Types of Contract - Based on Validity, Meaning & Examples

Types of Contract - Based on Validity, Formation, Performance

Edited By Ritika Jonwal | Updated on Jul 02, 2025 05:38 PM IST

A Contract according to the Indian Contract Act 1860 means a mutual agreement between two competent parties in Contract Law. This agreement consists of promises liabilities and obligations which both parties are bound to perform in a contract to make the discharge of the contract successful. A contract formed through mutual agreement and the parties to the contract are competent to contract is a valid contract and a valid contract is enforceable by law. Both parties to a contract are bound by the law to perform all the promises made in an agreement,

This Story also Contains

Essentials of a Valid Contract
Different types of Agreements
Types of Contracts formed based on the Validity of the contracts
Types of Contracts based on the formation of the contracts
Types of Contracts Based on the Performance of Contracts
Case laws
Conclusion

Types of Contract - Based on Validity, Formation, Performance

Essentials of a Valid Contract

For the formation of a valid contract, there are some essential conditions which must be fulfilled, they are given below-

There must be two parties to a mutually accepted agreement. And there should be acceptance and a valid offer between the two parties.
Both the parties entering into the contract should be competent enough to enter into a contract. None of them should be of unsound mind or minor, or any person legally disqualified to enter into a contract.
In a valid contract, there should be lawful consideration and a lawful object.
Free consent is essential for a valid contract. Neither party to a contract should be forced.
The contract will be termed invalid when the contract is expressly declared to be invalid in the initial process of the agreement

Different types of Agreements

From the point of view of legality, the different types of contracts are

1. Contracts

A contract is a mutually accepted agreement between two parties to perform any act as mentioned in the contract. The parties to a contract make promises to some act which brings obligations and liabilities that the parties to the contract are bound to follow according to the law. A contract is an agreement that is enforceable by law.

For a valid contract to take place the parties to a contract should follow the terms and conditions that are given in the Indian Contract Act 1872. The parties to a contract should be compatible enough to enter into a contract. A party shouldn’t be a minor to enter into a contract, a person of unsound mind cannot form a contract, a person who is disqualified by law cannot enter into a contract, and the object on which the contract is been established shouldn't be unlawful to constitute a valid contract.

2. Void Agreements

Section 2(g) of the Indian Contract Act 1872 deals with void agreements, which say that an agreement that is not enforceable by law is void. For instance, an agreement with a person of unsound mind will be void agreement, as according to the Indian Contract Act 1872 a person of unsound Mind cannot enter into a contract. According to Sections 24 and 30 of the Indian Contract Act 1872, an Expressly void agreement lacks a valid consideration, free consent, a valid object, etc.

3. Voidable contracts

Section 2(I) of the Indian Contract Act 1872 deals with voidable contracts which says that Voidable contracts are the ones that are enforceable by law but at the condition that it is only valid for one or more parties but not for others. A voidable contract can be avoided by a party at the initial stage of the contract.

4. Illegal agreements

Agreements which are not enforceable by law an illegal agreements, the doing of such an agreement according to law is a crime. For instance, an agreement between two parties to commit a civil wrong or a tort is an illegal agreement which is a crime in law.

An illegal agreement is a void agreement which is forbidden by law. According to Section 23 of the Indian Contract Act 1872, an illegal agreement is a void agreement.

Types of Contracts formed based on the Validity of the contracts

A contract is a legally binding agreement between two or more parties. They can be classified according to their formulation, execution, and enforceability. The following are the main Types of Contracts:

1. Valid Contracts

A contract that is formed by mutual consent of the parties and has met all the criteria of a competent contract is enforceable by law and is known as a valid contract. Essential criteria of competency such as the capacity to contract, legal object, legal person, free consent etc.

According to section 10 of the Indian Contract Act 1872, any contract that meets all the required criteria is valid.

2. Void Contracts

Void contracts are the ones that the law does not claim and are unenforceable by law. And void contracts are the ones which the Indian Contract Act 1872 terms as illegal are void contracts.

According to section 2(J) of the Indian Contract Act 1872 a contract which cannot be enforceable by law is void ab initio.

3. Voidable Contracts

Voidable contracts are the ones that are enforceable by law but at the condition that it is only valid for one or more parties but not for others. A voidable contract can be avoided by a party at the initial stage of the contract.

4. Void-ab-initio Contracts

The meaning of Void-ab-initio means something illegal or void from the very beginning of the contract formation. A contact can be illegal from the beginning for various reasons like unlawful objects, incompetent parties etc. Those contracts which do not meet the requirements of a valid contract fall in the category of void ab initio.

