Types of-contract

Business law

1. Submitted by:
Huma Rashid

2. TYPES OF CONTRACT
A Contract is an agreement; an agreement is a promise and a promise is an
accepted proposal. Thus, every agreement is the result of a proposal from one
side and its acceptance by the other.
According to Salmon; “A contract is an agreement creating and defining
obligations between the parties”
According to Sir Fredick;” Every agreement and promise enforceable at law is a
contract”

A contract is a legally binding or valid agreement between two parties. The law
will consider a contract to be valid if the agreement contains all of the following
elements:
 Offer and Acceptance
 Legal Relationship. Must Create Legal relationship between parties
 Lawful Consideration
 Capacity of Parties
 Lawful Object
 Free Consent
 Certainty: Agreements the meaning of which is not certain are void.
 Possibility of Performance: An agreement to do an act impossible in itself is void.
 Must not be declared expressly void i.e. restriction of trade etc
An agreement that lacks one or more of the elements listed above is not a valid
contract.

The law relating to contracts in Pakistan is called Contract Act 1872.
Contract Act 1872:
Under Contract Act 1872 Sec 2(h); “An Agreement enforceable by law is a
contract “

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

3. (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;
(b) 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;
(c) The person making the proposal is called the 'promisor', and the person
accepting the proposal is called the 'promisee';
(d) when, at the desire of the promisor, the promisee or any other person who
has done or abstained from doing, or does or abstains from doing, or promises to
do or to abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise;
(e) Every promise and every set of promises, forming the consideration for each
other, is an agreement;
(h) An agreement enforceable by laws a contract;
TWO MAJOR COMPONENTS OF CONTRACT
1. An Agreement
2. Enforceable by law

4. Classification Of Contract:
The classification of contract is done on the basis of:
• Enforceability/ Validity
• Formation
• Performance


Types Of Contract On Basis Of Validity:
Following are kinds of contract by virtue of legal effects:
• Valid Contract
• Void Agreement
• Void Contract
• Void-able contract
• Contract un enforceable by Law

Valid Contract:
A contract that complies with all the essentials of a contract and is binding and
enforceable on all parties is said to be valid contract.
A valid contract is a written or expressed agreement between two parties to
provide a product or service. There are essentially six elements of a contract that
make it a legal and binding document. In order for a contract to be enforceable, it
must contain:
Agreement
Enforceability
Contract

5.  An offer that specifically details exactly what will be provided
 Acceptance, or the agreement by the other party to the offer presented
 Consideration, or the money or something of interest being exchanged
between the parties
 Capacity of the parties in terms of age and mental ability
 Intent of both parties to carry out their promise
 Object of a contract is legal and not against public policy or in violation of
law

Example: A homeowner (who is over the age of 18 and of sound mind) signed a
contract with the appliance store to buy a refrigerator. The homeowner pays for
the refrigerator and the appliance store presents the refrigerator for the home
owner to take home.



Void Agreement:
“An agreement not enforceable by law is said to be void” [Sec.2(g)].
In such agreements one or more fundamentals of contract are missing except free
consent.
Example: there is a Contract between X and Y where Y is a minor who has no capacity
to contract.



Contract
Essentia;s
of Valid
Contract
Valid
Contract
Agreement
Not Fulfilling
Essentia;s of
Valid
Contract
Void
Contract

6. Void Contract:
Void Contract is defined by Sec 2(J) i.e. a contract which is legally enforceable when
entered but become void due to supervening impossibility of performance.
Void Contract is not void from beginning , it become void at subsequent stage before
the performance due to the occurrence of an event. Contract becomes void due to the
following reasons;
 Legally performance becomes impossible
 Physically performance becomes impossible
 When a option of rejection is used in voidable contract
 Impossibility of the happening of depending event

Example: A contract between Citizen of India and Pakistan is valid at the time of peace
but becomes void if a war breaks out between the two countries.

