Contract Definition

The contract is a legally enforceable agreement outlining two or more parties' rights, obligations, and responsibilities. It is a document that establishes a relationship between the parties involved, setting out the terms and conditions of the agreement and establishing mutual promises. A contract may be written or verbal, but it is recommended to have it in writing to avoid misunderstandings or disputes.

The body of law known as contract law regulates the creation, enforcement, and interpretation of contracts. This area of civil law governs the rights and duties of parties to contracts. Contract law lays out the guidelines for forming legally enforceable agreements and offers remedies for contract violations. There are several ways that contract law is organized, including through legislation, case law, and international treaties and conventions.

The most formal and official source of contract law is statutes, which are laws approved by the legislative branch of government. Statutes can include the Uniform Commercial Code (UCC), which governs commercial transactions, and the Uniform Electronic Transactions Act (UETA), which regulates electronic contracts. Another significant source of contract law is case law, sometimes referred to as common law. It comprises judgments rendered by courts in specific situations, which aid in forming and defining the law.

Contract law is often developed through case law, as courts interpret and apply the law in specific cases. Contract law is also influenced by international agreements and treaties, such as the United Nations Convention on Contracts for the Sale of Goods (CISG). These treaties and conventions are agreements between nations that set out uniform rules for international transactions and are incorporated into the signatory countries' law. Therefore, contract creation, enforcement, and interpretation are governed by the complex body of contract law.

It is a fundamental component of contemporary trade and economic interactions and is governed by legislation, case law, and international treaties and conventions. Understanding contract law is crucial for both individuals and companies because it helps to guarantee that contracts are enforceable and legally binding while lowering the likelihood of disagreements and misunderstandings.

Elements of a Contract

The agreement must meet several essential elements to be considered a valid contract, including offer and acceptance, consideration, capacity, and legality.

1. Offer and acceptance is a procedure in which one party offers something to another, and the other party accepts it is known as an offer and acceptance. The offer ought to be detailed, unambiguous, and made to create a contract. The acceptance must be unconditional and match the terms of the offer.
2. Consideration describes the exchange of anything of value between the parties, such as cash, products, or services. The commitments made in the contract must be exchanged for something of value from both parties.
3. Capacity describes the parties' readiness to sign a contract. The parties must be able to enter into a contract lawfully, meaning they must be of legal age and have the mental capacity to understand the agreement.
4. Legality is the requirement that the contract is not against the law, public policy, or morality. Illegal agreements or against public policy are applicable or valuable in court.

Types of Contracts based on how they were created

1. Written Contract

A written contract is one in which the terms and circumstances of the agreement between two or more parties are documented in writing. Written agreements can take various forms, including letters, emails, or formal ones.

The advantages of having a written agreement include providing evidence of the terms and conditions agreed upon, reducing the risk of misunderstandings and disputes, and making it easier to enforce the contract in a court of law. Additionally, a written agreement can be a reference for the parties involved and can be used to resolve disputes or enforce obligations if necessary.

It is important for written agreements to be clear, concise, and comprehensive and to include all relevant details, such as the parties involved, the terms of the agreement, and the consequences of breach of contract. Written agreements should also be reviewed and signed by all parties involved to ensure that they understand the terms and conditions of the deal and agree to be bound by them. That's why a written agreement is critical to any business or personal relationship, providing a clear and legally binding record of the terms and conditions agreed upon between the parties. It is important to ensure that written agreements are carefully drafted and reviewed to minimize the risk of misunderstandings or disputes and to provide a solid basis for resolving any issues that may arise.

2. Verbal Contract

A verbal contract, also known as an oral contract, is a binding agreement reached by spoken words between two or more parties. Instead of being recorded in a formal document, the contract's conditions are discussed in person.

If a verbal contract satisfies the criteria for a legal contract, including offer, acceptance, consideration, and consent from both parties, it can be just as enforceable as a written agreement. However, because there is no written record of the deal, verbal contracts might be more challenging to prove in court.

It is also crucial to remember that some contracts, like those for the sale of real estate, must be in writing to be enforceable.

Thus, verbal agreements can be legally binding and enforceable. Still, it is always advisable to put significant contracts in writing to prevent misunderstandings and ensure everyone is on the same page.

3. Express Contracts

Express contracts are contracts in which the parties directly state and clearly explain the terms and conditions of the contract in either writing or verbally. An unequivocal knowledge of each party's obligations, rights, and responsibilities is what express contracts are intended to achieve.

The parameters of the agreement are expressly mentioned in an express contract and may cover things like the exchange of goods or services, the payment terms, and the time frame for execution. Express contracts may also contain prerequisites that must be satisfied before the contract is deemed enforceable, such as receiving the required authorizations or passing a background check.

Examples of an express contract include an agreement between an employer and an employee that describes the relationship between an employee and employer, including job responsibilities, salary, and benefits.

4. Implied Contracts

An implicit contract is assumed from the actions and circumstances of the persons concerned rather than specified clearly in words. Unlike express contracts, the provisions of an implied contract are not expressly specified, yet they can indeed be legally binding and enforceable.

