Different types of Contracts under the Indian Contract Act

Advocate Shagun Rohilla has written this article explaining about Different types of contracts under the Indian Contract Act.

Introduction

The Indian Contract Act, of 1872 governs the law of contracts in India. A contract is defined as an agreement between two or more parties that is enforceable by law and involves an offer made by one party, which the other party accepts. Both parties enter into a legal relationship agreeing to fulfil certain obligations. The Indian Contract Act recognizes several types of contracts that are commonly used in business transactions in India. This article will discuss the different types of contracts under the Indian Contract Act.

Different types of contracts under the Indian Contract Act

1) Express Contract:

An express contract is a contract in which the terms and conditions of the contract are explicitly stated by the parties involved. The terms may be in writing or speaking. This type of contract is also known as a formal contract.

Advantages:

• Clear terms and conditions: The express contract provides clear and explicit terms and conditions to the parties involved. This reduces the chances of misunderstandings and disputes between the parties involved.
• Legal evidence: An express contract serves as legal evidence of the agreement between the parties. This can be helpful in case of any disputes or breach of contract.
• Binding nature: An express contract is legally binding on both parties, and they are required to fulfil their obligations.

Disadvantages:

• Time-consuming: Preparing an express contract can be time-consuming and expensive, especially if it requires legal assistance.
• Strict terms and conditions: The terms and conditions of an express contract may be too rigid, which can limit the flexibility of the parties involved.
• Requires mutual agreement: The parties must agree to the terms and conditions of the contract before it can be enforced.

The case of Satyabrata Ghose v. Mugneeram Bangur & Co is an example of an express contract in which the terms and conditions were explicitly stated by the parties involved. The Supreme Court held that the contract in question was valid. Since all the essential elements of a contract were present. The court also stated that the terms of the contract should be strictly followed, and any deviation from them would amount to a breach of contract.

2) Implied Contract:

An implied contract is a contract in which the terms and conditions of the contract are not explicitly stated by the parties involved but are inferred from their actions, conduct, or circumstances. For example, if a person enters a restaurant and orders food, an implied contract is formed between the person and the restaurant owner for the payment of the food.

Advantages:

• Convenient and flexible: The parties do not need to draft a formal contract. The terms and conditions are inferred from their actions, making them more flexible and convenient.
• Saves time and effort: An implied contract saves time and effort in drafting a formal contract.
• Binding nature: An implied contract is also legally binding on both parties, and they are required to fulfil their obligations.

Disadvantages:

• This may lead to misunderstandings: Since the terms and conditions are not explicitly stated, there may be different interpretations of the agreement, leading to misunderstandings.
• Difficult to prove: It can be difficult to prove the existence of an implied contract in a court of law.
• Limited terms and conditions: The terms and conditions of an implied contract may be limited, and it may not cover all aspects of the agreement.

The case of Mohori Bibee v. Dharmodas Ghose is an example of an implied contract in which the terms and conditions were inferred from the actions, conduct, or circumstances of the parties involved. The Supreme Court held that the contract in question was voidable since the minor involved in the contract was not competent to enter into a contract. However, the court also stated that the minor was liable to pay for the benefits received under the contract.

3) Quasi-Contract:

A quasi-contract is not an actual contract but is created by law to prevent injustice. In this type of contract, one party pays for a benefit received from the other party. For example, if a person pays for the repair of another person’s car without a prior agreement, the law implies a quasi-contractual obligation on the owner to pay for the repairs.

Advantages:

• Prevents injustice: A quasi-contract prevents injustice by ensuring that the party who has received a benefit pays for it, even if there was no prior agreement.
• Fairness: It promotes fairness in business transactions.

Disadvantages:

• Lack of certainty: The party who has received the benefit may not have agreed to pay for it, leading to disputes between the parties involved.
• Difficult to prove: It may be difficult to prove the existence of a quasi-contract in a court of law.

