Types of Contract | Express and Implied Contract | Business Law | Management Notes
Briefly describe the differences (and any similarities) involved in the following contracts (3-5 pages):
1. An order placed over the phone for a pizza delivery.
2. The oral exchange at a restaurant when a waiter takes an individual order for dinner.
3. A numbered ticket provided by a valet parking attendant or dispensed by an automated machine at the entrance to a parking structure.
4. A formal written offer for real estate
Contract is defined as the agreement or the exchange of the promises between two or more than two parties (people) to do or not do something that is enforceable by the law which means creating some kind of legal obligations. In case of business related transactions there is an involvement of more than two parties in the contract which is regulated by moral and ethical norms and if any of the parties fails to perform the obligations he/she need to deal with the consequences regarding breach of contract. We can say that the stability and the security of the overall functioning of the business processes depend upon the law and contract (GOVERNATORI & MILOSEVIC, 2006).
A contract is formed when the parties involving in the contract give objective manifestation of intent to form the contract. Though it is not mandatory that all the contracts are in written forms but the legal entities generally advise people (parties) to have contract in the written form to deal with the fraudulent claims when occurred. Some of characteristics of contract include enforceability by law, involvement of two parties and their reciprocal relationship, exchange of promises, etc.
We cannot deny about the fact that the contract is the basis of business and most of businesses abides by the contract. The validity of contract creates certain kind of authorities and responsibilities to the parties involving in the contract. Because of the nature of enforceability, if any parties break the rules and responsibilities then the victim can seek for the right through arbitration or the court. Due to this legal relationship, the parties involved in contract psychologically feel safe and secure while carrying out business activities (Dimatteo, 2010).
Contract helps in protecting the business firm from the unfair customer practices if occurred. It is not necessary that there will be always fault from the side of the business firms, there are situation when customers do involve in unfair practices. And in this situation contract helps to protect those business firms. The contract only becomes a valid contract if it includes the following elements in the contractual agreement.
- Offer and Acceptance
- At least two parties
- Lawful Consideration
- Competent parties
- Legal relationship
- Free Consent
- Possibility of performance
Contracts are classified into many types on the basis of their forms or in terms of their enforceability or the way they have been created.
Express Contract and Implied Contract
Express contract is the most common type of contract where the parties involved in the contract have made declaration of their intention in the oral and written form along with stating all the necessary elements. Express can be in both form either in written or in oral form.
For example, Ram calls Shyam via telephone that he will be selling his home property to him at a price of $100,000 and Shyam replies that he will be buying the house for same price that he has mentioned which is $100,000. This is called express contract.
It is not necessary that all of the contracts are as transparent as express contract. Implied contract are the contracts where evidence related to the agreements are not reflected by words, written or spoken but by the behavior, act or conduct of the parties.
Simple and Formal Contract:
Those contracts which are made having the features like written form, signed properly, sealed duly, transferable then it is called formal contract (Mitchell, 2009). On the other hand, if any of the elements is absent among the mentioned features then it is regarded as a simple contract. Sometimes, a simple contract is called as a parol contract where there is no requirement for it to be signed and to have a record.
Executed and Executory Contract:
A contract is said to be executed contract when it is performed completely fulfilling all the contractual obligations and there is nothing left to be done by any of the parties involved in the contract. On the other hand, a contract is said to be the Executory contract if there is something remaining to be fulfilled by any of the parties involved in the contract.
For example, there has been promise made by Ram to Shyam that he will sell his car to him at a price of $10,000 but the Shyam has only given a down payment of $1000 and promised to pay in a week. But still Ram gives the ownership to the car to Shyam along will the sales receipt. This is called Executory contract where there is still something that is yet to be fulfilled in the contract.
Unilateral Contract and Bilateral Contract:
Unilateral contract is kind of one-sided contract where legal obligations are created to only one of the party. In this contract, one party cannot compel the other party in the contract for the performance of the contract (Cahyono, Nugraheni, & Huda, 2018). On the other hand, bilateral contract is a type of contract where promises are exchanged with both of the parties involved in the contract and they both are bound to legal obligation.
The contract that contains all the essential elements of the contracts and is enforceable by law is called valid contract. Valid contract makes it easy for the business organizations to operate their business processes smoothly.
Voidable Contract and Void Contract:
|Void Contract is the type of contract which is not enforceable by law.|| |
Voidable Contract is the type of contract which is enforceable by law but lacks some elements of a valid contract which gives the option to any of the parties to reject it.
|Initially, the contract is valid but subsequently becomes invalid because of some circumstances.|| |
Voidable contracts are valid until the party having no free consent, does not revokes it.
These are the contracts which are valid in all of the other aspects but lacks something may be technical requirement to make it enforceable because law cannot enforce the contract in any of the case if there’s something missing (Matzkin, 2017).