Implied contracts are created through the actions and conduct of the parties, which indicate that they have entered into a binding agreement. For example, an implied contract may exist if an employee has been working for an employer for some time without a written contract, but the employer has consistently paid them for their work.

There are two types of implied contracts:

1. Implied-in-fact contract: This type of contract is inferred from the actions and conduct of the parties and is based on their mutual agreement and understanding.
2. Implied-in-law contract: This type of contract, also known as a quasi-contract, is enforced by law to prevent one party from unfairly benefiting oneself at the cost of another.

It is important to note that the terms of an implied contract are not always as clear as those in an express contract, and disputes may arise if the parties have different understandings of their agreement. In such scenarios, the courts will consider the parties' actions and circumstances to decide the parameters of the implied contract.

5. E contract

E-contracts are legally binding agreements as long as they meet the requirements of a valid contract, such as offer, acceptance, consideration, and mutual consent. The electronic format of e-contracts does not affect their validity as long as they are entered into voluntarily and with the intent to be legally bound.

This contract is formed through electronic means, such as email, online forms, or electronic signatures. E-contracts have become increasingly common with the rise of technology and the growing use of the internet in business transactions.

E-contracts have several advantages over traditional paper contracts, including:

• Convenience: E-contracts can be executed and stored electronically, making accessing and managing easier and more efficient.
• Speed: The process of forming and executing e-contracts is typically faster than traditional paper contracts.
• Cost: E-contracts can save time and money compared to the traditional contract process, as they eliminate the need for printing, mailing, and other physical processes.

However, there are also potential drawbacks to e-contracts, including issues with authentication, security, and enforceability. When deciding whether to use an e-contract or a traditional paper contract, it is crucial to consider each agreement's specific circumstances and requirements thoroughly. Failing to do so could lead to complications and misunderstandings down the line. By carefully evaluating the situation, you can make an informed decision that best serves the interests of all parties involved.

Types of contracts based on the validity of the contract

1. Valid Contract

A valid Contract considers three different important rules

• No forcible agreement should be made between the parties involved
• Both parties must agree on the same consent
• The agreement or the contract must be according to the country's legal procedures.

There are many other criteria involved which may make a contract more valid; when the parties or persons or the companies involved in the contract have the same mindset about the terms and conditions of the agreement, then the contract often leads to a valid one.

A common example of a valid agreement includes the rental agreement between the landlord and the tenant in which both parties agree on the same terms of rent amount, payment due, bond policy, etc.

2. Void contracts

"Void" word in law signifies something not according to law. So, a contract that is not feasible or not according to the law enforcing body is either a country's or the Company's law.

According to Indian law, a contract is termed Void if it does not follow section 10.

A contract may become void under the following conditions:

• If either of the parties is minor or mentally unsound, then the agreement is considered invalid according to Indian law.
• If one party tries to misinterpret the data or makes false statements about the contract and does not work according to the contract, the contract becomes void.
• If the contract involves illegal activity, then it is void.
• If the terms and conditions are excessively one-sided or only consider either the profit or loss of one party, then it is also void.

A common but unsocial example includes a contract signed by someone who is physically or mentally harassed is also a void contract.

3. Voidable contract

A voidable contract is a legally binding agreement that can be either enforceable or unenforceable at the option of one of the parties involved. This type of contract differs from a void contract, considered null and void from the beginning, and has no legal effect.

A contract may be voidable for various reasons, such as one party's lack of capacity to enter into a contract, pressure, undue influence, fraud, misrepresentation, or mistake. The affected party can either affirm or avoid the contract in these cases.

If the affected party affirms the contract, it remains valid and enforceable. If the affected party decides to avoid the contract, it is treated as if it never existed. In either case, the parties must act in good faith and restore any benefits received under the contract.

4. Void-ab-initio contract

The term means a contract that is not valid from the very beginning but was signed by both parties either due to misinterpretation, fraud by one of the parties, or under any external influence.

5. Unenforceable contract

When a contract is deemed unenforceable, the judicial system will not obligate one party to fulfill their duties or provide compensation for non-compliance with the agreement's provisions. Although the basic components of an enforceable contract (offer, acceptance, and consideration) seem simple, there are stringent enforceability criteria. Contracts can be nullified for various reasons, such as the circumstances surrounding the agreement's signing, the agreement's content, or events that occur after the contract has been signed.

Incapacity, coercion, undue influence, fraud, nondisclosure, case circumstances, violation of public policy, error, and impossibility are all defenses to contract enforcement. A contract that would otherwise be considered valid can become unenforceable if these conditions exist. In essence, such contracts can only be upheld if both parties agree to enforce them, but they cannot be legally enforced in a court of law.

6. Illegal Contracts

An agreement or contract involving an illegal act against the public interest is considered unlawful or wrongful. For instance, if a person sells a firearm to someone who doesn't possess a proper license, the contract formed between them is illegal. Similarly, a contract requiring a party to breach another legally binding agreement they have already entered into is also considered illegal.

Illegal contracts are not valid according to law. Payments or assets transferred under an illegal contract cannot usually be recovered. However, there are exceptions to this rule. For example, if an agreement is deemed unlawful due to a statute enacted to protect a particular group of people, a member of that group can recover the money they paid or the assets they transferred under the contract.