A contract is a legally binding agreement between two or more individuals or entities, obligating them to perform or refrain from specific actions. As defined by the Supreme Court of Nepal, a contract is characterized as “an agreement of two or more parties with conditions.”
In a contract, the involved parties establish their own rights and responsibilities, which they are obligated to adhere to. The essential characteristics of a contract include:
- Civil nature
- Autonomous nature
- Mutable nature
- Facilitator nature
TYPES OF CONTRACT
1. Contracts based on their creation or formation:
Express Contract
An express contract is formed through explicit verbal or written communication. For instance, if X asks Y, “Will you buy a car for Rs. 1,00,000?” and Y responds, “I am ready to buy your car for Rs. 1,00,000,” an express contract is established between the two parties.
Implied Contract
An implied contract arises from actions rather than explicit words. It is deduced from the behavior of an individual or the specific circumstances of a situation. For example, if X, a porter in uniform, picks up Y’s bag to carry it from the railway platform without Y’s request, and Y permits this action, an implied contract is formed based on the porter’s actions and Y’s acceptance.
Quasi or Constructive Contract
This type of contract occurs when there is no mutual intention to create a contract, yet the law imposes obligations. In such cases, rights and duties arise not from an agreement but through legal stipulation. For example, if A accidentally leaves personal belongings at B’s residence, B is legally required to return them.
2. Contracts Based on Execution
Executed Contract
This type of contract occurs when both parties have completed their respective obligations as stipulated in the agreement. For instance, if X offers to sell his car to Y for Rs. 1 lakh, and Y accepts this offer, followed by X delivering the car to Y and Y paying Rs. 1 lakh to X, the contract is considered executed.
Executory Contract
This refers to a contract in which the parties have yet to fulfill their obligations. For example, if X proposes to sell his car to Y for Rs. 1 lakh and Y accepts the offer, but X has not delivered the car and Y has not made the payment, the contract remains executory.
Partly Executed and Partly Executory Contract
This type of contract exists when one party has completed their obligation while the other has not. For example, if X offers to sell his car to Y for Rs. 1 lakh with a one-month credit period, and X delivers the car to Y, the contract is executed from X’s side but remains executory from Y’s side.
3. Contracts Based on Enforceability/Validity
- Valid Contract: A valid contract is one that meets all the legal requirements established by law. To qualify as valid, it must satisfy all the essential elements necessary for a contract.
- Void Contract: It is a contract which can’t enforce from its beginning. For example, contract made with minor, insolvent and person with unsound mind.
- Voidable Contract: A voidable contract is one which can be set aside or avoided at the option of the aggrieved party. Until the contract is set aside by the aggrieved party, it remains a valid contract.
- Unenforceable Contract: It is contract which is actually valid but cannot be enforced because of some technical defect (such as not in writing, under stamped). Such contracts can be enforced if the technical defect involved is removed.
4. On the Basis of Liability
Unilateral Contract
It is also called as one-sided contract. In a unilateral contract, only one party has to satisfy his obligation at the time of the formation of it, the other party having fulfilled his obligation at the time of the contract or before the contract comes into existence.
For example, A takes a public auto to go to Mount Road. A contract comes into existence as soon as A was dropped in Mount Road. By that time, auto-man has fulfilled his obligation, only A has to fulfill his obligation i.e. paying the auto-man.
Bilateral Contract
A contract is said to be a bilateral contract where the obligations of both the parties to the contract are pending at the time of formation of the contract. In this type of contract, a promise on one side is exchanged for a promise on the other.
For example, A promises to stitch a blouse and B promises to pay Rs.30. Here A promises to stitch the blouse and B promises to pay. Thus each party is both a promisor and a promisee.
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