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TYPES OF CONTRACTS- RAJ KRISHNA

INTRODUCTION

Contract is something which one does often in day to day life. Today’s world cannot run without
contract. Section 2(h) of Indian Contract Act 1872, defines contract as an agreement enforceable
by law. Apart from that one should remember that all contracts are agreements, but all
agreements are not contracts because all agreements are not enforceable by law.

Since contracts are made on a large scale today, nature of formation of contract has also changed.
Today contracts are of many types. Contracts can be classified into following manners:

1. Contracts on the basis of creation.

2. Contracts on the basis of validity.

3. Contracts on the basis of liability.

4. Contracts on the basis of execution.

5. Standard form of contracts.

6. Insurance contracts

RESEARCH OBJECTIVES:

The objective of the researcher is as follows:

1. The researcher tends to find the meaning and use of contract.

2. The researcher tends to find the type of contract.

3. The researcher tends to find out the types of contracts made on the basis of creation.

4. The researcher tends to find out the types of contract made on the basis of validity.
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5. The researcher tends to find the types of contract on the basis of liability.

6. The researcher tends to find out the types of contracts on the basis of execution.

7. The researcher also tends to find out about Insurance contracts and Standard form of contracts.

RESEARCH QUESTIONS:

The researcher had researched on following research questions:

Q1. What is a contract?

Q2. What are the types of contract?

Q3. What are the types of contract made on the basis of creation?

Q4. What types of contract are made on the basis of validity?

Q5. What types of contracts are made on the basis of liability?

Q6. What types of contracts are made on the basis of execution?

Q7. What is Standard form of contract?

Q8. What is an Insurance contract?

HYPOTHESIS:

The researcher has presumed that there are many types of contracts because of the large scope of
Indian Contract Act 1872 and due to the advancement of technology.

RESEARCH METHODOLOGY:

The researcher had adopted Doctrinal Method of research to complete the project.
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SOURCES OF DATA:

The researcher had relied on both primary and secondary sources of data to complete the project.

1. PRIMARY SOURCES:

It includes the acts and statutes related to contract.

2. SECONDARY SOURCES:

It includes all the books and websites concerned with the types of contracts.

MODE OF CITATION:

The researcher has followed a uniform mode of citation to complete the project.
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1. CONTRACTS: AN INTRODUCTION

Section 2(h) of the Indian Contract Act, 1872 defines contract as an agreement enforceable by
law.1 Thus for the formation of contract there must be:

1. An agreement

2. The agreement should be enforceable by law.2

Agreement is defined in Section 2(e) as “every promise and set of promises forming the
consideration for each other.” And a promise is defined as an accepted proposal. Section 2(b)
says: “A proposal, when accepted, becomes a promise.” This is another way of saying that an
agreement is an accepted proposal. The process of definitions comes down to this: A contract is
an agreement; an agreement is a promise and a promise is an accepted proposal. Thus every
agreement, in its ultimate analysis, is the result of a proposal from one side and its acceptance by
the other.3

Section 10 of Indian Contract Act 1872, explains that what all agreements are contracts.
According to Section 10 of Indian Contract Act, 1872 all agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful consideration and with a
lawful object, and are not hereby expressly declared to be void.

Nothing herein contained shall affect any law in force and not hereby expressly repealed, by
which any contract is to be made in writing or presence of witnesses, or any law relating to the
registration of documents.4

In short following things are checked before making any contract:

1. There is some consideration for it. [Section 2(d) and 25 of Indian Contract Act 1872)

1
Section 2(h) Indian Contract Act, 1872.
2
Dr. Avatar Singh, Contract and Specific Relief, Eastern Book Company (11th edition, 2013).
3
Ibid.
4
Section 10 Indian Contract Act, 1872.
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2. The parties are competent to contract. [Section 11 and 12 of Indian Contract Act 1872)

3. Their consent is free. [Section 13 to 22 of Indian Contract Act 1872]

4. Their object is lawful. [Section 23 to 30 of Indian Contract Act 1872]

CLASSIFICATION OF CONTRACTS:

Contracts can be classified into following types:

1. Contracts on the basis of creation.

2. Contracts on the basis of validity.

3. Contracts on the basis of execution.

4. Contracts on the basis of liability.

5. Insurance contracts.

6. Standard form of contracts.

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2. CONTRACTS ON THE BASIS OF CREATION

On the basis of creation there are five types of contracts which are as follows:

a. Express Contract

b. Implied Contract

c. Tacit Contract

d. Quasi Contract

e. E Contract

Section 9 of Indian Contract Act 1872 says that:

“In so far as the proposal or acceptance of any promise is made in words, the promise is said to
be express. In so far as such proposal or acceptance is made otherwise than in words, the
promise is said to be implied.”5

An offer would be an express offer when made by words of mouth or by writing. Whereas offer
made otherwise than in words, is said to be an implied offer.

a. Express Contract: An express contract may be created orally, i.e., by words spoken or
written. When one party makes the offer by words spoken or written and the other party accepts
the same accordingly, there is an express contract created.

