The Contract & Sales of Goods Act

The
Contract
Act
By : Shahid Naeem (0321-3614222) Kings Law College, Sheikhupura. 1
The Contract & Sales of Goods Act

THE CONTRACT ACT

The Contract Act 1872 is a law in Pakistan that regulates the formation, execution and
performance of contracts. It came into force on 1st September 1872. It provides the legal
framework for making and executing contracts in Pakistan, sets out the rights and obligations
of parties involved in a contract, and outlines the consequences of a breach of contract. The
act also defines the various types of contracts, such as express and implied contracts, and
outlines the conditions necessary for a contract to be considered valid. The Contract Act 1872
is an important piece of legislation that helps ensure the orderly and fair functioning of
commerce and trade in Pakistan. It deals with :
a. The general principles for all types of contracts. (Section 1 To 75)
b. Sales of goods . (Section 76 To 123)
c. The Contracts of indemnity, guarantee, bailment , pledge and agency.
(Sec. 124 To 238)
d. All matters related to partnership. (Section 239 To 266) , but were subsequently
excluded and separated as “Sales of Goods Act, 1930” and “Partnership Act, 1932”

Definitions of Contract:
A contract is a legally binding agreement between two or more parties that sets out the terms
and conditions of a particular transaction or exchange. A contract specifies what each party
promises to do and what they are entitled to receive in return. A contract can be written, oral,
or implied by the actions of the parties involved. To be considered valid, a contract must
involve an offer, acceptance, and consideration (something of value exchanged between the
parties). The parties to the contract are legally obligated to fulfill their promises and perform
their obligations as specified in the contract. Contracts play a key role in commerce and trade,
as they establish a framework for the exchange of goods and services and provide a basis for
resolving disputes.
According to Black's Law Dictionary
A contract is defined as:
"An agreement between two or more parties creating obligations that are enforceable
or otherwise recognizable at law."
This definition highlights the key elements of a contract: it must involve an agreement
between parties, and the agreement must create obligations that are legally enforceable. A
contract is considered a binding agreement because the parties involved have voluntarily
agreed to the terms and conditions of the agreement and have exchanged something of value
(consideration) in return. The obligations specified in the contract can be enforced through
the legal system if one party fails to fulfill its obligations as agreed.
According to Merriam-Webster Dictionary:
A contract is defined as:
1. a written or spoken agreement between two or more parties that is enforceable by law
2. a binding agreement between two or more parties that sets out their obligations and
responsibilities

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The Contract & Sales of Goods Act

3. a legally binding agreement between two or more parties that is enforceable by law,
especially in matters of business, trade, and employment.
According to the Oxford Law Dictionary:
Contract is defined as:
"A legally binding agreement between two or more parties, which sets out their rights and
obligations in relation to each other."
Salmond defined a contract as:
"An agreement between two or more parties creating obligations that are enforceable or
otherwise recognizable at law."
Sir William Anson:
"A contract is an agreement enforceable by law, creating obligations which are binding on the
parties to it."
Pollock:
"A contract is an agreement creating obligations enforceable by law."
H.L.A Hart:
"A contract is an agreement with normative force, that is, a promise or set of promises which
creates legally enforceable obligations."
J.N.D. Anderson:
"A contract is a legally binding agreement by which parties create, modify or extinguish
obligations between themselves."
Blackstone:
"A contract is an agreement between two or more parties, upon sufficient consideration, to do
or not to do a particular thing."
Lord Denning:
"A contract is an agreement giving rise to obligations which are enforced or recognized by
law."
Chitty:
"A contract is an agreement between two or more parties which is intended to create legally
binding obligations."
Gray:
"A contract is an agreement to do or not to do a particular thing, enforceable by law."
Important Definitions in The Contract Act 1872
Proposal:
Proposal is defined in The Contract Act 1872 under Section 2(a) as an
"Offer made with a view to obtaining the assent of that other person to such act or
abstinence."
In other words, a proposal is an offer made by one party to another, with the intention of
creating a binding agreement between them if the other party accepts the offer.

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The Contract & Sales of Goods Act

Promise:
Promise is defined in The Contract Act 1872 under Section 2(b) as :
“An agreement with certain terms between two or more parties, which is enforceable by law”.
Promisor:
Promisor is defined in The Contract Act 1872, section 2(c) as
“The person who makes a promise or offers to perform a certain act. This person is also
referred to as the "offeror" or "promiser."
Consideration:
Consideration is defined in Section 2(d) of The Contract Act 1872, as follows:
"When, at the desire of the Promisor, the promisee or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to abstain from doing
something, such act or abstinence or promise is called a consideration for the promise."
In simpler terms, consideration refers to the exchange of something of value between two
parties in a contract. This can be a promise, act, or abstention from doing something.
An Agreement :
Agreement is defined in Sec. 2(e) as:
"Every promise and every set of promises, forming the consideration for each other, is an
agreement."
Agreement refers to a mutual understanding between two or more parties to perform or not to
perform a particular action. It is a legally binding arrangement that can be enforced in a court
of law.
For example, let's say you and your friend have agreed to split the cost of a movie ticket
equally. This agreement creates a legally binding obligation between you and your friend to
pay half the cost each. If one party fails to fulfill the obligation, the other party can take legal
action to enforce the agreement.
Contract:
A contract is defined in the Contract Act 1872 under Section 2(h), which states:
"A contract is a promise or set of promises which are enforceable by law."
Voidable Contract :
A voidable contract is defined in The Contract Act 1872 Section 2 (i) as :
"A contract which is enforceable by law at the option of one or more of the parties thereto,
but not at the option of the other or others, is a voidable contract."
Void Contract:
According To Section 2(j) of The Contract Act 1872:
"An agreement not enforceable by law is said to be void."

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The Contract & Sales of Goods Act

ESSENTIALS OF VALID CONTRACT

Agreements become contracts if they meet the essential elements of a contract, including the
free consent of the parties involved. This means that both parties must agree to the terms of
the agreement voluntarily and without coercion or undue influence.
For example: Farooq offers to sell his car to Saleem for Rs. 1,00,000 and Salem agrees to the
offer. This agreement is a contract because both parties have freely consented to the terms
and conditions of the deal.
Essentials of Valid Contract:
Here are essential elements of a valid contract:
1) Offer and Acceptance
2) Legal Obligations
3) Lawful Consideration
4) Capacity of Parties
5) Free Consent
6) Lawful Object
7) Writing and Registration
8) Certainty of Terms
9) Expressly Declared Void
10) Possibility of Performance
1. Offer and Acceptance:
Offer: An offer is a proposal made by one party to another to enter into an agreement. The
offer must be clear, definite, and specific and must be communicated to the offeree. Example:
A builder offers to sell a house to a buyer for a specific price.
Acceptance: Acceptance is the acceptance of the terms of an offer by the offeree,
communicated to the offeror. Acceptance must be unconditional and in accordance with the
terms of the offer. Example: The buyer accepts the builder's offer to purchase the house at the
specified price.
When the offer and acceptance are combined, a contract is formed. It is important to note that
a contract cannot be formed unless both offer and acceptance are present and have been
communicated effectively.
2. Legal Obligations:
A valid contract requires the presence of several essential elements, one of which is legal
obligations. Legal obligations refer to the promises made by the parties to perform specific
acts, either to do something (positive obligation) or not to do something (negative obligation).
The following are examples of legal obligations in a contract:
• Positive obligation: A construction company agrees to build a bridge for a
government agency within a specified timeframe.
• Negative obligation: A software developer agrees not to disclose confidential
information about a client's business to any third party.

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The Contract & Sales of Goods Act

In order for a contract to be enforceable, the legal obligations of the parties must be clear,
specific, and enforceable. The parties must also have the capacity to enter into the contract
and the agreement must be entered into voluntarily.
3. Lawful Consideration:
Lawful consideration is an essential element of a valid contract according to The Contract
Act. It refers to the mutual exchange of promises or promises and performance that takes
place between the parties to a contract. The consideration must be something of value and
must be lawful, meaning that it should not be illegal, immoral or against public policy.
For example, in a contract between a buyer and a seller, the buyer's promise to pay the price
of the goods or services and the seller's promise to deliver the goods or services is a lawful
consideration. Another example is in an employment contract, where an employer promises
to pay the employee a salary and the employee promises to perform the duties of the job.
In contrast, if a contract involves an illegal act, such as selling drugs or engaging in insider
trading, the consideration is not lawful and the contract is not valid. Similarly, a contract
between two parties for illegal activities, such as gambling or bribing public officials, is also
not valid as it is against public policy.
4. Capacity of Parties:
Capacity of parties is a crucial aspect of a valid contract according to The Contract Act, 1872.
It refers to the legal ability of a person to enter into a binding agreement. If either party lacks
capacity, the contract is considered void and unenforceable.
For a contract to be valid, the parties must have the capacity to understand the terms and
conditions of the agreement, as well as the ability to enter into a binding agreement. Some of
the key points related to the capacity of parties include:
• Age: Under the Contract Act, a person must be 18 years of age or above to enter into
a contract. If a minor enters into a contract, it is considered voidable, which means
that the minor can either choose to enforce the contract or reject it.
• Mental Capacity: If a person is of unsound mind or mentally challenged, they cannot
enter into a contract as they lack the capacity to understand the terms and conditions
of the agreement.
• Legal Capacity: Certain individuals, such as insolvents, bankrupts, or convicted
criminals, may not have the legal capacity to enter into a contract.
Example 1: A 15-year-old student agrees to purchase a mobile phone from a store.
This contract is voidable as the student is a minor and lacks the capacity to enter into
a binding agreement.
Example 2: A person suffering from a mental illness agrees to sell their house to
another person. This contract is void as the person lacks the capacity to understand the
terms and conditions of the agreement.
5. Free Consent:
Free consent is one of the essential elements of a valid contract according to The Contract
Act. It refers to the agreement between two or more parties that is voluntarily and freely
entered into without any coercion, undue influence, or fraud. In other words, both parties
must agree to the terms of the contract without any outside force or manipulation.

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The Contract & Sales of Goods Act

Examples of free consent:

• A couple agrees to enter into a marriage without any outside force or manipulation.
• A company agrees to enter into a contract with a supplier to purchase goods without
any coercion.
• An individual agrees to sell their property to another individual without any undue
influence from a third party.
If free consent is absent, the contract is considered void or voidable, meaning it is not legally
binding. For example, if a party is under duress or under the influence of drugs or alcohol,
their consent is not considered free, and the contract is void. Similarly, if a party is misled by
false information, their consent is not considered free, and the contract is voidable.
6. Lawful Object:
As per The Contract Act, a lawful object is an essential element of a valid contract. A lawful
object refers to the purpose or aim of the contract, which must not be illegal, immoral, or
against public policy. If the object of a contract is illegal, the contract becomes void ab initio
and unenforceable.
Examples of lawful objects in a contract are:
i. Sale of goods: The sale of goods is a lawful object as it is not illegal, immoral, or
against public policy.
ii. Employment Contract: An employment contract where an employer hires an
employee for a specific job is a lawful object as it is a lawful and moral act.
iii. Lease of Property: A lease of property is a lawful object as it is a lawful act, as long
as the property being leased is not illegal or against public policy.
iv. Partnership Agreement: A partnership agreement between two or more individuals
for a lawful business is a lawful object as it is a lawful and moral act.
v. Loan Agreement: A loan agreement between a lender and a borrower is a lawful
object as it is a lawful act, as long as the loan is not used for illegal purposes.
7. Writing and Registration:
Writing and registration are two important elements of a valid contract. A contract is a legal
agreement between two or more parties which outlines the terms and conditions of the
agreement. The contract must be written and registered to make it legally binding and
enforceable.
• Writing: A written contract is considered as a tangible evidence of the agreement
between the parties. It helps in avoiding disputes and misunderstandings between the
parties. It also makes it easier for the parties to refer back to the agreement in case of
any dispute. A written contract must be in the form of a document, which contains all
the terms and conditions agreed upon by the parties.
Example: Suppose, A agrees to sell his car to B for Rs. 5 lakhs. A and B enter into a
written agreement, detailing the terms and conditions of the sale, such as the make
and model of the car, the price, payment terms, delivery date, etc. This written
agreement is considered as a valid contract between A and B.
• Registration: The Contract Act also requires certain contracts to be registered to
make them legally binding and enforceable. Contracts that are required to be

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registered include contracts relating to immovable property, such as the sale of land or
building, mortgage, lease, etc.
Example: Suppose, A agrees to sell his house to B for Rs. 50 lakhs. A and B enter into
a written agreement, detailing the terms and conditions of the sale, such as the price,
payment terms, delivery date, etc. The written agreement must also be registered with
the relevant authorities in accordance with The Registration Act, 1908. This
registration will make the contract legally binding and enforceable between A and B.
8. Certainty of Terms:
"Certainty of terms" refers to the requirement that the terms of a contract must be clear,
definite and unambiguous in order to be enforceable. This is considered an essential element
of a valid contract under The Contract Act.
For example: A contract for the sale of a "red car" is not certain, as the description is too
vague and could refer to any number of vehicles. However, a contract for the sale of a "2015
red Ferrari 488 GTB" is certain, as the description is specific and clearly identifies the object
of the contract.
Example 2: A contract to perform "services" is not certain, as the term is too general and does
not specify what services are to be performed. However, a contract to "provide 10 hours of
web design services" is certain, as the terms clearly define the scope of work to be performed.
9. Possibility of Performance:
According to The Contract Act, a valid contract must have the possibility of performance as
an essential element. This means that the terms and conditions of the contract must be
capable of being fulfilled by both parties. If the contract cannot be performed, it is considered
void.
o For example, if two parties agree to sell a cow that has already died, the contract is
considered void because the performance of the contract is impossible. Similarly, if a
person agrees to marry someone who is already married, the contract is void as the
performance is impossible.
o Another example is if a person agrees to sell a car that is not owned by them. In this
case, the performance of the contract is also impossible as the person does not have
the right to sell the car.
10.Expressly Declared Void:
A contract is considered void if it goes against the provisions of the Contract Act, or if it is
illegal, immoral, or against public policy. In such cases, the contract is deemed void ab initio,
which means it was never valid from the beginning.
o For example, a contract between two parties to engage in illegal activities, such as
smuggling, would be considered void. Similarly, a contract that requires one party to
perform an act that is against public policy, such as committing fraud, would also be
considered void.
o For example, if two parties enter into a contract for the sale of illegal drugs, the
contract would be considered void as it goes against the law. Another example would
be a contract entered into by a minor, which is automatically void as minors are not
legally competent to enter into contracts.

