Alliance University

CLASSIFICATION OF CONTACTS

Submitted By:-
Shalini Kumari
2021BBLH07ASL052

Submitted To:-
Prof. Prakash Kanive

Alliance School of Law

Bangalore
Date of submission:- April 19, 2022
 DECLARATION

I declare that the seminar paper entitled 'CLASSIFICATION OF CONTRACTS' has been
prepared by me and it is the original work carried out by me for the fulfillment of the
requirements of B.B.A.,L.L.B(Hons) degree programme of School of Law, Alliance University.
We tried to collect whole resources from different books and mostly from the internet and e
resources such as pdfs and ebooks. No part of this seminar paper has already formed the basis for
any examination/evaluation requirement of any degree.

Name Of The Student:- Shalini Kumari

Registration no.- 2021BBLH07ASL052

Batch: 2021-2026

School Of Law

Alliance University, Bangalore

Date: April 19,2022

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 ABSTRACT

This given research work deals with the classification of contracts. It consists of Sections of
Indian Contact Act, 1872, regarding the types of contracts on three basis. It talks about the
interpretation clause and the kinds of contracts along with examples. We will come to know
about each kind in detail thereafter.

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 TABLE OF CONTENT

Title Page no.

Declaration 01
Abstract 02
Table of content 03
Chapter 1 04
Chapter 2 07

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 CHAPTER I

INTRODUCTION

1.1. What is contract?

A contract is a legally binding agreement between two or more parties who agree to buy or sell
goods and services from one another. There are many different types of contracts. The three most
common contract types include:

● Fixed-price contracts
● Cost-plus contracts
● Time and materials contracts

The Indian contract Act 1872, says that there must be an agreement, the agreement should be
enforceable by law’. The conditions that an agreement has to fulfil before it can be called a
contract and enforced by law are as follows:

● The agreement should be with free consent;

● Of parties competent to contract
● For a lawful consideration ;
● With a lawful object;
● And should not be declared to be void by the Indian Contract Act;

Another thing that is looked at is whether a third party looking at the agreement would think that
the parties intended to create a legally binding agreement or not i.e., if there is an intention to
create legal obligation

The term “contract” is defined in section 2(h) of the Indian contract Act, 1872 as follows: An
agreement enforceable by law is a contract.”

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Thus for the formation of a contract there must be – (1) an agreement , and (2) the agreement
should be enforceable by law.

1.2. Extent and commencement

It extends to ( the whole of India) ( except the state of Jammu and Kashmir) : and it shall come
into force on first day of September 1872.

Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby
expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not
inconsistent with the provision of this act.

1.3. Interpretation clause

In this act the following words and expressions are used in the following senses, unless a
contrary intention appears from the context:-

(a) When one person signifies to another his willingness to do or to abstain from doing
anything , with a view to obtaining the assent of that other to such act or abstinence, he is
said to make a proposal:

When the person to whom the proposal is made signifies his assent thereto, the proposal is
said to be accepted. A proposal, when accepted, becomes a promise:

(b) The person making the proposal is called the “promisor” and the person accepting the
proposal is called the “promise”
(c) When, at the desire of the promisor , the promise or any other person has done or
abstained from doing or does or abstain from doing, or promises to do or to abstain from
doing o something , such act or abstinence or promise is called a consideration for the
promise.
(d) Every promise and every set of promises, forming the consideration for each other, is an
agreement.
(e) Promises which form the consideration or part of the consideration for each other, are
called reciprocal promises [ Notes under consideration]

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(f) An agreement not enforceable by law is said to be void [Notes under section 23 void
agreements]
(g) An agreement enforceable by law is a contract:
(h) An agreement which is enforceable by law at the option of one or more of the parties
thereto; but not at the option of the other or others, is a voidable contract.
(i) A contract with ceases to be enforceable by law becomes void when it ceases to be
enforceable.

