3 mons ago
Author: EA DigestCategory : Business law
For a country that is becoming more and more entrepreneurial, it is essential for us to understand the fundamentals of a contract. A contract is the base of any business transaction and business law details the meaning and types of contracts. Read on to know more about this topic.
What is a contract?
Before we look into the types of contracts in business law, it is essential to understand the meaning of a contract.
As per Section 2(h) of the Indian Contract Act, 1872, â€˜Contractâ€™ means an agreement enforceable by law. In simple terms, one can say that a contract is an agreement between two or more parties formed on the basis of the service to be provided or a product or commitment to an act and it is enforceable by law.
Since a contract is legally enforceable, the injured party can seek a legal remedy. A contract can be verbal or written, however, for the court of law, the written agreements are easier to deal with.
Essentials of a contract
As per Section 10 of the Indian Contract Act, 1872, following are the essentials of a contract:-
- There should be two or more parties to the contract.
- Parties should be competent to contract.
- There should be lawful consideration and lawful object.
- There should be free consent of the parties.
- The agreement must not be one, which has been expressly declared to be void.
In the case of Ranganayakamma v. Alwar Setti, the Madras High Court was examining the validity of the adoption of a boy by a widow, aged 13 years. On the death of her husband, the husbandâ€™s dead body was not allowed to be removed from her house for cremation by the relatives of the adopted boy until she adopted the boy. The High Court held that the adoption was not binding on the widow as her consent had been obtained by coercion.
Types and classification
The contracts are divided into four major categories depending on their nature and further subdivided into various categories. Let us look at them in detail:-
- Contracts on the basis of formation- Depending on how the contracts were formed, they are further subdivided as:-
- Express contract- Contracts which has expression or conversation is an express contract. When you give your consent to the agent for selling your car, it is an express contract.
- Implied contract- The contracts enforceable even without expression are implied contracts. Sitting on a tram is an example of an implied contract where you accept to pay the fare.
- Quasi-contract- Quasi contract does not have offer and acceptance and therefore no contractual relations between the partners. These contracts are created by virtue of law. Section 68 to 72 of the Indian Contract Act, 1872, deals with the situations where quasi-contract is created.
- Contracts on the basis of the nature of consideration are further subdivided as:-
- Bilateral contracts- A contract is a bilateral contract if the consideration is to be moved after the contract in both directions.
- Unilateral contracts- A unilateral contract is when the consideration moves in one direction.
- Contracts on the basis of execution are divided as:-
- Executed contract- If the contract is completed, it is an executed contract.
- Executory contract- If the contract is to be performed in future, it is an executory contract.
- Contracts on the basis of validity can be divided as:-
- Valid- These contracts are enforceable by law with essential elements such as free consent, lawful object, lawful consideration etc.
- Void- The contract which is not enforceable by law is a void contract.
- Voidable- A contract which does not have a free consent is deficient in nature and voidable.
- Illegal- A contract which has an unlawful object is an illegal contract.
- Unenforceable- A contract without properly fulfilled legal formalities is an unenforceable contract.
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