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The Contract & Sales of Goods Act

KINDS OF CONTRACT
Contracts are Classified into following Types:
1. According To Enforceability
2. According To Formation
3. According To Performance
4. According To Parties

1. According To Enforceability :
According to enforceability contract can be further divided into following types:
A. Valid Contract
B. Void Contract
C. Void Agreement
D. Voidable Contract
E. Unenforceable Contract
F. Illegal Agreement

A. Valid Contract:
A valid contract is a legally binding agreement between two or more parties that can
be enforced by the court. To be considered a valid contract, the following elements
must be present:
▪ Offer: one party makes a clear proposal to another party
▪ Acceptance: the other party agrees to the terms of the offer
▪ Consideration: each party promises to give something of value
▪ Capacity: both parties must have the ability to enter into a contract
▪ Genuine Consent: parties must agree to the terms freely and without coercion
or undue influence
▪ Legal Purpose: the contract must be for a lawful purpose
Example: A valid contract is formed when a homeowner agrees to pay a contractor
$10,000 to build a new deck. The homeowner makes an offer to the contractor, who
accepts the offer. The homeowner promises to pay $10,000, and the contractor
promises to build the deck. Both parties have the capacity to enter into the contract,
and their agreement is made freely and without coercion. The purpose of the contract
is to build a deck, which is a lawful purpose.
B. Void Contract:
A void contract is a contract that has no legal effect or binding power. In other words,
it is as if the contract never existed. This can occur when the contract violates a law, is
against public policy, or if one of the parties lacked the capacity to enter into a
contract.

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The Contract & Sales of Goods Act

Example: A contract to sell illegal drugs is void and unenforceable because it violates
the law. The parties to the contract cannot seek legal remedy for its performance.
C. Void Agreement:
A void agreement is a contract that has no legal effect and is considered as if it never
existed. It is considered "void" from the beginning, meaning it was never valid in the
first place.
Examples of void agreements are:
▪ Agreements that are illegal or against public policy, such as agreements to
engage in criminal activities.
▪ Agreements that involve a mistake of fact or law.
▪ Agreements in which one of the parties lacked capacity, such as minors or
individuals with mental incapacity.
▪ Agreements that lack consideration, which means there is nothing of value
exchanged between parties.
▪ Agreements made under duress or undue influence.

D. Voidable Contract:
A voidable contract is a type of contract that is valid but can be cancelled or annulled
by one of the parties involved. This means that the contract can be either binding or
unenforceable, depending on the choice of the parties involved. The following are
some of the circumstances that may render a contract voidable:
▪ Misrepresentation: If one party makes false statements or hides important
information that influences the other party's decision to enter into the contract,
the affected party can void the contract.
Example: A buyer purchases a car from a seller who falsely represents the
car's condition. The buyer can void the contract if they discover the true
condition of the car.
▪ Undue influence: If one party uses coercion or undue influence to get the
other party to enter into a contract, the contract may be voidable.
Example: An elderly person is pressured into signing a contract by a
salesperson who uses high-pressure tactics. The contract may be voidable if
the elderly person can prove that they were under undue influence.
▪ Duress: If one party is forced to enter into a contract under threat of harm, the
contract may be voidable.
Example: A business owner is threatened with physical harm if they do not
sign a contract with a supplier. The contract may be voidable if the business
owner can prove that they were forced to sign the contract under duress.
▪ Mental incapacity: If one party was not of sound mind at the time the
contract was signed, the contract may be voidable.

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The Contract & Sales of Goods Act

Example: A person with dementia signs a contract to purchase a house. The

contract may be voidable if it can be proven that the person was not of sound
mind at the time of signing.
We can say a voidable contract is a contract that can be cancelled by one of the parties
if it was entered into under certain circumstances, such as misrepresentation, undue
influence, duress, or mental incapacity.

E. Unenforceable Contract:
An unenforceable contract is a contract that, although it may have been validly formed,
cannot be enforced or acted upon due to some technical defect. This means that the
parties to the contract may have entered into a binding agreement, but the agreement
cannot be enforced by the court due to some legal impediment.
Examples of unenforceable contracts include:
▪ Contracts with illegal purpose: Contracts that have an illegal or prohibited
objective, such as the sale of illegal drugs, are unenforceable.
▪ Contracts against public policy: Contracts that go against the public interest,
such as contracts to bribe public officials, are unenforceable.
▪ Contracts with missing elements: Contracts that lack essential terms, such as
price, delivery date, or quantity, are unenforceable.
▪ Contracts signed under duress or undue influence: Contracts signed under
coercion or undue pressure are unenforceable.
▪ Contracts with incapacity of parties: Contracts entered into by minors,
individuals of unsound mind, or those under duress are unenforceable.
▪ Statute of frauds contracts: Contracts that must be in writing under the
Statute of Frauds, such as contracts for the sale of real estate, are
unenforceable if not in writing.
It's important to note that an unenforceable contract is not the same as a void contract,
which has no legal effect or binding power from the outset. An unenforceable contract, on
the other hand, may have been validly formed but cannot be acted upon due to a technical
defect.
F. Illegal Agreement:
An illegal agreement is a contract or arrangement that goes against the laws and
regulations of the state or country. Such agreements are not enforceable by law, and any
parties involved in them may face legal consequences.
Examples of illegal agreements are:
▪ Agreements to engage in criminal activities such as drug trafficking, bribery, or
fraud.
▪ Agreements that conflict with public policy, such as those promoting
discrimination or violating human rights.
▪ Agreements that are against the provisions of consumer protection laws, such as
those involving false advertising or exploitation of vulnerable consumers.

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▪ Agreements that involve gambling or betting in countries where such activities are
prohibited.
▪ Agreements for illegal or unethical business practices, such as price fixing or
market manipulation.
It is important for parties to a contract to ensure that their agreement does not violate any
laws or regulations, as doing so may result in severe legal consequences and financial
penalties.
2. According To Formation:
According to formation , A Contract may be divided into following types:
A. Express Contract
B. Implied Contract
C. Quasi Contract

A. Express Contract:
An express contract is a type of contract where the terms and conditions of the agreement
are explicitly stated and communicated between the parties. The terms of the contract are
clearly and specifically set out in writing or orally.
Examples of express contracts include:
▪ A contract for the sale of goods, where the buyer and seller have explicitly agreed
on the price, quality, and delivery date of the goods.
▪ A rental agreement, where the landlord and tenant have explicitly agreed on the
rental amount, payment due date, and other conditions of the tenancy.
▪ A loan agreement, where the lender and borrower have explicitly agreed on the
loan amount, interest rate, repayment terms, and other conditions of the loan.
In an express contract, the parties have a clear understanding of their obligations and
rights, and the contract can be enforced by law if one of the parties breaches its
obligations.
B. Implied Contract:
An implied contract is an agreement that is not expressed in words, but is inferred from
the actions and circumstances of the parties involved. It is a type of contract that is
created by the conduct of the parties, rather than by a written or spoken agreement. The
terms of an implied contract are not explicitly stated, but are understood from the
circumstances and the conduct of the parties.
Examples of implied contracts include:
▪ A customer entering a store and picking up goods from the shelves implies an
agreement to pay for the goods at the time of purchase.
▪ An employee who accepts a job offer and begins working for an employer implies an
agreement to perform the job duties in exchange for compensation.
▪ A person who accepts a ride from a taxi driver implies an agreement to pay the fare at
the end of the ride.

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▪ A person who uses a service, such as a gym or a library, implies an agreement to

follow the rules and regulations of the service provider.
▪ A person who borrows a book from a friend implies an agreement to return the book
in good condition.
In all these examples, the terms of the contract are not explicitly stated, but are
understood from the circumstances and the conduct of the parties. An implied contract is
legally binding and enforceable, just like an express contract.
C. Quasi Contract:
A quasi-contract, also known as a constructive contract, is an obligation imposed by law
in the absence of an actual agreement between parties. It is a fictional contract created by
the courts to prevent unjust enrichment and to ensure fairness in certain circumstances.
Examples of quasi-contracts include:
▪ Unjust Enrichment: If a person receives a benefit from another person without
any intention to pay for it, the court may impose a quasi-contract to prevent unjust
enrichment. For example, if a person receives services from a plumber but refuses
to pay, the plumber may sue for the value of the services provided.
▪ Necessary Services: If a person provides necessary services to another person in
an emergency situation, a quasi-contract may be imposed to ensure that the person
who received the services is not unjustly enriched. For example, if a doctor
provides medical services to a person who is unconscious, the doctor may be
entitled to payment for the services provided.
▪ Supply Of Goods: If a person supplies goods to another person who is not able to
pay for them, a quasi-contract may be imposed to ensure that the supplier is not
unjustly enriched. For example, if a person supplies food to a hungry person who
does not have the means to pay, the supplier may be entitled to payment for the
goods supplied.
▪ Bailment: If a person entrusts goods to another person for safekeeping, a quasi-
contract may be imposed to ensure that the bailee is not unjustly enriched. For
example, if a person entrusts jewellery to a jeweller for repair, the jeweller may be
entitled to payment for the services provided.
In all of these cases, a quasi-contract is imposed by law to prevent unjust enrichment
and to ensure fairness. The purpose of a quasi-contract is to put the parties in the same
position as if they had entered into a contract voluntarily.
3. According To Performance:
According to performance , a contract has following two types:
A. Executed Contract
B. Executory Contract

A. Executed Contract:
An executed contract is a legally binding agreement between two or more parties that
has been fully performed. This means that all of the obligations and promises outlined
in the contract have been fulfilled by each party involved.

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The Contract & Sales of Goods Act

For example, consider a contract between a builder and a client for the construction of
a house. Once the house has been built and the client has paid the builder the agreed-
upon amount, the contract between the two parties can be considered executed.
Another example could be a contract between a seller and a buyer for the sale of a car.
If the car has been handed over to the buyer and the buyer has paid the seller the
agreed-upon amount, the contract between the two parties can be considered
executed.
B. Executory Contract:
An executory contract is a type of agreement in which one or more parties have yet to
fulfill their obligations under the terms of the contract. In other words, an executory
contract is a contract where some performance remains due from one or both parties.
For example, if you sign a contract to rent an apartment, and you have not yet moved
in, the contract is executory because you have not yet fulfilled your obligation to take
possession of the apartment, and the landlord has not yet fulfilled their obligation to
provide you with a place to live.
Another example is a contract to purchase a car, where the buyer has made a down
payment but has not yet taken possession of the vehicle. In this case, both the buyer
and the seller have obligations that are yet to be fulfilled, and the contract is
considered executory.
It is important to note that an executory contract can be fully performed by either
party, partially performed by both parties, or not performed by either party. The terms
of the contract will dictate which party is responsible for fulfilling the remaining
obligations.
4. According To Parties
According to Parties , a contract is divided into following types:
A. Unilateral Contract
B. Bilateral Contract

A. Unilateral Contract:
A unilateral contract is a type of contract where only one party makes a promise in
exchange for the completion of a specified act by the other party. The promise is
made with the understanding that if the act is completed, the promisor will be
bound to fulfill their end of the bargain.
Examples of unilateral contracts include:
▪ Reward contracts: A person offers a reward for the return of lost property
or the capture of a criminal.
▪ Contract for services: A person offers to pay for services to be
performed, such as hiring a contractor to complete a construction project.
▪ Option contracts: A person offers to sell property in exchange for
payment of an option fee, giving the buyer the right to purchase the
property at a later date.

