Meaning and Nature of

the Contract
1. Meaning and Definition of the term "Contract" and "Contract Law"
2. Contract vis-à-vis Agreement
3. Nature of the Law of Contract
4. Theories of contract and Contract Law as a source of law.
5. Essential Elements of a valid contract
6. Kinds of Contract: General and Special, other variants and Standard form of contract.
7. Historical development of the law of contract in Nepal.
8. Features of Nepalese Contract Law Provisions under Muluki Civil Code Act, 2074 B.S.
Meaning and Definition of the term "Contract" and "Contract Law"

• A contract is an agreement that specifies certain legally enforceable rights and

obligations pertaining to two or more parties.
• Promise enforceable by law
• The promise may be to do something or to refrain from doing something
• The making of a contract requires the mutual assent of two or more persons, one of
them ordinarily making an offer and another accepting.
• If one of the parties fails to keep the promise, the other is entitled to legal redress.
• In the event of a breach of contract, the injured party may seek judicial remedies such
as damages or equitable remedies such as specific performance or rescission.
• Contracts are widely used in commercial activities, and for the most part form the
legal foundation for transactions across the world. Common examples
include contracts for the sale of services and goods, construction contracts, contracts
of carriage, software licenses, employment contracts, insurance policies, sales or
leases of land, among others.
 What is a contract?
• Contract is a part of lex mercarotoria. In general, an agreement to do or not to
do something between two or more persons in known as contract. In every
contract the parties to the contract make different promises about something
which is to be performed. These promises take the form of agreements and
these agreements if enforceable or recognized by law is a contract.
According to Salmond, "Contract is an agreement creating and defining
obligations between the parties."
As per Indian contact Act, section 2(h) "an agreement enforceable by law is a
contract."
According to NCA 2056, section 2(a) "Contract means a legally enforceable
agreement between the two or more parties to do or refrain from doing
something.“
According to Civil code, section 504(1), “Any agreement between two or
more parties to do or not to do something enforceable at law is a contract”
According to section 1 of the restatement of the law of contracts(US) “
Contract is a promise or a set of promises for the breach of which law gives a
remedy, or the performance of which the law in someway recognizes as a duty”
 Contract Law
• Contract law, the field of the law of obligations concerned with
contracts, is based on the principle that agreements must be honoured.
• areas of private law
• The law of contracts considers such questions as whether a
contract exists, what the meaning of it is, whether a contract
has been broken, and what compensation is due the injured
party.
• Common law jurisdictions typically require contracts to
include consideration in order to be valid, whereas civil and most
mixed-law jurisdictions solely require a meeting of the minds between
the parties.
• all contracts are agreements, not all agreements are contracts
• While we often use the words “contract” and “agreement”
interchangeably in casual conversation, when speaking
legally, they are two very different things.
• A legal agreement can be informal, meaning nothing needs to
be witnessed or written down. A contract, on the other hand,
is both more formal and legally binding—which means it must
be documented.
• Both an agreement and contract represent specific
arrangements between two or more parties. The main
differences lie in their flexibility and enforceability.
 Agreement v. Contract
• agreements are often • A contract is a written document that lays out the duties,
informal. They are a less responsibilities, and commitments both parties must
rigid and formal type of adhere to. It's a way for everyone to remember what was
contract: simply, they are agreed to, especially in complex deals, and protects
an understanding or everyone involved if something goes wrong.
arrangement between • Contracts are formal and legally binding agreements.
two or more parties, often The entities involved can use them as supporting
referred to as "handshake evidence if one of them fails to comply with the rules. If
agreements.” one party breaches the contract or fails to properly
perform their end of the deal, the other party
Benefits of an can take legal action.
agreement: Benefits of a written contract:
• Quick and simple • Legally enforceable
• Informal • Tangible proof
• Flexible in nature • Minimizes risk and disputes
• Can be quick if a template/online portal is used
• Makes terms and responsibilities clear
• Contract is not a physical thing but it is a legal relationship between the parties of
a contract. Contract is a relationship between the parties entering into a contract.
The elements of this relationship are mutual rights and mutual obligation.
• Usually, for convenience the written contract paper is referred as contract. But, in
fact it is not a contract but only the evidence of the contract.
• A contract is essentially a legally binding and enforceable agreement but are not
physical thing.
