Main Types Of Contracts: Everything You Need to Know
The main types of contracts are an important topic if you intend to enter into any kind of agreement with other parties. A contract solidifies an agreement made between yourself and other parties.3 min read
The main types of contracts are an important topic if you intend to enter into any kind of agreement with other parties. A contract solidifies an agreement made between yourself and other parties. It will include your rights and responsibilities so you are all aware of what you are and are not entitled to within the agreement.
What Is a Contract?
A contract can be used in just about any transaction. It can relate to a service, a sale, or the transfer of ownership of property. Those party to a contract can be individuals, businesses, or governments. There can also be more than two parties to a contract. In general, only those parties making the contract will have any rights or duties within the agreement.
A contract is a legally binding document that can be enforced in court. Not all agreements are considered legally binding however.
Those who are party to valid contracts will have certain rights and responsibilities. If there is an argument, the court will ensure those rights and responsibilities are followed. It is possible for others to have some rights and duties outside of those original to the contract.
You could assign contract rights to a third party, such as in a life insurance contract. The parties in this example would be the insurance company, the insured party, and the beneficiary.
There are four types of contract classifications:
- Nature of consideration
Types of Contracts on the Basis of Formation
- Express Contracts: These contracts occur when there is a conversation in which the terms of the contract are made orally.
- Implied Contract: This is a contract with no expression, which can be implied in fact or in law.
- Implied in Fact: This is a contract where an agreement is intended with the parties, but not orally.
- Quasi Contract: There is no offer or acceptance, so there is no contractual relationship with the parties. It is not a true contract, but a way for the court to fix issues where one party is enriched unfairly and not obligate to pay the other party.
Types of Contracts on the Basis of Nature of Consideration
- Bilateral Contract: This contract occurs if there is consideration in either direction is moved after the contract.
- Unilateral Contract: If the consideration is to be moved in only one direction after the contract.
Types of Contracts on the Basis of Validity
- Valid: A contract that is enforceable in court is considered valid. To be valid, the contract has to have specific features including certainty, fulfillment of formalities, legal obligations, capacity of parties, and the like.
- Void: A contract that is not enforceable in court is considered void. If the contract is deficient, it is voided. It includes contracts to do anything illegal or is without proper legal components.
- Voidable: A contract that is deficient in free consent only is voidable. This means the contract is made under some kind of duress. A contract can become valid or void in the future at the option of the party that has suffered. It is also voidable if one party can abort the contract.
- Illegal: A contract that has any unlawful components is considered illegal.
- Unenforceable: A contract without proper legal formalities is not enforceable.
Types of Contracts on the Basis of Execution
Contracts can be classified as either executed or executory contracts. An executed contract is when a task is completed. When contractual obligations are going to be performed at a later time, it is an executor contract.
An option contract is a contract that provides the right to one party to get into a second contract with other party in the future. Option contracts are very common in real estate. The buyer can be granted the option to buy the property in a certain timeframe.
The buyer will pay the seller money since the seller will be taking the property off the market during an option period. If the buyer exercises his option, a second contract occurs to sell the property.
If the option expires, both parties are not obligated to each other. The money will be retained by the buyer.
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