/articles/types-of-contract-in-business-law-meaning-and-examples (last visited December 28, 2024).

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[1] Indian Contract Act, 1872, Section 68-72, no.9, Acts of Parliament (India)

[2] Chappel v. Cooper, (1844) 13 M&W 252

[3] Mohori Bibee and Ors. vs. Dharmodas Ghose is: MANU/PR/0049/1903, 7CWN441, (1903)L.R. 30 I.A. 114, and 30M.I.A.114.

[4] Indian Contract Act 1872, Section 64, Act no. 9, Acts of Parliament (India)

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