• It is a promise or a set of promises which can be legally enforced. Contract in this
way is an agreement which create legal relationship between the parties of the
contract. The legal relationship between the parties creates obligation. In this
way a contract is an agreement creating obligation which the law will enforce.
• Agreement is a promise or a set of promises whereas a promise is an
accepted proposal. Thus, agreement is created when one party makes
the offer and the another party accepts the offer. The party who
makes the offer is called offerer and the party to whom the offer is
made is called offeree.
So, an agreement can be mathematically expressed as,
Agreement = Offer + Acceptance
The parties who enter on an agreement should consent about the
subject matter of the agreement. This consent giving is called meeting
of the mind.
They must agree on the subject matter of the agreement in the same
sense at the same time. This is called meeting of the mind or consensus
ad idem.
An agreement may be social, religious, domestic or legal. Only legal
agreement which creates legal relationship between the parties are
contracts. Agreements creating obligation are called contracts and it
can be enforced by law if it is breached.
Social agreements or religious agreements does not create legal
relationship between the parties. So, in case of a breach the injured
party cannot go to the court to enforce his right in a social agreement.
Any agreement which does not create obligation is not a contract
Contd
• An agreement establishing legal relations between the parties and
creating obligation is a contract. But, if obligations are not created by
agreements then such obligation cannot be called a contract. For e.g.,
judgment of the court, relationship between husband and wife,
trustee and beneficiary are obligations but they are not contracts
because they are not created by an agreement.
Balfour Vs Balfour [1919] 2 KB
571
• In this case, Mr. and Mrs. Balfour, who used to live
together as a married couple in Sri Lanka, went for a
vacation to England. During this time, Mrs. Balfour
developed rheumatic arthritis. The doctor advised Mrs.
Balfour to stay back in England as, according to him, Sri
Lankan climate would worsen her health. Before Mr.
Balfour returned to Sri Lanka, he promised to send £30
to her per month. During their stay away, the parties
drifted apart and separated. It was held in this case that
Mr. Balfour’s promise to pay a monthly sum of £30 did
not amount to a contract, as there was no intention to
create a legal relationship on part of either of the
parties.
• Important Case: Pharmaceutical Society of Great
Britain v. Boots Cash Chemists Ltd. – When the
goods are displayed either in a show-window or inside
the shop and such goods bear price-tags, the question
which arises in such case is, whether that amounts to
an offer to sell goods at prices mentioned on the price
tags. In this case, it was held that display of goods
alongwith price tags merely amounts to invitation to
treat and therefore if an intending buyer is willing to
purchase the goods at a price mentioned on the tag, he
makes an offer to buy the goods. Thus, the shopkeeper
has the right to accept or reject the same. The contract
would arise only when the offer is accepted.
• Case: Carlill Vs Carbolic Smoke Balls Company
• In this case, a company carried out advertisements about their product,
carbolic smoke balls, that claimed that any person who took the smoke
balls in the prescribed manner (i.e., three times daily for two weeks) will
not catch influenza. In case someone does, the company promised to
pay 100£ to them immediately. To show their sincerity regarding this
offer, the company deposited a sum of 1000£ in a public bank. Now, the
plaintiff, Carlill bought the smoke balls and used them as prescribed in
the advertisement, but still ended up catching the flu. She filed a suit for
the recovery of 100£ as promised in the advertisement. The company
denied the payment saying there existed no contract between them and
the plaintiff. It was held that a contract came into existence between the
plaintiff and the company as soon as the plaintiff bought the smoke balls
and used them as prescribed.
Difference between contract law and
other branches of law
• Contract law differs from other branches of law on the following points
1. It does not prescribe the rights and duties that the law will protect
and enforce
2. It contains limiting principles like provisions of expressly void, free
consent etc
3. Subject to the limiting principles of law of contract, parties create
their rights and duties
4. They have autonomy to fix their rights and duties subject to limitation
(section 507 of civil code)
5. Parties are given the right to make law for themselves i.e. frame their
own rule about the subject matter of the contract as long as they do
not violate the law of contract.
Contd
• In fact law of contracts differs from other branches of law in
an important respect. It does not lay down a number of
rights and duties which law will enforce; it consists rather a
number of limiting principles, subject to which the parties
may create rights and duties which the law upholds.(Anson
pg 1)
• Thus contracting parties make the law for themselves within
the limitation of the contract law. They can make necessary
rules according to their desire about the subject matter of
their agreement, and the law gives effect to their
contractual rules as long as they do not infringe some legal
prohibition.(see sec 4 & 13 NCA 056/ Sec 507 and 517 of
Civil code)
 Synopsis
• Law of Contract is a part of legal system for the regulation of deals,
promises or transactions. In simple words, the agreement between
individuals in the society.
