Unitedworld School of law

“LAW OF CONTRACT”
PROJECT ON

“CLASSIFICATION OF CONTRACTS”

For Internal Evaluation Submitted to

Prof. Nishtha Agrawal

Prepared by-
Prerna Bhansali
ROLL No. –
1007AL0058
 TABLE OF CONTENTS

1. What is Contract?
2. Classification of Contracts
3. Mind map of Classified contracts
4. Which law governs?
5. Elements of Contracts
6. Bibliography
WHAT IS CONTRACT?

A contract is a legally enforceable agreement between two parties that specifies what each
party can and cannot do. The contract is legally binding and protects both parties in the event
of a potential commercial arrangement. A contract's objective is to:

 Establish the parties' agreement.

 Establish the rights and responsibilities of both parties in accordance with the
contract.

Unless there are grounds to prevent enforcement, the courts must enforce a lawful contract as
written. Where the general public is involved, statutes prescribe and restrict the terms of a
contract. The conditions of a common carrier's insurance contract are regulated by law in
order to protect the public by ensuring that financial resources will be accessible in the case
of an accident.

The courts have no authority to make a contract on behalf of the parties. There is no contract
when the parties do not expressly or implicitly agree on the key terms of the contract. Courts
have only the power to enforce contracts for the parties, not to write them. A contract must be
legitimate in order to be enforced. The court's role is to enforce agreements that already exist,
not to create them via the imposition of terms that the court deems appropriate.

The law encourages the establishment of contracts between competent parties in order to
achieve legal goals. Contracts made by competent people in an equitable manner are
generally legitimate and enforceable. Parties to a contract are obliged by the conditions to
which they have committed, even if the deal appears to be imprudent or a terrible bargain, as
long as the contract was not formed under coercion, fraud, or undue influence.

A contract's binding force is founded on the fact that it demonstrates a meeting of minds
between two parties in good faith. A contract does not include a right for a party to reject it
once it has been made. Contracts entered into between persons having the capacity to contract
are legally enforceable commitments that cannot be terminated owing to the whims of one
party or the other, unless a statute stipulates otherwise.
CLASSIFICATION OF CONTRACTS

Contract may be classified on the basis of their:

(a) Validity,

(b) Formation, or

(c) Performance.

CONTRACTS BASED ON VALIDITY OR LEGAL EFFECTS –

Contracts that are based on legal implications fall in this category of contracts.
1. Valid Contract: A valid contract is one that satisfies all of the key requirements of a
contract and is enforceable in court. For a contract to be enforceable, it has to meet the
requirements of section 10 of the Indian Contracts Acts 1872, which are:
a) A lawful offer and acceptance must exist to form a valid contract. In Section
2(a), the definition of an offer is specified. Section 2(b) states that after an
offer is accepted, it becomes a promise.

b) There is a lawful consideration to it, which is defined in Section 2(d).

Consideration is something to be given in return to the promisor and is the
foundation of every contract. Without consideration, the contract doesn’t exist.
The consideration should not be immoral, unlawful, or against public policy.

c) The signing parties must be competent, which is defined as:

i. They must be a major, i.e., 18 years or above.
ii. They must possess a sound mind.
iii. They are not disqualified by law.

d) Parties have free consent as defined in the Section 14 of the act.

Example - X offers to marry y. y accepts X offer. This is a valid contract.

2. Void Contract: Under section 2(j) of the I.CA, 1872, the phrase "void contract" is
defined. When a contract that was formerly enforceable by law is no longer
enforceable, it becomes void. To put it another way, a void contract is one that was
legitimate when it was signed but became void later owing to inability of execution, a
change in the law, or some other reason.

Example - X proposes to marry Y, and Y accepts. When Y dies, the contract that was
valid at the time of its inception becomes null and void.

3. Voidable Contract: A voidable contract is one that is enforceable by law at the option
of one or more of the parties thereupon but not at the option of the other or other,
according to section 2(i) of the Indian Contract Act, 1872. In other terms, a voidable
contract is one that the offended party can choose to put aside or avoid. Until the
offended party sets aside the contract, it remains in effect. For example, a contract is
voidable at the discretion of the party whose permission was obtained through duress,
fraud, or misinterpretation.

Example - X threatens to kill Y, if the does not sell his house for Rs. 1 lakh to X. Y
sells his house to X and receives payment. Here, Y consent has been obtained by
coercion and hence this contract is void able at the option of Y the aggrieved party. If
Y decides to avoid the contract, he will have to return Rs. 1 lakh which he had
received from X. If Y does not exercise his option to repudiate the contract within a
 reasonable time and in the meantime, Z purchases that house from X for 1 lakh in
good faith. Y cannot repudiate the contract.

4. Illegal Agreement: An Illegal agreement is one whose subject is illegal. A legal

arrangement like this cannot be enforced. As a result, illegitimate agreements are
always null and void from the start (i.e., void from the very beginning)

Example - X offers to pay Y Rs. 1 lakh in exchange for Z's death. Y kills and sues for
one lakh rupees. Because the agreement between X and Y is illegal, as is its goal, Y
cannot recover from X.

