Lately, I have been receiving mails from lawyers and law students, asking me to discuss the various classifications of contract. This is probably due to the fact that most people don’t really understand this topic. I mean, there have been arguments as to what are the basic types or classifications of contract.
That notwithstanding, in this article, i am going to share with the basic types of contract and other classifications too. Conversely, if you have been searching the internet for this topic, this is the most comprehensive article you can find.
I enjoin you to read painstakingly as I take you through the topic. But before that, I would like to explain what a contract is. Doing this will also help you to understand when we move to the crux of this article.
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Definition of a contract
A contract is defined as a promise or set of promises which the law will enforce. It can also be defined as an agreement giving rise to obligations which are enforced or recognized by law.
The American Law Institute has also given an comprehensive definition by saying that; “a contract is a promise or a set of promises, the breach of which the law gives a remedy, or the performance of which the law in some ways recognizes as a duty”.
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Classifications of contract
Basically, there are two types of contract namely; formal contract and simple contract. A formal contract is a contract under seal or a contract made by deed.
Formal contracts also includes; negotiable instruments and judgments and recognizances entered in the record of proceedings of a court of record.
All other contracts are simple contracts. However, all contracts, whether formal or simple, come under one or more of several classifications. The most common classifications of contract includes:
1. Formal contact
A formal contract is a type of contract under seal, reduced to writing, signed by the parties contracting and impressed with a seal. Formal contracts is also called specialty contracts or deeds. Its features are that it must be signed, sealed and delivered.
For signing, the person executing the deed can either sign (signature) or make a mark. Nowadays, a seal is not necessary. It suffices if there is an indication of its place in the document.
In the case of First National Security Ltd v Jones [1978] 2 All ER 221, it was held that a document could be regarded as a deed even though not sealed, where the parties clearly intended it to operate as a deed.
Delivery may be actual (where the deed is handed over to the other party) or constructive (where the party delivering the deed touches the seal with his finger and says “I deliver this my act and deed“. This is then construed as delivery and the deed becomes operative.
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2. Simple contract
A simple contract (or Informal contract) is a type of contract whether written or oral, which is not under seal. Simple contracts can also be implied from the conduct of the parties.
Formerly, simple contracts were referred to as patrol contracts, but nowadays lawyers apply the word patrol specifically to simple contracts made orally and not in writing.
Simple contracts are therfore the opposite of formal contracts. Unlike formal contracts, simple contracts are not binding except there is consideration. In simple contracts, only a party who has furnished consideration can bring an action to enforce the contract. This is apparently one of the characteristics of a binding contract as well.
Certain types of simple contracts must be evidenced in writing even though not under seal, otherwise those contracts will be unenforceable in Nigeria. Some examples are; bills of exchange, promissory notes, contracts for the sale or other disposition of land, contracts for loan by a money lender etc.
It should be emphasized that even though simple contracts may be written, it is not at par with a contract under seal or a deed for the majority distinguishing factor in a formal contract is the seal which is not present in ordinary written contracts.
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3. Express Contract
Express Contract is a class of contract the term of which are expressed or stated in every clear modes, either under seal, in writing or orally. This is the usual way contract are made.
For example; A man wants to build a house. He put up an advertisement for tender. Another man responds to the advertisement. They meet and discuss all the necessary things involved. At the end, they sign a contract. This is an express contract.
4. Implied contract
This classification of contract is the opposite of an express contract. Here, the terms of the contract are not expressly stated.
Conversely, the existence of a contract is inferred by law from the acts or the conduct of the parties, the circumstances surrounding the transaction or from the previous course of dealing between the parties.
For instance, for the court to uphold such a contract, the circumstances surrounding the transaction must be such as to make it reasonable or even necessary to assume that a contract existed between the parties by tacit understanding.
For example; when A, (Motorist) drop a flat Tyre with B (a vulcaniser) without words, there is an implied contract of repair between A and B. This can be seen from the case of Brogden v Metropolitan Railway Co.
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5. Bilateral Contract
A Bilateral Contract is also one of the classifications of contract. It is a contract between two parties. Most times, this types of contract consist of exchange of promises. The offeror promising to do something in exchange for the offeree promising to do something else in return.
At the inception of this article, i noted that every simple contract must have consideration. In the case of a Bilateral Contract, the consideration is referred to as executor consideration. Where the contract involves more than two parties who make mutual promises, one to the other, it is known as a multilateral contract.
Both bilateral and multilateral contracts are generally known as synallagmatic contracts because the parties expressly enter into mutual engagements, each binding himself to the other.
6. Unilateral contract
A unilateral is a class of contract that is initially binding on only one party who makes the promise (the promisor). The person to whom the promise is made (the promisee) is free to perform his part of the contract or not. It is therefore a one-sided contract.
It is one sided because one party first firmly binds himself by a promise conditioned only upon the performance of an act, leaving the other Perth completely free to choose to perform or not to perform the act.
An example of this type of contract is a promise to reward in return of an act. For more information, see the case of Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
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7. Joint contract
A joint contract is also one of the classifications of contract. It is a contract made by two or more promisors who hold themselves jointly bound to fulfill its obligations, or one made by two or more promisees who hold themselves jointly entitled to require performance of an obligation.