5. Unenforceable Contracts

A contract which is illegal and cannot be enforced by law is unenforceable. A contract can be unenforceable for many reasons like if it does not meet the requirements of a valid contract or is termed illegal by the court itself.

6. Illegal contracts

A contract which the law forbids and terms as illegal is known as an illegal contract. Section 23 of the Indian Contract Act 1872 marks an illegal contract as a void contract.

For instance, an agreement between two parties to commit a civil wrong or a tort is an illegal agreement which is a crime in law.

Types of Contracts based on the formation of the contracts

1. Verbal Contracts

In this type of contract, the terms and conditions to the contract are orally declared and a verbal contract is not written down anywhere or no party is bound to sign the contract. Verbal contracts are the types of contracts that were made in ancient times as an oral contract cannot be proved in court.. Section 10 of the Indian Contract Act 1872 makes a verbal contract enforceable by law.

2. Written contract

As the name goes by a written contract is one which is written down and signed by both the contracting parties. Written contracts are the most common types of contracts which are commonly used in every contractual agreement. A written contract provides security and surety in comparison to a verbal contract.

Essential elements of a written contract are given below-

Mutual consent of the parties is essential
Consideration by both parties
The party should have the capacity to contract
The contract should be legal along with the object.

3. Express Contracts

Whether the contract is written or oral in an expressed contract the terms and conditions of a contract are expressly mentioned. An expressed contract can be enforced by law.

Section 9 of the Indian Contract Act 1872, says expressed contracts are formed by parties after agreeing to the terms and conditions of the contract.

4. Implied contract

Implied contracts are the ones in which the terms and conditions of the contract are not expressed but it is inferred from the actions and behaviour of the parties to a contract.

According to section 9 of the Indian Contract Act 1872 an implied contract is based on the actions of the parties involved in the contract.

5. Quasi Contract

The word Quasi is derived from the Latin word ‘Pseudo’ which means ‘as if’ or ‘almost’. Quasi-contracts are a contract that is a dispute resolution clause for the parties who are in a dispute. Quasi-contracts help the parties in finding an alternative way in cases when the parties are not in a contractual relationship. Quasi-contracts are based on the values of Justice, equity and good conscience.

6. E-contract

E- Contracts are the types of contracts that are formed between parties to electronic mediums like mail, electronic signatures etc. An E-contract is a contract that is enforceable by law and is legally binding to the parties to execute the promises and obligations as mentioned in the contract.

In today's time, many business deals are done through the electronic medium, E-contracts save time and money as a party to a contract does not need to travel from one place to another for a contractual agreement.

Types of Contracts Based on the Performance of Contracts

1. Executory Contract

A contract which is yet to be performed is known as an executory contract. Which still the promises and obligations made in a contract by a party are on hold. According to Section 2(e) of the Indian Contract Act 1872, a contract in which the obligations are yet to be fulfilled are executory contract.

Executory contracts are of two types:

A. Unilateral contract

In a unilateral contract, a party to a contract makes an obligation or a promise in respect of something in exchange for a condition of achieving some specific performance from the other party to a contract. This contract starts after a either party to a contract performs their required act of a contract.

B. Bilateral Contract

A bilateral contract is a contract in which both parties to a contract complete their promises and obligations to a contract. A bilateral contract takes place after both parties have agreed to the promises obligations and terms and conditions of the contract. Section 2(h) of the Indian Contract Act 1872 deals with the bilateral contract.

2. Executed Contracts

When both the parties to a contract have completed their promises and obligations to a contract it is said to be an executed contract. A contract in which all the promises and obligations are fulfilled or discharged is known as an executed contract. It is the opposite of an executory contract. According to section 2(d) of the Indian Contract Act 1872 in an executed contract both the parties have executed their part of the contract.

Case laws

In B.P. Refinery ( Wasternport) Pty. Ltd. v. Shire of Hastings

In the following case, the Supreme Court held the essential conditions that have to be taken into account to constitute an implied contract. They are as follows-

The contract should be equitable and reasonable
The contract should be able to prove business efficacy
The contract should be obvious that it implies without saying
The contract should be capable of providing a clear expression.
The implied contract should not contradict any expressed term of the contract.

In the case of Lalman Shukla v. Gauri Dutt

In the following case, the nephew of the defendant absconded from his home. The plaintiff who was a servant to the defendant was sent to search for the boy who absconded from home. Soon after the plaintiff went to search the boy, the defendant announced that he would pay a reward of Rs. 501 if anyone could bring the boy back. The Plaintiff had no idea of the reward announced by the defendant. After the plaintiff brought the boy back he was denied the reward on the condition that he was not there to accept the offer when the reward was announced. To this, the plaintiff brought a suit against the defendant for the entitlement of the reward.