For example, there might be possible that signature, stamp, tickets etc. might be missing in contracts and in this case contracts cannot be enforceable until and unless correction is done.
Any contract that is made between the contracting parties forbidden (prohibited) by the law is called an illegal contract. Those contracts that are prohibited by the law will always be void despite the fact whether the contracting parties are aware about the law or not.
For example, contract made for blackmailing, kidnapping; murder, etc. are considered as illegal contract.
General Contract and Contingent Contract:
General contracts are considered as a formal contract where the contractual obligations of both of the contracting parties arise from the beginning of the contract.
For example, Ram promises Shyam that he will be selling 1 quintal of wheat to him. This is called as general contract.
Contingent Contract is the type of contract where contractual liabilities arise in case if any event arises in the future that is uncertain. The contractual parties are only liable to perform the promises if the event occurs within the time specified in the contract (Zhou & Poppo, 2010). If the event doesn’t occur within the specified time then they are free from the contractual obligations.
Different situations and the form of contract that is formed
An order placed over the phone for a pizza delivery.
In this situation, Express Contract (Oral form) is formed between the person ordering the pizza and the company from where he/she is ordering the pizza. As I have mentioned above the concept of express contract and the necessary elements associated with it.
When a customer’s orders the pizza over a telephone, he/she specifies the size of the pizza he/she wants to order and the restaurant agrees to deliver the pizza they have been asking for. Both the offer has been made and the acceptance has been done respectively.
For example, nowadays many of the customers have been involved in fake prank calls for delivering the pizza. In this case the company these people are subject to bear the legal punishment for involving in these activities as express oral contract is legally enforceable.
The oral exchange at a restaurant when a waiter takes an individual order for dinner.
In this situation, verbal contract is formed between the waiter and the individual ordering the pizza. Both of the parties are legally obliged to fulfill their responsibilities like the waiter have to serve the pizza to his/her requirement and the customer have to pay the amount as mentioned. After the order has been placed by the customer, the customer cannot cancel the product if the food preparation has already been started. But if the chef has not started the preparation for the food, there might be possibility that the customer can cancel the order which may vary depending upon the restaurant they visit for the dinner.
For example, if a customer orders chicken Momo but if the waiter serves buff Momo then the waiter (restaurant) is subject to legal obligation. This situation makes it voidable contract because of the element is missing.
A numbered ticket provided by a valet parking attendant or dispensed by an automated machine at the entrance to a parking structure.
In this scenario, written contract is formed between the valet parking attendant and the person who has parked his/her vehicle. In that parking slips all the terms and conditions regarding the contract have been clearly mentioned.
For example, in case if any of the vehicles has been stolen then the valet parking attendant will be held responsible for the damage that has been incurred.
A formal written offer for real estate
In this scenario only offer for the real estate is made by the seller to the buyer. Here, it has not been mentioned that the offeree has accepted the offer or acceptance has been done. Therefore, I wouldn’t consider it as a contract until and unless offeree accepts the offer.
But in case, if the offeree accepts the offer then it will be considered as the strong formal Expressed Written Contract. In this case, the offerer and offeree are subject to contractual obligation mentioned in the document.
For example, Ram has mentioned that he will be selling his property to Shyam for $100,000 and if Shyam accepts that offer and pays an amount of $10,000 to Ram as an acceptance of the contract. In case if Ram denies selling the property to Shyam before the contract date then in this case Ram have to pay the amount double ($20,000) to Shyam for not performing the contract and if Shyam denies purchasing the property then the amount that has been previously paid ($10,000) will not be returned .
In this way various types of contract are formed in this scenario which varies among each other in different aspects as mentioned in the respective scenarios.
Cahyono, A., Nugraheni, N., & Huda, M. K. (2018, April). The Liability Of Unilateral Termination By Government On Goods And Service Procurement Contract. Hang Tuah Law Journal, 2(1), 16.
Dimatteo, L. (2010, November). Strategic Contracting: Contract Law as a Source of Competitive Advantage. American Business Law Journal, 47(4), 727 – 794.
GOVERNATORI, G., & MILOSEVIC, Z. (2006, July). A Formal Analysis of a Business Contract Language. International Journal of Cooperative Information Systems, 15(4), 659-658.
Matzkin, M. F. (2017, June). On the Unexpected Use of Unenforceable Contract Terms: Evidence from the Residential Rental Market . Journal of Legal Analysis, 9(1), 1-49.
Mitchell, C. (2009, December). Contracts and Contract Law: Challenging the Distinction between the ‘Real’ and ‘Paper’ Deal. Oxford Journal of Legal Studies, 29(4), 675-704.
Zhou, K. Z., & Poppo, L. (2010, April). Exchange hazards, relational reliability, and contracts in China: The contingent role of legal enforceability. Journal of International Business Studies, 41(1), 861-881.