CHAPTER 1
Contract and its Kinds
LAW
Definition
Law is the body of principles recognized and applied by the state in the
administration of justice.
Purpose
To maintain peace and order in the society.
Business Law
It governs and regulates trade and commerce. Also known as commercial
law or mercantile law.
Law of Contract
The law relating to contract in Pakistan is contained in the Contract Act,
1872.
CONTRACT
Definition
An agreement enforceable by law is a contract.
CONTRACT = AGREEMENT + ENFORCEABILITY
Contracts are legal Agreements.
All Contracts are Agreements whereas, all Agreements are not Contracts.
AGREEMENT &
ENFORCEABILITY BY LAW
Definition
Every promise or set of promises forming any consideration.
Promise= Proposal/ Offer + Acceptance
Example
A offer to sell his house to B for 80 lakhs. B accepts the offer, hence this
promise is an agreement.
Enforceable by Law
An agreement must create legal obligations between the parties.
KINDS OF AGREEMENT
Social Agreement
Not enforceable by law.
For e.g. “A” agrees to go cinema with “B”.
“A” invites “C” at dinner, “C” accepts the invitation but does not attend. “A”
cannot sue “C” for damages.
Legal Agreement
Promise that creates legal relations/obligation among the parties.
For e.g. “A” agrees to sell his car to “B” for 5 lakhs.
ESSENTIALS OF VALID
CONTRACT
The essentials of a valid contract are;
Offer (Proposal) and Acceptance
Legal obligation
Consideration
Capacity of parties
Free consent
Lawful object
Writing and registration
Certainty of terms
Possibility of performance
Not expressly declared void
Offer & Acceptance (Agreement)
One person offers and other accept it.
Offer and Acceptance should be according to requirements of Law.
e.g. “A” offers his house to “B” for 50 lakhs and “B” accepts the offer.
“A” advertise in newspaper his house for sale, is not an offer.
Legal Obligations
Relation between the parties of agreement should be legal.
Parties are bound to perform the obligations. If not then liable for breach of
contract.
e.g. “A” agrees to go cinema with “B”. (Social Relation)
“A” agree to sell his watch to “B” for Rs. 800. (Legal Relation)
Lawful Consideration (Return/Exchange)
Offer and Acceptance have some consideration (Give & Take).
Consideration is the price paid by one party for the promise of the other
party. Consideration must be lawful, legal and real.
e.g. “A” offers his house to “B” for 50 lakhs and “B” accepts the offer.
Here: Price is consideration for “A” and house for “B”.
“A” promises “B” to get him a job and B promises to pay bribe of 2 lakhs is a
contract or not?
“A” promises to sell a car to “B” without charging anything from B, is a
contract or not?
Capacity Of Parties
Parties must be at age of majority, have sound mind and are not
disqualified from contracting by law.
e.g. A person of unsound mind or minor making any promise is not
competent to be a contract.
Free Consent
Consent not obtained by fraud, coercion, undue influence, misrepresentation
or mistake.
e.g. “A” Compelling “B” to sell his house to him at gunpoint is not a valid
contract.
Lawful Object (Purpose/ Objective)
The object of agreement must not be fraudulent, illegal, immoral, opposed
to public policy, imply injury to the person or property of another.
e.g. “C” promises to pay Rs 5000 to “B”, if “B” beats “D”.
“B” rents a house to use for gambling is illegal agreement.
Written & Registered
A contract may be oral or written.
A contract should be Written and Registered. It should be signed and
attested by the witnesses. (Sale and mortgage of land)
e.g. “A” promises orally to “B” to sell his book. (No need of Writing)
Father designed will to distribute the property in his sons. (need Writing)
Certainty Of Terms
Agreements, the meaning of which is not certain or capable of being made
certain, are void.
The terms of an agreement must be clear, complete and certain.
e.g. “A” agrees to sell a car to “B” for 10 lakhs without stating its specifics is
void agreement.
“O” agrees to purchase a Van from “S”. The price was to be paid over the
duration of 2 years. Rate of interest and mode of payment was not certain, so it
is not a contract.
Possibility Of Performance
If the act on agreement is legally or physically impossible to perform then
the agreement cannot be enforced by law.
e.g. “C” agrees to “B” to put life into “B’s” dead brother.
Not Expressly Declared Void
Agreement must not be expressly declared void by law.
Like, agreement in restraint of trade or agreement by way of wager etc.
(wage agreement is an agreement under which money or money worth is
payable, by one person to another on the happening or non happening of
some future uncertain event, it may take many forms in real life but the
common features of a bet would be found in each form).
e.g. “C” promises to close his business if “B” pays him 4 lakhs. It is a void
agreement as it is made in restraint of trade.
“C” promises to pay Rs 500 to “D” if Pakistan wins the final cricket match, is
wagering agreement and hence void.