The court in this case held that a person who does not know the offer and acts according to the conditions mentioned in the offer in such a situation it is not necessary whether the person was present at the time the offer was announced or not he is entitled to the reward if he has completed the task.

Conclusion

A Contract according to the Indian Contract Act 1860 means a mutual agreement between two competent parties. This agreement consists of promises liabilities and obligations which both parties are bound to perform in a contract to make the discharge of the contract successful. A contract formed through mutual agreement and the parties to the contract are competent to contract is a valid contract and a valid contract is enforceable by law. Both parties to a contract are bound by the law to perform all the promises made in an agreement. This article is about the types of contracts based on validity, performance and execution.

Frequently Asked Questions (FAQs)

1. What is a contract?

2. What is a quasi-contract?

3. What are the types of Contracts?

Executory Contracts are of two types:

Unilateral contracts
Bilateral contracts

4. What are the different types of agreements?

The different types of agreements are:

Contacts
Void agreements
Voidable agreements
Illegal agreements

5. What is a verbal contract?

6. What are the 4 breaches of contract?

4 breaches of contract types are minor, material, fundamental, and anticipatory.

7. What is the role of consideration in contract modifications?

In common law, modifications to existing contracts generally require new consideration to be enforceable. However, many jurisdictions now recognize that contract modifications can be binding without new consideration if they are fair and equitable.

8. How does mistake affect contract validity?

Mistakes can affect contract validity in different ways. A mutual mistake about a material fact can make a contract voidable. A unilateral mistake generally doesn't affect validity unless the other party knew or should have known about the mistake and took advantage of it.

9. How does the Statute of Frauds affect contract validity?

The Statute of Frauds requires certain types of contracts to be in writing to be enforceable. Contracts falling under this statute (e.g., land sales, agreements not to be performed within one year) are valid but unenforceable if not properly documented.

10. How does duress impact contract validity?

Duress can make a contract voidable. If one party is forced into the agreement through threats or physical coercion, they can choose to void the contract. However, the contract remains valid until the affected party takes action to void it.

11. How does misrepresentation affect contract validity?

Misrepresentation can make a contract voidable. If one party induces the other to enter the contract based on false information, the misled party can choose to void the contract. The type of misrepresentation (fraudulent, negligent, or innocent) affects available remedies.

12. What is the significance of "integration clauses" in written contracts?

Integration clauses (or merger clauses) state that the written contract is the complete and final agreement between the parties. This can prevent parties from claiming additional terms were agreed upon outside the written document, affecting both formation and interpretation.

13. How does the parol evidence rule affect contract interpretation?

The parol evidence rule generally prevents parties from introducing external evidence to contradict or add to the terms of a written contract intended to be the final expression of their agreement. This rule affects how courts interpret and enforce contracts.

14. What is the difference between condition precedent and condition subsequent?

A condition precedent is an event that must occur before a contractual duty arises. A condition subsequent is an event that, if it occurs, will terminate an existing contractual duty. Both types of conditions can significantly affect contract performance.

15. What is the difference between void and illegal contracts?

All illegal contracts are void, but not all void contracts are illegal. Illegal contracts violate law or public policy and are void from the start. Void contracts may be unenforceable for other reasons, such as lack of capacity, without necessarily being illegal.

16. How does the doctrine of promissory estoppel relate to contract formation?

Promissory estoppel can create a binding obligation even without a formal contract. It applies when one party reasonably relies on another's promise to their detriment. Courts may enforce the promise to prevent injustice, even if traditional contract elements are missing.

17. What makes a contract "valid"?

A valid contract must have all essential elements: offer, acceptance, consideration, capacity to contract, free consent, and a lawful object. It must also comply with any specific legal requirements for that type of contract.

18. How does consideration affect contract validity?

Consideration is a crucial element for a valid contract. It refers to something of value exchanged between the parties. Without consideration, an agreement is generally not enforceable as a contract, unless it's made under seal or meets specific exceptions.

19. What is the role of "offer and acceptance" in contract formation?

Offer and acceptance are fundamental to contract formation. An offer is a proposal to enter into an agreement, while acceptance is the unqualified agreement to the terms of that offer. Together, they form the basis of mutual assent, a key element of a valid contract.

20. What is the concept of "meeting of the minds" in contract formation?

"Meeting of the minds" refers to mutual agreement on contract terms. It's a crucial element of contract formation, indicating that both parties have the same understanding of the essential terms. Without this, a valid contract may not exist due to lack of mutual assent.