Voidable Contract:
An agreement which is enforceable by law at the option of one or more of the parties
but not at the option of other or others is a voidable contract. Sec 2(i)
However, the contract continues to be good and enforceable unless it is
repudiated by the aggrieved party.
For example: there is a Contract between A and B where B has forcibly made A
involved in the Contract. It is voidable at the option of A.

Contract Un enforceable by Law:
Contract un enforcaeable is a contract which is good in substance but because of
some technical defect cannot be enforced by law is called unenforceable contract.
These contracts are neither void nor voidable.

Types of Contract on Basis of Formation:
 Express contract
 Implied contract
 Quasi Contract

Express Contract: The Contracts where there is expression or conversation are
called Express Contracts. It may be in written or oral form.

7. Implied Contract: An implied contract is an agreement created by actions of
the parties involved, but it is not written or spoken. This is a contract assumed to
have been drawn. In this case, there is neither written record nor any actual
verbal agreement. A form of an implied contract is an implied warranty provided
automatically by law.

Quasi Contract: In case of Quasi Contract there will be no offer and acceptance
so, Actually there will be no Contractual relations between the partners. Such a
Contract which is created by Virtue of law is called Quasi Contract. Sections 68 to
72 of Contract Act read about the situations where court can create Quasi
Contract.
 Sec. 68: When necessaries are supplied
 Sec. 69: When expenses of one person are paid by another person.
 Sec. 70: When one party is benefited by the activity of another party.
 Sec. 71: In case of finder of lost tools.
 Sec. 72: When payment is made by mistake or goods are delivered by
mistake.
Example: A case on this occasion is Saba Vs Ali. In this case Saba`s husband
becomes no more. She was very poor and therefore not capable of meeting even
cost of funeral. Ali one of her relatives, understands her position and spends his
own money for funeral. It is done so without Saba`s request. Afterwards Ali claims
his amount from Saba where she refuses to pay. Here court applies Sec. 68 and
creates a Quasi Contract between them.

Types of Contract on Basis of Performance:
 Unilateral contract
 Bilateral contract
 Executory contract
 Executed contract

unilateral contract: A unilateral contract is a legally enforceable promise -
between legally competent parties - to do or refrain from doing a specified, legal

8. act or acts. In a unilateral contract, one party pays the other party to perform a
certain duty. If the duty is fulfilled, the party on the other side of the contract is
obligated to transfer the specified funds. Only this party is under obligation of the
contract, whereas the acting party is not legally obliged to perform the duty.

For example, if an individual places an advertisement in the local newspaper to
provide an award in the event a missing item is returned, that individual is
obligated to pay the award if the item is indeed returned.
Bilateral contract: A bilateral contract is a is a reciprocal arrangement between
two parties where each promises to perform an act in exchange for the other
party's act. Each party is an (a person who is bound to another) to its own
promise, and an obligee (a person to whom another is obligated or bound) on the
other party's promise. A bilateral contract specifies a duty to act in exchange for
another party's duty to act.
Example of a bilateral contract would be the contract for the sale of a home. A
home buyer agrees to pay the seller a certain amount of money in exchange for
the title to the home; the home seller agrees to deliver the title in exchange for
the specified sale price. It is bilateral contract between parties.

Executory Contract: A contract which has yet not been fully performed.
Something still left to be performed.
Example: John has been looking at a TV he wants to purchase. After some debate,
he finally decides to go lease it instead. John enters the electronics store, signs
a lease agreement that states the he will pay $100 per month until the purchase
price has been paid in full. Until John makes the final payment, the contract has
not been fulfilled.

Executed Contract: The contract where all the parties to the contract have
performed their obligations arising from the contract, it is said that the contract is
executed. This contract is completely done by both parties.
Example: John has been looking at a TV he wants to purchase. After deciding to
go forward with the purchase, John walks into the electronics store and pays for
the TV in cash. John walks out of the store with the TV and the store has the full
payment. This contract is considered executed since the TV was paid for in full
and all terms of the contract were met.