For example: A says to B, “Will you purchase by bike for 20000$?” B says to A, “Yes”. Its an
Express Contract.

b. Implied Contract: An implied contract is created by the conduct of acts of the parties and not
by words spoken or written. For example, A boards a public bus, say a D.T.C. bus in Delhi or a
M.E.S.T. bus in Mumbai.

5
Section 9 Indian Contract Act, 1872.
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CASE: Upton Rural District Council v. Powell:6

The appellant's farm was in the Upton police district, but in the Pershore, and not the Upton, fire
district. A fire broke out on the farm, and the appellant telephoned to the police inspector at
Upton and asked for the fire brigade to be sent. The Upton fire brigade was informed, and it went
in the form at once. The appellants was entitled to the services of the Pershore fire brigade
without charge, but the Upton brigade, if it went to a fire outside its own area, was entitled to
contract for payment for its services. At the time when the brigade was summoned, all the parties
concerned were under the impression that the farm was in the Upton fire district. For the Upton
fire brigade it was contended that a contract had been created by implication, under which it was
entitled to be remunerated for its services.

It was held that the appellant must be treated as having asked for the Upton fire brigade to be
sent to his farm, and the fact that at the time the parties thought that the fire was in, its area did
not prevent there being a contractual relationship. The appellant was, therefore, liable under an
implied contract to pay for the brigade’s services.

c. Tacit Contract: A contract is said to be tacit when it has to be inferred from the conduct of
the parties. Example: Obtaining cash through an ATM is an example of Tacit Contract.

d. Quasi Contracts: Indian Contract Act has named such contracts as "Certain relations
resembling those created by contracts." Such contracts are not created expressly or impliedly by
the parties but are created by law on the equitable principle that a person shall not be allowed to
become rich at the expense of the other. For example, A, a trader, leaves certain goods by
mistake at B's house. B must either return the goods or pay the price.

e. E- Contracts: An E- Contract is a contract which is entered into between two parties via the
internet.

CASE: Chwee Kin Keong v Digilandmall.com Pte Ltd:7

6
(1942) 1 ALL ER 220.
7
[2005] 1 SLR 502: [2005] SGCA 2
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In this case, Defendant was selling IT products over internet in Singapore. The HP laser printer
was advertised on the Defendant’s website and on the website of HP for $3,854. Due to the
mistake on part of one of the employee of a related company, the price of printer was altered to
$66 on the website, which was not noticed by any of the employee. The Appellants (there were
six appellants) discovered this price and ordered more than 100 printers each. The Company on
discovering the mistake rectified it and sent an e-mail stating that it will not complete this order.

The Court held that (also considering the background of the appellants) that they had a
constructive knowledge about the mistake in the pricing of the product. Due to this mistake
related to the fundamental terms of the contract, the contract was held void under the common
law.
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3. CONTRACTS ON THE BASIS OF VALIDITY

On the basis of validity contract there are five types of contracts:

a. Valid Contract: An agreement which satisfies all the requirements prescribed by law on the
basis of creation is called a Valid Contract.

Essentials of a Valid Contract:

1. There is some consideration for it. [Section 2(d) and 25 of Indian Contract Act 1872)

2. The parties are competent to contract. [Section 11 and 12 of Indian Contract Act 1872)

3. Their consent is free. [Section 13 to 22 of Indian Contract Act 1872]

4. Their object is lawful. [Section 23 to 30 of Indian Contract Act 1872]

b. Void Agreement: According to Section 2(g) of Indian Contract Act, 1872 an agreement not
enforceable by law is said to be void.8 For instance, an agreement by a minor has been held to be
void. Sections 24 to 30 of the Indian Contract Act, 1872, make a specific mention of agreements
which are void. Those agreements include an agreement without consideration, an agreement in
restraint of marriage, and an agreement in restraint of legal proceedings, trade etc…

c. Voidable Contract: A voidable contract, unlike a void contract, is a valid contract which may
be either affirmed or rejected at the option of one of the parties. At most, one party to the
contract is bound. The unbound party may repudiate (reject) the contract, at which time the
contract becomes void.