• Law of contract according to Anson is the child of commerce.
According to him it is meant to ensure what a man has been led to
expect shall come to pass but what is promised to him shall be
performed.
• Therefore, it is that branch of law which determines the circumstances
in which a promise is legally binding to the promisor.
• However, law of contract differs from other branches of law e.g. it
does not prescribe precise rights and duties which the law will protect
and enforce. But, it contains a number of limits or restrictive principles
within which the contractors can create rights and duties for
themselves. If the rules created by them are within the limiting
principles prescribed by law, the rules will be recognised.
• In other words the rights and duties created by the parties themselves
will be enforced by law. Hence contract is known as private legislation.
Continued……
• Law of contract allows the parties to make the law for themselves (sec
507). In other words they can frame any rule they like relating to the
subject matter of the contract and the law will enforce them if it does
not cross the legal prohibition.
• Thus contract is private legislation where the legislators (lawmakers
are not the people’s representative) but the parties involved in the
contract itself. Such private legislation if it is within the limiting
principles of law is upheld by law hence, for any breach of such rules
made by the private parties themselves law provides a remedy.
 Nature of contract law
• Law of contract is a part of law of obligation however, law of contract
deals only with the obligation voluntarily taken it does not deal with
the obligation imposed by law. In fact laws of obligation are of two
types
• a) Obligations imposed by law which include the law of crime, quasi
contract, unjust enrichment (Please go chapters 15,16 and 17 of part
5 of the civil code) and Torts. Such obligations are obligation imposed
by law. They are not part of the law of contract as law of contract
does not deal with such obligations e.g. An order of the court is
definitely an obligation but it is not a contractual obligation.
• b) Obligations voluntarily assumed: If the parties assume any
obligation voluntarily through an agreement then they are supposed
to be contractual obligations. The law of contract deals with such
obligations only. Hence, contract law is appropriately described by
Salmond “As not the whole law of obligations or the whole law of
agreements but as the law of those obligations which is created by
agreements and the law of those agreements which create
Continued….
• Therefore contract law deals with those agreements
which create an obligation and obligations which are
created by agreements.
 Law of contract in Nepal
• Nepal enacted the first contract legislation in 2023,it was repealed and contract act 2056
was enacted which is now repealed by civil code 2074. by doing this we are going closer
to the continental system of law instead of common law.
• In common law, contract only covers the contract of law of obligations hence, contract is
not only agreement but the promise expressed by the parties (UCC definition of contract).
• In civil law system contracts always appear in law of obligations (our civil code follows
this), but contract is also a basic act of importance in the law of property, family law
including law of succession hence like French civil code our code also discusses general
principles (Principes Genraux) before they proceed to positive law (Part 5 segment 1 of
Civil code)
• Like every continental civil code Nepali civil code or Nepalese civil code also distinguishes
between those obligations which arise from agreement and those which did not (civil
code part 5, chapter 1). In the following chapters dealing with obligations, the first
chapters deals with contracts and last ones (chapter 15,16 and 17) deals with obligations
arising from quasi contracts, Unjust enrichment and torts. Unlike in English common law
Nepalese civil code places contract and tort in one category similar to French law.
 Continued….
• In this way part fifth of the civil code deals with rules relating to contract and
other obligations including general provisions relating to obligations,
conditions of conclusion of contract, legality of contracts, performance of
contracts, breach and remedies of contract, sales, guarantee, bailment, pledge
and pawn, agency, carriage of goods, liege, quasi contracts, torts, product
liability etc.
• Though, new concepts derived from continental law especially various civil
codes of France, Germany Japan, and some inklings of UNIDROIT rules and UCC
are incorporated but instead of consolidating the prevailing law and improving
the inadequate provisions the law of contract part of the civil code has become
an aborted version of continental codes which is neither fish nor fowl.
• Of course the lacunae has to be corrected by our supreme court founded in
the distilled wisdom of the judicial precedents. Because, English contract law is
more sophisticated than broadly formulated provisions of civil codes or
UNCISG. Hence, not ratified due to fear of resulting uncertainty.
 Continued……….
• In this way civil code part five is not a law of contract but law of contracts
although general principle of contract law (of the first chapters) applies to all
types of contracts including those which are not included in the civil code.