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The Contract & Sales of Goods Act

▪ Insurance contracts: An insurance company promises to pay a specified

amount if a certain event occurs, such as a car accident or illness.
In a unilateral contract, the promise is only binding if the other party performs the
specified act. Until the act is completed, the promisor is not obligated to fulfill
their promise.

B. Bilateral Contract:
A bilateral contract is a type of contract where both parties make promises to each
other. It is called "Bilateral" because both parties have obligations to fulfill. In a
bilateral contract, one party promises to do something in exchange for the promise
of the other party to do something else.
For example:
▪ A person agrees to sell their car to another person in exchange for payment
of a certain amount of money.
▪ A contractor agrees to build a house for a client in exchange for payment
of a specified sum.
▪ An employee agrees to work for an employer in exchange for a salary.
In each of these examples, both parties have made promises to each other, creating
mutual obligations. The contract becomes legally binding once both parties have
fulfilled their promises. If either party fails to fulfill their promise, the other party
may have the right to take legal action to enforce the contract.

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The Contract & Sales of Goods Act

DIFFERENCE BETWEEN AGREEMENT AND

CONTRACT
Agreements and contracts are terms that are often used interchangeably, but they have
different meanings. An agreement is a mutual understanding between two or more parties to
do, or refrain from doing, something. It can be either express or implied, written or oral, and
does not necessarily have to be enforceable by law. On the other hand, a contract is a specific
type of agreement that creates legally enforceable obligations. In order to be considered a
contract, there must be an offer, acceptance, and consideration, and it must meet certain
requirements, such as being in writing and signed by the parties. Contracts are enforceable by
law, while the enforceability of an agreement depends on the specific terms of the agreement
and the jurisdiction in which it was formed. In short, while all contracts are agreements, not
all agreements are contracts.
Nature of Difference Agreement Contract
An agreement is a mutual A contract is a legally
understanding between two binding agreement between
or more parties to do, or two or more parties. It is a
Definition refrain from doing, specific type of agreement
something. It can be either that creates legally
express or implied, and can enforceable obligations.
be written or oral.

An agreement can be formed A contract requires an offer,

through negotiation, offer acceptance, and
and acceptance, or by consideration. It must also
conduct. It does not meet certain requirements,
Formation necessarily have to be in such as being in writing and
writing or enforceable by signed by the parties, in order
law. to be enforceable by law.

An agreement may be A contract is enforceable by

enforceable in some cases, law. If a party fails to fulfill
but not in others. It depends its obligations under the
Enforceability on the specific terms of the contract, the other party can
agreement and the take legal action to enforce
jurisdiction in which it was its rights.
formed.

Two friends agree to go to A person agrees to sell their

the movies together. This is car to another person for a
an agreement, but not a specified price. This is a
Example contract, as it is not contract, as it is a legally
enforceable by law. binding agreement with
enforceable obligations.

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The Contract & Sales of Goods Act

DIFFERENCE BETWEEN VOID AGREEMENT

AND VOID CONTRACT
Void Agreement:
An agreement that has no legal effect or binding force is called a void agreement.
Example:
An agreement made with a minor, an agreement made under duress or undue influence, or an
agreement that is illegal.
Void Contract:
A contract that has no legal effect or binding force is called a void contract.
Example:
A contract for the sale of goods that become unavailable before delivery, a contract that
becomes illegal after it was formed, or a contract that is frustrated by an event that makes
performance impossible.
Difference:
▪ An agreement becomes a contract when it is enforceable by law, but a void agreement
is one that was never enforceable to begin with.
▪ A void contract, on the other hand, was once a valid contract but has become
unenforceable due to some change in circumstances, such as the death of one of the
parties.
In summary, the main difference between a void agreement and a void contract is that a void
agreement was never valid, while a void contract was once valid but has since become
unenforceable.

DIFFERENCE BETWEEN ILLEGAL AND VOID

AGREEMENT
Here you can find the difference between illegal and void agreements.
Nature Illegal Agreement Void Agreement
An illegal agreement is one A void agreement, on the
that is contrary to law, other hand, is one that is not
morals, public policy, or enforceable due to the
good faith. Such agreements absence of one or more
are not enforceable in a court essential elements of a
Definition of law. contract, such as a valid
offer, acceptance,
consideration, or capacity to
contract.

Illegal agreements are not Void agreements are also

enforceable by either party as unenforceable, but for
Enforceability they break the law. different reasons. They are
not legally binding due to
some deficiency in the

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The Contract & Sales of Goods Act

formation of the contract.

Entering into an illegal Entering into a void
agreement can result in agreement does not have any
criminal or civil penalties for legal consequences as the
Consequences the parties involved. agreement was never legally
binding in the first place.

An illegal agreement could A void agreement could be

be one for the sale of illegal one where a minor attempts
Examples drugs. to enter into a contract
without the consent of their
parents.
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The Contract & Sales of Goods Act

Difference Between Void Agreement and Voidable

Contract
Void Agreement
A void agreement is a contract that is considered invalid and has no legal effect from the
outset. This means that it cannot be enforced by either party and is considered as if it never
existed. The following are the reasons for an agreement to be void:
➢ The agreement is illegal or against the law
➢ The agreement is made under duress or undue influence
➢ The agreement is made with a minor
➢ The agreement involves an impossible act
Example: An agreement to sell illegal drugs is a void agreement as it goes against the law.
Voidable Contract
A voidable contract is a contract that is valid but can be avoided or terminated by one of the
parties. This means that the contract can be enforced, but only if both parties agree to it. The
following are the reasons for a contract to be voidable:
➢ The contract is made under false pretences
➢ The contract is made with a person who lacks capacity to contract
➢ The contract is made under undue influence or coercion
Example: A contract entered into by a person who was under the influence of drugs or
alcohol is a voidable contract as the individual lacked capacity to contract.
Difference between Void Agreement and Voidable Contract

Nature Void Agreement Voidable Contract

A void agreement is A voidable contract is valid
considered invalid from the but can be avoided by one of
Nature start and cannot be enforced. the parties.

A void agreement is made for A voidable contract is made

reasons such as illegal acts, for reasons such as false
Reasons duress, and with minors. pretences, lack of capacity to
contract, and undue
influence.

A void agreement cannot be A voidable contract can be

Enforceability enforced by either party. enforced if both parties agree
to it.

A void agreement has no A voidable contract is valid

legal effect from the unless terminated.
Legal Status beginning. Reasons for Invalidity.

A void agreement is void due A voidable contract is

Consent to reasons such as lack of voidable due to reasons such

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The Contract & Sales of Goods Act

consent or illegal purpose. as duress or undue influence.

A void agreement is A voidable contract is a valid
considered null and void agreement that can be either
from the outset, meaning it enforced or cancelled,
has no legal standing from depending on the
the moment it is created. As a circumstances. In the case of
result, it is not affected by the a voidable contract, the lapse
passage of time. Even if of time can affect the ability
years have passed since the to cancel or enforce it. For
agreement was made, it still example, if a party wants to
has no legal validity. cancel a voidable contract
Lapse of Time because of fraud, they
typically must do so within a
certain time period, such as
two years from the date of
discovery of the fraud. If
they do not act within this
time frame, the contract may
become enforceable and they
may be unable to cancel it.

A void agreement is one that A voidable contract is one

is completely unenforceable that is valid and enforceable,
and has no legal effect, but can be set aside or
meaning that neither party cancelled by one or both
can act on it and it is not parties, usually due to fraud,
recognized by the law. As a duress, or misrepresentation.
result, a third party has no In this case, a third party who
rights under a void has acted in good faith and
agreement, as it does not relied on the validity of the
Rights of Third Party exist in the eyes of the law. contract may have rights
under it, even if it is later
cancelled by one of the
parties. The third party’s
rights will depend on the
specific circumstances and
the laws of the jurisdiction.

In summary, the main difference between a void agreement and a voidable contract is the
legal status of the agreement and the reasons for its invalidity. A void agreement is invalid
from the start, while a voidable contract is valid unless terminated by one of the parties.

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The Contract & Sales of Goods Act

OFFER AND ACCEPTANCE

OFFER
Offer (OR) Proposal:
According to Section 2(b) of The Contract Act 1872, proposal is defined as:
“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.”
An offer or proposal is a statement made by one person to another indicating a willingness to
enter into a contract. It sets out the terms and conditions of the agreement, including the price
and any other important details.
The person making the offer is called the offeror and the person receiving the offer is called
the offeree. An offer can be made in various forms, including written, oral, or through
conduct.
Once the offer is made, it remains open for acceptance by the offeree. Acceptance of the offer
creates a binding contract between the parties, meaning that they are obligated to fulfill their
respective responsibilities under the terms of the agreement.
It is important to note that not all statements or actions are considered offers. For example, an
invitation to treat, such as a store displaying goods for sale, is not considered an offer, as it is
only an invitation for customers to make an offer to purchase the goods.
Examples of Valid Offer:
a) An advertisement offering a prize to the first person who correctly answers a question.
b) A job offer made by an employer to a prospective employee, specifying the salary and
job duties.
c) An invitation to treat, such as a display of goods in a store window, which indicates
the offeror’s willingness to enter into a contract if someone makes an offer to buy the
goods.
Essentials of Valid Offer:
The essentials of a valid offer are the following:
1) Communication
2) Intention
3) Certainty
4) Possibility of Performance
5) Invitation To Treat
6) Intention To Create Legal Relations
7) Reasonable Time For Acceptance
1) Communication:
Communication is a crucial element of a valid offer, as it is the means by which the
offeror expresses their willingness to enter into a contract. Without communication,
the offeree cannot be aware of the offer and therefore cannot accept it.
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The Contract & Sales of Goods Act

In a contract, the offer must be communicated to the offeree in a clear and

unambiguous manner. This can be done orally, in writing, or through conduct. The
communication must be sufficient to convey the offeror’s intention and the terms and
conditions of the agreement.
For example, a written job offer sent by email, setting out the salary, job duties, and
other terms and conditions of the employment, is a clear form of communication of
the offer. The offeree can easily understand the offer and decide whether to accept it
or not.
On the other hand, if the offeror simply mentions their willingness to enter into a
contract without specifying the terms and conditions, it would not be considered a
valid offer, as the communication is not sufficient to convey the offeror’s intention
and the terms of the agreement.
2) Intention:
Intention is one of the essential elements of a valid offer, as it indicates the offeror's
willingness to create a legally binding agreement. The offeror must have the intention
of creating a contract, meaning that they want to enter into a binding relationship with
the offeree.
In determining the intention of the offeror, the courts will look at the circumstances of
the offer, including the language used and the context in which it was made. If the
offeror's intention is clear, it will be considered a valid offer.
Example of Intention in a Valid Offer
Suppose that a business owner makes an offer to sell their business to a potential
buyer, setting out the terms and conditions of the sale, including the price, payment
schedule, and any other relevant details. The offeror's intention in this scenario is
clear, as they are offering to sell their business with the intention of entering into a
legally binding agreement with the buyer.
In this example, the intention of the offeror to create a contract is clear, as they have
communicated their willingness to sell their business and have set out the terms and
conditions of the sale. This makes the offer a valid one, as it meets the requirement of
having the intention to create a legally binding agreement.
3) Certainty:
Certainty is an important element of a valid offer and refers to the clarity and
definiteness of the terms and conditions of the proposed agreement. The offer must set
out the terms and conditions of the contract in a clear and specific manner, leaving no
room for doubt or ambiguity.
An offer that is vague or uncertain is not considered valid and cannot form the basis
of a contract. This is because a contract requires both parties to have a clear
understanding of their respective obligations and responsibilities.
Example: A builder makes an offer to construct a building for a client for "a fair
price". This offer is not valid, as it is not clear what the builder considers to be a fair

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The Contract & Sales of Goods Act

price. The offer should specify the exact amount that the builder is proposing to
charge for the construction work.
4) Possibility of Performance:
It means that the terms of the offer must be capable of being performed or fulfilled. If
the performance of the contract is illegal, impossible, or against public policy, the
offer is considered invalid.
For example, if an offer is made to sell stolen goods, the offer is invalid as it is illegal
and against public policy. Similarly, an offer to perform a contract that involves
breaking a pre-existing contract is also considered invalid.
The possibility of performance must be considered at the time the offer is made, and
not at the time of performance. If the offeror later becomes unable to perform, the
contract remains valid as long as the offeree did not know or could not reasonably
have known of the impossibility of performance at the time of acceptance.
5) Invitation To Treat/Offer:
An Invitation to Treat is a statement or action made by one party to another indicating
a willingness to receive offers from the other party, rather than making a binding offer
itself. It is a crucial element in the formation of a contract, as it determines whether
the parties are making a valid offer or not.
An Invitation to Treat can take various forms, such as display of goods in a store
window, an advertisement, or a public auction. In each of these cases, the person
making the invitation is not making a binding offer, but rather inviting others to make
an offer.
Examples of Invitation to Treat
i. Display of goods in a store: A store that displays goods for sale is not making
a binding offer, but rather an invitation to treat. The customers are invited to
make an offer to purchase the goods.
ii. Advertisements: An advertisement that states “For Sale” or “Wanted” is not a
binding offer, but an invitation to treat. The parties are invited to make an
offer to buy or sell the goods.
iii. Auctions: A public auction is an invitation to treat, where the auctioneer
invites bids from the attendees. The highest bidder makes an offer to purchase
the goods, which is then accepted by the auctioneer.
In each of these examples, the person making the invitation is not making a binding
offer, but rather inviting others to make an offer. It is important to distinguish between
an invitation to treat and a valid offer, as this will determine whether the parties are
bound by a contract or not.
6) Intention To Create Legal Relations:
Intention to create legal relations is an essential element of a valid offer, as it
demonstrates the offeror’s willingness to enter into a binding agreement. This element
is crucial in determining the enforceability of a contract, as the parties must have the
intention of creating a legally binding agreement for it to be enforceable.

