Kinds of Contracts

BBA 201 Business Law 6/18/2018 1

 Classification of Contracts
 a). On the basis of enforceability
 b). Classification based on formation
 c). Classification based on performance
 d). Classification based on nature of consideration/
obligation

BBA 201 Business Law 6/18/2018 2

a). On the basis of Enforceability
 Valid Contract
 Void Contract
 Voidable Contract
 Illegal Contract
 Unenforceable Contract
BBA 201 Business Law 6/18/2018 3
 A contract is enforceable at law.

 The Contracts which are enforceable in a court of law are

called Valid Contracts.

 To attain Validity the Contract should have certain features

like Certainty, free consent, two directional consideration,
fulfilment of legal formalities, lawful object e.t.c.

 An agreement is a valid contract if it fulfils all the essential

requirements provided/ given under Section 10.

BBA 201 Business Law 6/18/2018 4

 Void contract-ceases to be enforceable by law

 A Contract which is not enforceable in a court of law is called

Void Contract. If a Contract is deficient in any one or more of
the above features.

 Example: 1. there is a Contract between X and Y where Y is a

minor who has no capacity to contract. It is Void Contract.

 2. Contract to import goods from a foreign country may

subsequently become void when war breaks out between the
two countries.

BBA 201 Business Law 6/18/2018 5

 Voidable contract-free consent missing

 A Contract which is deficient in only free consent, is called Voidable

Contract.
 That means it is a Contract which is made under certain pressure either
physical or mental.

 Example- 1. There is a Contract between A and B where B has forcibly

made A involved in the Contract. It is voidable at the option of A.
 2. A promises to sell his car to B for Rs. 2,000.But his consent is obtained
by use of force. The contract is voidable at the option of A. He may avoid
the contract or may choose to bound by it

BBA 201 Business Law 6/18/2018 6

 Illegal contract-criminal or immoral in nature

 If the contract has unlawful object it is called Illegal Contract

 Example: 1. There is a contract between X and Z according to

which Z has to murder Y for a consideration of Rs. 10000/-
from X. It is illegal contract.

 2. B borrows Rs. 5,000 from A and enters into a contract with

A to import prohibited goods. A knows the purpose of the loan
but still gives the loan. The transaction between Band A is
serving to support the main agreement.
BBA 201 Business Law 6/18/2018 7
 Cant be enforced by law because of some technical defect

 A contract which has not properly fulfilled legal formalities is

called unenforceable contract.
 suffers from some technical defect like absence of writing or
no evidence of formation, insufficient stamp etc.

 Example: A and B have drafted their agreement on Rs. 10/-

stamp where it is to be written actually on Rs. 100/- stamp. It
is unenforceable contract.

BBA 201 Business Law 6/18/2018 8

b). CLASSIFICATION BASED ON FORMATION

i. Express Contract

ii. Implied Contract

iii. Quasi-Contract

BBA 201 Business Law 6/18/2018 9

 The terms of a contract are expressly agreed upon (either by
spoken words or in writing) at the time of formation of the
agreement.

 Example –
 X say to Y “Will u buy my car for Rs. 10 Lakh?” Y says to X ,
“I’m ready to buy your car for Rs. 10 Lakh”. It is express
contract made orally.

 A has offered to sell his house for Rs. 1 Cr. and B has given
acceptance. The terms of the agreement are written in a
document signed by both of them
BBA 201 Business Law 6/18/2018 10
 Where the offer and acceptance are made not by use of words
but by acts or conduct of the parties.

 The Contracts where there is no expression are called implied

contracts.

 Sitting in a Bus can be taken as example to implied contract

between passenger and owner of the bus.

BBA 201 Business Law 6/18/2018 11

 In case of Quasi Contract there will be no offer and acceptance so, Actually
there will be no Contractual relations between the partners.
Such a Contract which is created by Virtue of law is called Quasi Contract.

 Sections 68 to 72 of Contract Act read about the situations where court can
create Quasi Contract.
 Sec. 68: When necessaries are supplied
 Sec. 69: When expenses of one person are paid by another person.
 Sec. 70: When one party is benefited by the activity of another party.
 Sec. 71: In case of finder of lost tools.
 Sec. 72: When payment is made by mistake or goods are delivered by
mistake.

e. g: A supplier leaves goods at C’s shop by mistake. C treats the goods as his
own. C is bound to pay for the goods
BBA 201 Business Law 6/18/2018 12
c). CLASSIFICATION BASED ON PERFORMANCE

i. Executed Contract

ii. Executory Contract

BBA 201 Business Law 6/18/2018 13

 Both parties have performed their respective obligations.

 If performance is completed, it is called executed contract.

 e.g.: A agrees to paint a picture for B for Rs. 1000.When A

paints the picture and B pays the price, i.e., when both the
parties have done their respective work, the contract is said to
be executed.

BBA 201 Business Law 6/18/2018 14

 Both the parties are yet to perform their obligations.

 In case where contractual obligations are to be performed in

future, it is called executory contract.

 If A has not yet painted the picture and B has not yet paid the
price, the contract is executory.

BBA 201 Business Law 6/18/2018 15

d). CLASSIFICATION BASED ON Nature of
Consideration/ Obligation

i. Unilateral Contract

ii. Bilateral Contract

BBA 201 Business Law 6/18/2018 16

 A one- sided contract in which only one party has to perform
his promise or obligation to do

 If considerations is to be moved in one direction only after the

Contract.

BBA 201 Business Law 6/18/2018 17

 Where the obligation or promise in a contract is outstanding
on the part of both the parties.

 If considerations in both directions are to be moved after the

contract, it is called Bilateral Contract.

 Example: Contract has got formed between X and Y on 1st

Jan, According to which X has to deliver goods to Y on 3rd
Jan and Y has to pay amount on 3rd Jan. It is bilateral contract.

BBA 201 Business Law 6/18/2018 18

 A contract results from a combination of agreement and
obligation. But it is not necessary that all agreements
should create an obligation between the parties to the
agreement.

BBA 201 Business Law 6/18/2018 19