Types Of Contract: Everything You Need to Know
Different types of contract result from the circumstances and conditions of contract execution and fulfillment. Each type of contract is governed by a special set of rules and regulations. 3 min read
Different types of contract result from the circumstances and conditions of contract execution and fulfillment. Each type of contract is governed by a special set of rules and regulations.
What Is a Contract?
Without even realizing it, we enter into contracts every day when we buy a newspaper, take a bus, or go out to eat. Contracts relate to almost any type of transaction, such as rendering of a service, making a sale, or transferring property ownership.
A contract is a formal agreement that is legally binding and enforceable in the court. It establishes the agreement between the parties and fixes their rights and obligations. A formal contract must be written, signed, witnessed, and sealed by the participating parties. To be enforceable, a contract must be valid. Not every agreement is a legally binding contract.
Different Types of Contracts
- Contracts Under Seal
In the past, only contracts stamped with a seal were valid and enforceable. The seal symbolized the acceptance of the effects of the agreement by the parties. As the law developed and the courts began to recognize informal contracts, the effect of the seal was lost.
- Express Contracts
In express contracts, the parties define the terms in oral or written form at the time of its creation.
- Implied Contracts
Implied contracts consist of obligations that arise from intended mutual agreement. Such agreements are not expressed verbally but rather implied from facts and conditions suggesting a mutual agreement.
Contracts implied in fact are different from quasi-contracts or contracts implied in law. Quasi-contracts lack the requirements of a real contract and exist regardless of the parties' assent. A contract implied in fact is a true contract and defines the duty, while a quasi-contract is an obligation pressed by law and serves as a contract only for the purposes of a remedy. In a quasi-contract, the duty determines and presses the agreement upon the parties.
A contract that would result in inequity or harm cannot be implied. If the parties act according to the terms of a contract even after its expiration, it is implied that they mutually agreed to a new agreement with the same terms as the old one.
- Executed and Executory Contracts
An executory contract defines an obligation that will be executed by either or both parties in the future. For example, a seller and buyer of land make an agreement that the sale will be complete after the buyer acquires a loan and the seller presents them with a certificate of title.
An executed contract determines a contract that does not exist anymore because all the terms have been fulfilled. For example, you go to a furniture store and agree to pay $200 for a table. Then, you pay the money and bring the table home.
- Bilateral and Unilateral Contracts
A bilateral, or two-sided, contract consists of a mutual exchange of promises between parties.
A unilateral, or one-sided, contract consists of a promise made only by one party, while the other has not accepted it and has not made any promises. Such a contract is legally binding only for the offeror.
- Unconscionable Contracts
An unconscionable contract is an unfair contract or a contract benefiting only one party who has the greater bargaining power. Such contracts often occur in consumer transactions when uneducated or impoverished consumers or those unable to shop for the best price are exploited.
- Adhesion Contracts
Adhesion contracts are created by the party with more bargaining power, leaving the other party with the choice to accept (adhere) or reject it. Though not necessarily unconscionable, such contracts are often not enforced by courts. The argument is that such contracts lack true acceptance of the offer because the purchaser was never presented with an alternative and opportunity to negotiate.
- Aleatory Contracts
An aleatory contract defines a mutual agreement that comes into effect when some uncertain event occurs, like in the case of a life insurance policy. In aleatory contracts, risk is assumed by either or both parties.
- Void and Voidable Contracts
A void contract is an invalid and unenforceable agreement.
A voidable contract is a legal and enforceable agreement that could be voided by one party because of the circumstances of its execution. A voidable contract could be ratified by the suffering party.
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