What Are the Types of Contract: Everything You Need to Know
What are the types of contract available? This is something you need to know if you are planning to enter into a contractual agreement.3 min read
What are the types of contract available? This is something you need to know if you are planning to enter into a contractual agreement with another individual or business entity. A contract refers to a legally binding promise. A contract is legally enforceable and outlines the rights and obligations of each contracting party.
What Is a Contract?
A contract protects the interests of the parties involved and helps prevent misunderstandings or disputes in the future. Contracts can vary significantly depending on the type of transaction to be performed. Knowing which type of contract is most appropriate for a certain transaction can eliminate any unnecessary hassle and protect your rights more effectively.
Contracts are essential to society because they facilitate trust and cooperation. Instead of depending on the hope of reciprocity or fear of reprisal to get others to fulfill their obligations, people can more effectively enlist others to pursue common purposes by inviting them to enter into contracts backed by unbiased authority.
Without contracts and institutions that support contracts, promises will be more vulnerable to misunderstanding, ill will, forgetfulness, and other human flaws. Contracts enable people who have never met to enter into agreements, such as borrowing or lending money to purchase a home, that they would never otherwise consider making without legal assurance.
What Are the Types of Contract?
According to contract law, there are four types of contracts:
- Contracts on the basis of formation.
- Contracts on the basis of the nature of consideration.
- Contracts on the basis of execution.
- Contracts on the basis of validity.
Contracts on the Basis of Formation
Contracts on the basis of formation are divided into three groups:
- Express contracts — Contracts that involve expression or conversation. For instance, A has offered to sell his home, and B has accepted the offer, so it is regarded as an express contract.
- Implied contracts — Contracts formed without any expression. For example, sitting on a bus is an implied contract between the owner of the bus and the passengers.