Classification of Contract in Business Law

Classification of Contracts in Business Law: An Overview

Contracts are essential in running a business, as they outline the terms and conditions of agreements between parties. In business law, contracts are classified into various categories based on their formation, execution, and enforceability. Understanding the different types of contracts can help business owners and managers make informed decisions that protect their interests and avoid legal issues. In this article, we will explore the major classifications of contracts and their legal implications.

1. Express and Implied Contracts

An express contract is one where the terms are explicitly agreed upon by the parties, either in writing or orally. For example, when a vendor and a customer negotiate the specifics of a sale and sign a contract, it is an express contract. On the other hand, an implied contract is formed by the actions of the parties and is not explicitly stated in writing or verbally. For instance, if a customer goes to a store and buys a product, an implied contract is formed where the customer agrees to pay for the product and the store agrees to sell the product.

2. Unilateral and Bilateral Contracts

A unilateral contract is one where only one party is responsible for fulfilling the terms of the agreement. For example, if a company offers a reward for finding a lost item, it is a unilateral contract because only the person who finds the item can claim the reward. In contrast, a bilateral contract is an agreement where both parties promise to fulfill specific obligations. A typical example is a contract between a company and a vendor, where the vendor agrees to supply goods or services, and the company agrees to pay for them.

3. Executed and Executory Contracts

An executed contract is one where both parties have fulfilled their obligations, and the contract is complete. For instance, when a customer pays for a product and receives it, an executed contract has been made. An executory contract is one where one or both parties have not yet fulfilled their obligations. A typical example is a lease agreement between a landlord and a tenant, where the tenant pays rent each month, and the landlord provides a place to live.

4. Void and Voidable Contracts

A void contract is one that is not legally enforceable from the outset. For example, if a person enters into a contract to purchase illegal goods or services, it is a void contract. A voidable contract, on the other hand, is an agreement that can be legally unenforceable by one party, but not by another. For example, if a person signs a contract under the influence of alcohol or drugs, the contract is voidable, and the party can choose to avoid it.

5. Executed and Executory Consideration

Consideration is the value that each party gives to the other in exchange for fulfilling their obligations under the contract. Executed consideration refers to when the value has been exchanged when the contract is signed. For example, if a customer pays for a product at the time of purchase, it is executed consideration. Executory consideration, on the other hand, is when the value is exchanged after the contract is signed. For example, if a company agrees to pay a bonus to an employee for achieving certain targets, the executory consideration is the employee achieving the targets.

In conclusion, contracts are essential in business law, and understanding the different types of contracts and their legal implications is crucial for business owners and managers. By knowing the classification of contracts, business people can make informed decisions that protect their interests and avoid legal issues.