Topic 2

Contract Act 1872

The law governing contracts between persons is the Contract Act, 1872
CONTRACT:
“Any agreement or promise enforceable by law is called contract”- Pollack
Contract= Agreement + Enforceability
According to Contract Act, 1872, Contract can be defined as:
“An agreement enforceable by law is a contract”
A contract is an agreement which legally binds the parties. The analysis of the above definition
reveals that a contract has following two elements:

CONTRACT

Agreement Enforceability

Offer Acceptance Legal Obligation

These two essentials are discussed below:

AGREEMENT:
According to section 2(e) of Contract Act, 1872;
“Every promise and every set of promises forming the consideration for each other is an
agreement.”
Promise:
According to section 2(b) of Contract Act, 1872;
“When the person to whom the proposal is made signifies his assent to it, the proposal is said to
be accepted. A proposal, when accepted becomes a promise.”
Proposal:
According to section 2(a) of Contract Act, 1872;
“When one person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal.”
KINDS OF AGREEMENT
1. Social Agreement
Promise that has no legal relations.
Example: Adeel invites Babar to dinner. Babar accepts the invitation but fails to turn up. Here,
Adeel cannot sue Babar for damages because the parties to this agreement do not intend to create
legal obligations
2. Legal Agreement
Promise that creates legal relations
Example: Adeel offers to sell his furniture to Babar for Rs. 50,000. Babar accepts this offer. In
this agreement if there is default by either party, an action for breach of contract can be enforced
through a court of law provided all the essential elements of a valid contract are present in this
agreement.
ENFORCEABILITY:
Every contract is an agreement, but every agreement is not always a contract. An agreement
creating a legal obligation is said to be enforceable by law. The parties to an agreement must be
bound to perform their promises and in case of default by either of them, must intend to sue. For
an agreement to be enforceable by law there should be legal obligation instead of social, moral or
religious obligation.
ESSENTIALS OF A VALID CONTRACT [Section 10]:
1. Offer and acceptance (agreement)
2. Legal relationship (enforceability)
3. Competency of parties (minor, person of unsound mind and other
1. certain persons are not allowed)
4. Lawful consideration (something in return of a promise)
5. Free consent (not affected by coercion, undue influence, fraud,
2. misrepresentation or mistake)
6. Lawful object
7. Not declared as void (e.g. wagering agreement)
8. Certainty (certain or capable of being certain)
9. Possibility of performance (impossible is void)
10. Legal formalities (in certain cases only)
1. Offer and acceptance
There must be an agreement between parties to create a valid contract. An agreement involves a
valid offer and its acceptance. There must be a lawful offer by one and lawful acceptance of that
offer from the other party for an agreement. The term lawful means that the offer and acceptance
must satisfy the requirements of Contract Act. The offer must be made with the intention of
creating legal relations otherwise, there will be no agreement.
Example 1: Offer and acceptance Adeel offers to buy bike from Babar for Rs. 50,000 to which
Babar responds positively. Here Adeel has made an offer and Babar has accepted it.
Example 2: A say to B that he will sell his cycle to him for Rs.2000. This is an offer. If B
accepts this offer, there is an acceptance.
2. Legal relationship:
A contract to become valid must have a legal relationship. In case of social or domestic
agreements, the usual presumption is that the parties do not intend to create legal relationship but
in commercial or business agreements, the usual presumption is that the parties intend to create
legal relationship unless otherwise agreed upon.
Example 1: Legal relationship Adeel invited Babar on a dinner at his home. Babar accepted the
invitation. It is a social agreement. If Adeel fails to serve dinner to Babar then Babar cannot go to
court for enforcing the agreement and similarly if Babar did not turn up then Adeel cannot go to
court for enforcing the agreement.
Example 2: A father promises to pay his son Rs.500 every month as pocket money. Later, he
refuses to pay. The son cannot recover as it is a social agreement and does not create legal
relations.
Example 3: A offers to sell his watch to B for Rs.200 and B agrees to buy it at the same price,
there is a contract as it creates legal-relationship between them.