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 CHAPTER II

CLASSIFICATION OF CONTRACTS

It can be broadly classified into three different categories;

1. It is based on the validity or legal effects- contracts which are based on legal
implications all are in this category
2. Second, one is based on performance or execution – the signing parties perform their
duties based on contractual agreement, and contract execution is the process that defines
it.
3. Third one is basically 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.

2.1. On the basis of validity

On the basis of validity or enforceability, we have five different types of

contracts as given below:
i. valid contract
ii. void contract
iii. voidable contract
iv. illegal contract
v. unenforceable contract

2.1.1. Valid Contract

A valid contract is an agreement, which is binding and enforceable. In a valid contract, all the
parties are legally bound to perform the contract.

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The valid contract definition says it is a contract that is enforceable by the law. For a contract to
be enforceable, it has to meet the requirements of section 10 of the Indian contracts Act 1872,
which are: 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.

The signing parties must be competent , which is defined as;

● they must be a major , i.e., 18 years or above.

● They must possess a sound mind.
● They are not disqualified by the law.
● Parties have free consent, as defined in section 14 of the act.

2.1.2. Void Contract

A void contract is one that cannot be performed or completed at all. A void contract is void from
the beginning ( ab initio) and the normal remedy , if possible is to put things back to where they
were before the contract. Contracts are void where one party lacks the capacity to perform the
contracted task, it is based on a mistake, or it is illegal. These contracts are not covered by the
law and cannot be made valid even if both parties consent.

~Section 24 to 30 Defines the Following Types of Void Contracts:

● Any agreement in which one party is restricted to enforce their legal rights is a void
contract. These legal rights arise under the contract as per the usual legal proceedings in
the ordinary tribunals.

● Any agreement where there is a limit on the time of enforcing the contract rights

● Agreements that are unlawful in parts

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 ● Agreements in Restraint of Marriage– Any agreement (apart from involving a minor),
where there is restraint in marriage, is a void agreement.

● Agreements in Restraint of Trade– Any agreement which restricts a lawful trade or

profession is considered a void contract

● .Unmeaning agreements

● Wagering or gambling agreements

Illustrations

Harsh enters into an agreement with a music label to split royalties from his new album 50/50.
However, at the time of this agreement, harsh’s been drinking at the bar for several hours and
is heavily inebriated. Due to the fact that harsh was incompetent at the time the contract was
agreed to, it is a void contract.

2.1.3. Voidable Contract

A Voidable contract has all the elements of a valid and enforceable contract but has some flaws
that could enable either party to void it. In such a contract, either of the parties has a choice of
avoiding their duties. Some of the examples where a void contract becomes voidable are:

i. Either of the parties is a minor.

ii. There is an injured party involved.

iii. The consent of one party was not free.

iv. One party was suffering from a legal disability.

v. Any of the parties was a victim of fraud at the time of execution of the contract.

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The difference between valid and voidable contracts is that a void contract is not enforceable by
law at any cost, but a voidable contract is treated as void only if a party chooses to treat it as
voidable by opposing the enforcement of the contract.

2.1.4. Illegal Contract

An agreement may be unlawful or illegal, as outlined in section 23 of the act. A contract that
breaks some rule that is criminal or is against public policy is deemed as illegal. 

One must distinguish between a void and an illegal contract. An illegal contract is one whose
consideration is forbidden by the law, while in the case of a void contract, the law only says that
the court will not enforce it in the event it is made. By this definition, all illegal contracts are
void, but not all void contracts are illegal.

2.1.5. Unenforceable Contract

These contracts are good in substance, but due to some technical flaws, they are not enforceable
by the law. The flaws could be:

i. Absence of writing

ii. No registration

iii. Absence of proper stamp

iv. Time-barred due to the law of limitation

v. Ambiguous terms of the contract

vi. One of the parties has a voidable contract.