21. What is the role of "intention to create legal relations" in contract validity?

Intention to create legal relations is an essential element of a valid contract. It distinguishes legally binding agreements from social or domestic arrangements. In commercial contexts, this intention is usually presumed, while in social or family contexts, it often needs to be proven.

22. What is the difference between bilateral and unilateral contracts?

Bilateral contracts involve mutual promises between parties, where each promises to perform an act in exchange for the other's promise. Unilateral contracts involve one party making a promise in exchange for the other party's performance of an act, not a promise to act.

23. What is the difference between substantial and strict performance?

Substantial performance means the essential purpose of the contract has been achieved, despite minor deviations. Strict performance requires exact adherence to all contract terms. The type of performance required depends on the nature of the contract and the parties' intentions.

24. What is the impact of illegality on contract performance?

Illegal contracts are void and unenforceable. If the illegality is discovered during performance, further performance becomes impossible. Courts generally leave parties where they find them, refusing to assist either party in enforcing the illegal agreement.

25. How does frustration of purpose affect contract performance?

Frustration of purpose occurs when an unforeseen event makes the contract's principal purpose impossible to fulfill. This can excuse further performance and potentially discharge the contract, even if performance is still technically possible.

26. How does impossibility of performance affect contract validity?

Impossibility of performance can excuse a party from their contractual obligations if the impossibility is due to unforeseen circumstances beyond their control. This can lead to contract discharge, but doesn't necessarily invalidate the original agreement.

27. What is the difference between express and implied contracts?

Express contracts are agreements where the terms are explicitly stated, either verbally or in writing. Implied contracts are formed by the actions or conduct of the parties, rather than by explicit words. Both types can be legally binding if all elements of a valid contract are present.

28. Can silence ever constitute acceptance in contract formation?

Generally, silence does not constitute acceptance. However, there are exceptions: when the offeree has a duty to speak, when the offeree has previously agreed that silence will constitute acceptance, or when it's clear from previous dealings that silence indicates acceptance.

29. What is the "mailbox rule" in contract formation?

The mailbox rule (or postal rule) states that acceptance of an offer is effective when it is posted (mailed), not when it is received by the offeror. This rule applies to acceptances sent by post or similar means, and can affect the timing of contract formation.

30. How do online "click-wrap" agreements affect contract formation?

Click-wrap agreements, where users agree to terms by clicking "I Agree," are generally considered valid forms of contract formation. Courts typically enforce these if the terms are reasonably presented and the user has a clear opportunity to review before agreeing.

31. What is a "contract of adhesion" and how does it affect validity?

A contract of adhesion is a standardized contract offered on a "take it or leave it" basis, typically by a stronger party to a weaker one. While not automatically invalid, courts scrutinize these contracts more closely and may void unfair terms to protect the weaker party.

32. What are the main types of contracts based on validity?

The main types of contracts based on validity are valid contracts, void contracts, voidable contracts, and unenforceable contracts. A valid contract meets all legal requirements and is binding. A void contract is not legally binding from the start. A voidable contract is valid but can be cancelled by one party. An unenforceable contract cannot be legally enforced due to technical issues.

33. How does a void contract differ from a voidable contract?

A void contract is invalid from the beginning and has no legal effect, while a voidable contract is initially valid but can be cancelled by one party due to certain circumstances. Void contracts cannot be enforced, whereas voidable contracts are enforceable until they are voided.

34. Can a minor enter into a valid contract?

Generally, minors (those under the age of majority) cannot enter into valid contracts, as they lack the legal capacity to contract. However, there are exceptions for necessities and beneficial contracts. Most contracts made by minors are voidable at the minor's option.

35. What makes a contract "unenforceable"?

An unenforceable contract is one that meets the basic requirements for validity but cannot be enforced in court due to technical issues. Common reasons include statute of limitations expiration, lack of proper written form for contracts required to be in writing, or illegality of the contract terms.

36. Can a contract be partially valid and partially void?

Yes, this is possible through the concept of severability. If a contract contains both legal and illegal terms, courts may enforce the legal parts while voiding the illegal ones, provided the contract's main purpose remains achievable.

37. How does capacity affect contract validity?

Capacity refers to a person's legal ability to enter into a contract. Lack of capacity (e.g., minors, mentally incapacitated individuals) can make a contract voidable. The person lacking capacity (or their guardian) can choose to void the contract, but the other party cannot.

38. What is the role of "good faith" in contract performance?

Good faith is an implied covenant in contract performance, requiring parties to deal honestly and fairly with each other. While its exact requirements vary, it generally prohibits parties from taking actions that would prevent the other party from receiving the benefits of the contract.

