TYPES OF CONTRACTS BASED ON PERFORMANCE

By: Shrasti Singh

Introduction-




The contract is defined as an agreement enforceable by law under section 2(h) of the Indian Contract Act, 1872. It is an agreement creating and defining obligations between the two parties. For example- An offer to sells a watch to B for Rs. 1,000. A accept to buy a watch at the same price. So, we can say that there is a contract between A and B. In general terms:-  

  • Contract = Agreement + Enforceability by Law
  • Agreement = Offer + Acceptance + Consideration.

Some agreement may be enforceable by law and other is not. That’s why it is said “All agreement does not contract but only those agreements which fulfill and satisfy the condition of section 10 of the Indian Contract Act. Hence all contracts are agreement. 

There are four types of classification of contract in Contract law:

  • Based on the formation
  • Based on validity
  • Based on performance
  • Based on the nature of consideration

Now let us discuss more types of contracts based on performance. The classification for this type is done to know whether the contract is performed or still to be performed.

READ ALSO: PROPOSAL OR OFFER INDIAN CONTRACT ACT,1872.

Types of Contract based on Performance

Based on performance, Contracts can be classified into two types:

  • Executed Contracts
  • Executory Contracts – it further divided into two parts: i. Unilateral Contracts 

          ii. Bilateral Contracts.

Executed Contracts

It is a contract where both the parties to the contract have fulfilled their respective obligation under the contract. It means that whatever was the object of the contract has been carried out. In these contracts mostly, the promises are made and then immediately completed. For example:- All the transactions of Cash sales are executed contract.

Illustration:-

  • Alex offers to sell his scooter to Bobby for Rs. 20,000. Bobby accepts Alex’s offers. Alex deliver the scooter to Bobby and Bobby pays Rs.20, 000 to Alex. This is an executed contract.
  • Ram goes to the stationery shop and buys a book. A shopkeeper sells him the book in exchange of rs.200. Here, both Ram and shopkeeper have fulfilled their respective obligation. Thus it is also an executed contract. 

Executory Contracts

It is a contract where both the parties to the contract have still to perform their respective obligations. In such contracts, the consideration for the promise made is carried out sometime in the future.

Illustration-

  • An offer to sell this scooter to B for Rs.10,000. B accepts the offer. The scooter has not yet delivered by A and price has not yet been paid by B. 
  • Delivery of wheat bags and payment of Rs.40,000 of the same are to be made after 20 days. The contract is executory.

Partly Executed and Partly Executory Contract:

Where one party has fulfilled his obligation and the other party has still to perform his obligation. Example:-

An offer to sell this scooter to B for Rs. 13000. B accepts the offer. The scooter had delivered by A but price has not yet been paid by B.

Unilateral Contracts(types of contracts based on performance)

They are one-sided contracts. It usually comes into existence when only one party makes a promise, which is open and available to anyone who wishes to or can fulfill the said promise. In this, one party has to perform his promise. The contract will only be fulfilled once someone fulfills the promise.

Illustration-

L lost his son S. So, he decided to announce a reward of Rs. 10000/- to anyone who finds and brings his son S to the given address. Here, there is only one party to the contract, namely L. If someone finds and brings his son, she is obligated to pay the reward. This is a unilateral contract.

Bilateral Contracts(types of contracts based on performance)

Bilateral contracts are two-sided contracts. A contract in which promises of both the parties are outstanding at the time of the formation of the contract. In these types of contract, a promise on one side is exchanged for a promise on the other. They are also known as reciprocal contracts because mutuality of obligation is essential for their enforceability.

Illustration:

  • Alex promises to stitch a shirt and Bobby promises to pay Rs. 100. Here, Alex is a promisor who promises to stitch a shirt and Bobby is a promisee who promises to pay for stitch. Thus, it is a bilateral contract.
  • A promise to sell goods to B. In returns, B promises to pay the purchase price. It is a bilateral contract.

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