Contract law

1. Sc
S y l l a b u s o f c o n t r a c t l a w f o r s e m e s t e r 1
Different types of contracts
Based of formation type
And
Based on validity
202026/10/2020
Contract Law
Types of Contract
Nirav H Bhatt
School of law Rai University
Semester - 1

2. Types of Contracts
Two differentkindsof groupsof contractsare fixedprice contractsandcost-reimbursement
contracts. Differenttypesof contracts,which are containedwithineachof these twotypesof
groups,may be usedseparatelyorincombinationwithone another.
1. Lump Sum or FixedPrice Contract Type
A lumpsumor fixedprice contractisthe type of contract where all construction-related
activitiesare regulatedwithatotal fixedprice agreement.
Lump sumcontracts are favouredinsituationswhenaclearscope and a definedscheduleis
negotiatedandaccepted.Forexample,if itisnecessarytoshiftthe liabilitytothe builder
and to preventchangesinordersforundeterminedwork,thistype of contractisbest
suitable forthe situation.Due topresentrisk,acontractor holdssome percentage cost.
It isessential toconsiderthatif the lumpsumcontract was signed,itwouldbe challenging
to obtainanycreditback for an uncompletedjob.
2. Cost PlusContracts
Cost pluscontractscover:
 Actual cost
 Purchase
 Otherexpensesincurredfromthe constructionwork.
Before the negotiationsbegin,aspecificexpense amountmustbe includedincostplustypes
of contracts.These amountsrepresentapercentage of the material andlabourcosts,which
coverthe continuingcostsof operationandthe contractor'sprofit.
Cost can be director indirect,anditmust include all critical costaspectsof a contract.
3. Time and Material Contracts WhenScope is Not Clear
Time and materialscontractsare typesof contracts usedina case where:
 The capacity and quantityof time andmaterialsisundetermined,whichmakesthe
projectrisky.
 The ownerand the contractor are compatible withthe tariff perhourorper day,
includingpossibleadditional costsduringconstruction.
 Periodically,the ownercandetermine durationof the projectwithacontractor,
whichmustbe performedtoreduce the risktoa minimum.
The downfall of thistype of contracts isthat the sellercanincrease anindefinite orunknown
expense amount,whichisthe costthe buyerhas to pay.
4. UnitPricing Contracts
Unit price contracts are commonlycalledhourlyrate contracts.Thistype of contract
combines:
 Reimbursableexpenses
 Fixedprice type of contracts.
Unit pricingcontractscan be adjustedduringthe processinwhichthe ownerofferscertain
quantitiesandpricesforthe predeterminednumberof items.
5. Bilateral Contract
Both partiesinvolvedinabilateral contractpromise toimplementcertainthings.

3. 6. Unilateral Contract
In a unilateral contract,one party,whichisthe bidder,requiresperformancefromthe other
party ratherthan a promise.AnOffereecannotbe suedfor:
 Abandoningthe project
 Notbeingable tofinishhisorher work.
Thisis because he or she didnotmake a promise.Therefore,onlythe bidderisrequiredby
lawto comply.
7. ImpliedContracts
The contract can eitherbe impliedinfactor impliedinlaw.
o Impliedinfact contract.
The jointagreementcreatesobligationsandpromisedintentionsamongthe
parties,where bothare notexpressedinwords.Thistype of contractisnot
articulateddirectlybutthroughfactsandcircumstances,whichdemonstratesthe
sharedintentiontoachieve anagreement.
o Impliedinlawcontract.
Thisis knownasa quasi-contractbecause the contractdoesnotrepresenta
real legal agreement.
8. ExpressContracts
Duringformationof the expresscontract,partiesare formingconditionseitherorallyorin
writing.Thisofferiswhollyacceptedwiththe termsof anOfferee.
9. Simple Contract
A simple contractisany kindof writtenororal agreement.The followingare notrequiredfor
a simple contractto be legallybinding:
 Witnesses
 Signatures
 Seals
 Contract UnderSeal
Accordingto the traditional principles,the contractrepresentsalegal actonlyif stamped.
The seal is a certaintythatthe legal consequencesare conceivable.
10. Unconscionable Contracts
An unconscionable contractisan unfairtype of contract, made onlyinfavorof the party that
issuperiorinthe negotiations.
11. AdhesionContracts
Adhesioncontractsare createdbyan advantageousbargainingparty.Theyallow the weaker
side onlythe possibilitytoacceptthe contract or to rejectit.It isalsoknownas a "Take itor
leave it"type of deal.
12. Aleatory Contracts
Aleatorycontractsare basedona mutual agreementof the partiesinvolved,anditseffectsare
activatedunderthe circumstancesof uncertainevents,while one orbothpartiesacceptthe risk.