Example 4: A husband promised to pay his wife a household allowance of 30 pounds every
month. Later, the parties separated and the husband failed to pay wife that allowance. Held that
the wife was not entitled for the allowance as the agreement was social and did not create any
legal obligations.
3. Consideration [Section 23]
The third essential of a valid contract is the presence of consideration. Consideration is
“something in return.” It may be some benefit to the party. Consideration has been defined as the
price paid by one party for the promise of the other. An agreement is enforceable only when both
the parties get something and give something. The something given or obtained is the price of
the promise and is called consideration.
An agreement must be supported by lawful consideration. Gratuitous (without consideration)
promises are not enforceable at law. Consideration requires not only presence of consideration
but also lawfulness of consideration.
Example 1: Consideration Adeel offers to buy computer from Babar for Rs. 50,000 to which
Babar responds positively. Here Adeel’s promise to pay Rs. 50,000 is the consideration for
Babar’s promise and Babar’s promise to sell the computer is the consideration for Adeel’s
promise.
Example 2: A promise to obtain for B employment in the public service, and B promise to pay
10,000 rupees to A. the agreement is void, as the consideration for it is unlawful.
4. Competency of parties [Section 11]
An agreement is enforceable only if it is entered into by parties who possess contractual capacity.
It means that the parities to an agreement must be competent to contract. According to Section
11, the parties to an agreement must be competent to contract. In other words, the person must:
 be of the age of majority
 be of sound mind; and
 not be declared as disqualified from contracting by any law to which he is subject.
If one of the parties to the agreement suffers from minority, madness, drunkenness etc., the
agreement is not enforceable at law, except in some cases.
Example 1: Competency of parties Maria (a minor) borrowed Rs. 100,000 from Laila and
executed mortgage of her property in favor of the lender. This is not a valid contract because
Maria is not competent to contract.
Example 2: A, a person of unsound mind, enters into an agreement with B to sell his house for
Rs.2 lac. It is not a valid contract because A is not competent to contract.
5. Free Consent [Section 14]
An agreement must be made between parties by free consent. In other words, the consent must
not be obtained from following:
 Coercion
 Undue influence
 Fraud
 Misrepresentation
 Mistake
Example 1: Adeel beats Babar and compels him to sell his bike for Rs. 20,000. Here, Babar’s
consent has been obtained by coercion because beating someone is an offence under the Pakistan
Penal Code.
Example 2: Azam having advanced money to his son, Babar during his minority, upon Babar’s
coming of age obtains, by misuse of parental influence, a bond from Babar for a greater amount
than the sum due in respect of the advances. Azam employs undue influence.
Example 3: A compels B to enter into a contract on the point of pistol. It is not a valid contract
as the consent of B is not free.
6. Lawful Object [Section 23]
The object of an agreement must be lawful. An object is said to be unlawful when:
 It is forbidden by law
 Is of such a nature that if permitted would defeat the provisions of any law
 It is fraudulent
 It involves an injury to the person or property of another
 The court regards it as immoral, or opposed to public policy
Example 1: Abid, Bakar and Farhan enter into an agreement of the division among them of
gains acquired, or be acquired, by them by fraud. The agreement is void, as its object is unlawful.
Example 2: Ameer promises to obtain for Babar an employment in the public service, and Babar
promises to pay Rs. 10,000,000/- to Ameer. The agreement is void as the consideration for it is
unlawful.
Example 3: Anjum, who knows that Kanwar has stolen goods amounting to Rs. 500,000,
receives Rs.100,000 from Kanwar in consideration of not exposing him. This agreement is
illegal.
Example 4: A promise to pay B Rs.5 thousand if B beats C. The agreement is illegal as its object
is unlawful.
7. Not expressly declared as void [Section 24 to 30]
An agreement which is not enforceable by law is called void agreement. There are certain
agreements which have been expressly declared as void such as:
 Agreement, the consideration or object of which is partly unlawful
 Agreement made without consideration
 Agreement in restraint of marriage
 Agreement in restraint of legal proceedings
 Agreement in restraint of trade
 Uncertain agreements
 Wagering agreement
Example 1: Azam and Babar carried on business in a certain locality in Karachi. Azam promised
to stop business in that locality if Babar paid him Rs 1,000 per day. Azam stopped his business
but Babar did not pay him the promised money. It was held that Azam could not recover
anything from Babar because the agreement was in restraint of trade and was thus void (restraint
of trade).
Example 2: Arslan promises to pay Rs 10,000 to Habib if it rained today, and Habib promises to
pay Rs 1,000 to Arslan if it did not. The agreement is void because the happening and
nonhappening is dependent on future uncertain event (wager).
Example 2: Ali promised to marry Rida. If Ali does not marry Rida, Law cannot enforce him.
8. Certainty [Section 29]
An agreement may be void on the grounds of uncertainty. The meaning of the agreement must be
certain or capable of being certain.
Example 1: Salim agrees to sell to Babar "a hundred ton of oil". There is nothing whatever to
show what kind of oil was intended. The agreement is void for uncertainty.
Example 2: Dawood, who is a dealer in coconut oil, agrees to sell to Babar "one hundred ton of
oil." The nature of Dawood's trade affords an indication of the meaning of the words, and has
entered into a contract for the sale of one hundred tons of coconut oil.
Example 3: Salim agrees to sell to Babar "all the grain in my granary at Peshawar." There is no
uncertainty here to make the agreement void.
Example 4: Salim agrees to sell to Babar "one thousand mounds of rice at a price to be fixed by
Kashif." As the price is capable of being made certain, there is no uncertainty here to make the
agreement void.
Example 5: Salim agrees to sell to Babar "my white horse for Rupees five hundred or Rupees
one thousand." There is nothing to show which of the two prices are to be paid. The agreement is
void.
Example 6: A promised to sell 20 books to B. It is not clear which books A has promised to sell.
The agreement is void because the terms are not clear.
Example 7: X agreed to purchase a van from Y on hire-purchase terms. The price was to be paid
over two years. Held there was no contract as the terms were not certain about rate of interest
and mode of payment.
9. Possibility of performance [Section 56]:
The terms of the agreement must be capable of being performed. An agreement to do an act
impossible in itself is void. If the act is legally or physically impossible to perform, the
agreement cannot be enforced at law.
Example 1: Possibility of performance Anjum agrees with Sajid to discover treasure by magic.
The agreement is void.
Example 2: A agrees with B to put life into B’s dead brother. The agreement is void as it is
impossible of performance
10. Legal formalities [Section 25]
An oral contract is a perfectly valid contract, except in certain cases where a contract must
comply with the necessary formalities as to writing, registration etc.
According to Contract Act, a contract may be oral or in writing. Although in practice, it is always
in the interest of the parties that the contract should be made in writing so that it may be
convenient to prove in the court. However, a verbal contract if proved in the court will not be
considered invalid merely on the ground that it not in writing. It is essential for the validity of a
contact that it must be in writing signed and attested by witness and registered if so required by
the law.
Example 1: An oral agreement for arbitration about present disputes is unenforceable because
the law requires that such arbitration agreement must be in writing.
Example 2: Adeel verbally promises to sell his book to Babar for Rs. 1,000/-. It is a valid
contract because the law does not require it to be in writing.
Example 3: A verbally promises to sell his house to B it is not a valid contract because the law
requires that the contract of immovable property must be in writing.