• In English law obligation are divided into three categories or tripartite
division
1. Contractual: Contractual obligation arises from failure to make things
better (by not performing as expected)
2. Tort: Arises for actions making things worse
3. Restitutionary (based on unjust enrichment of defendant on claimant’s
expenses): Unjustly receiving the benefit on other’s expense.
• The difference between contract and tort is that obligations under contract
are voluntarily taken and liability is assignable while tort obligations are
involuntarily imposed by the law and liability is unassignable.
Continued…………
• The fact that our civil code has adopted continental legal
model is evident from the inclusion of both contractual
and tort obligation under the law of obligation, where as
in common law including India, law of obligations are
divided into three categories of contracts, restitution
and torts. In French law contract and tort is one category
unlike in English law.
 Components of contract
• Hence, contract has two components-agreement and obligation. All
the contracts are agreements but all the agreements are not
contracts. Only agreements which creates binding legal obligation
enforceable by law are contracts.
• Some continental codes like French and Italian civil code list the
component elements of contract, e.g. as per the French civil code
article 1108, the essentials are
1. The consent of the party who binds him/herself (Consentment)
2. capacity to contract(Capacite)
3. A definite object which forms the subject-matter of the
undertaking(Objet Certain)
4. A lawful cause in the obligation (Licite)
• Similarly the Italian code section 1325 has the following essentials
1. Agreement (Accordo) 2. Cause (Causa)
3. Form (Firma) 4.Object (Oggetto)
Continued…………..
• According to section 10 of ICA, “A contract enforceable at
law must fulfill the following conditions:
1. Free consent
2. Contractual capacity
3. Lawful object and lawful consideration
4. Not expressly declared to be void
5. Fulfill legal formality if required by law
• Comparing civil law codes and common law we find that
only agreement and capacity are universal requirement,
infact it is unnecessary to put object certain (Certain
matter) as component since people do not contract if
there is nothing to contract about.
Continued……….
• NCA 2056 did not have provisions relating to component elements of
contract but, civil code section 505(1) and 505(3) requires fulfillment
of certain condition for any contract to be enforceable at law. They are
1. The consent of the party who binds himself
2. Capacity to contract
3. A definite object which creates obligation
4. Lawful obligation
5. Formality if required by law
• From the analysis of the above, it is clear that there is no universal
components of a valid and enforceable contract, but our civil code is
more closer to continental codes then common law as consideration
is not a necessary element for the validity of the contract. This is
obvious as the code was drafted with the help of JICA.
Continued…………
• In this way, contracts are agreements which are enforceable at law
and for any agreement to be enforceable certain basic essentials
has to be complied with. They are namely:
1. Agreement(offer and acceptance)
2. Intention to create legal relationship
3. Free consent
4. Contractual capacity
5. Lawful object
6. Lawful consideration
7. Not expressly declared void
8. Possibility of performance
9. Certainty of meaning
 1. Agreement(offer and acceptance)

In the contract there must be an agreement between two or more

parties (sec 504(1)). So, to be a valid contract there must be a plurality
of persons because one single person cannot make agreement with
himself. Without an offer and acceptance there is no agreement and
without agreement there is no contract, so agreement is the
foundation of a contract. But only those agreements that meet all the
essential requirements of a binding contract will be enforced by law.
All other agreements are not contractual if they do not meet the basic
requirements of a binding contract
2. Intention to create legal relationship

• The parties to the contract must have an intention to create

legal relationship between them. Although, it is not mentioned in ICA
section 10 and civil code section 505, but according to English law it is
one of the trinities of the contract and is also followed in India. Civil
code also recognises this. Section 504(2) provides that a contract is
created when an offer with contractual intention is accepted by the
offerree. Section 504(3) clearly states that when a contract is formed
a binding relationship between the parties is created.
• Therefore it is clear that although intention to create legal
relationship is not an express prerequisite mentioned in section 505,
the wording of section 504 suggests that a contract cannot be valid
without intention to create legal relationship.
