What is a Contract?
A contract is a legal document that binds the contracting parties that are recognized and governed by the rights and duties of the parties to the agreement. A contract is legally enforceable as it meets the requirements and confirmation or approval of the law.A contract can either be written or oral. However, oral contracts are challenging and it should be avoided if possible.
Contacts are classified into three different types on the basis of their formation. Read on to know more about types of contracts based on the formation.
Classification of Contract Based on Formation
In accordance with the mode of formation, the contracts are classified into three -
Express Contract
Implied Contract
Quasi - Contract
Express Contract
If the terms of the contract are expressly agreed by the parties, either by spoken words or in writing at the time of formation of the contract, it is called Express Contract.
An Implied Contract
An implied contract is one for which the proposal or the acceptance is made otherwise than in words. Implied contracts are the result arising from the circumstances of the case and the conduct of the parties.
A Quasi-Contract
A quasi-contract is created by law. There is no intention on either side to make a contract. The rights and obligations arise here not by an agreement but by the operations of law.
Let Us Learn The Different Types of Contact Based on Formation in Detail Below:
Quasi-Contract
An agreement which is a retroactive arrangement between two parties is known as the Quasi-Contract. In this type of contract, there are no previous obligations to one another. It is created by a judge to correct a circumstance in which one party acquires something at the expense of the other party.
Quasi-contracts are designed to prevent one party from unfairly gaining any benefits from the situation at the other party's expense. These arrangements may be created and imposed when goods or services are accepted, though not requested, by a party. This acceptance then creates an expectation of payment.
Quasi-contracts frame the obligation of one party to another when the latter owns the original party's property. These parties might not necessarily have a prior agreement with one another. The agreement is imposed by law through a judge. It is legal in nature. As the agreement is constructed in a court of law, it is legally enforceable, so neither party has to agree to it. The purpose of the quasi-contract is to exhibit a fair outcome in a situation where one party has an advantage over another.
Types of Quasi Contract
The types of quasi-contract are as follows-
Supply of Necessities - A person who is incapable of entering into a contract or anyone whom he is legally bound to support is supplied by another with necessaries of life. The person furnishing such supplies is entitled to be settled up with the property of such an incapable person.
Payment By an Interested - A person who is interested in the payment of money on behalf of another party, and where the other party is bound by law to pay, is entitled to be reimbursed by the other.
Obligation to Pay for Non - Gratuitous Acts - When a person legally does anything for another person or delivers anything to him, or anything has been done non-gratuitously and such other person enjoys the benefit from that, the latter is bound to make compensation to the former in respect of, or to restore, the things that are done or delivered by the person.
Responsibilities of the Finder of Goods - A person who finds goods of another person and takes them into his custody is subject to the same responsibilities as a bailee. He is bound by the law to take as much care of the goods as a man of ordinary prudence would. If he does not, he will be guilty of the wrongful conversion of the property. Till the owner is found out, the property in goods will be responsible for the finder.
Mistake Or Coercion- A person to whom either money has been paid or anything is delivered, by mistake or under coercion, the person must repay or return it to the person who paid or delivered it by mistake or under coercion.
Express Contract
An express contract is a contract which has clearly stated terms already. It is different from an implied contract, which is a contract that is believed to operate based on the behaviours of those involved in the contract. The terms that are exclusively defined in an express contract includes the type, quantity of goods delivered (or any services rendered), as well as the time duration during which the transaction is expected to take place.
The acceptance of an express contract must be in conformation to the terms offered in the contract. If a party agrees to the contract but looks to amend its terms and conditions in some way, the party is not unconditionally agreeing to the contract, instead of looking to make a counter-offer. Once a counter-offer has been made, the contract henceforth no longer qualifies as an express contract.
Further, for an express contract to be considered valid in the court of law, the parties contracting must either exchange or give value, or suffer a loss of particular kind (make the payment). This binds them to the terms of the contract legally.
Implied Contract
An implied contract is a legally-binding obligation that arises from the actions, conduct or circumstances of one or more parties present in the agreement. It has an equal legal force as an express contract, which is a contract that is voluntarily entered and agreed on verbally or in writing by two or more contracting parties. The implied contract, on the other hand, is assumed to exist, but there is no written or verbal confirmation for the same is necessary.
FAQs on Types of Contracts Based on Formation
1. What are the main types of contracts based on their formation under the Indian Contract Act, 1872?
Based on the mode of formation, contracts are primarily classified into three types:
- Express Contract: Where the terms of the agreement are explicitly stated, either in writing or orally.
- Implied Contract: Where the contract is inferred from the actions, conduct, or circumstances of the parties involved, rather than explicit words.
- Quasi-Contract: An obligation imposed by law to prevent unjust enrichment of one party at the expense of another, even though there is no actual agreement between the parties.
2. What is an Express Contract and can you provide an example?
An Express Contract is a legally binding agreement where the terms and conditions are clearly and explicitly stated by the parties, either in written form or spoken words. For a valid express contract, the offer and acceptance must be specific and clear. For example, when you sign a written lease agreement to rent an apartment, you are entering into an express contract. All terms like rent amount, duration, and rules are explicitly defined.
3. How is an Implied Contract formed without any spoken or written words?
An Implied Contract is formed not by words but by the conduct of the parties and the circumstances of the situation. The law assumes a contract exists based on the actions of the individuals involved. For example, when you hail and board a taxi, you have entered into an implied contract. It is implied that the driver will take you to your destination and you will pay the fare, even though you might not have explicitly discussed these terms beforehand.
4. What is the key difference between an Express Contract and an Implied Contract?
The key difference lies in how the agreement is communicated. In an Express Contract, the promises are communicated through explicit language, either written or oral. In contrast, an Implied Contract arises from the actions and conduct of the parties. For instance, verbally agreeing to sell a book for ₹500 is an express contract, while getting a haircut at a salon implies a contract to pay for the service.
5. Why is a Quasi-Contract not considered a true contract, even though it is legally enforceable?
A Quasi-Contract is not a true contract because it lacks the most essential element of a contract: mutual consent or a 'meeting of the minds' (consensus ad idem). It is not created by an agreement between parties. Instead, it is an obligation imposed by law to uphold justice and fairness, specifically to prevent the unjust enrichment of one person at the expense of another. It resembles a contract in its legal effect but is created by legal fiction, not by intention.
6. If a person mistakenly leaves their goods at a neighbour's house and the neighbour uses them, what type of contract is this?
This situation creates a Quasi-Contract. There was no actual agreement for the neighbour to use the goods. However, the law imposes an obligation on the neighbour to either return the goods or compensate the owner for their use. This legal obligation arises to correct a situation where one party (the neighbour) would otherwise be unjustly enriched by benefiting from something that belongs to another person.
7. Are there only three types of contracts in business law?
No, contracts are classified on several different bases. The classification into Express, Implied, and Quasi-Contracts is based specifically on their mode of formation. Contracts can also be classified on other grounds, such as:
- Validity: (e.g., Valid, Void, Voidable, Unenforceable contracts)
- Performance: (e.g., Executed and Executory contracts)
- Legality: (e.g., Legal and Illegal contracts)
Therefore, the type of classification depends on the criteria being considered.
