Key Takeaways

  • Contracts can be categorized based on their formation, performance, and enforceability.
  • Common contract types include fixed-price, option, adhesion, and unconscionable contracts.
  • Additional types like time and materials, cost-reimbursement, and void or voidable contracts provide greater legal clarity.
  • Specialized agreements such as government contracts, executed vs. executory contracts, and implied-in-law contracts serve unique purposes.
  • Understanding various contract types helps businesses reduce risk, allocate responsibilities, and protect their interests.

Contract Types Overview

If you are wondering what are the different types of contract, then you are wondering about the differences between one of the most fundamental aspects of a business. A contract is a legally binding agreement between two or more parties in which an exchange of value is made. The contract’s purpose is to set out the terms of the agreement and provide a record of that agreement which may be enforceable in a court of law. Contracts may come in many forms, each with its own use and purpose. If you need legal help to review a contract, on UpCounsel's marketplace you can get custom quotes from experienced contract review attorneys within hours. You will save up to 60% compared to law firms.

Express and Implied Contracts

An express contract has terms that are stated expressly, or openly, in either writing or orally, at the time of contract formation. These are the kinds of contracts that most people think of when they think of contracts.

Implied contracts, on the other hand, have terms that must be inferred by actions, facts, and circumstances that would indicate a mutual intent to form a contract. Such contracts may be as binding as express contracts, despite their lack of formal agreement, although if a court perceives doubts in minds of the parties as to whether or not a contract existed, it may choose not to enforce such a contract.

Unilateral and Bilateral Contracts

Unilateral contracts involve only one party promising to take action or provide something of value. These are also known as one-sided contracts, and a common example of them is when a reward is offered for something being found: the party to whom the reward is offered is under no obligation to find the lost item, but if they do find it, the offering party is under contract to provide the reward.

Bilateral contracts, on the other hand, involve both parties agreeing to exchange items or services of value. These are also known as two-sided contracts and are the kind of contract that is most commonly encountered.

Unconscionable Contracts

Unconscionable contracts are contracts that are considered unjust by being unfairly weighted to give advantage to one side over the other. Examples of elements that may make a contract unconscionable include:

  • A limit on the damages a party may receive for breach of contract.
  • A limit on the rights of a party to seek satisfaction in court.
  • An inability to have a warranty honored.

Whether or not a contract is unconscionable is a matter left for interpretation by the courts. They usually rule a contract to be unconscionable if it is perceived as being a contract that no mentally able person would sign, that no honest person would offer, or that would undermine the court’s integrity where it was enforced.

Adhesion Contracts

An adhesion contract is one that is drafted by a party with a great deal more bargaining power than the other party, meaning that the weaker party may only accept the contract or not. Often called “take it or leave it” contracts, these contracts lack much, if any negotiation, since one party will have little to nothing to negotiate with. Such contracts should not be confused with unconscionable contracts, since a lack of bargaining power does not necessarily mean that the terms set out will be unfair. That said, courts may still not enforce adhesion contracts if they believe a meeting of the minds never existed.

Aleatory Contracts

Aleatory contracts are agreements that are not triggered until an outside event occurs. Insurance policies would be examples of this, as they are agreements involving fiscal protection in the face of unpredictable events. In such contracts, both sides assume risks: the insured that they are paying for a service they will never receive, and the insurer that they must pay out potentially more than they receive from the insured.

Option Contracts

Option contracts allow a party to enter another contract with another party at a later time. Entering into a second contract is called exercising the option, and a good example of this is in real estate, where a prospective buyer will pay a seller to take a property off the market, then, at a later date, have a new contract made to buy the property outright, should they choose to do so.

Fixed Price Contracts

Fixed price contracts involve a buyer and seller agreeing on a fixed price to be paid for a project. Also known as lump sum contracts, these contracts entail a great deal of risk for the seller, since if the project takes longer or is more extensive than anticipated, they will still only be paid the agreed-upon price.

Government Contracts

Government contracts are agreements between a contractor and a public-sector agency at the federal, state, or local level. They often follow strict regulatory guidelines and procurement processes governed by laws like the Federal Acquisition Regulation (FAR).

Government contracts may take the form of:

  • Fixed-price (most common)
  • Cost-reimbursement
  • Time and materials

These contracts typically include clauses on compliance, audits, and termination rights. Due to their complexity, legal assistance is often advisable.

Implied-in-Law Contracts (Quasi Contracts)

Unlike express or implied-in-fact contracts, implied-in-law contracts—also called quasi contracts—are not actual agreements. Instead, they are legal constructs imposed by courts to prevent unjust enrichment when no formal agreement exists.

For example, if a person receives emergency medical treatment while unconscious, the court may impose a quasi contract requiring payment to the provider, even though the patient never consented.

These contracts are particularly relevant in tort or restitution cases.

Void, Voidable, and Enforceable Contracts

Not all contracts are valid or enforceable in the eyes of the law. Contracts can fall into the following categories:

  • Void contracts have no legal effect from the start, such as agreements involving illegal activities.
  • Voidable contracts are valid but can be legally canceled by one of the parties, typically due to misrepresentation, fraud, or incapacity.
  • Enforceable contracts are valid agreements that can be upheld in court.

This classification helps determine a party's legal standing if a dispute arises.

Executed and Executory Contracts

An executed contract is one in which all parties have fulfilled their contractual obligations. For example, a sales contract is executed once the goods are delivered and payment is received.

Conversely, an executory contract is still in progress—at least one party has not yet completed their responsibilities. Lease agreements are a typical example, where rent payments and access to the property occur over time.

Understanding the status of a contract as executed or executory helps parties track performance and legal obligations.

Cost-Reimbursement Contracts

Cost-reimbursement contracts (also known as cost-plus contracts) require the buyer to pay the contractor for all allowable project costs plus a fee or incentive. These are often used in government or research-based projects where outcomes are less certain and flexibility is essential.

Types of cost-reimbursement contracts:

  • Cost-plus-fixed-fee (CPFF)
  • Cost-plus-incentive-fee (CPIF)
  • Cost-plus-award-fee (CPAF)

These contracts shift most of the performance risk to the buyer, making detailed budgeting and oversight critical.

Time and Materials Contracts

A time and materials (T&M) contract allows the client to pay the contractor based on the actual time spent on a project and the materials used. Unlike fixed-price contracts, T&M agreements offer flexibility when project scopes are uncertain or likely to change. These contracts are commonly used in construction and IT services, where it’s difficult to estimate the full scope of work at the outset.

Key features include:

  • Hourly or daily labor rates
  • Reimbursement for actual materials used
  • A cap or “not-to-exceed” clause to manage budget risks

Frequently Asked Questions

  1. What are the most common types of contracts?
    Express, implied, unilateral, bilateral, fixed-price, time and materials, and option contracts are among the most frequently used contract types in business.
  2. What makes a contract void or voidable?
    A void contract lacks legal enforceability due to illegality or impossibility. A voidable contract is valid but can be canceled due to reasons like fraud or incapacity.
  3. When should I use a time and materials contract?
    Use T&M contracts when project scopes are uncertain or may evolve over time, such as in software development or custom design projects.
  4. What is the difference between executory and executed contracts?
    An executed contract has been fully performed by all parties, while an executory contract still has obligations remaining.
  5. Are government contracts different from private contracts?
    Yes, government contracts often involve additional regulations, compliance standards, and formal procurement processes not required in private-sector agreements.

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