There are various types of contracts and specific terms and conditions of contracts are unique and cater to the specific need of the parties drafting them. Yet, even after taking into consideration the differences, some similarities are found. Classification of contracts can be done on the basis of how they are formed, whether they are valid, the basis of their nature and on the basis of their execution. The categories of contracts mentioned in this article might overlap in the sense that most contracts can be of many types. For example, a contract can be verbal, valid and unilateral. The categories mentioned are thus distinct and all equally important.

Classification of Contracts on the Basis of Formation

Contracts can be formed in several ways. The following are the types of contracts that can be classified on the basis on which they have been formed. 

Verbal Contracts:

People have been making deals with just their words for ages, but nowadays, it’s not so common because proving verbal agreements in court is tricky. Still, they are legit if they meet the conditions of a valid contract under the Indian Contract Act of 1872.

In a 1991 case (Nanak Builders and Investors Pvt. Ltd. v. Vinod Kumar Alag), the Delhi High Court said that oral agreements can be legit and enforceable. So, unless the law demands it or the parties want it in writing, contracts don’t always have to be on paper.

Written Contracts:

These are contracts in black and white, the ones we see a lot these days. As long as they meet the conditions in Section 10 of the Indian Contract Act, they’re good to go.

Express Contracts:

These are contracts where everything is clearly stated, either spoken or written. For example, if A asks B to sell a house for a certain amount, and B says yes, that’s an express contract.

Implied Contracts:

These contracts aren’t spelled out but are based on actions or gestures. Think of an auction – when you raise your paddle, you’re making an implied offer, and when the auctioneer bangs the gavel, that’s acceptance. Warranty on a product is another example.

Quasi-Contracts:

Sometimes, obligations arise not from an agreed contract but from legal principles. These are quasi-contracts. They exist for the sake of justice, like when someone not capable of making contracts gets necessary goods – the supplier can ask for reimbursement.

E-Contracts:

These are contracts made online, like when you buy stuff from an online store. Indian law doesn’t explicitly talk about e-contracts, but courts recognize them. They just need to follow the basics of a valid contract under Section 10, especially the part about free consent, which can be tricky online.

So, contracts come in all shapes and sizes – spoken, written, clear, implied, and even online!

Classification of Contracts on the Basis of Validity 

Too often problems arise with contracts and the courts must judge whether they are valid or not in the first place. Based on developed jurisprudence and the laws, contracts can be valid and when invalid, can be void, voidable or void-ab-initio.

Valid Contracts:

• Everyone involved must willingly agree to the terms of the contract.
• Those entering the contract must be legally capable of doing so.
• The purpose and what is being exchanged must be legal.
• The contract must not be declared void according to legal provisions.
• All parties should clearly understand and agree on the terms. Ambiguities can invalidate a contract.
• There must be an intention to be legally bound; otherwise, it remains a mere agreement.
• The terms outlined in the contract should be realistically achievable.

Void Contracts:

• Contracts with minors or mentally unsound individuals are void.
• If fulfilling the contract becomes impossible, it becomes void.
• A contract becomes void if there is a factual error crucial to the agreement.
• Contracts involving illegal activities are void.
• Unless in writing, registered, or for specified cases, contracts without consideration are void.
• Agreements restricting marriage or trade are void.
• Contracts inhibiting legal actions are void.
• Contracts are void if the terms are not clear and certain.

Voidable Contracts:

• If consent is obtained unfairly, the affected party can void the contract.

Void-ab-initio Contracts:

• Contracts, like those with minors, that are invalid from the start.

Unenforceable Contracts:

• Lack of capacity, duress, undue influence, deception, etc., may render a contract unenforceable.

Illegal Contracts:

• Contracts involving illegal activities, such as murder, are void due to being against the law.

Classification of Contracts on the Basis of Nature 

The nature of the contract is diverse and specific to the parties involved. On the broad level, they can be classified as unilateral, bilateral, unconscionable, adhesion, aleatory and option types. All contracts more or less fall under at least one of these broad categories. 

Unilateral Contracts:

Imagine you make a promise, and anyone out there can accept it by doing something specific. The deal only goes through when that action is completed. It’s like shouting out to the world, “I’ll give a reward to anyone who finds my lost pet!” You’re not waiting for someone to tell you they found it; you’re waiting for them to actually find and return your pet.

Bilateral Contracts:

This is your typical two-way promise. You and the other person agree to do something for each other. It’s like saying, “I’ll help you move next week if you help me paint my living room.” Both parties know who they’re dealing with, and the contract happens when they communicate and agree.

Unconscionable Contracts:

Picture a deal that’s so lopsided and unfair to one side that it’s just not right. If someone takes this unfair contract to court, the judge will likely say, “Nope, this is not happening.” There’s no compensation for damages; they just cancel the unfair deal. Courts decide if a contract is unconscionable by looking at whether a reasonable person would agree to it.

In a case between a private company and the government, the court might call it off if it seems too unfair. But if it’s a deal between private businesses and it’s commercial in nature, it might be seen as a standard contract (called an adhesion contract) unless it’s extremely unfair.

Adhesion Contracts:

Think of this as a ready-made agreement, like a form you fill out online. One party sets all the terms, and the other just has to accept or reject them—no negotiation. These contracts are legal in many places, but courts might step in if they’re really one-sided. The goal is to make sure the weaker party isn’t stuck with something totally unreasonable.

Aleatory Contracts:

This is like a “wait-and-see” deal. You don’t have to do anything until a certain event happens. Take insurance, for instance. You pay your premiums regularly, but the insurance company only has to do something when there’s an actual incident, like a car accident. Sometimes you might pay more in premiums than what the insurance covers, and other times, you might get a great deal.

Option Contracts:

Imagine you’re house hunting, and you find the perfect place. You pay the owner to take it off the market for a while, giving you the option to buy it later. You have the choice but not the obligation. The Supreme Court has said this choice is entirely yours; you can’t be forced to go through with it.

So, these are just different ways people make agreements, from shouting out promises to carefully negotiating terms. The law steps in to make sure things stay fair and reasonable.

Classification of Contracts on the Basis of Execution 

Contracts can be executed or performed immediately or over a period of time. The important thing for consideration is the time frame for the fulfilment of the promise. On the basis of this time frame, contracts may be executory or executed.

Executory Contracts:

Think of these like a continuous relationship. A classic example is a lease for a home. The landlord and tenant keep things going smoothly – the tenant stays, and the landlord gets monthly rent.

Executed Contracts:

These contracts are like checking off items on your to-do list. Imagine buying something or getting a service – once you’ve done that, the contract is all wrapped up. It’s like a task completed!

Read Also: Essential Elements of a Valid Contract