Such contracts cannot be enforced against any of the parties involved. Let us consider an
unenforceable contract example to understand it better:

Let us say there is a contract where parties negotiate to sell paper clips for 10 Rs. But due to a
printing mistake, the contract says 100 Rs. In this case, the contract would be declared

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unenforceable and would need to change to conform to the original intent of both parties.

2.2. On the basis of performance

There are various types of contract, one such type are contacts based on their performance. The
basis for this type is whether the contract is performed or still to be performed. Accordingly, the
two types are known as executed contracts and executory contracts. Let us learn more.

2.2.1. Executed Contracts

A contract between two or more parties is said to be executed when the act or forbearance
promised in the contract has been performed by one, both or all parties. Basically, it means that
whatever the contract stipulated, has been carried out. Thus the contract has been executed.

For example, Oscar goes to the local coffee shop and buys a cup of coffee. The barista sells her
the coffee in exchange for the cash payment. So it can be said that this is an executed contract.
Both parties have done their part of what the contract stipulates.

In most executed contracts the promises are made and then immediately completed. The buying
of goods and/or services usually falls under this category. There is no confusion about the date of
execution of the contract since in most cases it is instantaneous.

2.2.2. Executory Contracts

In an executory contract, the consideration is either the promise of performance or an obligation.

In such contracts, the consideration can only be performed sometime in the future, hence the
name executory contract. Here the promises of consideration simply cannot be performed
immediately.

The best example of an executory contract is that of a lease. All the conditions of a lease cannot
be fulfilled immediately. They are performed over time. Similarly, say Alex decides to tutor
some students in Physics. They pay her Rs 25800/- at the start of the month. But here the

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contract isn’t executed since Alex has to still carry out her promise. So such a contract is an
executory contract.

2.2.3. Unilateral Contracts

As the name suggests these are one-sided contracts. It usually comes into existence when only
one party makes a promise, which is open and available to anyone who wishes to or can fulfil the
said promise. The contract will only be fulfilled once someone fulfils the promise.

An example. Oscar lost his bag pack on the metro. So he decided to announce a reward of Rs
10000/- to anyone who finds and returns his bag with all its contents. Here the is only one party
to the contract, namely Oscar. If someone finds and returns his bag he is obligated to pay the
reward. This is a unilateral contract.

2.2.4. Bilateral Contracts

By contrast, a bilateral contract is one that has two parties. It is a traditional type of contract most
commonly known and occurring. Here both parties agree to the terms of the agreement and thus
enter into a contract. Hence it is also known as a reciprocal contract

In bilateral contracts, both parties have usually agreed to a time frame to carry out the said
contract. Say for example the contract of sale of a house. The buyer pays a down payment and
agrees to pay the balance at a future date. The seller gives possession of the house to the buyer
and agrees to deliver the title against the specified sale price. This is a bilateral contract.

2.3. On the basis of Formation

2.3.1. Express Contract

If the terms of the contract are expressly agreed by the parties, either by spoken words or
in writing at the time of formation of the contract, it is called Express Contract.

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Example:- A person A sends a text from his phone to person B, proposing to sell their
bike for a cost of Rs. 10,000/-. The person B calls the first person and agrees to the terms
of the promise

2.3.2. An Implied Contract

An implied contract is one for which the proposal or the acceptance is made otherwise than in
words. Implied contracts are the result arising from the circumstances of the case and the conduct
of the parties.
Example:- If a customer enters a restaurant and orders food, for example, an implied contract is
created. The restaurant owner is obligated to serve the food, and the customer is obligated to pay
the prices listed on the menu for it.

2.3.3. A Quasi-Contract

A quasi-contract is created by law. There is no intention on either side to make a contract. The
rights and obligations arise here not by an agreement but by the operations of law.

Example:- Peter and Oliver enter a contract under which Peter agrees to deliver a basket of fruits
at Oliver’s residence and Oliver promises to pay Rs 1,500 after consuming all the fruits.
However, Peter erroneously delivers a basket of fruits at John’s residence instead of Oliver’s.

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