39. How do conditions affect contract performance?

Conditions are events that must occur before certain contractual duties arise. They can be precedent (must occur before performance is due), subsequent (terminates an obligation upon occurrence), or concurrent (requires simultaneous performance by both parties).

40. What is the concept of "time is of the essence" in contract performance?

"Time is of the essence" means that performance by a specified time is crucial to the contract. When this clause is included, failure to perform on time can be considered a material breach, potentially allowing the other party to terminate the contract and seek damages.

41. How does anticipatory breach affect contract performance?

Anticipatory breach occurs when one party indicates, before the time for performance, that they will not fulfill their contractual obligations. This allows the non-breaching party to treat the contract as immediately breached, potentially terminating their own performance and seeking remedies.

42. What is the difference between assignment and delegation in contract performance?

Assignment involves transferring rights under a contract to a third party, while delegation involves transferring duties. Not all rights can be assigned, and not all duties can be delegated, especially if they involve personal skills or trust between the original parties.

43. How does novation differ from assignment in contract performance?

Novation involves replacing an original party to a contract with a new party, with the agreement of all involved. Unlike assignment, which transfers rights but not obligations, novation transfers both rights and obligations, effectively creating a new contract.

44. How does force majeure affect contract performance?

Force majeure clauses excuse a party from performance due to extraordinary events beyond their control (e.g., natural disasters, war). These clauses can suspend or terminate contractual obligations, depending on the specific terms and circumstances.

45. What is the concept of "efficient breach" in contract law?

Efficient breach theory suggests that breaking a contract and paying damages can be economically efficient if the breaching party gains more than the other party loses. While controversial, this concept highlights the economic aspects of contract performance and remedies.

46. How does unconscionability affect contract validity?

Unconscionability can make a contract or specific terms unenforceable if they are extremely unfair or one-sided. Courts consider both procedural unconscionability (unfairness in the contract formation process) and substantive unconscionability (unfairness in the terms themselves).

47. What is the difference between liquidated damages and penalties in contracts?

Liquidated damages are predetermined amounts set in a contract to compensate for potential breach. They are generally enforceable if they represent a reasonable estimate of actual damages. Penalties, which are designed to punish rather than compensate, are typically unenforceable.

48. How does the statute of limitations affect contract enforcement?

The statute of limitations sets a time limit for bringing legal action on a contract claim. Once this period expires, the contract becomes unenforceable in court, even if it was originally valid. The specific time limit varies by jurisdiction and type of contract.

49. What is the role of "consideration" in option contracts?

In option contracts, consideration is required to keep the offer open for a specified time. Without consideration, the offeror can revoke the offer at any time before acceptance. The consideration "purchases" the right to accept the offer within the option period.

50. How does ratification affect voidable contracts?

Ratification is the process by which a party with the power to avoid a contract chooses to affirm it instead. For example, when a minor reaches the age of majority, they can ratify contracts made during minority, making them fully enforceable.

51. What is the concept of "quantum meruit" in contract law?

Quantum meruit ("as much as deserved") is a legal principle allowing recovery for services rendered when there is no valid contract. It's based on the idea that one party shouldn't be unjustly enriched at the expense of another, even without a formal agreement.

52. How does the "battle of the forms" affect contract formation in commercial transactions?

The "battle of the forms" occurs when businesses exchange standard forms with conflicting terms during contract negotiation. Under the UCC, a contract can still be formed, with courts typically applying a "knockout rule" for conflicting terms and filling gaps with UCC provisions.

53. What is the significance of "contra proferentem" in contract interpretation?

Contra proferentem is a rule of contract interpretation stating that ambiguous terms should be interpreted against the party who drafted the contract. This principle encourages clear drafting and protects the party who had no say in the contract's language.

54. How does the concept of "course of dealing" affect contract interpretation?

Course of dealing refers to the past conduct between the parties in previous transactions. Courts may consider this when interpreting ambiguous terms in a contract, assuming that the parties intended to continue their established patterns of behavior.

55. What is the role of "specific performance" as a remedy in contract law?

Specific performance is an equitable remedy where a court orders a party to perform their contractual obligations. It's typically used when monetary damages are inadequate, often in cases involving unique goods or real estate. Courts consider various factors before granting this remedy.

56. How does the doctrine of "substantial performance" affect contract enforcement?

Substantial performance allows a party who has performed the essential parts of a contract, despite minor deviations, to still receive payment (potentially reduced for the deficiencies). This doctrine prevents forfeiture for trivial breaches and encourages contract completion.