Contracts are a crucial aspect of business dealings, serving as legally binding agreements between two or more parties. Contracts come in various types and forms, and their enforceability depends on various factors. For businesses, understanding the different types of contracts based on enforceability is an essential aspect of ensuring that all agreements entered into are enforceable and legally secure. Here are the different types of contracts based on enforceability:
1. Valid Contracts
A valid contract is a legally binding agreement that complies with all the essential elements of a contract, such as offer and acceptance, consideration, mutual obligation, and lawful purpose. This type of contract is enforceable by law, and all parties involved are obligated to fulfill their contractual obligations.
2. Void Contracts
A void contract is an agreement that is not enforceable by law due to the presence of an illegality or a defect, such as the absence of consideration or a mutual mistake. Such contracts have no legal effect, and if entered into, they cannot be enforced by either party.
3. Voidable Contracts
A voidable contract is an agreement that can be affirmed or disaffirmed by one or both of the parties involved due to the presence of a flaw or error. This type of contract remains legally binding until the party entitled to disaffirm the agreement does so. An example of a voidable contract is a contract between an adult and a minor, where the minor can disaffirm the agreement due to their incapacity to contract.
4. Unenforceable Contracts
Unenforceable contracts are those that cannot be upheld in a court of law due to a technicality or lack of evidence. This type of contract is valid and binding, but it lacks the necessary elements to enforce the agreement. An example of an unenforceable contract may be a verbal agreement that is not memorialized in writing, making it challenging to prove its existence.
5. Executed Contracts
An executed contract is an agreement that has been fully performed by both parties, and all obligations have been fulfilled. This type of contract is enforceable by law, but there is no further obligation for either party to perform any action.
6. Executory Contracts
An executory contract is an agreement whereby one or both parties have yet to complete their obligations. This type of contract is enforceable by law, and both parties are obligated to fulfill the terms of the agreement. An example of an executory contract is a construction contract in which the contractor is obligated to complete the construction work while the owner is obligated to make payment.
In conclusion, understanding the different types of contracts based on enforceability is crucial in business dealings. By understanding the nature of each contract, businesses can ensure that their agreements are valid, enforceable, and legally secure. In addition, it is essential to seek the assistance of a legal expert in drafting and reviewing contracts to ensure that they comply with all legal requirements and are enforceable by law.