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Types of the Contract on the basis of formation

Unit-1 Nature of contract

CA Foundation Paper-2 Business Law

Chapter-1 The Indian Contract Act 1872

A contract is defined under section 2(e) as, “an agreement enforceable by law.” The contract is just not limited up to this definition. This can be of various types. Here we will know about types of contracts on the basis of formation.

As shown in the above picture, contracts can be segregated in four types on the basis that how parties create the contract. Let’s understand each type one by one.

  • Express Contract

As per section 9 of the Indian Contract Act 1872, if a proposal or acceptance of any proposal is made in words than the promise will be called an express contract.

As clear by its name also, this type of contract is clearly expressed in words. So we can say that when the terms of the contract have been expressed in words whether oral or written, called an express contract.

  • Implied Contract

Implied contracts are the contracts that come into existence by implication of law or action of parties. Section 9 provides an implied contract as a contract created other than by words or promise.

For Example,Ram goes to a restaurant and eat food. This will be known as an implied contract. As here the contract is created by the actions of Ram. No formal contract was created between Ram and the restaurant owner. Here Ram will be liable to pay the amount of the food to the restaurant owner.

Tacit Contract

This category is not the main category. It falls under the category of implied contracts. The word Tacit means silence. This contract also comes into existence by action, not by words.

For Example, Ram withdraws money from ATM is a Tacit contract.

  • Quasi Contract

A quasi-contract is not a contract created between parties but it is an obligation created by law to resemble any contract. The characteristics of quasi-contracts are-

  • No intention of the parties to create a contract
  • The contract created by Law
  • All terms, conditions, rights, obligations, etc. are decided by the law itself.
  • This is not an actual contract but is imposed to resemble any contract.

For Example

Jai has taken a loan from Gabbar. Gabbar charged an interest rate ten times higher than the market rate. Ram filed a case against Gabbar. Court ordered Gabbar to return the excess amount of interest with the penalty to Jai. Here no contract was created between Gabbar and Jai for repayment of the excess interest amount. Hence this will be called a quasi-contract.

  • E-Contract

When a contract is created through electronic means like email, online trading, known as E-contract. These types of contracts are very popular now these days. These contracts are also known as cyber contract or mouse click contract or EDI contracts.

For example, Ram purchased a watch through amazon. Here a contract has been created between Ram and the dealer through amazon. This is an E-contract.

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