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The Contract & Sales of Goods Act

The intention to create legal relations can be inferred from the circumstances of the
offer, such as the nature of the agreement, the conduct of the parties, and the
commercial context of the transaction.
For example, if a person makes an offer to sell goods to another person, the intention
to create legal relations can be inferred from the commercial context of the
transaction, as the sale of goods is typically a commercial transaction that is intended
to be legally binding.
In contrast, if two friends make an agreement to go on a picnic, the intention to create
legal relations is less clear, as it is not a commercial transaction and may be more
informal in nature.
7) Reasonable Time For Acceptance:
Reasonable time for acceptance is an essential element of a valid offer. This means
that the offer must remain open for a sufficient length of time, during which the
offeree has the opportunity to accept the offer. The length of time depends on the
circumstances of each case and what is considered reasonable in the particular
situation.
For example, in the case of an offer to sell goods, a reasonable time for acceptance
may be a few days or even a week. In the case of a job offer, a reasonable time for
acceptance may be a few weeks.
If the offeree does not accept the offer within the reasonable time for acceptance, the
offeror has the right to revoke the offer. This means that the offer is no longer open
for acceptance and the contract cannot be formed.
Example:
A job offer is made by an employer to a prospective employee. The employer
specifies that the offer will remain open for acceptance for one week. If the
prospective employee does not accept the offer within one week, the employer has the
right to revoke the offer and make it to someone else.
In this example, the reasonable time for acceptance is one week, which is considered
reasonable in the context of a job offer. If the prospective employee accepts the offer
within the one week period, a binding contract is formed between the parties.
It is important to note that reasonable time for acceptance is an essential element of a
valid offer, as it gives the offeree a reasonable opportunity to consider the offer and
decide whether to accept it. If the offer is revoked before the reasonable time for
acceptance has expired, the contract cannot be formed and the offeree has no right to
enforce the offer.

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The Contract & Sales of Goods Act

REVOCATION OF OFFER
Revocation of offer refers to the act of withdrawing or cancelling an offer that has been made
by the offeror. This means that the offer is no longer open for acceptance and the contract
cannot be formed.
The offeror has the right to revoke the offer at any time before it has been accepted by the
offeree. However, once the offeree has accepted the offer, the offeror cannot revoke the offer
and the contract is formed.
Revocation of offer can occur in various forms, including oral, written, or through conduct. It
is important that the revocation of offer is communicated to the offeree in a clear and definite
manner, so that the offeree is aware that the offer has been revoked and cannot accept it.
How Revocation of Proposal is Possible :
In Section 6 of The Contract Act, Procedure of revocation is explained which is as under:
A proposal is revoked :
(1) by the communication of notice of revocation by the proposer to the other
party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no
time is so prescribed, by the lapse of a reasonable time, without communication
of the acceptance ;
(3) by the failure of the acceptor to fulfill a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance.
We can explain the revocation of an offer through following points:
1) Revocation By Offeror:
2) Lapse of Time
3) Failure To Fulfill Conditions
4) Death of Insanity of Offeror
5) Revocation By Offeree
6) Subsequent Illegality
7) Prescribed Manner
1) Revocation by Offeror:
Revocation by offeror refers to the act of withdrawing or cancelling an offer by the
person who made the offer (the offeror). The offeror has the right to revoke the offer at
any time before it has been accepted by the offeree.
For revocation by offeror to be valid, the following conditions must be met:
a) The offer must not have been accepted: The offer can only be revoked before it
has been accepted by the offeree. Once the offeree has accepted the offer, the
contract is formed and the offer cannot be revoked.
b) The revocation must be communicated: The revocation must be communicated
to the offeree in a clear and definite manner. This can be done orally, in writing,
or through conduct.

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The Contract & Sales of Goods Act

c) Reasonable time for revocation: The revocation must be made within a

reasonable time for revocation. This depends on the circumstances of each case
and what is considered reasonable in the particular situation.
Example:
A job offer is made by an employer to a prospective employee. The employer specifies
that the offer will remain open for acceptance for one week. If the employer changes their
mind and decides not to hire the prospective employee, they can revoke the offer at any
time before the prospective employee has accepted it.
In this example, the revocation of the offer by the offeror is valid because it was made
before the offeree accepted the offer and was communicated in a clear and definite
manner. The revocation is also made within a reasonable time for revocation, as the offer
was open for acceptance for one week.
It is important to note that revocation by offeror can only be valid if it is made before the
offeree has accepted the offer and is communicated in a clear and definite manner. If the
offer has been accepted, the contract is formed and the offer cannot be revoked.
2) Lapse of Time:
One of the ways in which an offer can be revoked is by the lapse of time. This means that
if the offer is not accepted within a reasonable time period, the offeror has the right to
revoke the offer. The length of time that is considered reasonable depends on the
circumstances of each case and what is considered reasonable in the particular situation.
Example:
An offer to sell a house is made by the owner to a potential buyer. The owner specifies
that the offer will remain open for acceptance for two weeks. If the potential buyer does
not accept the offer within two weeks, the owner has the right to revoke the offer and
make it to someone else.
In this example, the reasonable time for acceptance is two weeks, which is considered
reasonable in the context of an offer to sell a house. If the potential buyer accepts the
offer within the two week period, a binding contract is formed between the parties. If the
potential buyer does not accept the offer within two weeks, the owner has the right to
revoke the offer and the contract cannot be formed.
It is important to note that the reasonable time for acceptance must be specified in the
offer, so that the offeree is aware of the time period in which they must accept the offer. If
the offer is not accepted within the specified time period, the offeror has the right to
revoke the offer and the contract cannot be formed.
3) Failure To Fulfill Conditions:
An offer can be revoked if the offeror fails to fulfill a condition precedent, which is a
condition that must be satisfied before the offer can become legally binding. For example,
if an offer to sell a car is contingent upon the buyer obtaining financing, the offeror may
revoke the offer if the buyer fails to secure financing within a specified timeframe.
An offer can also be revoked if the offeror becomes incapable of fulfilling the terms of
the offer due to circumstances beyond their control. For example, if a seller offers to sell a

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The Contract & Sales of Goods Act

rare antique, but before the offer is accepted, the antique is destroyed in a fire, the offeror
is no longer able to fulfill the offer and can revoke it.
4) Death or Insanity of Offeror:
The revocation of an offer can occur in several ways, including the death or insanity of
the offeror.
➢ Death of Offeror: The death of the offeror automatically terminates the offer, as
the deceased cannot enter into a legally binding agreement. For example, if Mr.
Smith offers to sell his house to Mrs. Jameelson, and Mr. Smith passes away
before Mrs. Jameelson accepts the offer, the offer is automatically revoked due to
Mr. Smith's death.
➢ Insanity of Offeror: Similarly, if the offeror becomes insane, the offer is
terminated as they are unable to enter into a legally binding agreement. For
example, if Mr. Brown offers to sell his car to Mrs. Davis, but before Mrs. Davis
accepts the offer, Mr. Brown is diagnosed with a mental illness that renders him
legally insane, the offer is automatically revoked.
In both cases, the death or insanity of the offeror terminates the offer, making it
impossible for the offeree to accept and form a contract.
5) Revocation By Offeree:
"Revocation by Offeree" refers to the situation where the offeree voluntarily chooses to
terminate the offer before it has been accepted. In such a case, the offer is considered
revoked and can no longer be accepted.
An offer can be revoked by the offeree in the following ways:
i. Rejection of Offer: If the offeree communicates their rejection of the offer to the
offeror, the offer is considered revoked. For example, if an individual receives a
job offer but declines it, the offer is considered revoked and cannot be accepted.
ii. Counter-offer: If the offeree makes a counter-offer, the original offer is
considered revoked. For example, if a buyer receives an offer for a car and
counter-offers with a different price, the original offer is revoked.
iii. Death or Incapacity of Offeree: If the offeree dies or becomes incapacitated
before accepting the offer, the offer is considered revoked.
iv. Destruction of Subject Matter: If the subject matter of the offer is destroyed
before acceptance, the offer is considered revoked. For example, if a seller makes
an offer for a rare book but the book is damaged before the offer is accepted, the
offer is revoked.
The offeree has the right to revoke an offer at any time before it has been accepted, and
the offeror is not bound by an offer that has been revoked.
6) Subsequent Illegality:
The revocation of an offer on the basis of "Subsequent Illegality" occurs when a
previously valid offer becomes invalid due to a change in circumstances that makes the
performance of the offer illegal. This means that the offer can no longer be accepted and
becomes void.

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The Contract & Sales of Goods Act

For example, consider a situation where a person offers to sell a rare and protected
species of bird to another person. After the offer is made, but before it is accepted, the
government passes a law making it illegal to trade in such birds. In this case, the offer can
be revoked on the basis of subsequent illegality, as the performance of the offer (selling
the bird) would now be illegal.
7) Prescribed Manner:
An offer can be revoked if it is not done in the prescribed manner, which is the method
specified by the offeror for revoking the offer. The revocation must be communicated to
the offeree, who must have knowledge of the revocation.
For example, if an offeror specifies that the offer can only be revoked by sending a
written notice, then the offer can only be revoked in that manner. If the offeror tries to
revoke the offer through some other means, such as a verbal communication, it would not
be valid and the offer would remain open for acceptance.
In the absence of any specific method prescribed for revocation, an offer can usually be
revoked at any time before acceptance by any means that effectively communicates the
revocation to the offeree. However, if the offeree has acted in reliance on the offer and it
would be unfair to revoke it, the offeror may be estopped from revoking the offer.

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The Contract & Sales of Goods Act

ACCEPTANCE
Meaning of Acceptances:
According to Section 2(b) of The Contract Act 1872 , Acceptance is defined as :
“When the person to whom the proposal is made signifies his assent thereto, the proposal
is said to be accepted. A proposal, when accepted becomes a promise”
We can say that Acceptance, according to the Contract Act 1872, is the act of accepting an
offer made by another party with the intention of creating a binding agreement. Here are a
few examples of acceptance:
i. Express Acceptance: This occurs when the offer is accepted explicitly, either orally
or in writing. For example, if someone offers to sell you a car and you accept the offer
by saying "I'll take it", that is express acceptance.
ii. Implied Acceptance: This occurs when the conduct of the offeree indicates that they
have accepted the offer. For example, if someone offers to sell you a car and you take
delivery of the car and start using it, that is implied acceptance.
iii. Silence as Acceptance: This occurs when the offeree remains silent in response to the
offer, but their conduct indicates that they have accepted the offer. For example, if
someone sends you a letter offering you a job and you do not respond, but start
working for the company, that is silence as acceptance.
It's important to note that acceptance must be communicated to the offeror and must be
unconditional and match the terms of the offer to create a valid contract.
Essentials of Valid Acceptance
Here are essential elements of a valid acceptance:
1) Communication
2) Unconditional
3) Within Time Limit
4) Competency of The Offeree
5) Free Consent:
6) Specific Mode of Acceptance
7) Acceptance of Unilateral Contract
8) Acceptance In The Prescribed Manner
9) Silence Does Not Amount To Acceptance
10) Acceptance In Accordance With The Terms Of The Offer

1) Communication:
"Communication" is an essential element of acceptance because it signifies that the
offeree has agreed to the terms of the offer and is willing to be bound by them. The
communication of acceptance must be made to the offeror, either by words or by
conduct, so that the offeror is made aware of the offeree's acceptance.
Examples of communication of acceptance include:

