Types of Contracts in Business Law

Business Law Contracts According to their Classification

Contracts Based on Execution
In this category, contracts can either be executory or executed contracts. Executed contracts are
the ones where performance is already executed. In this contract, one of the parties in the
business contract has already fulfilled his or her obligations. On the other hand, executory
contracts are the ones where the parties involved are required to perform their future obligations.

Contracts Based on Formation

Formation based contracts are categorized into three groups. They are:
Express Contracts- They result from conversations or expressions.
Implied Contracts- They occur without conversations or expressions. They can be implied in law
or fact. True implied contracts arise from mutual agreements that haven’t been expressed in
words.
Quasi Contracts- Also known as implied-in-law contracts, these types of business contracts exist
regardless of consent by either party.

Contracts Based on Validity

There are four different types of business contracts based on validity. They are:
Void Contracts- They don’t impose any obligations on the contracting parties, and they are
unenforceable.
Valid Contracts- They are legally enforceable.
Voidable Contracts- These are the types of business contracts established under mental or
physical pressure. They might become void or valid business contracts at a future date.
Illegal Contracts- These types of contracts have unlawful objects. For instance, a contract may be
considered illegal if it involves the sale and delivery of illegal narcotics.

Nature of Consideration Based Contracts

These types of contracts are classified into two categories: unilateral and bilateral contracts.
Bilateral Contract
Also known as two-sided contracts, bilateral contract involves contracting parties who promise
not to perform or perform certain acts.

Unilateral Contracts
Also known as one-sided contracts, these types of business contracts are established with the
acceptance of an offer. An example is where one offers a reward if someone finds their lost
possession. The person offered the reward doesn’t have to find the lost item belonging to the one
offering the reward.

Other Types of Contracts in Business Law

Options Contracts
Options contracts allow a contracting party to enter to a different contract with a different party
at a time that is not specified. An example of an option contract is where a seller is paid by a
buyer to take their property off the market, after which a new contract to buy the property is
made if the buyer chooses to purchase the property.

Adhesion Contracts
Commonly known as “take it or leave it” contracts, adhesion contracts are drafted by parties with
more bargaining powers. Weaker parties have no say. They may only choose to accept or reject
the contract. These contracts leave one of the parties in a position where they have little or no
negotiation powers.

Aleatory Contracts
These contracts involve agreements that aren’t triggered until certain events occur. A good
example is an insurance policy. Insurance policies require a buyer paying premiums and the
buyer promising to pay the insured good, say a car, in case it is involved in an accident. As you
can see, the insured or the buyer pays for a service that he or she will never receive, and the
insurers or sellers have to pay possibly more than the amount of premiums they received from
the insured.
1. Bilateral Contracts:

Involve an exchange of promises between two or more parties.

Each party has a legal obligation to perform their promised act.

Example: A sales contract where one party agrees to buy a product and the other party agrees to
sell it.

2. Unilateral Contracts:

Involve a promise made by one party in exchange for an act performed by another party.
The offer remains open until the act is performed.

Example: A reward offer where one party promises to pay a reward to anyone who finds their
lost dog.
Executed Contracts:

Have been fully performed by all parties.

The obligations under the contract have been discharged.

Example: A completed sales contract where the buyer has paid for and received the product.

8. Executory Contracts:

Have not been fully performed by all parties.

The obligations under the contract are still outstanding.

Example: A construction contract where the contractor has not yet completed the building.

9. Void Contracts:

Are invalid from the beginning due to a fundamental flaw, such as illegality or incapacity.

They cannot be enforced by law.

Example: A contract to sell illegal drugs.

10. Voidable Contracts:

Are initially valid but can be cancelled or rescinded by one party due to a specific reason, such as
fraud or mistake.

Example: A contract signed under duress.

Executory Contract:

A contract that has not been fully performed by all parties.

The obligations under the contract are still outstanding.

Example:

A contract for the purchase of a house that has been signed by both the buyer and seller, but the
closing has not yet taken place.

A contract for the construction of a building that has not yet been completed.

Executed Contract:

A contract that has been fully performed by all parties.

The obligations under the contract have been discharged.

Example:

A contract for the purchase of a car that has been signed by both the buyer and seller, and the
buyer has paid for and received the car.

A contract for the construction of a building that has been completed, and the contractor has been
paid in full.

Additional Examples:

Executory Contract:

A contract for the provision of services, such as a contract for a lawyer to represent a client in a
lawsuit.
A contract for the sale of goods that have not yet been delivered.

Executed Contract:

A contract for the sale of land that has been completed, and the deed has been transferred to the
buyer.

A contract for the provision of services that have been fully performed.
Gratuitous Contract:

A contract in which one party (the donor) confers a benefit on another party (the donee) without
receiving anything in return.

The donor's motive is typically to make a gift or provide a benefit to the donee.

Example: A gift of money or property from one person to another.

Onerous Contract:

A contract in which both parties exchange something of value.

Each party receives something in return for their performance.

Example: A sales contract where one party agrees to buy a product and the other party agrees to
sell it.
Aleatory Contracts

Aleatory contracts are contracts in which the performance of one or both parties depends on an
uncertain event. The outcome of the event is not known at the time the contract is entered into.
Types of Aleatory Contracts:

Insurance Contracts: The insurer agrees to pay a benefit to the insured if a specified event occurs,
such as a car accident or illness.

Gambling Contracts: The parties agree to wager money or other valuables on the outcome of a
game or event.

Lottery Contracts: The parties agree to purchase tickets for a chance to win a prize.
Contingent Fee Contracts: A lawyer agrees to represent a client in a lawsuit for a percentage of
the proceeds if the client wins.

Example:

An insurance contract is an aleatory contract because the insurer's obligation to pay a benefit
depends on the occurrence of an uncertain event, such as a car accident or illness. The insured
pays a premium to the insurer in exchange for the insurer's promise to pay a benefit if the event
occurs.

Validity:

Aleatory contracts are generally valid and enforceable, provided that they are entered into freely
and without fraud or coercion. However, some types of aleatory contracts, such as gambling
contracts, may be illegal or void in certain jurisdictions.