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Types of Contract Based on Formation

By October 5, 2021No Comments

When it comes to business agreements, contracts are the backbone of any deal. A contract is an agreement between two or more parties that outlines the terms and conditions of the relationship. The formation of a contract is a crucial aspect that determines the validity of the agreement. In this article, we will discuss the different types of contracts based on their formation.

Express Contracts

Express contracts are the most common type of contract, and they are formed through verbal or written communication between the parties involved. These contracts are straightforward, and the terms and conditions are clearly defined. Express contracts can be as simple as a handshake agreement or as complex as a multi-page legal document. The important thing is that both parties agree to the terms outlined in the contract.

Implied Contracts

Implied contracts are not explicitly stated but are formed through the actions and behaviors of the parties involved. These contracts are inferred from the conduct of the parties and can be created even if no formal written or verbal agreement has been made. For example, when you hire a plumber to fix your sink, you are forming an implied contract that they will perform the service for payment.

Unilateral Contracts

Unilateral contracts are formed when one party makes a promise in exchange for a specific action from another party. The contract is binding only on the party who makes the promise until the other party performs the action. Once the action is completed, the contract becomes binding on both parties. Examples of unilateral contracts include reward offers and competitions.

Bilateral Contracts

Bilateral contracts are formed when both parties make promises in exchange for something of value. These contracts are binding on both parties from the moment they agree to the terms outlined in the contract. Most contracts fall under this category, such as rental agreements, employment contracts, and sales contracts.

Executed Contracts

Executed contracts are contracts that have been fully performed by both parties. Once the terms of the contract have been fulfilled, the contract is considered executed, and no more obligations exist between the parties. A common example of an executed contract is a receipt for goods or services paid in full.

Executory Contracts

Executory contracts are contracts that have not been fully performed by one or both parties. These contracts can be either bilateral or unilateral and include obligations that have yet to be fulfilled. Common examples of executory contracts include rental agreements that have not yet expired, promissory notes, and employment contracts.

In conclusion, understanding the different types of contracts based on their formation is crucial for any business owner or individual entering into a contractual agreement. Whether it is an express, implied, unilateral, bilateral, executed, or executory contract, each type has its own unique characteristics that must be considered. It is always advisable to seek legal counsel before entering into any contractual agreement to ensure your rights and obligations are protected.