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Business Laws > Indian Contract Act 1872: Part I > Types of Contract – Based on Performance
Indian Contract Act 1872: Part I

Types of Contract – Based on Performance

There are various types of contract, one such type are contacts based on their performance. The basis for this type is whether the contract is performed or still to be performed. Accordingly, the two types are known as executed contracts and executory contracts. Let us learn more.

Executed Contracts

A contract between two or more parties is said to be executed when the act or forbearance promised in the contract has been performed by one, both or all parties. Basically, it means that whatever the contract stipulated, has been carried out. Thus the contract has been executed.

Let us see an example of an executed contract. Alex goes to the local coffee shop and buys a cup of coffee. The barista sells her the coffee in exchange for the cash payment. So it can be said that this is an executed contract. Both parties have done their part of what the contract stipulates.

In most executed contracts the promises are made and then immediately completed. The buying of goods and/or services usually falls under this category. There is no confusion about the date of execution of the contract since in most cases it is instantaneous.

Executory Contracts

Executory contracts

In an executory contract, the consideration is either the promise of performance or an obligation. In such contracts, the consideration can only be performed sometime in the future, hence the name executory contract. Here the promises of consideration simply cannot be performed immediately.

The best example of an executory contract is that of a lease. All the conditions of a lease cannot be fulfilled immediately. They are performed over time. Similarly, say Alex decides to tutor some students in Physics. They pay her Rs 2500/- at the start of the month. But here the contract isn’t executed since Alex has to still carry out her promise. So such a contract is an executory contract.

Now even in executory contracts, there are two types, namely unilateral and bilateral contracts. Let us take a look at both times.

Unilateral Contracts

As the name suggests these are one-sided contracts. It usually comes into existence when only one party makes a promise, which is open and available to anyone who wishes to or can fulfil the said promise. The contract will only be fulfilled once someone fulfils the promise.

Let us see an example. Alex lost his bag pack on the metro. So he decided to announce a reward of Rs 1000/- to anyone who finds and returns his bag with all its contents. Here the is only one party to the contract, namely Alex. If someone finds and returns his bag he is obligated to pay the reward. This is a unilateral contract.

Bilateral Contracts

By contrast, a bilateral contract is one that has two parties. It is a traditional type of contract most commonly known and occurring. Here both parties agree to the terms of the agreement and thus enter into a contract. Hence it is also known as a reciprocal contract

In bilateral contracts, both parties have usually agreed to a time frame to carry out the said contract. Say for example the contract of sale of a house. The buyer pays a down payment and agrees to pay the balance at a future date. The seller gives possession of the house to the buyer and agrees to deliver the title against the specified sale price. This is a bilateral contract.

Let us learn the essential features of a  contract.

Solved Example on Types of Contract

Q: You went to buy a pen. Is this an executed contract or executory contract?

Ans: You went to the local stationary store to buy a pen. You paid money in exchange for the pen. The transaction was hence completed. So this is an executed contract.

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