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The Contract & Sales of Goods Act

i. Express Communication: When the offeree communicates acceptance

through a direct statement, such as by saying "I accept your offer", it is
considered an express communication of acceptance.
ii. Implied Communication: When the offeree takes action that demonstrates
acceptance of the offer, it is considered an implied communication of
acceptance. For example, if an offer is made to sell goods and the offeree takes
delivery of the goods, this can be considered an implied communication of
acceptance.
iii. Written Communication: Acceptance can also be communicated in writing,
such as through a letter, email, or fax.
It is important to note that the communication of acceptance must be made in a
manner that is reasonable and in accordance with the terms of the offer. If the offeror
has specified a particular mode of acceptance, such as in writing or by phone, then the
offeree must accept the offer in that manner. If no mode of acceptance is specified,
then the offeree can communicate acceptance in any reasonable manner.
2) Unconditional:
Unconditional acceptance means that the offeree has accepted the offer exactly as it
was made, without adding any additional conditions or qualifications. It means that
the offeree has agreed to all the terms and conditions of the offer and is willing to be
bound by them.
For example:
• A offers to sell his car to B for Rs. 1,00,000. B accepts the offer by saying "I
accept the offer to buy the car for Rs. 1,00,000." This is an example of
unconditional acceptance, as B has accepted the offer exactly as it was made.
• A offers to sell his car to B for Rs. 1,00,000. B accepts the offer by saying "I
accept the offer to buy the car for Rs. 1,00,000, but only if it comes with a
warranty." This is not an example of unconditional acceptance, as B has added
a new condition (the warranty) to the offer, which was not included in the
original offer made by A.
3) Within Time Limit:
As defined by The Contract Act 1872. It refers to the requirement that acceptance
must be made within a reasonable time and before the offer lapses or is revoked.
The time limit for acceptance may either be specified by the offeror or may be
determined by the circumstances surrounding the offer. If the offeror sets a specific
time limit for acceptance, the offeree must accept the offer within that time frame in
order to create a valid contract. If no time limit is set, the offeree must accept the offer
within a reasonable time.
Examples of acceptance within time limit:
• Jameel offers to sell his car to Sarah for $10,000. Sarah accepts the offer
within a week, before the offer lapses or is revoked. This acceptance is valid
as it was made within the time limit set by Jameel.

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The Contract & Sales of Goods Act

• Maria offers to rent her apartment to Peter for $1,000 per month. Peter accepts
the offer within a reasonable time, as no specific time limit was set. This
acceptance is valid as it was made within a reasonable time.
It is important to note that if the offeree accepts the offer after the time limit has
lapsed or after the offer has been revoked, the acceptance is considered invalid and
does not create a contract.

4) Competency of the Offeree:

Competency of the offeree is an essential element of acceptance under The Contract
Act 1872. The act states that only a person who has the legal capacity to enter into a
contract can accept an offer and create a binding agreement.
For an acceptance to be valid, the offeree must have the capacity to enter into a
contract. This means that the offeree must be of a sound mind, not a minor, and not
disqualified by any law to enter into a contract. The following are examples of
situations in which the offeree would not be considered competent:
i. Minor: If the offeree is a minor (below the age of 18 years), the acceptance is
voidable at the minor's option. The minor may either affirm or reject the
contract after attaining the age of majority.
ii. Unsound Mind: If the offeree is of unsound mind, the acceptance is void. A
person of unsound mind is one who is unable to understand the nature and
consequences of the contract.
iii. Intoxication: If the offeree is under the influence of drugs or alcohol, the
acceptance is voidable if the offeree was unable to understand the nature and
consequences of the contract.
iv. Disqualification by Law: If the offeree is disqualified by law to enter into a
contract, the acceptance is void. For example, if a person is bankrupt, he/she is
disqualified from entering into contracts.
It is important to note that the competency of the offeree must be determined at the
time of acceptance. If the offeree was competent at the time of acceptance but
becomes incompetent thereafter, the contract remains valid.
5) Free Consent:
It means that both parties to an agreement must agree to the terms of the contract
freely, without any coercion, undue influence, fraud, or misrepresentation.
Examples of cases where free consent is not present include:
i. Coercion: Coercion occurs when one party is forced to enter into a contract
by the use of physical force or the threat of physical force. For example, if a
person is forced to sign a contract at gunpoint, the contract would not be
considered to have been entered into with free consent.
ii. Undue Influence: Undue influence occurs when one party uses their position
of power or authority to coerce the other party into entering into a contract.
For example, if a parent forces their child to sign a contract, the contract
would not be considered to have been entered into with free consent.

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The Contract & Sales of Goods Act

iii. Fraud: Fraud occurs when one party misleads the other party into entering
into a contract. For example, if a person makes false representations to another
person in order to convince them to enter into a contract, the contract would
not be considered to have been entered into with free consent.
iv. Misrepresentation: Misrepresentation occurs when one party provides false
information to the other party, causing them to enter into a contract. For
example, if a person provides false information about the quality of goods
being sold, the contract would not be considered to have been entered into
with free consent.
It is important to note that contracts entered into without free consent are considered
voidable, meaning that either party can choose to either enforce or void the contract.
6) Specific Mode of Acceptance:
It refers to the method prescribed by the offeror for the offeree to accept the offer. The
offeror may specify a particular mode of acceptance in the offer, such as by letter,
telegram, or email, for example. In such cases, the offeree must accept the offer by the
same mode of communication specified by the offeror.
For example, if an offeror makes an offer to sell a car by letter, the offeree must
accept the offer by sending a letter of acceptance. If the offeree sends an acceptance
by email, it will not be a valid acceptance as the offeror had specified a different
mode of acceptance.
If the offeror does not prescribe a specific mode of acceptance, the offeree may accept
the offer by any reasonable means. In this case, the mode of acceptance should be
consistent with the mode of communication used by the offeror.
It is important to note that the specific mode of acceptance is an essential element of
acceptance as it ensures that both parties are aware of the terms of the agreement and
that there is a clear and unambiguous record of the acceptance. This helps to avoid
disputes and misunderstandings in the future.
7) Acceptance of Unilateral Contract:
Acceptance of a unilateral contract is a form of acceptance that occurs when the
offeree performs the action requested by the offeror in the offer. In a unilateral
contract, the offeror makes a promise in exchange for the offeree's performance of a
requested act. Unlike bilateral contracts, where both parties make promises, a
unilateral contract only requires the offeree to perform an act.
The essential element of acceptance in a unilateral contract is performance. The
offeree must perform the act requested in the offer in order for the contract to be
considered accepted. The offeror is bound by the contract only if the offeree performs
the requested act.
Examples of unilateral contracts include:
• A reward offer, where an individual offers a reward for the return of lost
property. The offeree's acceptance of the contract occurs when the property is
returned to the offeror.

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The Contract & Sales of Goods Act

• A contract for services, where a client offers to pay a service provider for
completing a specific task. The offeree's acceptance of the contract occurs
when the service provider performs the requested task.
• A contract for the sale of goods, where a seller offers to sell goods to a buyer
at a specific price. The offeree's acceptance of the contract occurs when the
buyer pays the agreed-upon price and takes possession of the goods.
8) Acceptance in The Prescribed Manner:
"Acceptance in the prescribed manner" is an essential element of acceptance, as
defined by The Contract Act 1872. It means that acceptance must be made in the
manner specified by the offeror, or if no manner is specified, in a reasonable manner.
For example, if the offeror states in the offer that acceptance must be made in writing,
then the offeree must accept the offer in writing. If the offeror does not specify a
particular manner of acceptance, then the offeree can accept the offer by any
reasonable means, such as a letter, telegram, or telephone call.
If the offeree accepts the offer in a manner different from the one specified by the
offeror, or in a manner that is not reasonable, then the acceptance is considered
invalid. This means that the contract is not formed and the offeree is not bound by the
terms of the offer.
For example, if the offeror specifies that acceptance must be made in writing and the
offeree accepts the offer orally, then the acceptance is considered invalid and the
contract is not formed.
9) Silence Does Not Amount To Acceptance:
The principle "Silence does not amount to acceptance" means that simply not
objecting to an offer or not responding to it, does not necessarily mean that one has
accepted the offer. In other words, the lack of a response does not imply agreement to
the terms of the offer.
For example, consider a scenario where a person receives an offer to purchase a piece
of property. If the person does not respond to the offer, it does not mean that they
have accepted it. Similarly, if a person receives an offer for a job and does not reply, it
does not mean that they have accepted the offer.
This principle is important because it ensures that acceptance must be a deliberate and
conscious act, rather than an accidental or passive one. It also ensures that the parties
are clear about the terms of the contract and the obligations they are entering into.
However, there are certain situations where silence can be treated as acceptance, for
instance, in cases where the offeror has specifically stated that silence will amount to
acceptance or where there is a prior agreement or a course of dealing between the
parties that suggests that silence is to be treated as acceptance.
10) Acceptance in Accordance With The Terms of The Offer:
This means that acceptance must be made in accordance with the conditions specified
in the offer. If the offeree deviates from the terms of the offer in any way, it will not
be considered a valid acceptance.

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The Contract & Sales of Goods Act

For example, if an offeror makes an offer to sell a car for RS. 1,00,000, the offeree
must accept the offer by agreeing to pay RS. 1,00,000 for the car. If the offeree
deviates from the terms of the offer by proposing to pay only RS. 90,000, it will not
be considered a valid acceptance.
Another example can be, if an offeror makes an offer to sell a book, specifying that
payment should be made within 7 days, the offeree must accept the offer by agreeing
to make the payment within 7 days. If the offeree deviates from the terms of the offer
by proposing to make the payment after 7 days, it will not be considered a valid
acceptance.

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The Contract & Sales of Goods Act

COMMUNICATION OF OFFER, ACCEPTANCE

AND REVOCATION
1. Communication of Offer:
The communication of an offer is considered complete when the offeree has received the
offer. In other words, when the offeree has knowledge of the existence of the offer. The
Contract Act 1872 defines the rules for determining when communication of an offer is
complete.
There are several situations when communication of the offer is assumed to be completed,
including:
i. When the offer is made to a specific person: If the offer is made to a specific
person, communication of the offer is complete when it reaches that person. For
example, if a person offers to sell his car to his friend, the communication of the offer
is complete when the friend receives the offer.
ii. When the offer is made through the post: If the offer is made through the post,
communication of the offer is complete when the letter containing the offer reaches
the offeree. For example, if a person offers to sell his car through a letter, the
communication of the offer is complete when the letter reaches the recipient.
iii. When the offer is made to the general public: If the offer is made to the general
public, communication of the offer is complete when it becomes public knowledge.
For example, if a person offers to sell his car through a newspaper advertisement, the
communication of the offer is complete when the advertisement is published in the
newspaper.
iv. When the offer is made through an agent: If the offer is made through an agent,
communication of the offer is complete when the agent communicates the offer to the
offeree. For example, if a person offers to sell his car through a real estate agent, the
communication of the offer is complete when the real estate agent communicates the
offer to the potential buyer.
It is important to note that communication of an offer is not complete until the offeree has
received the offer and has knowledge of its contents. Until the offeree has knowledge of the
offer, the offeror cannot enforce the contract.
2. Communication of Acceptance:
The communication of acceptance is deemed to be completed when the acceptance is put into
a course of transmission to the offeror so as to be out of the control of the acceptor. This
means that once the offeree has communicated his acceptance to the offeror, the contract is
formed, and the parties are bound by its terms.
Examples of when communication of acceptance is deemed to be completed include:
i. Postal Acceptance Rule: When an acceptance is sent by post, communication of
acceptance is completed when the letter of acceptance is posted. For example, if an
offeror makes an offer to sell a car, and the offeree accepts the offer by sending a
letter of acceptance through the post, communication of acceptance is deemed to be
completed when the letter of acceptance is posted.

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The Contract & Sales of Goods Act

ii. Telegraphic Acceptance: When an acceptance is sent by telegraph, communication

of acceptance is deemed to be completed when the telegram is dispatched. For
example, if an offeror makes an offer to sell a house, and the offeree accepts the offer
by sending a telegram of acceptance, communication of acceptance is deemed to be
completed when the telegram is dispatched.
iii. Acceptance by Telephone: When an acceptance is made by telephone,
communication of acceptance is deemed to be completed when the offeree
communicates his acceptance to the offeror. For example, if an offeror makes an offer
to sell a laptop, and the offeree accepts the offer by calling the offeror on the phone
and accepting the offer, communication of acceptance is deemed to be completed
when the offeree communicates his acceptance to the offeror.
3. Communication of Revocation:

The communication of revocation of an offer under The Contract Act 1872 is complete when
it comes to the knowledge of the person to whom it is made. This means that once the offeror
has communicated their intention to revoke the offer to the offeree, the revocation is
considered to be complete.
There are several ways in which the communication of revocation can be assumed to be
completed, including:
i. By Post: If the revocation is sent by post, it is considered complete when it would
have been delivered in the ordinary course of post.
For example, if an offeror sends a letter revoking their offer by post, the
communication of revocation is assumed to be complete when the letter would have
reached the offeree in the ordinary course of post.
ii. By Telegram: If the revocation is sent by telegram, it is considered complete when it
is handed over to the telegraph authority for transmission.
For example, if an offeror sends a telegram revoking their offer, the communication
of revocation is assumed to be complete when the telegram is handed over to the
telegraph authority for transmission.
iii. By Message through a Messenger: If the revocation is sent by message through a
messenger, it is considered complete when the messenger has delivered the message
to the offeree.
For example, if an offeror sends a message revoking their offer through a messenger,
the communication of revocation is assumed to be complete when the messenger has
delivered the message to the offeree.
It is important to note that the revocation of an offer must be communicated to the offeree, as
a revocation that is not communicated to the offeree will not be effective. The offeror must
take reasonable steps to ensure that the offeree is aware of the revocation.