 Contd
• According to English law intention to create legal obligation is a must for any
agreement to be enforceable. This requirement is not clearly mentioned in
Indian and Nepalese law. However this principle is followed in India and
Nepal also. Hence for an agreement to be enforceable as a binding contract it
must have the intention of the parties to create legal relations. Generally the
situations in which there is no intention to create legal relations are
1. Social and domestic arrangements like two parties agreeing to walk
together or offer and acceptance of hospitality or family arrangements. E.g.
in Balfour v Balfour, a husband was employed in a government post in
Ceylon. He returned with his wife to England on leave, but she was unable
to go back to Ceylon with him for medical reasons. He consequently
promised her an allowance of 30 pounds a month until she rejoined him.
He failed to do so and she sued him. Held she could not recover as it was a
social agreement and the parties did not intend to create any legal
relations( Balfour v Balfour 1919 KB)
 Contd
• But even purely social or domestic agreements may have intention to create legal
relations. E.g. a husbands promise to pay money to his wife may be a contract if the
parties are separated.(Merritt v Merritt 1970), an agreement between relatives to share
the winnings of a football pool party was enforceable, (Simkins v Pays 1955 1 WKR). Here
a joint entry in a competition was considered as a contract.
• In this way whether a social and domestic agreement was intended to have legal
relationship or not is determined by the facts of the case. Generally in business
agreements law presumes that the parties had intention t create legal relationship
however intention to create legal relationship maybe expressly rebutted(Redmond pg
99) in the following situations
i. Though in commercial and business agreements law presumes that there is an
intention to create legal obligations, however it may be negatived by express terms in
the contract.
ii. By a clause that the agreement shall not be subject to jurisdiction of the law courts9
Rose and Frank v Crompton Brothers 1925)
 Contd
iii. Though agreements of domestic and social nature do not give rise to
legal consequences but it can be rebutted by giving evidence to the
contrary i.e. by proving that the intention of the parties was to create
obligation.
E.g. an aged couple (c and his wife) held out a promise by
correspondence to their niece and her husband( Mr. & Mrs. P) that c would
leave a portion of his estate in his will, if Mrs. and Mr. p would sell their
cottage and live with the aged couple and to share their household and
other expenses. The young couple started living with aged couple after
selling their cottage.. But the two couple subsequently quarreled and the
age couple repudiated the agreement by requiring the young couple to stay
somewhere else. The young couple filed a suit against the aged couple.
Held that there was intention to create legal relation and the young couple
could recover damages.( Parker v Clark 1960 1 W.L.R. 286)
3. Free consent
• To be an agreement there must be consent between
the parties. Which means the minds of the parties must
meet and agree. It is called consensus ad idem or meeting
of the minds. This denotes that the parties must agree in the
same sense at the same time about the subject matter of
the contract. Hence if there is no consent there is no
contract at all.
• But if there is consent it must be genuine and free.
Consent is not free if it is obtained by coercion, undue
influence, fraud and misrepresentation. If the consent is
obtained by such factors then the contract is not valid it is
voidable (sec 518).
4. Contractual capacity
All legal systems including ours have rules which deny capacity to
contract to minors, persons of unsound mind and persons
disqualified by law. These rules are basically protective.
Contractual capacity means a capacity to enter into a contract or
competent party. The parties to the contract must have
contractual capacity which means they must be competent to
make contracts. According to sec 506(1) and 506(2), a certain
category of people do not have contractual/capacity they are
• Minors
• Persons of unsound mind
• Persons disqualified by law.
Any contract with such persons are not valid.
In this way there are certain factors which tends to defeat
contractual liability. In such case the contract is not enforceable
5. Lawful object

The object or aim of the contract must be lawful. It should not be

illegal, immoral or against the public policy (public order). For e.g. an
agreement made with an object of drug trafficking is illegal and void.
To be a valid contract the object or purpose of the agreement must be
lawful not opposed to morals and public policy. Every contract whose
object is unlawful is void (section 505(d)).
6. Lawful consideration
A valid contract must always be backed by a consideration. There is a
general rule "no consideration no contract in common law" Consideration
means to get something in return for the promise. To be a valid contract it
is essential that there must be consideration in it but the consideration
should also be lawful. An unlawful consideration makes the contract void.
For e.g. if A with B, if he gives him Rs. 2000 he will get him a government
scholarship. The agreement is not valid because the consideration is not
valid.
But according to section 507, parties are autonomous. Civil code 2074 has
shunned the common law doctrine of consideration hence, consideration
is neither defined nor it is necessary for the validity of the contract,
despite of the case of Chitrabahadur Karki v Maniram Agrawal which laid
down the principle no consideration no contract. Thus as per civil code
2074 a contract is binding even if there is no consideration if the parties
have contractual intention (Food for thought)
7. Not expressly declared void
this element is mentioned in section 10 of ICA but it is not mentioned in
section 505 however, it is another essential element of a valid contract.
