Kinds of Contracts: From Formation to Validity

Kinds of Contracts: From Manner of Creation to Validity

A contract represents a legally binding agreement between two or more parties. Note that there are different types or kinds of contracts, aside from formal written documents, depending on their manner of creation, fundamental nature, and extent of validity.

Kinds of Contracts According to Manner of Creation

There are two general kinds of contracts based on the manner of creation or, more specifically, based on their form. These are oral contracts and written contracts. Below are the following definitions and distinctions:

1. Oral Contracts: These are verbal agreements between two or more parties occurring during a conversation or in situation in which it would be impractical to put the agreement into writing. It is legally binding if it satisfies the elements of an enforceable contract. However, in some cases, it requires a court decision to determine validity.

The formation of oral contracts occurs quite often. Some examples are verbal agreement with colleagues and transactions at a local convenience store. A handshake deal is another example. By definition, it is a verbal commitment to a transaction.

2. Written Contracts: The most preferred manner of entering into a contract is through a written document detailing the scope and limitations of the agreements, the roles and responsibilities of involved parties, their liabilities, and other terms and conditions. The document should contain the general elements or contents and clauses of a written contract.

Parties need to affix their signatures or other proof of identification for the agreement to be valid and enforceable. Depending on the context, there are different types of written contracts to include memorandums, purchase guarantees, offer letters, and promissory notes, among others.

Kinds According to the Nature of the Contract

Contracts are also categorized according to their nature. These categories include express contracts, implied contracts, and quasi-contracts. Below are the definitions and differences between the three:

1. Express Contract: An express contract is a specific kind of contract in which the terms and conditions are clearly discussed, expressed, or detailed by involved parties either verbally or in writing. The details must reflect the intention of the parties.

The most common example of express contracts is written contracts. Of course, orals contracts such as handshake deals can also be considered as express contracts. A general rule is that once an express contract is created, an implied contract cannot exist.

2. Implied Contract: An implied contract exists based on the actions or conducts of the parties involves, as well as in the absence of an express contract. Relevant laws can also serve as the basis of implied contracts, essentially if these laws create an obligation in the interest of fairness.

There is a so-called implied in-fact contract, which generally represents the primary subtype of an implied contract. Essentially, it creates an obligation between parties based on the facts and context of the situation.

3. Quasi-Contract: There are actually two types of implied contracts: implied in-fact and implied at-law. The latter could be considered as a separate kind of contract. Also called a constructive contract, a quasi-contract or implied at-law contract involves an obligation to perform a duty as imposed by relevant laws or court decisions regardless of whether the obliging party agrees.

Classifications of Contracts on the Basis of Validity

There are also labels ascribed to contracts based on their validity. A “valid” contract is an agreement that satisfy all the requirements or elements of an enforceable contract. On the other hand, a “void” contract is an unenforceable contract because its purpose is illegal or unaligned with relevant laws.

A “voidable” contract is an agreement in which one of the involved parties can withdraw from the agreement because the formation of terms and conditions come from fraud, misrepresentation, errors, undue influence, or duress.

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