4. Classification according to validity or enforceability:-
a) Validcontract:
A contract whichsatisfiesall the conditionsprescribedbylaw isa validcontract.
b) VoidContract:
The term voidcontract isdescribedasundersection2(j) of I.CA,1872, A contract which
casesto be enforceablebylawbecomesvoidwhenitceasestobe enforceable.Inother
words,a voidcontract isa contract whichisvalidwhenenteredintobutwhich subsequently
became voiddue toimpossibilityof performance,change of law orsome otherreason.
If one partyto the contract hasthe optionof enforcingacontract by law,butnot at the
optionof the otheror others,itisa voidable contract.Inthose caseswhenthe consentis
not givenfreelybutcoercionhasbeenusedthe partyhasthe optiontocontinue withthe
contract or rescindit.
These contractsare enforceable whenthe agreementismade butdue tocertainlapsesthey
become unenforceableata laterdate.The agreementbecomesunenforceable forthe
followingreasons:
• Accordingtosection56 if a contract isillegal orimpossibletoconductitbecomes
void.
• The contract becomesvoidif itisvoidable innature andthe party whocould
exercise the optionof avoidingitdecidestodoso.
• Anycontract, whichhasa contingencyclause andit,becomesimpossible to
Conductit eitheronthe happeningornothappeningof aparticulareventisa void
Contract.This isexplainedin(section32).
Illustration1:Anil made anagreementwithSumantosell house noP-21in SushantLokin
Gurgaon.The termsand conditionswere finalized.Beforethe due date forthe transaction
to take place there wasan earthquake andthe house fell down.Anil couldnotkeephis
promise because the house didnotexistanymore.Thiscontractisvoidbecause the
agreementwasmade onthe basisof the house inpossession.Since Anildidnothave the
house afterthe natural calamityitwas a near impossibilitytodeliverthe goodstoSuman.
E.g. X offerstomarry Y, Y accepts X offer.Lateron Y diesthiscontract wasvalidat the time
of itsformationbutbecame voidatthe deathof Y.
c) VoidAgreement:
Accordingto Section2(g),anagreementnot enforceablebylaw issaidto be void.Such
agreementsare void.Thismeansthattheyare unenforceablerightfromthe time theyare
made.
Section2(g) describesvoidagreementsasthose thatare unenforceable fromthe inception
of the agreement.Inother wordsthese agreementsare void.A mistake betweenthe two
partiestoan agreementof amaterial factmakesthe agreementvoid.Therefore void
agreementsdonotcreate any legal rightsbetweenthe partiestothe contract.It alsodoes
not create any obligations.There isaflaw inthe agreementitself.