For example; A and B owning a piece of land jointly contracts to sell it to C; or where E and F contracts jointly to buy a piece of land from D. E and F are joint promisees.
8. Joint and Several Contract
A Joint and Several Contract is a type of contract in which two or more persons are not only equally bound together but also individually bound.
For example; A and B jointly and Severally guarantee a sum of 1 Million given to United Bank of Africa (UBA) to C.
The Effect of that contract (known as contract of guarantee) is that, if C fails to pay, UBA has the right to sue A and B to repay the money or choose to sue only A or B to repay the money individually. This can be seen from the case of Chemi v UBA Plc [2010] 6 NWLR (PT 1191) 474.
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9. Entire contract
In an entire contract the entire or complete fulfillment of the promise by either of the parties is necessary as a condition precedent to the performance of the other party.
For example; A employs B, a painter, to paint his portrait in oil color at a price of $1,000. Until B completes the painting satisfactorily, he is not entitled to the whole or part of the fee. The reason is because, the contract is an entire contract. Conversely, the complete performance of it by B is necessary as a condition precedent to payment by A.
Accordingly, B cannot after painting the head of the portrait demand a proportional faction of the fee and abandon the rest of the work.
10. Severable or Divisible Contract
The classification of contract is the opposite of an entire contract. In the Supreme Court case of BFI Group Corporation v Bureau for Public Enterprises [2012] 18 NWLR (Pt 1332) 209, the Supreme Court defined this type of contract.
Accordingly to the court, “a divisible contract is separable into parts, so that separate parts of the agreed consideration may be assigned to severable parts of the performance.
Such divisible agreements admits of pro rata payments for each portion that was performed, and is independent of performance of other parts of the contract”.
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11. Conditional contract
This is a class of contract in which the performance of the coming into effect is conditional upon some specified event. That event is called a condition.
The specified condition may be such that it suspends the effectiveness of the contract, that is to say, it prevents the contract from taking effect unless and until the the condition occurs. A condition of this kind is called a condition precedent.
Take for example; A and B enters into a building contract. It specified that the contract is not to take effect until A, the owner of the building, has paid a mobilization fee to B, the builder. The effect of the condition precedent is therefore suspensive.
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12. Collateral Contract
This is a preliminary contract which is usually oral and forms the reasons or the inducement for the making of another related contract.
The importance of a collateral contract is in the fact that, if the main or principal contact fails for any reason, the collateral contract continues to stand.
That notwithstanding, there is an exception to this rule. Where the main contract is illegal the collateral contract will not continue. This can be seen from the leading case of Andrews v Hopkinson [1956] 3 All ER 422.
13. Executed and Executory contracts
Executed and Executory contracts are two different classifications of contract. An executed contract is a contract that has been completely performed on both side. Nothing remains to be done by either party.
On the other hand, an Executory contract is the opposite of an executed contract. The performance of this type of contract lies in the future on both parties. None of the parties has taken any step to carry out the terms of the contract.
It should be noted however, that both Executed and Executory Contract can be executed or executory only on one side.
14. Void contract
A void contract is a contract that is completely emptied of effect. It is entirely an ineffective bargain. It follows that, like an executed contract, a void contract is no contract at all.
For example; A and B enters into a contract under which A requires B to kill C with a letter bomb in turn for A paying B the sum of $100,000.
That contract is illegal and being Illegal, it is completely void. The result is that both A and B can ignore it. Neither party can enforce the contract in a court of law.
15. Voidable Contract
A Voidable Contract is a contract that is binding but one party has the right to set it aside. It is a contract that beings as a valid contract but is liable to be rendered void in certain circumstances.
It follows that it is valid from the inception and can continue to be valid if none of the parties takes any step to render it void.
16. Quasi Contract
From the word “Quasi” which means “something like”, one can say that a Quasi Contract is neither something like nor resembling true contract. Quasi Contracts does not necessarily arise from the agreement or intention of the parties. On the contrary, in most cases, Quasi Contract arise against the will of a party.
Simply put, the term “Quasi Contract” is used by lawyers as a convenient common level for describing a variety of cases in which the law imposes obligations on person on equitable grounds in order to prevent unjust enrichment.
The principle on which the law imposes Quasi Contractual obligation is that no one should be allowed to enrich himself inequitably at another’s expense.
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Wrapping up
Above are the major classifications of contract. As you already know, there are two main types of contract, which are; simple and formal. Other contracts discussed above are the various classifications of contract.
Now, as a young lawyer or law student, it is very important that you know these classifications of contract because they can not be sidestepped in the legal profession. I therefore enjoin you to go through this topic again and again. Make sure you understand and master the types and classifications of a contract.
Edeh Samuel Chukwuemeka, ACMC, is a lawyer and a certified mediator/conciliator in Nigeria. He is also a developer with knowledge in various programming languages. Samuel is determined to leverage his skills in technology, SEO, and legal practice to revolutionize the legal profession worldwide by creating web and mobile applications that simplify legal research. Sam is also passionate about educating and providing valuable information to people.