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The Contract & Sales of Goods Act

CONSIDERATION AND OBJECT

Consideration is a legal concept that refers to something of value that is promised or given in
exchange for a promise or performance. It is a vital element in the formation of a contract and
is necessary to make an agreement enforceable by law.
Under The Contract Act 1872, consideration is defined as any act or abstinence, promise or
execution of a promise, made in return for a promise or an act. It must be something that is
real and of some value, whether it is monetary or non-monetary. Consideration can be
provided by either party to the agreement and can be something that has been promised or
something that has been performed.
According To Section 2(d):
“When, at the desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, or promises to do or to abstain from
doing, something, such act or abstinence or promise is called a consideration for the
promise.”
For example, in a contract for the sale of a car, the buyer's promise to pay a specified amount
of money is the consideration for the seller's promise to transfer ownership of the car to the
buyer. The buyer's payment is the consideration for the seller's transfer of ownership.

DEFINITIONS OF CONSIDERATION :
Different definitions of consideration are given below:
Sir Frederick Pollock:
"Consideration is some right, interest, profit or benefit accruing to one party, or some
forbearance, detriment, loss or responsibility given, suffered or undertaken by the other."
Sir Jameel Salmond:
"The price for which the promise of the other is bought."
Sir William Anson:
"Consideration is something in return, or an act done or a forbearance or a return for an act
done."
Lord Dunedin:
"Consideration is the price for which the promise of the other is bought."
Lord Atkin:
"Consideration is an act or abstention which is of some value in the eyes of the law."
Black's Law Dictionary:
"Consideration is the price for which a promise is bought; something of value given by one
party in exchange for the promise of another."
Oxford English Dictionary:
"Consideration is the action of considering something, or the thing considered; the act of
giving serious attention to something, or the matter or thing so considered."

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The Contract & Sales of Goods Act

Merriam-Webster Dictionary:
"Consideration is the act of considering or the process of being considered; the act of taking
into account; something given or promised in return for something else."
Legal Dictionary:
"Consideration is a term used in contract law to refer to the value promised or exchanged
between two parties in a contract. Consideration must be something of value, whether it is
monetary or non-monetary."
Essential Elements of A Valid Consideration:
The essential elements of a valid consideration are given below:
1) It Must Be Real And Of Some Value:
Consideration must be something that is real and of some value, whether it is
monetary or non-monetary. It can be a promise or an act that is performed in
exchange for another promise or act.
For example, in a contract for the sale of a bike, the buyer's promise to pay a specified
amount of money is the consideration for the seller's promise to transfer ownership of
the bike to the buyer.
2) It Must Move From The Promisee:
Consideration must move from the promisee, who is the party receiving the promise,
to the promisor, who is the party making the promise. This means that the
consideration must be given or promised in exchange for the promise made by the
promisor.
For example, in a contract for the sale of a house, the seller's promise to transfer
ownership of the house to the buyer is the consideration for the buyer's promise to pay
the agreed-upon purchase price.
3) It Must Be Given For A Promise:
Consideration must be given for a promise. This means that the consideration must be
provided in exchange for a promise made by another party. The promise can be
express or implied, but it must exist.
For example, in a contract for the rental of an apartment, the tenant's promise to pay
rent is the consideration for the landlord's promise to provide the tenant with a place
to live.
4) It Must Be Lawful:
Consideration must be lawful. This means that it must not be illegal, immoral, or
against public policy. If the consideration is unlawful, the contract will be void and
unenforceable.
For example, a contract for the sale of illegal drugs is not enforceable because the
consideration is illegal.
5) It Must Be Sufficient But Need Not Be Adequate:
Consideration must be sufficient, but it does not need to be adequate. This means that
the value of the consideration must be enough to support the promise, but it does not
need to be equal to the value of the promise.

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The Contract & Sales of Goods Act

For example, in a contract for the sale of a rare stamp, the buyer's promise to pay a
small amount of money may be sufficient consideration for the seller's promise to
transfer ownership of the stamp, even though the value of the stamp is much greater.
6) It Must Not Have Been Previously Given:
Consideration must not have been previously given. This means that the consideration
must be given in exchange for the promise and must not have been given before the
promise was made.
For example, a contract for the sale of a used car will not be enforceable if the buyer
has already paid for the car before the seller made the promise to transfer ownership.
7) It Must Be Certain:
Consideration must be certain. This means that the nature and value of the
consideration must be clear and certain, and not vague or ambiguous.
For example, a contract for the sale of a car for an "unspecified amount of money" is
not enforceable because the consideration is not certain.
Exceptions of Consideration:
An agreement without a valid consideration is void but following are the agreements which
are valid even without a consideration.
A. Natural Love and Affection:
According to Section 25(1) This means that a contract made without consideration
may still be enforceable if it is made out of natural love and affection between close
relatives.
For example, a father may make a gift of a house to his son without receiving
anything in return, and the contract would still be enforceable because it is based on
the natural love and affection between the father and son. Similarly, a brother may
make a gift of a car to his sister without receiving anything in return, and the contract
would still be enforceable because it is based on the natural love and affection
between the siblings.
It is important to note that this exception only applies to close relatives, and the love
and affection must be genuine and not just a guise for another underlying transaction.
The burden of proof is on the person making the claim that the contract is based on
natural love and affection, and the court will examine the evidence to determine the
validity of the claim.
B. Voluntary Compensation:
In Section 25(2) of The Contract Act, It refers to a situation where a person
voluntarily performs an act or promises to perform an act for another person without
receiving any consideration in return. This is a valid exception to the requirement of
consideration because it is based on the principle of natural love and affection.
For example, a parent may voluntarily pay for their child's education without
receiving anything in return. The child is not obligated to pay the parent back, but the
parent is still entitled to compensation because of their love and affection for the
child.

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The Contract & Sales of Goods Act

Another example of voluntary compensation is a person voluntarily helping a

neighbour fix their fence without receiving any compensation. The neighbour is not
required to pay the person back, but the person may still receive compensation
because of their kindness and good will towards the neighbour.
C. Time Barred Debt:
"Time-barred debt" is an exception to the requirement of consideration in a contract
under Section 25(3) of The Contract Act 1872. It refers to a debt that is past the
statute of limitations and cannot be legally enforced in a court of law.
The statute of limitations is a time limit set by law for a person to bring a legal action
to recover a debt. After the statute of limitations has expired, the debt is considered
time-barred and cannot be collected through legal action.
For example, if a person loaned another person money ten years ago and has not
received payment, and the statute of limitations for collecting that debt is five years,
then the debt is considered time-barred and cannot be legally enforced.
However, even though a debt may be time-barred, the parties may still agree to a new
contract for the payment of the debt. In this case, the debt is not considered to be a
valid consideration for the new contract because it is past the statute of limitations,
but the parties may still agree to a new consideration in exchange for the payment of
the time-barred debt.
For example, if the person who loaned the money agrees to forgive a portion of the
debt in exchange for a partial payment, then the agreement for partial payment is
considered a valid consideration for the new contract.
D. Completed Gift:
A gift is considered completed when the donor voluntarily transfers ownership of the
gift to the donee without any expectation of receiving anything in return. In other
words, a gift is a transfer of ownership of property from one person to another without
consideration.
• For example, if A gives a gift of a painting to B, B has no obligation to do
anything in return for the gift, and the gift is considered a completed gift. A
completed gift does not require consideration and is not enforceable as a
contract.
• Another example of a completed gift is if a parent gives a gift of money to
their child without any expectation of receiving anything in return. The child
is not required to do anything in return for the gift, and the gift is considered a
completed gift.
It is important to note that a gift can only be considered a completed gift if it is made
voluntarily and without any expectation of receiving anything in return. If a gift is
made with the expectation of receiving something in return, it is considered a contract
and must have valid consideration.
E. Contract of Agency:
According to Section 185 of The Contract Act:

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The Contract & Sales of Goods Act

A contract of agency is an exception to the requirement of consideration in a contract.

In a contract of agency, one party, known as the principal, appoints another party,
known as the agent, to act on their behalf. The agent is authorized to perform certain
acts or transact business for the principal.
In a contract of agency, consideration is not required because the agency relationship
is based on the trust and confidence between the principal and the agent. The agent is
not acting for his own benefit but rather for the benefit of the principal.
For example, a company hires a marketing agent to promote their products. The
company is the principal and the marketing agent is the agent. The agency agreement
between the two parties is based on trust and confidence, and no consideration is
required.
F. Remission by Promisee:
According to Section 63 of The Contract Act:
It refers to a situation in which the promisee agrees to forgive or release a debt owed
by the promisor without receiving anything in return.
In other words, the promisee voluntarily gives up their right to receive the
consideration that was promised in the original contract, and this act of giving up the
right is called "remission."
Examples:
• A promises to paint a picture for B. B afterwards forbids him to do so. A is no
longer bound to perform the promise.
• A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the
whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees
were payable. The whole debt is discharged.
• A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in
satisfaction of his claim on A. This payment is a discharge of the whole claim.
• A owes B, under a contract, a sum of money, the amount of which has not
been ascertained. A, without ascertaining the amount, gives to B, and B, in
satisfaction thereof, accepts, the sum of 2,000 rupees. This is a discharge of
the whole debt, whatever may be its amount.
• Consider a contract in which A promised to pay B a certain sum of money in
exchange for a loan. If B later agrees to forgive the debt owed by A without
receiving any consideration in return, this act of forgiveness would be an
example of remission by the promisee.

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The Contract & Sales of Goods Act

UNLAWFUL CONSIDERATIONS AND OBJECT

The consideration or object of an agreement must be lawful otherwise it will be assumed as
illegal agreement. Section 23 of The Contract Act refers the cases when agreement will be
assumed unlawful, which are discussed below:

1) Forbidden By Law
2) Defeats Provisions of Law
3) Fraudulent
4) Injury To Person Or Property
5) Immoral
6) Against Public Policy

1) Forbidden By Law
"Forbidden by law" refers to consideration that is illegal or contrary to public policy.
Such consideration is considered unlawful and makes the contract void and
unenforceable. If a contract is based on illegal or immoral consideration, it is not binding
on either party and cannot be enforced by either party.
For example, if party A promises to pay party B for providing illegal drugs, the
consideration for the contract is "forbidden by law" and the contract is void. Similarly, if
party A promises to pay party B for committing a crime, such as arson(fire), the
consideration is also illegal and the contract is void. In such cases, the law will not
enforce the contract as it is against public policy and the principles of morality.
2) Defeats Provisions of Law
Its a situation where a contract is entered into with the intention of circumventing or
defeating the provisions of a law. Such a contract is considered as an unlawful
consideration and is therefore unenforceable.
For example, if two parties agree to enter into a contract for the sale of illegal weapons,
the consideration for the contract would be considered unlawful and the contract would
be unenforceable as it would defeat the provisions of laws. Similarly, if a contract is
entered into for the purpose of avoiding payment of taxes, the consideration would be
considered unlawful as it would defeat the provisions of tax laws.
In general, a contract with unlawful consideration is considered void and unenforceable
by the courts. This is because the law does not recognize or enforce agreements that are
made for an illegal purpose or that would defeat the provisions of law.
3) Fraudulent
In a contract, consideration is considered to be fraudulent if it is induced by false or
misleading representations made by one party to another. Fraudulent consideration refers
to an agreement made by a party on the basis of false or misleading information, which
the other party knows or ought to have known to be false. This type of consideration is
considered to be unlawful and voidable, meaning that the affected party can choose to
either enforce the contract or void it and seek a remedy for the fraud.

