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Types of Contracts Based on Performance

Last updated date: 24th Apr 2024
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A contract can be defined as an agreement validated by law under Section 2(h) of the Indian Contract Act, I872. According to Section 2(e) of the Act, an agreement is “every promise and every set of promises forming consideration for each other.” It also creates and defines several obligations between the two parties. All the conditions enforcing the validity of a contract are mentioned under Section 10 of the Act.

Contracts can be of different types, including unilateral, bilateral, contingent, voidable, express, implied, executed, and executory contracts. It can be broadly classified based on quasi-contract.  On the other hand, contracts can be either unilateral, bilateral, executed, or executory based on their performance and executions. When it comes to contract validity, it can be void, voidable, valid, unenforceable, or even illegal.

Different Types of Contracts Based on Performance

A contract specifies all the terms on which both the parties had mutually agreed while agreeing. Until the expiry or termination of that contract, neither party contracts are allowed to defy the terms. They are bound to perform and abide by the contract provisions.

Here are the different types of contracts classified on a performance basis:

Executed Contracts

This is a type of contract where both the parties involved in the contract have fulfilled their respective obligations as specified in the agreement. Executed contract meaning is when an agreement has been carried out exactly how it was supposed to be carried out. In such contracts, the parties have fulfilled their promises and also performed their duties soon after entering the contract.

Buying and selling of goods or services usually fall under the category of executed contracts. Here, there is hardly any trouble regarding the date of execution because these contractual duties are fulfilled instantly.

Executory Contracts

This is a kind of contract where both the parties in a contract are yet to perform their respective obligations and duties. Executory meaning is the contractual promises and agreements made between the people are to be carried out sometime in future. Thus, it also has time agreements or deadlines mentioned in the contract.

A lease can be cited as an example of an executed contract. In a lease, the specified conditions cannot be fulfilled immediately. They are performed and fulfilled over a stipulated time. Both executed and executory contracts are performance-oriented classifications of a contract. However, one requires immediate fulfillment of duties while the other has eventual fulfillment of duties.

There is also something called ‘partly executed and partly executory contract’. In such contracts, one party has already fulfilled his share of duties while the party will have to perform his obligation after a certain period.

Executory contracts can again be divided into types based on the presence and performance of the parties included. These are unilateral and bilateral contracts.

Difference Between Bilateral and Unilateral Contract

Bilateral and unilateral contracts can be said to be two different types of contracts based on execution.

  • Unilateral Contracts

As the name itself denotes, these are one-sided contracts. In such contracts, only one party vows to perform a duty. The agreement is then open to anyone who wishes to vow the same and enter into the contract. A unilateral agreement is, however, complete only when one of the parties fulfills the promise.

A unilateral contract is a one-sided agreement in which one party promises to do something while the other does not follow through immediately. The opposing party, on the other hand, will act in the future. Contests are one example of unilateral contracts.

Furthermore, after the acting party fulfills the agreement's promise, the other party is obligated to follow suit because the promise is now enforceable. The unilateral contract will be breached if the side does not behave as promised.

Suppose, a person has announced a reward of Rs.1000 for anyone who finds him his lost puppy. Here, a unilateral offer is formed where only this person is in the contract initially. When someone finds the puppy and hands it over to that person, he is bound to pay him the reward. Once this is done, the unilateral contract is fulfilled.

  • Bilateral Contracts

These are two-sided or mutual contracts. Unlike a unilateral one, the bilateral contract definition is a dull subject. In these contracts, the promises made by both parties are yet to be fulfilled. One promise is exchanged for another promise in this agreement. Owing to its mutuality of obligation, bilateral contracts are also called reciprocal contracts.

To put it in easy language, this is the most common and simple type of contract. Many personal and business contracts can be categorized under bilateral contracts. As the name suggests itself, a bilateral contract is a two-way contract resulting from the exchange of reciprocal promises. A counter-promise accepts an offer in the form of a promise. 

Any contract of sale where a certain seller sells a product and the buyer pays the purchase price is an example of a bilateral agreement. Such agreements are often a source of legal complications known as bilateral mistakes. It happens when both the parties involved in a contract misunderstand the terms and operate on incorrect information.

The sale of a car to a friend is another classic example. You offer to buy your friend's car for suppose USD1400 while talking to them, and they accept. There are two pledges in this section, making the agreement bilateral. The first promise is that in exchange for the money, the car would be provided. The friend's second promise is to supply the funds in exchange for the car. As a result, both sides must follow through on their promises.

FAQs on Types of Contracts Based on Performance

1. What are some other examples of a bilateral contract?

Bilateral contracts are commonplace in everyday life. When you buy something at your favorite store, order a meal at a restaurant, go to the movies, or even borrow a book from the library, you're engaging in this form of agreement. Although, If there is no convincing proof that the parties are meant to make a unilateral contract, some courts treat all contracts as bilateral transactions. If there is any uncertainty, courts will assume that the contract was bilateral, with the promise of one action in exchange for another.

2. When does one use a bilateral contract?

Bilateral contracts can include a wide range of topics, including the sale of any kind of product. ForA buyer is contractually obligated to pay the seller a specified amount of money in order to obtain the property, and the seller agrees to hand over the property in exchange for a specific amount of money when real estate is sold.

3. What are executed contracts?

A signed contract that establishes a contractual connection between two or more parties is known as an executed contract. Each party promises to uphold the legal duties they agreed to in the written agreement once the contract is properly signed. While an executed contract can refer to a signed agreement between two or more parties, it can also refer to a contract that has been not just agreed upon but also carried out. Both definitions are legal and can be used in any situation.

4. Why is it important to understand the difference between each type of contract?

Contracts play a vital role while running a business, both personally and professionally. Many people have to deal with unilateral and bilateral contracts regularly, even if they aren't necessarily aware of it. Understanding the differences between each type of agreement can aid people from all areas of life to feel more confident when dealing with legal issues. We can always pursue legal aid from outside but isn’t it better to be aware of the things yourself?

5. Why do contracts exist?

A contract can be used for a variety of objectives. It specifies what we intend to accomplish (or not do). It specifies any conditions or terms associated with the commitment. It also allows us recourse if one of the parties fails to fulfill its obligations. Even if an oral contract is valid, it might be difficult to determine exactly what each person pledged when memories fade and interests shift. Writing is a superior answer in the event that something goes wrong because it is there for the long term.

6. What is the Executory Contract Definition?

Executory contracts are contracts based on performance. Here, both parties are yet to fulfill their promises or duties. In executory consideration, the individual responsibilities or promises are to be carried out sometime in the future. It cannot be performed immediately. Products purchased on a lease are an example of an executory contract.

7. What are the Different Types of Contracts Based on Performance?

On the basis of performance, contracts can be either executed or executory contracts. A contract can also be partly executed and partly executory. Executory agreements, in turn, have two divisions named unilateral contracts and bilateral contracts. Bilateral and unilateral contracts are classified in the context of execution.

8. What is a Unilateral Contract Definition?

Unilateral contracts are one-sided contracts where only one party has to make an agreement to deliver something to the other party and perform his task. The deal is then available to anyone who wishes to take part in it. He can do so by pledging the vows as required.