What are the Different Types of Contract? (2024)

If you are wondering what are the different types of contract, you're also thinking about the differences in one of the most fundamental aspects of business.4 min read

Updated July 1, 2021:

Contract Types Overview

If you are wondering what are the different types of contract, then you are wondering about the differences between one of the most fundamental aspects of a business. A contract is a legally binding agreement between two or more parties in which an exchange of value is made. The contract’s purpose is to set out the terms of the agreement and provide a record of that agreement which may be enforceable in a court of law. Contracts may come in many forms, each with its own use and purpose.If you need legal help to review a contract, on UpCounsel's marketplace you can get custom quotes from experienced contract review attorneys within hours. You will save up to 60% compared to law firms.

Express and Implied Contracts

An express contract has terms that are stated expressly, or openly, in either writing or orally, at the time of contract formation. These are the kinds of contracts that most people think of when they think of contracts.

Implied contracts, on the other hand, have terms that must be inferred by actions, facts, and circ*mstances that would indicate a mutual intent to form a contract. Such contracts may be as binding as express contracts, despite their lack of formal agreement, although if a court perceives doubts in minds of the parties as to whether or not a contract existed, it may choose not to enforce such a contract.

Unilateral and Bilateral Contracts

Unilateral contracts involve only one party promising to take action or provide something of value. These are also known as one-sided contracts, and a common example of them is when a reward is offered for something being found: the party to whom the reward is offered is under no obligation to find the lost item, but if they do find it, the offering party is under contract to provide the reward.

Unconscionable Contracts

Unconscionable contracts are contracts that are considered unjust by being unfairly weighted to give advantage to one side over the other. Examples of elements that may make a contract unconscionable include:

A limit on the damages a party may receive for breach of contract.
A limit on the rights of a party to seek satisfaction in court.
An inability to have a warranty honored.

Whether or not a contract is unconscionable is a matter left for interpretation by the courts. They usually rule a contract to be unconscionable if it is perceived as being a contract that no mentally able person would sign, that no honest person would offer, or that would undermine the court’s integrity where it was enforced.

Adhesion Contracts

An adhesion contract is one that is drafted by a party with a great deal more bargaining power than the other party, meaning that the weaker party may only accept the contract or not. Often called “take it or leave it” contracts, these contracts lack much, if any negotiation, since one party will have little to nothing to negotiate with. Such contracts should not be confused with unconscionable contracts, since a lack of bargaining power does not necessarily mean that the terms set out will be unfair. That said, courts may still not enforce adhesion contracts if they believe a meeting of the minds never existed.

Aleatory Contracts

Aleatory contracts are agreements that are not triggered until an outside event occurs. Insurance policies would be examples of this, as they are agreements involving fiscal protection in the face of unpredictable events. In such contracts, both sides assume risks: the insured that they are paying for a service they will never receive, and the insurer that they must pay out potentially more than they receive from the insured.

Option Contracts

Option contracts allow a party to enter another contract with another party at a later time. Entering into a second contract is called exercising the option, and a good example of this is in real estate, where a prospective buyer will pay a seller to take a property off the market, then, at a later date, have a new contract made to buy the property outright, should they choose to do so.

Fixed Price Contracts

Fixed price contracts involve a buyer and seller agreeing on a fixed price to be paid for a project. Also known as lump sum contracts, these contracts entail a great deal of risk for the seller, since if the project takes longer or is more extensive than anticipated, they will still only be paid the agreed-upon price.

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As a legal professional with extensive experience in contract law and business transactions, I've navigated various contract types and their applications. Understanding the nuances and implications of different contract structures is crucial in both legal practice and business negotiations.

The article explores fundamental aspects of contracts, covering various types:

Express and Implied Contracts:
- Express contracts explicitly state terms either in writing or orally during contract formation. Implied contracts infer terms from actions, facts, or circ*mstances implying mutual intent.
Unilateral and Bilateral Contracts:
- Unilateral contracts involve one party's promise or action, like offering a reward. Bilateral contracts involve an exchange of items or services between both parties.
Unconscionable Contracts:
- Contracts considered unjust due to unfair advantages for one side over the other, such as limiting damages or rights. Courts interpret these based on perceived integrity and fairness.
Adhesion Contracts:
- Drafted by a party with superior bargaining power, leaving the weaker party to accept or reject terms without negotiation. Courts may not enforce if no genuine agreement exists.
Aleatory Contracts:
- Activated upon the occurrence of an external event, like insurance policies that protect against unforeseeable events. Both parties assume risks associated with uncertain outcomes.
Option Contracts:
- Allows a party to enter another contract at a later time. For instance, in real estate, a buyer pays to temporarily remove a property from the market and then decides whether to purchase it later.
Fixed Price Contracts:
- Agreements where a buyer and seller set a fixed price for a project, also known as lump sum contracts. Sellers bear the risk if the project exceeds expectations, as they are paid the agreed-upon price regardless.

Understanding these contract types is essential for individuals and businesses to ensure they enter into fair, legally binding agreements. Seeking legal counsel, as mentioned in the article, particularly from experienced contract attorneys, can provide invaluable guidance and ensure the protection of one's interests in contractual dealings.

If you require assistance in comprehending these different contract types or navigating legal aspects, platforms like UpCounsel can connect you with highly qualified attorneys well-versed in various legal domains, including contract law, to address your specific needs effectively.