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The Contract & Sales of Goods Act

For example, consider a situation where a buyer enters into an agreement to purchase a
car from a seller who falsely represents that the car has never been in an accident. The
buyer pays the agreed price based on this representation. If it later turns out that the car
has been in an accident, the buyer can argue that the consideration for the contract was
fraudulent and seek to void the contract and receive a remedy for the fraud.
4) Injury To Person or Property
"Injury to Person or Property" refers to the harm or damage caused to a person or their
property, which is used as consideration in a contract. This type of consideration is
considered unlawful and void under The Contract Act 1872.
For example, if A agrees to sell his car to B in exchange for B causing physical harm to
C, the contract is considered void and unenforceable because the consideration (B causing
harm to C) is illegal. The act of causing harm to another person or their property is
against the law and cannot be used as a basis for a contract.
In general, any consideration that is illegal, immoral, or against public policy is
considered unlawful and void. Such considerations are not enforceable in a court of law,
and the parties to such contracts are not bound by their promises.
5) Immoral
According to The Contract Act 1872, a consideration or an object of an agreement is said
to be "unlawful" if it is forbidden by law, such as a promise to engage in illegal activities
or to perform an act that is against public policy. In such cases, the consideration is not
enforceable and the contract itself is considered void and unenforceable.
For example, if A promises to pay B a sum of money in return for B's promise to commit
murder, the consideration is illegal and the contract is void because murder is a criminal
act and is forbidden by law. Similarly, a contract to bribe a public official or to engage in
fraud is also considered unlawful and void because it is against public policy.
6) Against Public Policy
It means a type of consideration that is illegal and against the interests of society as a
whole. Such consideration is not enforceable under the law, and a contract that is based
on it is considered void.
For example, if a contract is made for an illegal purpose, such as bribing a government
official or engaging in illegal activities, it is considered against public policy and
therefore void. Similarly, if a contract is made to interfere with the administration of
justice, such as promising not to report a crime or to give false testimony, it is also
considered against public policy and unenforceable.
In general, contracts that are considered against public policy are those that are harmful to
society, undermine the rule of law, or are contrary to the interests of justice and morality.
It is the duty of the courts to prevent such contracts from being enforced and to uphold
the public policy of the state.

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The Contract & Sales of Goods Act

CAPACITY OF PARTIES
Capacity of parties refers to the legal ability of parties to enter into a contract. According to
the Contract Act 1872, the following are the necessary conditions for the capacity of parties
to enter into a contract:
1) Age: A person must have attained the age of majority, which is 18 years, to enter into
a contract. Minors (persons under 18 years of age) can enter into a contract but they
are not bound by it and have the right to void the contract.
2) Sound Mind: A person must be of sound mind, meaning they have the mental
capacity to understand the terms and conditions of the contract.
3) Not Disqualified By Law: A person must not be disqualified by law from entering
into a contract, such as insane people, drunkards, and undischarged insolvents.
4) Competency to Contract: Certain individuals, such as Government servants and
foreigners, may not be competent to enter into a contract without the permission of
the competent authority.

MINOR
According to The Majority Act, 1875, a minor is defined as a person who has not attained the
age of 18 years. The act sets the age of majority at 18, which means that individuals below
this age are considered minors and are not legally competent to enter into a contract or enter
into any binding obligations. Minors are protected by the law and are not held liable for any
obligations under a contract. However, when a court appoints a guardian for a minor, the
minor attains the age of majority after 21 years.
Minor’s Agreements
The general rules and regulations about a minor’s agreements are described below:
1. Void Agreement
2. Minor and Ratification
3. Proving Minority
4. Minor and Reimbursement
5. Minor and Necessaries
6. Guardian of Minor
7. Minor as Beneficiary
8. Minor as Agent
9. Minor as Partner
10. Surety for Minor
11. Minor as Member of Company
12. Minor and Insolvency
13. Contract by Minor and Adult
14. Parents of Minor
15. Minor and Negotiable Instruments

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The Contract & Sales of Goods Act

1) Void Agreement
A "Void Agreement" is a type of contract that is not legally enforceable or binding. This
means that the parties to the agreement cannot enforce their rights or obligations under
the agreement in a court of law.
In the case of minors, all agreements entered into by minors are considered void under
The Contract Act 1872. This is because minors are considered to lack the capacity to
enter into a legally binding agreement. For example, if a minor enters into an agreement
to purchase a car, the agreement is void, and the minor cannot be held liable for failing to
fulfill their obligations under the agreement. The seller of the car cannot sue the minor for
breach of contract or demand payment.
In short, any agreement entered into by a minor is considered void and unenforceable, as
minors are not considered to have the legal capacity to enter into binding agreements.
This protects minors from being held responsible for obligations that they are unable to
fulfill.
2) Minor and Ratification
Ratification means the acceptance of an agreement already made. Ratification by a minor
is not valid but it’s a general rule that the legal status of agreements entered into by
minors, and the process by which they may become enforceable after the minor attains
the age of majority. Minors, under The Majority Act, 1875, are defined as individuals
who have not attained the age of 18 years and are considered not legally competent to
enter into a contract or enter into any binding obligations. This means that any agreement
entered into by a minor is considered void and unenforceable.
However, upon attaining the age of majority, a minor has the option to ratify the
agreement. Ratification is the process by which a minor, upon reaching the age of
majority, confirms their intention to be bound by the terms of the agreement. This
confirmation makes the agreement binding on the minor and enforceable in a court of
law.
Example:
A minor, Jameel, entered into an agreement with a property owner to rent a house. Upon
reaching the age of 18, Jameel confirms his intention to be bound by the terms of the
agreement and pays the rent for the property. This confirmation is an example of
ratification, which makes the agreement between Jameel and the property owner legally
binding.
3) Proving Minority
"Proving Minority" refers to the process of establishing that a person is a minor, i.e.,
under the age of 18 as per The Majority Act, 1875. The proof of minority is important in
determining the enforceability of contracts entered into by minors.
In general, the onus of proving minority lies on the minor. The minor must provide
evidence of their age, such as a birth certificate, school records, or any other official
document that establishes their age. If the minor is unable to prove their minority, the
contract may be enforceable against them.

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The Contract & Sales of Goods Act

For example, let's say that a minor named Jameel enters into a contract to purchase a car.
However, the dealer later finds out that Jameel is a minor and tries to void the contract. In
this case, Jameel must prove his minority by providing a birth certificate or other official
documents that establish his age. If Jameel is unable to prove his minority, the contract
may be enforceable against him.
4) Minor and Reimbursement
According to The Contract Act 1872, minors are not considered legally competent to
enter into a contract. A contract entered into by a minor is voidable at the minor's
discretion, meaning they have the right to either enforce or cancel the contract. This
means that a minor can either accept or reject the benefits of the contract, but cannot be
held liable for any obligations under the contract.
For example, if a minor enters into a contract to purchase a car, they have the right to
either keep the car and pay for it, or return the car and receive a refund for the payment
made. However, if the minor chooses to accept the benefits of the contract and keep the
car, they can be required to reimburse the seller for the value of the car. This means that
the minor must pay the seller an amount equal to the value of the car, even though the
contract is voidable and the minor is not legally bound by it.
5) Minor and Necessaries
According to Section 68 of this act, It is an important aspect of the law related to minors
and contracts in Pakistan. According to this rule, a minor can enter into a contract for
necessities, such as food, clothing, shelter, education, and medical treatment. The minor is
bound to pay a reasonable price for such necessities, and the contract is enforceable
against the minor.
For example, if a minor is in need of medical treatment, the minor or their guardian can
enter into a contract with a doctor for the provision of such treatment. The minor would
be bound to pay a reasonable fee for the treatment received, even though they are not
capable of entering into a full-fledged contract. Similarly, if a minor needs clothing, they
or their guardian can enter into a contract with a clothing retailer to purchase clothes. The
minor would be bound to pay a reasonable price for the clothes.
6) Guardian of Minor
A guardian of a minor is defined under The Majority Act, 1875 as a person who has been
legally appointed to take care of the minor's property and welfare. In the context of a
contract, a guardian is someone who enters into a contract on behalf of a minor and is
responsible for ensuring that the minor's interests are protected.
For example, let's say a minor wants to purchase a mobile phone. The minor's parent can
act as the guardian and enter into a contract with the seller on behalf of the minor. In this
case, the parent would be responsible for making payment and ensuring that the minor
receives the mobile phone in good condition. However, if the minor chooses to void the
contract after reaching the age of majority, the parent would not be held liable, as the
minor was not competent to enter into the contract in the first place.
7) Minor as Beneficiary
Where a minor is the recipient of a benefit under a contract. According to the Pakistan
Contract Act 1872, a minor cannot enter into a valid contract, as they are not legally
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The Contract & Sales of Goods Act

competent to do so. However, a contract entered into by a minor as a beneficiary is

considered valid and binding, as long as it is not prejudicial to the minor's interests.
For example, if a contract is entered into between two parties, A and B, in which B
promises to pay a certain sum of money to C (a minor), the contract is valid and binding.
B is obligated to pay the agreed sum to C, even though C is a minor. In this case, C, as the
beneficiary of the contract, is entitled to receive the benefit of the contract, although he is
not bound by the obligations under it.
8) Minor as Agent
A minor can act as an agent in a contract, meaning they can represent another person or
party in making or performing a contract. However, the minor's agreement is not
enforceable, as a minor is not legally competent to enter into a binding contract. Sec 184.
Example:
A minor, Jameel, is appointed as an agent by his father, who is a manufacturer, to sell
goods on his behalf in the market. Jameel enters into a contract with a customer to sell
goods for a certain price. The customer pays the agreed amount to Jameel, who delivers
the goods. In this case, even though Jameel acted as an agent, the contract between
Jameel and the customer is not enforceable because Jameel is a minor and not legally
competent to enter into a contract. The customer can claim a refund of the amount paid to
Jameel, but cannot sue Jameel for breach of contract.
9) Minor as Partner
According to The Contract Act, 1872, minors are not considered competent to enter into a
contract, and any agreement entered into by a minor is considered voidable at the option
of the minor. This means that a minor can choose to either enforce or reject the agreement
after they attain the age of majority (18 years old). However, there is a specific exception
to this rule, which is the concept of "minor as a partner". This refers to the scenario where
a minor joins a partnership firm with the consent of all the other partners. In such a case,
the minor becomes a partner and is entitled to all the rights and privileges of a partner,
including the right to share in profits and the liability to contribute to losses.
Example:
There is a partnership firm with three partners, A, B, and C, and a minor D wants to join
the partnership. If all the existing partners, A, B, and C, agree to admit D as a partner, D
becomes a partner in the firm. D is entitled to receive a share in the profits of the firm and
is also liable to contribute to the losses of the firm.
However, it is important to note that this exception is only applicable in the case of a
partnership firm and does not apply to other types of contracts or agreements. In any other
case, a minor's agreement is considered voidable.
10) Surety for Minor
A surety for a minor is a person who takes responsibility for a contract entered into by a
minor. A minor, as defined by The Majority Act, 1875, is a person who has not attained
the age of 18 years and is not legally competent to enter into a contract.

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The Contract & Sales of Goods Act

In such cases, a person (the surety) may offer to take responsibility for the minor's
obligations under the contract. This means that the surety will be liable for the
performance of the minor's obligations in case of a breach by the minor.
For example, if a minor enters into a contract to purchase a car, the seller may require the
minor's parent or guardian to act as a surety for the minor. In this case, if the minor fails
to make the required payments, the surety will be liable for the performance of the
minor's obligations under the contract.
It is important to note that a surety agreement is a separate and distinct contract from the
main contract entered into by the minor, and the surety can be held liable only if the
minor is unable to perform his obligations.
11) Minor as Member of Company
According to the Contract Act 1872, a minor is not considered to have the capacity to
enter into a contract, and therefore any contract entered into by a minor is considered
voidable at the option of the minor. This means that the minor has the right to either
enforce or cancel the contract.
However, there is an exception to this rule when a minor acts as a member of a company.
Under the Companies Act, a minor can be a member of a company and can hold shares in
it. In such a scenario, the minor is considered to be acting through a guardian or a person
authorized to act on his behalf, and the company is bound by the contract entered into by
the minor as a member.
For example, if a minor holds shares in a company and the company enters into a contract
to purchase goods, the company is bound by the terms of the contract, and the minor
cannot cancel the contract as an individual shareholder. The minor's rights as a
shareholder are protected through the actions of the company, and the company is
responsible for fulfilling its obligations under the contract.
12) Minor and Insolvency
According to The Contract Act 1872, minors and insolvents are considered to lack
capacity to enter into a contract.
i. Minor:
A minor is defined as a person who has not attained the age of 18 years, and is
considered legally incompetent to enter into a contract. Any agreement entered
into by a minor is considered void ab initio, meaning it is not enforceable from the
beginning. For example, if a 16-year-old enters into a contract to purchase a car,
the contract would be considered void as the minor lacks the capacity to enter into
a binding agreement.
ii. Insolvency:
An insolvent is defined as a person who is unable to pay their debts as they
become due. Such individuals are also considered to lack the capacity to enter into
a contract. For example, if a person is declared bankrupt and unable to pay their
debts, they would be considered an insolvent and lack the capacity to enter into a
contract.