An agreement made by the parties should not be declared void by the
law. Any agreement which is expressly declared void by sec 517 and
other laws of Nepal does not create a valid contract. For e.g. according
to civil code agreement in restraint of marriage or trade, etc. are
expressly declared void. In such cases even if the agreement has all the
necessary elements of a valid contract, the contract is void and not be
enforceable. E.g. contract in restraint of trade
8. Possibility of performance
To be a valid contract, the agreement or the subject
matter of the agreement must be possible to perform.
Any agreement made for performing impossible things
between the parties does not make the contract valid.
For e.g. an agreement to make a dead person alive is
impossible to perform. So, the agreement is not valid, it
is void from the very beginning. Hence, impossible
contracts need not be performed. Impossibility are of
two types: Initial and subsequent.
9. Certainty of meaning

The terms and conditions of the valid contract must be certain or

possible of being made certain which means the terms of the contract
should be clear and definite, it should not be vague or ambiguous
(confusing) ( section 517(h). Same way any contract to agree in future
cannot be a contract because there cannot be a contract to make a
contract.
10. Legal formalities
It is another essential requirement of a valid contract. A
valid contract should fulfill all the legal formalities
prescribed by law. It must be made in writing and registered
as per sec 505(3). In this way a contract may be in writing, or
made orally both have same legal effect but in some cases
the particular law may require a contract to be in writing,
stamped and registered. it is always in the interest of the
parties that the contract should be in writing. In some cases
in addition to the contract being in writing it may have to be
stamped and registered or attested (e.g. section 36 (2) and
36(5) chapter 2 of civil procedural code.
Contd
• A contract may be in writing, or made orally or by conduct (section
505(2)) all carry the same legal effect. However in some cases a
specific law may require a contract to be in writing. E.g. contract of
guarantee and pledge has to be in writing.
• It is always in the interest of the parties that the contract should be in
writing and in some cases in addition to being in writing, it may have
to be registered or attested. Hence the legal formalities required by
the law has to be fulfilled for any contract to be binding and
enforceable.
Types of contracts on the basis
of the formation of the contract
Verbal Contracts
• A verbal contract is an agreement that is made orally,
without any written documentation. These types of
contracts are based on trust between the parties
involved and are enforceable by law. However, it is
difficult to prove the terms of the agreement in court if
there is no written record.
• Example: A customer orders a custom-made cake over
the phone and agrees to pay the baker a certain
amount. The baker delivers the cake, but the customer
refuses to pay the full amount, claiming that the cake
was not as requested.
Written Contract
• A written contract is an agreement that is recorded in
writing and signed by both parties. This type of contract
provides clarity and reduces the likelihood of disputes,
as the terms are clearly defined in writing.
• Example: A company hires an employee and provides
them with a written employment contract that outlines
the terms of employment, such as salary, benefits, and
job responsibilities
Express Contracts
• An express contract is an agreement in which the terms
and conditions are explicitly stated, either verbally or in
writing. This type of contract is legally binding and
enforceable.
• Example: A contractor agrees to build a house for a
client for a fixed price, and the terms and conditions of
the agreement are clearly stated in a written contract.
Implied Contracts
• An implied contract is an agreement that is not
expressed in words, but is inferred from the actions and
behavior of the parties involved. This type of contract is
based on the conduct of the parties rather than any
explicit agreement.
• Example: A customer enters a store and selects an
item to purchase. The customer offers to pay the price
displayed, and the cashier accepts the payment.
Although there is no written or verbal agreement, an
implied contract is formed between the customer and
the store.
Quasi-Contracts
• A quasi-contract is a legal agreement that is created by
the court in the absence of an actual contract. This type
of contract is based on the principle of equity, and it is
intended to prevent unjust enrichment.
• Example: A person accidentally damages someone
else’s property and voluntarily agrees to pay for the
repairs. Although there was no actual contract between
the parties, a quasi-contract is formed based on the
principle of unjust enrichment.
Types of contracts on the basis
of nature of the contracts
Valid Contracts
• A valid contract is an agreement that meets all the legal
requirements of a contract, such as the presence of
offer, acceptance, consideration, and capacity to
contract. This type of contract is legally binding and
enforceable by law.