5. E.g. inagreementwithaminoror a personof unsoundmindisvoidbecause aminoror a
personof unsoundmindisincompetenttocontract.
d) Voidable contract to section2(i) :
Accordingof the Indiancontractact, 1872, A voidable contractisone whichcan be setaside
or avoidedatthe optionof the aggrievedparty.Until the contractis setaside bythe
aggrievedparty,itremainsavalidcontract.
o Example of a voidable contractiswhenapersonhas promisedtodelivercertain
goodson a certaindate and he doesnotdeliverit,itisthe optionof the buyerto
continue orto rescindthe contract (section55).
o Illustration1:Ruhi wantedtobuy a goldchainfor hermother’sbirthday.The
goldsmithpromisedtodeliveritonthe 20th of May. On the due date the chainwas
not ready.Ruhi rescindedthe contractanddecidedtobuysomethingelse.The
goldsmithwantedcompensation.Ishe right?The goldsmithisnotcorrect.If he did
not deliverthe goodsontime Ruhi hasthe rightto rescindthe contract.
Thus ina voidable contractthe aggrievedpartycantake benefitof the situation.He/shemay
decide togo aheadwiththe contract as well.Thusina voidable contracta flaw can create a
benefitforaparty. Howeverif the partydecidestocontinue withthe contract,the terms
and agreementswill continue tobe validandthe contract will alsobe a validone.
o For e.g.a contract is treatedasvoidable atthe optionof the party whose consent
has beenobtainedunderinfluence orfraudor misinterpretation.
o E.g. X threatenstokill Y,if the doesnot sell hishouse forRs.1 lakhto X.Y sellshis
house toX and receivespayment.Here,Yconsenthasbeenobtainedbycoercion
and hence thiscontract isvoidable at the optionof Y the aggrievedparty.
d) Illegal Agreement:
An illegal agreementisone the objectof whichisunlawful.Suchanagreementcannotbe
enforcedbylaw.Thus,illegal agreementsare alwaysvoid.(i.e.voidfromthe verybeginning)
o e.g.X agreesto y Rs.1 lakhif Y killsZ.Y kill andclaimsRs.1 lakh.Y cannot recover
fromX because the agreementbetweenXandY isillegal andalsoitsobjectis
unlawful.
e) Unenforceable contract:
It iscontract whichisactuallyvalidbutcannotbe enforcedbecause of some technical defect
(suchas not inwriting,understamped).Suchcontractscanbe enforcedif the technical
defectinvolvedisremoved.
Void Agreement and Void Contract: Distinction
A voidagreementisvoidfromthe beginningof the contract.A voidcontract is validwhenitismade
but due to certainlapsesitbecomesunenforceablebylaw subsequently.

6. A voidagreementwill have the followingeffects:
• It will be unenforceable bylaw
• If both partiesknowthatthe agreementisvoidmoneywillnotbe recoverableif already
paid.
• Collateral transactionwill be legalunlessthe agreementitself isillegal.
• All legal promisesare enforceable if the agreementcanbe provedto be severable.
The difference betweenvoidagreementandvoidcontractcan be discussedonthe basisof
(i) enforceability
(ii) Compensationandrestitutionand
(iii) The effectoncollateral agreement.
o Enforceable:
Voidagreementsare notenforceable fromthe time of theirformation.
Theyare saidto be void.
Voidcontractsare enforceable whentheyare formedbuttheybecome
unenforceable if the partywhohasthe optionto rescindthe contract doesso.It isa
validcontract if itis notrepudiated.
A voidagreementisnotenforceable atall buta voidcontract can be enforcedif the
partiesagree tocomplete the contractand exercise the optionaccordingly.
o Compensationandrestitution:
In a voidagreementthere isnocompensationbecause the agreementisnot
enforceable bylaw.
In a voidable contractthe personwhoexercisesthe optionof rescindingthe
contract can get compensationif he hasrightlytakenthe optionof notgoingahead
withthe contract.
It followsthereforethatrestitutionisallowedinavoidable contractunlessthe
partiesknewof the illegalityof the agreementatthe time of formation.
o Collateral agreement:
An agreementthatisvoiddue toillegalityhasaneffectoncollateral agreementsas
well.
Such agreementswill be correspondingly voidbecause of illegalityinconsideration
or objectinthe agreement.
A voidable contracthoweverhasnoeffectoncollateral contracts.

7. Classification according to Formation:-
 Expresscontract:
Expresscontract isone whichismade by wordsspokenor written.
 Example No.1: X saysto Y, will youbuya car for Rs.100000. Y saysto X, I am
readyto buyyour car forRs. 100000. It isan expresscontractmade rally.
 Example No.2: X writesaletterto Y, I offertosell mycar forRs. 100000 to
you.Y senda lettertox,I am readyto buy yourcar for Rs.100000. It isan
expresscontractmade inwriting.
 An implied/tacticcontract :-
It isa contract whichismade otherwise thanbythe wordsspokenorwritten.Itcame into
existence onaccountof an act or conduct of the parties.
 Example:- A stopsa taxi by wavinghishandandboards it.There isan implied
contract that A will paythe prescribedfare onreachinghisdestination.
Withdrawal of cash fromthe ATM of a bank.
 Quasi or constructive contract:
It isa contract inwhichthere isno intentioneithersidetomake a contract, butthe law
imposescontract.Insuch a contract eightsandobligationsarise notbyanyagreement
betweenthe practice butbyoperationof law.
 E- Contract :-
An e-contractisa contract made through the electronicmode.