Types & Classifications of Contacts in India

Authors - Rashi Suri (Managing Partner) and Pradyun Chakravarty (Associate)

In this article we are going to discuss Classification of contracts and its types in a more detailed manner. 

Contracts 

A contract is a legally enforceable agreement which is entered between two or more parties, expressly stating therein the respective rights, duties, obligations and liabilities, respectively, which the parties mutually agree between themselves. The Indian Contract Act, 1872 (“The Act”) is the principal statute governing, regulating and prescribing the law applicable on agreements and contracts.  

The Indian Contract Act, 1872

The Indian Contract Act was brought into existence in 1872 by the British Administration. It was based on the principles of English Common Law. The Imperial Legislative Council enacted the Act on April 25, 1872, and the law came into force on September 1, 1872. This law applies to the whole of India post August 5 Parliamentary legislation

Contract In Law (Contract Act)

The term "Contract" under section 2 (h) of the Indian Contract Act, 1872, is defined as "An agreement enforceable by law". The definition has two major elements "agreement" and "enforceable by law" which must be understood thoroughly. 

Agreement

This term as defined in Section 2 (e) of the Act states Agreement to be "every promise and every set of promises, forming the consideration for each other". And as per section 2(b) of the Act, "promise", is defined as "when the person to whom the proposal is made signifies his assent to that, the proposal is said to be accepted. A proposal, when accepted, becomes a promise".

Difference between an Agreement and a Contract

A contract is essentially an agreement which is enforceable by law. It has to create some legal obligation. Therefore, all contracts are agreements but all agreements are not contracts.

An agreement is a promise which is accepted by the parties involved in it. It must be socially acceptable and not contrary to any law laid down or against public morality etc. An agreement may not be enforceable by law for various reasons, when such is the case it doesn't create any legal obligations between the parties who have entered into such an agreement. The same is therefore bereft of applicability of the contract law as per the Act.

The Doctrine of Privity of Contract

The doctrine essentially lays down exclusivity of a contract between the parties, by the virtue of which a stranger to a contract is barred from filing a suit for enforcing any rights or duties that may have arisen out of the contract. The right is expressly reserved only to the parties to that specific contract. There are a few exceptions to this doctrine such as:

Acknowledgement or Estoppel

• Assignment of a Contract

• Contract through an agent

• Family Settlement

• A Trust

• A covenant (land)

Classification of Contract law

Contract under Indian contract act has classification of valid contract But Majorly, the classification of contract under indian law is into four different categories which may be further distinguished in various types:

Creation

• Express Contract

• Implied Contract

• Tacit Contract

Duration

• Full-time and Part-time Contracts

• Fixed-term Contracts

• Agency Staff Contracts

• Zero Hour Contracts

Execution

• Executed Contract

• Executory Contract

• Partly Executed Contract

Enforceability

• Valid Contract

• Void Contract

• Voidable Contract

• Illegal Contract

• Unenforceable Contract

The most discussed classification among the abovementioned ones is the contracts based on enforceability.

Contracts Based on Enforceability

The Indian Contract Act, 1872, discusses the void contract and void agreement are defined respectively  in Chapter 2. It provides with five types of contracts Indian contract act 1872  based on validity or enforceability. Below are the Types of contract in Indian Contract Act :-

Valid Contract

The Valid Contract is an agreement which is legally binding and enforceable. An invalid contract may lead to obstruction of businesses and unlawful insincere dealings. The Indian Contract Act, 1872, lists the essentials of a Contract either directly or by interpretation through various judgments. A contract must qualify all the essentials of a contract. Section 10 of the contract reckons particular points which are essential for valid contracts like 

• Free consent, 

• Competency of the parties, 

• Lawful consideration, etc. 

Void Contract

Section 2(j) of the Act defines a void contract as “a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”. It voids all the contracts which are not enforceable by the court of law due to riding /enforceable conditions not mentioned in the contract. 

Voidable Contract

The voidable contract in Section 2(i) of the Act, is defined as “an agreement which is enforceable by law at the option of one or more of the parties to it, but not at the option of the others, is a voidable contract”. A voidable contract is a Valid Contract till the time an affected party chooses to rescind the same on legitimate grounds. In any voidable contract, a minimum one party has to be bound to the terms of the contract. 

Illegal Contract

An agreement which leads one or more parties to break the law or public policy or societal morality is deemed to be illegal by the court. Illegal contracts are considered as void and not enforceable by law. Section 2(g) of the Act defines them as an agreement not enforceable by law is said to be void. Illegal contracts are void ab initio (from the start or the beginning), and they are punishable under the law because of the criminal aspects of the illegal contracts.

Unenforceable Contracts

Unenforceable contracts are extracted unenforceable by law due to some technical aspects and cannot be enforced against any of the parties.

Before entering any agreement it is essential that the parties understand the basic tenets of the contract law so as not to cause a future dispute among themselves or incur losses due to the unenforceability of the other party’s duties under the agreement. It is also necessary that the object of the agreement, the rights and duties of each party is demarcated and clear from the very inception of the agreement and that same follows the diktat of the law of land so as not to attract any penalties or tribulations from the courts or any other authorities as ignorance of the law is no excuse, more so for people trying to legally bind them through the vicissitudes of the law.