The case of Moses v. Macferlan is an example of a quasi-contract in which one party pays for a benefit received from the other party. The court held that even though there was no prior agreement between the parties involved, the plaintiff was entitled to recover the money paid to the defendant since it was for the defendant’s benefit. The court also stated that the law implies a quasi-contractual obligation on the defendant to pay for the benefit received.

4) Void Contract:

A void contract is a contract that has no legal effect from the beginning. Such a contract is considered null and void and cannot be enforced in a court of law. For example, a contract to commit a crime or to engage in fraudulent activities is a void contract.

Advantages:

• Prevents illegal activities: A void contract ensures that contracts that are against public policy or morality are not enforceable. It protects the interests of the parties involved.

Disadvantages:

• Not enforceable: A void contract is not enforceable in a court of law, and the parties cannot rely on the contract to claim their rights.
• Loss of time and money: If parties have already performed their obligations under the void contract, it can lead to a loss of time and money.

The case of Balfour v. Balfour is an example of a void contract in which the agreement was not intended to create a legal relationship between the parties. The court held that the agreement in question was a domestic agreement and did not have the intention to create a legal relationship. Therefore, it was not enforceable in a court of law.

5) Voidable Contract:

A voidable contract is a valid contract, but one or both parties have the option to rescind or cancel it. The contract becomes voidable when one party is misled, threatened, or coerced into entering into the contract. For example, if a person enters into a contract with a minor, the contract is voidable at the option of the minor.

Advantages:

• Provides protection: A voidable contract protects the party who is at a disadvantage in the contract.
• Legal remedy: The party who is at a disadvantage can seek legal remedies if the other party does not fulfil their obligations.

Disadvantages:

• Uncertainty: The contract can be cancelled by one party, leading to uncertainty and instability.
• Loss of time and money: If parties have already performed their obligations under the voidable contract, it can lead to a loss of time and money.

The case of Mohori Bibee v. Dharmodas Ghose is an example of a voidable contract in which one party has the option to either affirm or avoid the contract. The court held that the contract in question was voidable since the minor involved in the contract was not competent to enter into a contract. Therefore, the minor had the option to avoid the contract.

6) Unenforceable Contract:

An unenforceable contract is a contract that cannot be enforced in a court of law due to legal technicalities. For example, if a contract is not in writing and the law requires it to be in writing, the contract is unenforceable.

Advantages:

• Avoids illegal activities: An unenforceable contract avoids unlawful activities or transactions that violate the law.

Disadvantages:

• Not enforceable: An unenforceable contract is not enforceable in a court of law, and the parties cannot rely on the contract to claim their rights.
• Loss of time and money: If parties have already performed their obligations under the unenforceable contract.

The case of Gherulal Parakh v. Mahadeodas Maiya is an example of an unenforceable contract in which the contract was not enforceable due to a technical defect. The court held that the contract in question was unenforceable since it was not stamped as per the Indian Stamp Act. Therefore, the contract could not be enforced in a court of law.

Conclusion

In conclusion, the Indian Contract Act recognizes several contracts commonly used in business transactions. Understanding the different types of contracts can help parties involved in business transactions to know their legal obligations and rights. Therefore, it is essential to consult with legal experts while entering into a contract to ensure that the contract is legally binding and enforceable.

References

1. The Indian Contract Act, 1972, https://legislative.gov.in/sites/default/files/A1872-09.pdf.
2. Satyabrata Ghose v. Mugneeram Bangur & Co AIR 1954 SC 44 at p. 48.
3. Mohori Bibee v. Dharmodas Ghose [1903] UKPC 12, (1903) LR 30 IA 114.
4. Moses v. Macferlan (1760) 2 Bur 1005.
5. Balfour v. Balfour [1919] 2 KB 571. Types of contracts under the Indian Contract Act
6. Mohori Bibee v. Dharmodas Ghose [1903] UKPC 12, (1903) LR 30 IA 114.
7. Gherulal Parakh v. Mahadeodas Maiya 1959 AIR 781 1959 SCR Supl. (2) 406.