5. Unenforceable Agreement: An unenforceable contract is one that cannot be enforced

in a court of law due to a technical flaw such as a lack of writing or a remedy that has
expired due to the passage of time. The contract may be carried out by the parties
involved, but the aggrieved party will not be entitled to legal remedies if the contract
is breached or repudiated.

Example – Let’s say that there is a contract where parties, negotiate to sell paper clips
for 10 Rs. But due to printing mistake, the contract says 100 Rs. In this case, the
contract would be declared unenforceable and would need to change to confirm to the
original intent of both the parties.

CONTRACTS BASED ON FORMATION OR MODE OF CREATION

When a contract is created, various aspects are taken into consideration, like whether it is a
written contract or not, etc.

1. Express Contract: If the terms of a contract are specifically agreed upon by the parties
(either by words said or written) at the moment of contract formation, it is said to be
an express contract. The effect of an express promise is an express contract. When the
offer or acceptance of a promise is expressed in words, it is considered to be an
express promise.

Example - X says to Y, will you buy a car for Rs. 100000? Y says to X, I am ready to
buy your car for Rs. 100000. It is an express contract made rally.

2. Implied Contract: An implied contract is one which is made otherwise than by

words are spoken or written. It is inferred from the conduct of a person or the
circumstance of the particular case. The condition of an implied contract is to be
understood form the acts, the contract of the parties or the course of dealing between
them.
 Example: X, a coolie in uniform picks up the bag of Y to carry it from railway
platform to the passenger without being used by Y to do so and Y allow it. In this
case, there is an implied offer by the coolie and an implied acceptance by the
passenger. Now, there is an implied contract between the coolie and the passenger is
bound to pay for the services of the coolie.

3. Quasi or constructive contract: It is a contract in which neither party intends to make a

contract, but the law forces them to do so. In such a contract, rights and obligations
arise by operation of law rather than any agreement between the parties. The contract
Act specifies the various situations which come within what is called Quasi contract.

Example - If some books are sent to the wrong address, the recipient must either pay
for them or return them.

4. Tacit Contract: Tacit contracts are contracts that are inferred from the conduct of the
parties as opposed to written or verbal agreements embodying coinciding expressions
of intention. Positive law reveals that the basis of, and especially the test for inferring
such contracts, are a source of contention. Generally, over the years the courts have
fluctuated between subjective and objective approaches to contractual liability and
this dichotomy is evident on the level of tacit contracts as well. 

Example - Obtaining cash through automatic teller machine, sale by fall of hammer of
an auction sale.

CONTRACT BASED ON PERFORMANCE OR EXECUTION

The Signing Parties perform their duties based on the contractual agreement, and contract
execution is the process that defines it.

1. Unilateral Contract: One-sided contract is another name for it. In a unilateral contract,
only one party must fulfil his or her responsibility at the time of the contract's
creation, with the other party fulfilling his or her obligation at the time of the
contract's formation or before the contract's formation.

Example – A rides the public bus to Mount Road. As soon as A was dropped at
Mount Road, a contract was formed. By that time, the auto-man has completed his
task; all that remains is for A to complete his task, which is to pay the auto-man.

2. Bilateral Contract: A contract is considered to be bilateral if the responsibilities of

both parties to the contract are pending at the time of the contract's establishment. A
promise on one side is traded for a promise on the other in this form of contract.
 Example - A offers to sew a shirt while 0 agrees to pay Rs.30. Here, A agrees to sew
the blouse and 0 agrees to pay. As a result, each party is a promisor as well as a
promisee.

3. Executed Contract: A contract is said to be executed contract when both the parties to
contract have performed their share of obligation.

Example - A agrees to paint a picture for B for $100. When A paints the picture and B
pays the price. i.e., when both the parties perform their obligations, the contract is said
to be performed.

But there are some cases in which even though a contract may appear to be completed
at once, its effects may still continue.  

Example - when a person buys a bun for a penny and subsequently breaks his teeth on
a stone in it, he has a right to recover damages from the seller. 

4. Executory Contract: An executory contract is one, which is either wholly

unperformed, or something remains in there to be done by both the parties to contract.
Sometimes, a contract may be partly executed and partly executory.

Example:  A agrees to paint a picture for B for $100. in this example A has not
painted the picture and B has not paid the price.

WHICH LAW GOVERNS

Although there is a common body of contract law, several components of it, such as
construction (the process of determining the right interpretation of ambiguous clauses), differ
between countries. When deciding which law to apply to a contract, courts evaluate the
parties' intentions, the place where the contract was entered into, and the place where the
contract was performed. Many courts use the current idea of "contract grouping" or "centre of
gravity," which states that the law of the jurisdiction with the closest or most substantial
relationship to the subject matter applies.

