Contracts are an essential aspect of business operations, as they help define the terms and conditions of agreements between parties. They enable businesses to establish relationships and execute transactions with greater confidence and clarity. However, not all contracts are created equal. In this article, we`ll explore the different types of contracts on the basis of validity or enforceability and formation.
1. Express Contracts
An express contract is created when the parties involved explicitly state their intentions and agree to the terms of a contract in writing or orally. For example, if a vendor and a customer agree to a service contract in writing, it would be an express contract. The terms of the contract are clear and unambiguous, which makes it easier to enforce if any disputes arise.
2. Implied Contracts
An implied contract is formed by the actions or conduct of the parties involved, even in the absence of a written agreement. For instance, whenever you purchase goods from a store, an implicit promise is made that the goods will be fit for purpose and of reasonable quality. Even though there is no explicit agreement stating these terms, they are implied by law.
3. Unilateral Contracts
A unilateral contract is one where only one party makes a promise or offers something of value in exchange for an action or performance by the other party. For instance, if a person offers a reward for the return of a lost item, they are creating a unilateral contract. The reward is only payable if the action is carried out, and not before.
4. Bilateral Contracts
A bilateral contract is the most common type of contract and involves an exchange of promises between two parties. Both parties agree to specific terms and are bound to their obligations under the contract. For example, if a property owner and a renter agree to a lease contract, they are entering into a bilateral contract.
5. Void Contracts
A void contract is unenforceable from the outset, as it violates legal principles or public policy. For example, an agreement to commit a crime, or one made under duress, is considered void. Since a void contract is invalid, the parties involved are not obligated to perform any of the terms or conditions of the agreement.
6. Voidable Contracts
A voidable contract is one where one party has the power to cancel or terminate the agreement if certain conditions are met. For instance, if one party is under duress and not able to make an informed decision, the contract may be considered voidable. The party with the right to terminate the agreement must do so within a reasonable amount of time or risk losing that right.
7. Executed Contracts
An executed contract is one where all the terms and conditions of the agreement have been fulfilled and the contract is complete. For example, if a customer pays for a service and the vendor provides the service as agreed, the contract is considered executed.
8. Executory Contracts
An executory contract is one where one or both parties are yet to fulfill their obligations under the agreement. For instance, if a construction company agrees to build a house and the owner agrees to pay once the construction is complete, the parties are involved in an executory contract until the construction is finished, and the payment is made.
Conclusion:
In conclusion, contracts come in many shapes and sizes and play a vital role in business transactions. Understanding the different types of contracts based on their enforceability and formation can help businesses enter into agreements with greater confidence and clarity. Knowing when you have a binding agreement and what your obligations are under the contract can help prevent legal disputes and protect your business interests.