• Example: A person agrees to purchase a car from a
dealership for an agreed-upon price. The contract is in
writing and signed by both parties
Void Contracts
• A void contract is an agreement that is not legally
binding and has no legal effect. This type of contract is
null and void from the beginning and cannot be
enforced by law.
• Example: A person enters into an agreement to
purchase illegal drugs. The contract is void, as the
object of the contract is illegal.
Voidable Contracts
• A voidable contract is an agreement that is legally
binding, but one or both parties have the option to void
or cancel the contract due to certain legal or factual
defects. This type of contract is enforceable unless it is
avoided or canceled by one of the parties.
Void-ab-initio Contracts
• A void-ab-initio contract is an agreement that is illegal
and void from the beginning due to the nature of the
contract or its object. This type of contract is not
enforceable by law and has no legal effect.
• Example: A minor enters into a contract to purchase a
car. The agreement is void ab initio.
Unenforceable Contracts
• An unenforceable contract is a valid agreement that
cannot be enforced by law due to certain legal or
factual reasons, such as the lack of a written agreement
or the expiration of the statute of limitations. This type
of contract is valid, but it cannot be enforced by law.
Illegal Contracts
• An illegal contract is an agreement that involves an
illegal act or is against public policy. This type of
contract is void and unenforceable by law.
• Example: A person enters into an agreement to bribe a
government official. The contract is illegal, as it involves
an illegal act.
Types of contracts on the basis
of the Parties of the contracts
Unilateral Contracts
• A unilateral contract is a type of contract in which one
party makes a promise to do something in exchange for
a specific performance from the other party. The
contract is formed when the other party performs the
required act.
• Example: A company offers a reward to anyone who
finds a lost item. The contract is formed when a person
finds the lost item and performs the required act of
returning it.
Bilateral Contracts
• A bilateral contract is a type of contract in which both
parties make promises to each other to perform specific
acts. The contract is formed when both parties agree to
the terms of the contract.
• Example: A person agrees to purchase a car from a
dealership for an agreed-upon price, and the dealership
agrees to sell the car for the agreed-upon price. Both
parties have made promises to each other.
On the basis of nature
Adhesion Contracts/Standard Form Contracts
• An adhesion contract or a standard form contract is a
type of contract in which one party has all the
bargaining power and presents the other party with a
take-it-or-leave-it offer. The other party has no choice
but to accept the terms of the contract.
• Example: A person signs a software license agreement
without reading the terms and conditions, as they have
no choice but to accept the terms to use the software.
Aleatory Contracts/Contingent Contracts
• An aleatory contract is a type of contract in which the
performance of one or both parties is contingent on an
uncertain event. The contract is formed when an
uncertain event occurs.
• Example: A person purchases an insurance policy that
pays out if a specific event, such as a fire or flood,
occurs. The contract is formed when the event occurs.
Types of contracts on the basis
of execution of the contract
Executory Contracts
• An executory contract is a type of contract in which one
or both parties have not yet fully performed their
obligations under the contract. The contract is still in
the process of being executed.
• Example: A person agrees to purchase a car on
instalment payments. The contract is executory
because the person has not yet fully paid for the car.
Executed Contracts
• An executed contract is a type of contract in which both
parties have fully performed their obligations under the
contract. The contract is completed.
• Example: A person pays the full purchase price for a
car in a single payment. The contract is executed
because both parties have fully performed their
obligations.
What is a General Contract?
• A general contract, also known as a standard contract, is
an agreement between two or more parties that creates
legally binding obligations. It is a type of contract that is
not specific to any industry or subject matter. General
contracts are used in a wide range of business
transactions, including the sale of goods and services,
employment agreements, and real estate transactions.
• A general contract typically contains the elements: Offer
and acceptance, Consideration, Intention to create
legal relations, Capacity to contract Lawful object
Specific Contracts
Contracts which have certain specific features are known
as specific contract. These types of contracts are distinct
from other contracts. The National Civil Code contains
certain specific contracts such as bailment, pledge,
indemnity, guarantee, agency etc.
Conclusion
• Contracts are legally binding agreements that form the
backbone of any business or personal transaction. The
various types of contracts based on formation, validity,
nature, and execution offer a framework for creating
and enforcing these agreements.
• Understanding the different types of contracts is crucial
for protecting one’s legal rights and obligations under
the contract. Whether verbal or written, executed or
executory, valid or void, contracts play an essential role
in modern society