Courts generally follow the law that the parties openly or implicitly want to apply to the
contract, as long as it has a reasonable relationship to the transaction and the parties acted in
good faith. Unless the parties' intent is to the contrary, certain jurisdictions use the law of the
place where the contract was performed. Contracts may be recognised and enforced under the
doctrine of comity where foreign law controls (i.e., the acknowledgment that one nation gives
within its territory to the legislative, executive, or judicial acts of another nation).
ELEMENTS OF A CONTRACT
The requisites for formation of a legal contract are an offer, an acceptance, competent parties 
who have the legal capacity to contract, lawful subject matter, mutuality of agreement, consid
eration, mutuality of obligation, and, if required under the Statute of Frauds, a writing.
1. Offer: An offer is a promise that is conditional on the execution of an act,
forbearance, or return pledge in exchange for the promise or its fulfilment.
2. Preliminary negotiations, advertisements, invitations to bid:
Preliminary negotiations are clearly distinguished from offers because they contain no
demonstration of present intent to form contractual relations.
3. Mistake in sending offer: Most courts rule that the party that chose that mode of
communication is obliged by the terms of the erroneous message if an intermediary,
such as a telegraph company, makes an error in transmitting an offer.
4. Termination of an offer: An offer remains open until the stipulated time period has
expired, or until a reasonable amount of time has passed if there is no time restriction.
A reasonable time is defined as the amount of time that a reasonable person would
consider adequate to accept an offer.
5. Irrevocable offers: An option is a right purchased by a person in order for an offer to
remain available for a certain period of time at an agreed-upon price and terms, during
which it is irrevocable.
6. Rejection of an offer: An offer is rejected when the offeror has reason to believe,
based on the offeree's words or actions, that he or she does not intend to accept the
offer or to consider it further.
7. Acceptance: When you accept an offer, you're saying you agree with its terms. It
must be made by the offeree in a manner that the offeror has requested or permitted.
8. Unsolicited goods: Under Common Law, the recipient of unsolicited goods in the
mail was not obligated to accept or return them, but if the products were used, a
contract was formed, along with the obligation to pay for them were created.
9. Agreements to agree: An "agreement to agree" is not the same as a contract. This
form of contract is commonly used in sectors that require long-term contracts to
secure a consistent supply of suppliers and a production outlet.
10. Competent Parties: Unless he or she is a new-born, insane, or inebriated, a natural
person who agrees to a transaction has complete legal capacity to become liable for
duties under the contract.
11. Infants: A person under the age of 18 or 21, depending on the jurisdiction, is
considered an infant. An infant's contract is voidable, but it is valid and binding until
he or she disaffirms it.
 12. Mental incapacity: When a party does not understand the nature and consequences
of a contract when it is formed, it is considered mental incapacity.
13.  Intoxicated persons: A contract made by someone who is inebriated is voidable.
When a person is inebriated when they enter into a contract with another and then
becomes sober and pledges to complete the contract or fails to disaffirm it within a
reasonable period after getting sober, that person has ratified his or her voidable
contract and is legally bound to perform.
14. Subject Matter: Any undertaking that is not prohibited by law may be the subject of
a contract. Courts will not enforce a contract signed in restriction of trade because it
imposes an illegal and unjustified burden on business by impeding competition.
15. Mutual Agreement: For a contract to be made, the parties must come to an
agreement, often known as mutual assent. In order for a contract to exist, the parties
must share a common intention or a common understanding of the contract's terms, as
well as subscribe to the same deal.
16. Consideration: A legal loss endured by the promisee and sought by the promisor in
exchange for his or her promise is known as consideration. A legal contract
necessitates some form of exchange of value.
As a general rule, in a bilateral contract, one promise is valid consideration for the oth
er. In a unilateral contract, the agreed performance by the offeree furnishes the necess
ary consideration and also operates as an acceptance of the offer.
17. Mutuality of Obligation: Promises that form part of a bilateral contract's
consideration must be mutually binding. Mutuality of obligation is the term for this
concept. It is an illusory promise, and there is no enforceable contract, if one party's
pledge does not truly bind him or her to some performance or forbearance.
18. Statute of Frauds: The English Parliament created the statute of frauds in 1677, and
it has since been the law in both England and the United States in various iterations.
Certain sorts of contracts must be in writing, according to the law. The provision that
no suit or action shall be maintained on a contract unless there is a note or
memorandum of its subject matter, terms and conditions, and the identity of the
parties, signed by the party to be charged or obligated under it or an authorised agent,
is the main feature of various state laws modelled after the original statute.

BIBLIOGRAPHY
 Collins, Hugh. 1999. Regulating Contracts. New York: Oxford Univ. Press.

 DiMatteo, Larry A. 1998. Contract Theory: The Evolution of Contractual Intent. East 
Lansing: Michigan State Univ. Press.

 Hare, J. I. Clark. 2003. The Law of Contracts. Clark, N.J.: Lawbook Exchange.

 Marsh, P.D.V. 2001. Contract Negotiation Handbook. Burlington, Vt: Gower.