Lecture no.

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Essential of the Contract
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Law of Contract
The law relating to contracts in Pakistan is contained in the Contract Act,
1872. It extends to the whole of Pakistan and come into force on the 1 st day of
September, 1872. it deals with:
1. General principle governing all types of contracts (Sec. 1-75)
2. Contracts of Indemnity, Guarantee, Bailment, Pledge and Agency (Sec.
124-238)
Initially, sections 76-123 and sections 239-226 relating to sale of goods
and partnership were contained in the Contract Act but where subsequently
repealed and a separate Sale of Goods Act, 1930 and a Partnership Act. 1932
came into force.

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Definition of Contract
Some definitions are as follows:
Pollack: “Every agreement and promise enforceable at law is a contract”
Salmond: “A contract is an agreement creating and defining obligations
between the parties.”
Sir William Anson: “An agreement enforceable by law made between two or
more persons, by which rights are acquired by one or more to acts or
forbearance on the part of other or others.”
Sec. 2(h) of Contract Act provides “An agreement enforceable by law is a
contract.” Thus a contract consists of two elements:

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1. Agreement
Section 2(e) defines agreement as, “Every promise and every set of
promises, forming the consideration for each other, is an agreement.”
Section 2(b) defines promise as, “when the person to whom the proposal ,
when accepted, becomes a promise.”
A promise comes into existence when one party makes a proposal to the
other party and that other party gives his consent. Therefore, a contract is an
agreement; an agreement is a promise and a promise is an accepted proposal.

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Agreement (Example)
A offers to sell his car to B for Rs. 8 Lac. B gives acceptance. It is an
agreement.

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2. Enforceability
An agreement is enforceable if it is recognized by courts. In order to be
enforceable by law, the agreement must create legal obligations between the
parties. Thus, the term agreement is a wider than a contract. All contracts are
agreements but all agreements are not contracts. Agreements are of two types:
(a) Social agreements
Social agreements are not enforceable because they do not create legal
obligations between the parties. In such agreements the parties do not intend
to create legal relations.

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(b) Legal agreements
Legal agreements are enforceable because they create legal
obligations between the parties. In such agreements the parties intend to create
legal relations. All business agreements are contracts as there is an intention to
create legal relation.
Examples:
a. A invites B to a dinner, B accepts the invitation but does not attend.
A cannot sue B for damages. It is a social agreement.
b. A promises to sell his car to B for Rs. 2 Lac. It is a Legal
agreement because it creates legal obligations. This agreement is a
contract.

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Essentials of a Valid Contract
A valid contract is binding and enforceable. In valid contact all the parties
are legally bond to perform the contract, it is a contract which can be enforced
by either of the parties. If anther party refuses to perform the contract, the other
can enforce it through a court. To be enforceable, an agreement must possess
essentials of a valid contract.
According to section 10, “All agreements are contract if they are made by
the free consent of parties, competent to contract, for a lawful consideration and
with a lawful object, and are not hereby expressly declared to be void. Where
necessary, the agreements must satisfy the requirements of law regarding
writing attestation or registration.”

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1. Offer and Acceptance

For an agreement, there must be a lawful offer by one party and lawful
acceptance of that offer from the other party. The term lawful means that the
offer and acceptance must satisfy the requirements of Contract Act.

(Example)

A offers to sell his cycle to B for Rs. 2000. This is an offer. If B accepts this
offer, there is an acceptance.

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2. Legal Obligation
The parties to an agreement must create legal obligations. It means that if
one of them does not fulfill his part of promise, he shall be liable for breach of
contract. It is presumed in commercial agreements that parties intend to create
legal relations.
(Examples)
a. A offers to sell his watch to B for Rs. 200. B agrees to buy. It is a
contract as it creates legal obligation.

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3. Lawful consideration
Consideration may be some benefit to the other party. It is the price paid by
one party for the promise of the other party. An agreement is enforceable only
when both the parties get and give something. The something given or obtained
is called consideration. Considerations must be lawful as well.
(Examples)
a. A agrees to sell his house to b for Rs. 10 Lac. For A Rs. 10 Lac
is the consideration and for b house is the consideration.

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4. Capacity of Parties
An agreement is enforceable only if it is made by parties who are
competent to contract. To be competent to contract, the parties must be of the
age of majority, of sound mind and not disqualified from contracting by law. A
contract by a person of unsound mind is void ab-inito (from the beginning).
(Example)
a. M, a person of unsound mind agrees to sell his house to S for Rs.
2 Lac. It is not a valid contract because M is not competent to contract.

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5. Free Consent
Consent means that the parties must agree upon the same thing in the same
sense. For a valid contract, it is necessary that the consent of parties must be
free.
Consent is free when it is not obtained by coercion, undue influence, fraud,
misrepresentation or mistake. If the consent of either of the parties is not free,
the agreement cannot become a contract. (Sec. 14)
(Example)
A compels B to enter into a contract at gunpoint. It is not a valid contract as
the consent of B is not free.

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6. Lawful Object

It is necessary that agreement should be made for a lawful object. The

object of agreement must not be fraudulent, illegal, immoral opposed to public
policy, imply injury to the person or property of another. Every agreement, with
unlawful object or consideration is illegal and therefore void. (Sec. 23)
(Examples)
a. A promises to pay B Rs. 5000 if B beats C. The agreement is illegal
as its object is unlawful.
b. A hires a house to use for gambling. The object of the agreement is
unlawful; so the agreement is illegal and void.

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7. Writing and Registration

A contract may be oral or in writing. It is preferable that the contract be in

writing because it is easy to prove in court. If required by law, a particular
contract must be in writing, signed, attested by witnesses and registered; e.g.
sale and mortgage of land.

(Examples)
a. X verbally promises to sell his book to Y for Rs. 200. it is a valid
contract because the law does not require it to be in writing.
b. A verbally promises to sell his house to B. It is not a valid contract
because the law requires it to be in writing.

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8. Certainty of Terms

According to section 29, “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. If the terms are uncertain, the agreement is void.

(Examples)

a. A promises to sell 20 books to B without specifying their titles. The

agreement is void because the terms are not clear.

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9. Possibility of Performance

The valid contract must be capable of being performed. An agreement to

do an impossible act is void. If the act is legally or physically impossible to be
performed, the agreement cannot be enforced by law. (Sec. 56)

(Examples)

a. A agrees with B to discover a treasure by magic, the agreement is not

enforceable.

b. A agrees with B to put life into B’s dead brother. The agreement is
void as it is impossible to perform.

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10. Not Expressly Declared Void

For a valid contract, the agreement must not be one of those, which have been
expressly declared to be void by the law, sections 24-30 explain certain agreements
which have been expressly declared to be void, e.g. agreement in restraint of trade and of
wager etc. are expressly declared void.

(Examples)

a. A promises to close his business on the promise of B to pay him Rs. 2 Lac
is a void agreement because it is in restraint of trade.

b. A promises to pay Rs. 2000 to B if Pakistan wins the world Cup final.
The agreement is void being a wagering agreement.

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End of Lecture no. 1