Typical grounds for a contract being voidable include coercion, undue influence,
misrepresentation or fraud. A contract made by a minor is often voidable, but a minor can only
avoid a contract during his or her minority status and for a reasonable time after he reaches the

8
Section 2(g) Indian Contract Act, 1872.
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age of majority. After a reasonable period of time, the contract is deemed to be ratified and
cannot be avoided. Section 2(i) of Indian Contract Act, 1872 states that 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, is a voidable contract.9

d. Unenforceable Contract: The term 'Unenforceable Contract' is used for those contracts
which are perfectly valid but cannot be enforced due to certain technical defects such as under
stamping. These types of contracts cannot be placed in the category of void or illegal agreement.
Hence the new term "Unenforceable Contract" is justified. If the defect can be removed, these
contracts can be enforced. For example, if the requisite stamp is affixed, the Court may enforce
such a contract.

e. Illegal Agreements: There are certain agreements which are “illegal” in the sense that the law
forbids the very act, the doing of which is contemplated by the agreement. For example, an
agreement to commit a crime or a tort, or an agreement which tends to corrupt public life, or an
agreement to defraud public revenue is illegal. Such an agreement is patently opposed to public
policy. The law forbids making of such agreements.

9
Section 2(i) Indian Contract Act, 1872.
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4. CONTRACTS ON THE BASIS OF EXECUTION

On the basis of execution contracts can be classified into three types:

a. Executed Contract: Where a contract has been performed by both the parties, it is called an
executed contract. For example, A agrees to sell a sofa set to B. A has delivered the sofa set and
B has paid the price.

b. Executory Contract: A contract where both the parties have not yet performed their
obligation, the contract is called Executory contract. If in the above example, both have to
perform their obligations, it will be an Executory contract.

c. Partly Executed and Executory contract: Where only one of the parties to the contract has
performed its obligation, the contract is called partly Executed and Executory. For example, in
the above case if A delivered the sofa set, but B has not made the payment, it will be a partly
Executed and Executory contract.
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5. CONTRACTS ON THE BASIS OF LIABILITY

On the basis of liability contracts can be classified into two types:

a. Bilateral Contract: A contract in which both the parties commit to perform their respective
promises is called a Bilateral Contract.

For example: A offers to sell his Fiat car to B for Rs.1, 00,000 on acceptance of A’s offer by B,
there is a promise by A to sell the car and there is a promise by B to purchase the car. There are
two promises.

b. Unilateral Contract: A Unilateral Contract is a contract created by an offer than can only be
accepted by performance. A unilateral contract can be formed by an express offer stating that the
offer can only be accepted through performance. Another example of a unilateral contract is a
reward or a contest.10

CASE: Errington v Errington and Woods:11

The owner of a house had mortgaged it. The house was in the occupation of his son and
daughter-in-law. He told them that the house would become their property if they paid off the
mortgage debt in installments and they commenced payment. In these circumstances, the court
felt that it would be unjust if the promisor could revoke this promise at pleasure.

10
https://www.law.cornell.edu/wex/unilateral_contract , visited on 21st April, 2016.
11
(1952) 1 KB 290
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6. INSURANCE CONTRACTS

An insurance contract is a contract representing the agreement between an insurance company

and the insured. Central to any insurance contract is the insuring agreement, which specifies the
risks that are covered, the limits of the policy, and the term of the policy. Additionally, all
insurance contracts specify:

•Conditions, which are requirements of the insured, such as paying the premium or reporting a
loss;

•Limitations, which specify the limits of the policy, such as the maximum amount that the
insurance company will pay;

•Exclusions, which specify what is not covered by the contract.

Obviously, the contents of an insurance contract depends on the type of policy, what the
insurance applicant wants, and how much he is willing to pay. The details of insurance policies
are covered in Standard Insurance Policies. This article covers what is required of valid
insurance contracts, since only valid contracts are legally enforceable.

