Contracts are the major foundation and key element of business transactions, governing the agreements between two or more parties. It is very important to know the various types and elements of contracts so that we can better understand legal agreements. In the scope of business law, a contract is legally binding, creating mutual obligations enforceable by law. There are various types of contracts in business law, which we are going to discuss below.
Different Types of Contracts
A. Valid, Void, Voidable and Unenforceable Contracts
1. Valid Contract
A contract which meets all the required essential required elements of the contract, including offer, acceptance, consideration, capacity, legality, and other related elements. These contracts are legally enforceable by both parties.
2. Voidable Contracts
A voidable contract is legally valid but may be canceled or voided by one of the parties due to various circumstances, such as misrepresentation, fraud, undue influence, or coercion. If the aggrieved party chooses to enforce the contract, it remains valid.
3. Unenforceable Contracts
The unenforceable contract is one that kind of contract, but cannot be enforced due to some legal technicalities or related issue, which may be the absence of a written form when required by law.
4. Void Contract
A void contract is one that contract is not legally enforceable from the outset. That takes place when the contract that lacks the required essential elements is against the law or involves an illegal subject matter and other like nature. Agreement to engage in criminal activity is void, it is a good example.
B. Express and Implied Contracts
1. Implied Contracts
An implied contract is formed through the conduct of the parties rather than explicit written or spoken terms. If a person goes to a restaurant and orders some snacks, then it is implied that he is going to pay the bill.
2. Express Contracts
The express contract is one where the terms are explicitly stated in exact form, either in writing or verbally. Basically, there is explicitly involved. The parties clearly define their rights, responsibilities, and other obligations. Businesses commonly use contract management software to manage these contracts efficiently and ensure compliance.
C. Unilateral and Bilateral Contracts
1. Unilateral Contracts
A unilateral contract is a one-sided agreement in which one party makes a promise in exchange for an action performed by another party. Basically, it depends upon one party. The contract is considered valid when the action is completed successfully. If a company offers a reward or award for the return of a lost pet, it establishes a unilateral contract, so it is all about it.
2. Bilateral Contracts
The bilateral contract involves the element of mutual promises between two parties. Each party is obligated to perform its part of the agreement, basically in bilateral contract there is dependency upon both.
D. Executed and Executory Contracts
1. Executed Contracts
The executed contract is one in which both parties have fulfilled their obligations, like a contract for the sale of goods where payment has been made and the goods have been delivered.
2. Executory Contracts
The executory contract is one where one or both parties still have to fulfill their obligation or performance, which means the contract in which the obligation is under process. For instance, a lease agreement where the tenant yet need to pay the required rent of the rented place for the upcoming months in those he is going to stay.
E. Adhesion and Negotiated
1. Adhesion
An adhesion contract is a standardized type of agreement which is drafted by one party, usually with stronger bargaining power, and offered to the other party on a “take it or leave it” basis.
2. Negotiated
The negotiated contract is one where both parties discuss and they also agree upon the terms before finalizing the agreement, and ready to perform their obligation but there is scope of negotiation.
F. Contingent and Aleatory Contracts
1. Contingent
The contingent contract is dependent on the occurrence of a certain event an insurance contract that only requires payment if a specified loss.
2. Aleatory
The aleatory contract involves an uncertain event that determines the obligation of one party to a life insurance policy where the insurer pays out only if the insured person dies within the policy period and so on and so forth.
G. Fixed-Price and Cost-Reimbursement Contracts
1. Fixed Price
The fixed-price contract specifies or expresses the fixed set amount that must be paid irrespective of the cost of the project construction and government contracts.
2. Cost Reimbursement
A cost-reimbursement contract allows one party to be reimbursed for actual expenses plus an additional amount for profit contracts are often used in research and development projects.
H. Employment and Service Contracts
1. Employment
The employment contracts are those type of contracts which provide the detail guide about the employment between the parties which are employer and employee which may include an including salary, and termination conditions.
2. Service
It involves those agreements which define the relation between the service provider and a client for specific or certain services, such as consulting, maintenance and other related services.
I. Domestic and International Contracts
- The domestic contract is those agreement which is between parties within the same country or same jurisdiction and which is governed by the local laws or regional laws of that country.
- The international contract involves parties from different or the various other jurisdiction countries. These contracts are subject to international trade laws, treaties, and foreign law.
J. Government and Commercial Contracts
- The government contract is an agreement between a private entity and the other party, which is a government agency for the supply of goods, services, or infrastructure development and other like-natural acts involved in it.
- A commercial contract is an agreement between two private parties for business purposes, such as the sale of goods, partnerships, or joint ventures.
Conclusion
Contracts are the vital part of business transactions or other like nature transactions and can take many forms which based on their nature and purpose, as the requirement of the contract it will be based upon that and individuals and businesses enter into agreements with confidence, ensuring their rights and obligations which are legally protected. Before entering into any contract, it is very much advisable to seek legal counsel to avoid unwanted disputes and ensure the contract is enforceable under the law as prescribed.
Frequently Asked Questions
1. How can a contract be legally enforced?
The contract is legally enforceable if it fulfils all essential legal elements, including offer, acceptance, consideration, legal capacity, a lawful purpose, it is all mandatory requirements which needs to be fulfilled. If a party fails to fulfil their obligations, legal action can be taken or any other legal complication may arise for default party.
2. What is an example of an implied contract?
The implied contract occurs through actions rather than written or spoken words. For example, when a customer enters a taxi and sits down, it is implied that they will pay the fare for the ride, same as in case of restaurant if person goes and order some food.