CLASSIFICATIONS OF CONTRACT:
a) According to FORMATION (creation):
Express contracts:
A contract created by words i.e. verbally or in writing.
Example: Adeel offers (on telephone) to sell his car to Babar for certain sum and Babar in reply
informs Adeel that he accepts the offer, there is an express contract.
Implied contracts:
A contract created by conduct of a person or the circumstances of a particular case.
Example: Abid a shoe shiner starts polishing the shoes of Sajid in his presence, and Sajid allows
him to do so, there is an implied contract
Quasi contracts:
Contractual rights and obligations are imposed by law under certain circumstances rather than
decided by parties.
Example: Jazib leaves his goods at Zahra’s house by mistake. Zahra treats them as her own and
uses them. It is a quasi-contract and Zahra is bound to pay for the goods

b) According to ENFORCEABILITY:
Valid contract:
An agreement which is enforceable by law.
Example: Amjad agrees to sell his Suzuki Mehran 2008 model to Habib for Rs. 450,000/-. It is a
valid contract
Void agreement:
An agreement which is not enforceable by law [Section 2(g)].
Example: Maria (a minor) borrowed Rs. 100,000 from Laila and executed mortgage of her
property in favor of the lender. This is a void agreement because Maria is not competent to
contract and Laila cannot legally enforce this agreement against Maria
Void contract:
A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable
[Section 2(j)].
Example: A music hall was rented out for a series of concerts. The hall caught fire before the
date of first concert. The contract was valid at the time of its formation but became void when
hall caught fire.
Voidable contract:
An agreement which is enforceable by law at the option of the aggrieved party [Section 2(i)].
Example: Azam threatens to kill Babar if he does not sell his BMW for Rs 1 million to Azam.
Babar contracted to sell his BMW to Azam and receives the payments. Here, Babar’s consent
has been obtained by coercion. Hence, this contract is voidable at the option of Babar but Azam
has no right to insist that contract shall be performed.
Illegal agreements:
An agreement the object of which is illegal.
Example: Anjum, who knows that Kanwar has stolen goods amounting to Rs.500,000, receives
Rs.100,000 from Kanwar in consideration of not exposing him. This agreement is illegal.
Unenforceable agreement:
An agreement which is otherwise valid but due to some technical lacking, such as writing etc.
remains unenforceable.
Example: An oral agreement for arbitration about present disputes is unenforceable because the
law requires that such arbitration agreement must be in writing. Once this agreement is written
and signed it can be enforceable.

c) According to PERFORMANCE:
Executed contract:
A contract where both the parties have performed their respective promises.
Example:A bookseller sells a book on cash payment. It is an executed contact because both the
parties have done what they were to do under the contract.
Executory contract:
A contract in which something remains to be done. It may be unilateral or bilateral.
a. Unilateral contract:
A contract is which a promise on one side is exchanged for an act on the other side. In such
contract one party to a contract has performed his part and performance is outstanding
against the other party.
Example: Mohsin advertises a reward of certain sum to anyone who finds his missing son.
Babar knowing the offer finds the missing boy and brings him, the reward is still unpaid.
This is unilateral contract.
b. Bilateral contract:
A contract in which a promise on one side is exchanged for a promise on the other.
Example: Jazib agrees to teach Ghalib after two months and Ghalib promises to pay at end
of course. This is executory bilateral contract.