CASE P.Sarojam v. L.I.C. of India:12

The assured was suffering from a serious heart ailment when the proposal for the insurance of his
life was made, but also for several years prior to that. The assured gave false answers to the
questions in the proposal form so as to conceal his ailment, and induced the L.I.C. to accept the
proposal. He died of heart ailment within a few months after the date of the policy. It was held
that in view of the false answers to the questions given by the assured in the proposal form, the
contract of insurance was vitiated, and the L.I.C. was, therefore, entitled to repudiate the policy
and decline the payment of the claim there under.

It was also observed that the mere fact that the Medical Officer of the L.I.C. had certified the
assured at the time of the proposal as of good health was not of much consequence.

12
A.I.R. 1984 M.P. 126
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7. STANDARD FORM OF CONTRACTS

A standard form contract (sometimes referred to as a contract of adhesion, a leonine contract, or

a take-it-or-leave-it contract) is a contract between two parties, where the terms and conditions of
the contract are set by one of the parties, and the other party has little or no ability to negotiate
more favorable terms and is thus placed in a "take it or leave it" position. One of the main
reasons behind such types of contracts is due to the enormous increase in the volume and
complexities of trade and business.

A business concern may have to enter into a large number of contracts with its customers or
clients. When a large number of contracts have got to be entered into by a person, from a
practical point of view and for the sake of convenience, a standard form for the numerous
contracts is used.

CASE Parker v. South Eastern Railway Co: 13

The plaintiff deposited his bag at the cloakroom at a railway station and received a ticket. On the
face of the ticket it was printed: “See back”; and on the back there was a notice “the company
will not be responsible for any package exceeding the value of ₤ 10”. A notice to the same effect
was also hung up in the cloakroom. The plaintiff’s bag was lost and he claimed the full value of
his bag which was more than ₤ 10. The company relied upon the exemption clause. The plaintiff
contended that although he knew there was some writing on the ticket, he did not see what it was
as he thought that the ticket was a mere receipt of the money he paid. However it was held by the
court that the defendants had made reasonably sufficient efforts to draw the attention of the
plaintiff to the terms and, therefore, the terms were binding and the liability of the defendants
was to pay ₤ 10 only.

In standard form contracts, generally the terms of the contract are pre-drafted by one of the
parties and the other is supposed to sign on the dotted line, without having any time or
opportunity to get the terms changed. One of the parties being in a greater bargaining position
generally drafts the terms which suit him most, and at times tries to exclude or limit his liability,

13
(1877) 2 C.P.D. 416
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without caring for the interest of the other side, which is in a weaker bargaining position. In view
of the unequal bargaining power of the two parties, the courts and the legislature have evolved
certain rules to protect the interest of the weaker party.
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8. CONCLUSION AND SUGGESTION

The hypothesis of the researcher has been proved right. It is because contracts like that of E-
Contracts and Tacit Contracts were earlier not possible. It was only after the advancement of
technology that E- Contracts and Tacit Contracts have come into existence.

Apart from that there are various ways devised in Indian Contract Act, 1872 to make contracts.
There is an individual section or sub-section which explains some or the other type of contract
and the conditions required for the formation of contract.

Contracts like Insurance contracts have also evolved in the recent times which are also beneficial
to the party in common circumstances. However one should be careful while signing the deeds of
an Insurance Contract because it also pre- drafted by one of the parties just like in Standard Form
of Contract. Therefore, one should come into an Insurance contract when we are satisfied by
each and every clause and sub clause.

As stated earlier in standard form contracts, generally the terms of the contract are pre-drafted
by one of the parties and the other is supposed to sign on the dotted line, without having any time
or opportunity to get the terms changed. One of the parties being in a greater bargaining position
generally drafts the terms which suit him most, and at times tries to exclude or limit his liability,
without caring for the interest of the other side, which is in a weaker bargaining position. In view
of the unequal bargaining power of the two parties, the courts and the legislature have evolved
certain rules to protect the interest of the weaker party. This checks the bargaining power of the
other party.
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BIBLIOGRAPHY

The researcher had consulted following sources to complete the project:

BOOKS:

1. Dr. Singh Avatar, Contract and Specific Relief, Eastern Book Company (11th edition, 2013).

2. Dr. Kapoor S.K., The Contract Law and Specific Relief Act, Central Law Agency.

3. Dr. Bangia R.K., Contract – 1, Allahabad Law Agency.

ACTS:

1. Indian Contract Act, 1872.

WEBSITES

1. www.lawavdit.com

2. www.indiankanoon.org

3. https://www.law.cornell.edu