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The Contract & Sales of Goods Act

13) Contract by Minor and Adult

Minors are not legally competent to enter into a contract and any contract entered into by
a minor is considered voidable at the option of the minor. This means that the minor can
choose to either ratify the contract upon attaining the age of majority or reject it.
For example, if a 16-year-old minor enters into a contract to purchase a car, the contract is
considered voidable. Upon attaining the age of 18, the minor may choose to either ratify
the contract, making it binding on him, or reject it, in which case the contract will be
considered void.
On the other hand, a contract entered into by an adult is considered valid and binding on
the parties. An adult is defined as a person who has attained the age of 18 years or above
and is of sound mind. An adult has the legal capacity to enter into a contract and is bound
by its terms and conditions.
14) Parents of Minor
Minors are not legally competent to enter into a contract and any agreement entered into
by a minor is voidable at his option. However, the parents or legal guardians of a minor
can enter into a contract on their behalf and can bind the minor to the terms of the
contract.
For example, if a minor needs a mobile phone, the parents can enter into an agreement
with a mobile phone retailer to purchase a phone on behalf of the minor. In this case, the
minor would be bound by the terms of the contract and would be responsible for making
payments for the phone.
It is important to note that the contract entered into by the parents or legal guardians on
behalf of the minor must be for the benefit of the minor and must not be for an unlawful
purpose. If the contract entered into by the parents or legal guardians is found to be for an
unlawful purpose or is not for the benefit of the minor, it may be declared void.
15) Minor and Negotiable Instruments
Any agreement entered into by a minor is considered voidable at the option of the minor.
This means that the minor has the right to either enforce the contract or reject it. In the
case of negotiable instruments, such as promissory notes, bills of exchange, and cheques,
the position of a minor is a bit different. A minor can be a payee or a holder in due course
of a negotiable instrument. However, a minor cannot be a promissor or a drawer of a
negotiable instrument.
For example, if a minor receives a cheque as payment for goods sold, the minor can
endorse the cheque and receive payment. However, if the minor wants to issue a cheque,
they cannot do so because they are not considered competent to enter into a contract.

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The Contract & Sales of Goods Act

PERSON OF UNSOUND MINDED

According to Section 11 of The Contract Act 1872, For a valid contract , each party of the
contract mush have a sound mind. A contract entered into by a person of unsound mind is
considered void. A person of unsound mind is defined as someone who does not have the
mental capacity to understand the terms and conditions of a contract. If a person lacks the
capacity to understand the nature and consequences of a contract, they cannot be bound by
the agreement and any contract entered into by such a person is considered void. This
protection is in place to prevent individuals who are not capable of making informed
decisions from being taken advantage of.
It is important to note that the determination of a person's mental capacity is based on the
facts and circumstances of each individual case. In certain situations, a person may have the
capacity to enter into a contract at one point in time and then lose that capacity later on.
According To Section 12 of The Contract Act:
“A person is said to be of sound mind for the purpose of making a contract if, at the time
when he makes it, he is capable of understanding it and of forming a rational judgment as
to its effect upon his interests.”
A person who is usually of unsound mind, but occasionally of sound mind, may make a
contract when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.
Illustrations
(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during
those intervals.
(b) A sane man, who is delirious from fever or who is so drunk that he cannot understand the
terms of a contract or form a rational judgment as to its effect on his interests, cannot contract
whilst such delirium or drunkenness lasts.
Effect of Unsound Mind on Agreement:
An agreement by a person of unsound mind is void. However , the person who supplies
necessaries to a person of unsound mind can recover a reasonable value of those necessaries
from the property of such person. If the person of unsound mind owns no property then the
supplier can not recover. (Section 68)
Burden of Proof:
In a contract involving a party who is unsound of mind, the burden of proof lies on the party
who asserts that the contract is valid. The party claiming the validity of the contract must
prove that the other party had the capacity to understand the nature and consequences of the
contract at the time it was entered into.
If the other party is found to be of unsound mind, the contract may be voidable at their
option. In such cases, the burden of proof shifts to the party who entered into the contract
with the unsound-minded person, to prove that they were aware of the other party's condition
and entered into the contract with full knowledge of the circumstances.

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The Contract & Sales of Goods Act

In summary, the burden of proof in cases involving a contract by an unsound-minded person

depends on the particular circumstances of the case, and the party claiming the validity of the
contract must prove that the other party had the capacity to enter into a binding agreement.

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The Contract & Sales of Goods Act

CONTRACT OF DISQUALIFIED PERSON

A contract entered into by a disqualified person is considered void under the Contract Act
1872 in Pakistan. A disqualified person is someone who is not legally competent to enter into
a contract, such as a minor, a person of unsound mind, and someone who is disqualified by
law, such as an insolvent.
When a contract is entered into by a disqualified person, it is considered void ab initio,
meaning it is considered void from the outset and has no legal effect. As a result, the contract
cannot be enforced by either party and any rights or obligations arising from the contract are
unenforceable.
It is important to note that the Contract Act does not provide for the invalidity of contracts
entered into by disqualified persons in all cases. In some cases, a disqualified person may still
enter into a valid contract if they have the consent of a guardian or if the contract is ratified
after they attain the age of majority or regain their capacity to contract.
Disability To Contract:
According To Section 11, The following persons are disqualified for Contracting.
1) Company
2) Diplomatic Agent
3) Alien Enemy
4) Insolvent
5) Convict

1. Company
A company, under the Contract Act 1872 in Pakistan, is considered a separate legal entity
from its shareholders and directors. As a result, a company has the capacity to enter into
contracts and is not disqualified from doing so.
However, in certain circumstances, the actions of a company may be considered void or
voidable if they contravene the provisions of the Companies Act or other relevant
legislation. For example, a contract entered into by a company in excess of its authorized
capital may be considered void.
Additionally, contracts entered into by a company in contravention of the provisions of
the Companies Act may also be voidable at the option of the company, its shareholders,
or creditors. For instance, if a company enters into a contract that exceeds its borrowing
powers under the Companies Act, the contract may be voidable at the option of the
company's creditors.
2. Diplomatic Agent
A diplomatic agent is considered a disqualified person under the Contract Act and is not
legally competent to enter into a contract. The diplomatic agent's immunity from local
jurisdiction and their diplomatic status are the primary reasons for this disqualification.

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The Contract & Sales of Goods Act

A diplomatic agent is defined as a representative of a foreign state who is accredited to a

receiving state and enjoys immunity from the jurisdiction of the receiving state. This
immunity is granted to ensure that diplomatic agents can perform their duties without
interference from the receiving state.
For example, if a diplomatic agent entered into a contract to purchase real estate in the
receiving state, the contract would be considered void and unenforceable due to the
diplomatic agent's immunity from local jurisdiction. The diplomatic agent would not be
bound by the terms of the contract and would not be held liable for any obligations arising
from the contract.
3. Alien Enemy
"Alien Enemy" refers to an individual who is a national of a country that is in a state of
war with home land. Such individuals are considered disqualified from entering into a
contract under the Contract Act 1872 in Pakistan. During a state of war, the government
may impose restrictions on the activities of alien enemies, including their ability to enter
into contracts. This is done to protect the interests of the country and to prevent the
enemy from acquiring rights or assets that could be used against the country in the future.
For example, during a state of war between Pakistan and Country X, an individual who is
a national of Country X would be considered an "Alien Enemy" and would be
disqualified from entering into a contract in Pakistan. Any contract entered into by such
an individual would be considered void and unenforceable.
4. Insolvent
"Insolvent" refers to a person who is unable to pay their debts as they fall due. In
Pakistan, an insolvent person is considered a disqualified person under the Contract Act
1872 and is therefore legally incapacitated from entering into a contract.
An insolvent person is usually declared so by a court of law, and once declared insolvent,
they are no longer capable of entering into valid contracts. This disqualification is
intended to protect the interests of creditors, who may not receive payment for debts
owed to them if the insolvent person enters into new contracts.
For example, if a person has been declared insolvent and they enter into a contract to
purchase goods, the contract may be void and unenforceable. The seller of the goods
would not be able to recover the price of the goods from the insolvent person, and the
insolvent person would not be able to enforce their rights under the contract.
5. Convict
A "convict" is considered a disqualified person and is not legally competent to enter into
a contract under the Contract Act 1872 in Pakistan. A person who is serving a sentence
for a criminal offense is considered a convict and is not legally able to enter into a
binding agreement.
For example, if a person is convicted of embezzlement and is serving a prison sentence,
they would not be able to enter into a contract to purchase a property or enter into any
other legally binding agreement. The contract would be considered void and
unenforceable, as the convicted person is not legally competent to enter into a contract.

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The Contract & Sales of Goods Act

It is important to note that the disqualification of a contract due to a person's status as a

convict is subject to change if the person is later released from their sentence. After
serving their sentence, the person would regain their capacity to enter into contracts and
would no longer be considered a disqualified person.

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The Contract & Sales of Goods Act

FREE CONSENT
Free consent is an essential element of a valid contract under The Contract Act, 1872. It
means that the parties to a contract must have agreed to the terms of the contract without any
coercion, undue influence, fraud, misrepresentation, or mistake.
According to Sec 14 , Consent is free if it is not obtained by coercion, undue influence, fraud,
misrepresentation or mistake. In other words, the consent of the parties to a contract must be
given freely, voluntarily, and without any external pressure or influence. Let's understand this
concept with an example:
Suppose that a person A is in a dire need of money and approaches a person B for a loan.
Person B agrees to lend money to person A on the condition that person A will sell his car to
person B at a much lower price than its market value. Person A, being in a desperate
situation, agrees to the condition and sells the car to person B. Later, person A realizes that he
has been cheated, and the car was worth much more than the price for which he sold it.
Person A can claim that he did not give his free consent to the contract, as his consent was
obtained under duress, undue influence, or coercion.
In this example, person A was in a vulnerable position and was under pressure to agree to the
condition imposed by person B. Person B used person A's vulnerability to obtain his consent
to the contract. This is an example of undue influence, where one party uses his dominant
position to influence the other party to enter into a contract on unfair terms.
Similarly, if a person enters into a contract under the threat of physical harm or damage to his
property, it is a case of coercion, and the consent obtained under such circumstances is not
free. If a party to a contract misrepresents the facts or makes false statements to induce the
other party to enter into the contract, the consent obtained is not free. In such cases, the party
whose consent was not free can avoid the contract.

COERCION
Coercion is a term used in contract law to refer to a situation where one party is forced to
enter into a contract against their will. Coercion makes the contract voidable at the option of
the coerced party. Coercion can be defined as the use of physical or moral force to compel
someone to do something that they would not have done otherwise. Let's understand this
concept with some examples:
1. Threat of Harm:
If A threatens to cause physical harm to B or his family if B does not enter into a contract
with him, then it is a case of coercion. For instance, if A threatens to beat up B if he does
not sell his property to A, then the contract is voidable at the option of B.
2. Economic Duress:
Economic duress occurs when one party uses economic pressure to force the other party
to enter into a contract. For example, if A refuses to pay B for the work he has done
unless B agrees to work on a different project, then it is a case of economic duress. This

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The Contract & Sales of Goods Act

type of coercion can occur in business relationships, such as when a dominant supplier
forces a weaker customer to agree to unfair terms of sale.
3. Blackmail:
If A threatens to reveal embarrassing or damaging information about B unless B enters
into a contract with A, it is a case of blackmail. For instance, if A threatens to reveal B's
personal secrets unless B signs a contract with A, then it is a case of coercion.
4. Imprisonment:
If A forcibly detains B and threatens to continue to detain him unless he enters into a
contract, then it is a case of coercion. For example, if A kidnaps B and refuses to release
him unless he agrees to enter into a contract with A, then it is a case of coercion.
Essentials of Coercion:
The Contract Act, 1872 defines coercion as committing or threatening to commit any act
forbidden by the Pakistan Penal Code or detaining or threatening to detain any property with
the intention of causing someone to enter into an agreement. Coercion is a serious issue in
contract law as it undermines the principles of free will and consent that are essential to the
formation of a valid contract. In order for a contract to be considered coercive, the following
essentials must be present:
i. Committing or Threatening To Commit An Unlawful Act
The first essential of coercion is the commission or threat of commission of an
unlawful act. It means that the act or threat should be forbidden by the Pakistan
Penal Code. For example, if a person threatens to kill another person's family if he
doesn't sign a contract, it is coercion.
ii. Detaining Or Threatening To Detain Property
The second essential of coercion is the detention or threat of detention of any
property. For example, if a person detains another person's property with the
intention of forcing him to enter into an agreement, it is coercion.
iii. Intention To Cause A Person To Enter Into An Agreement
The third essential of coercion is the intention to cause a person to enter into an
agreement. If the person committing the act or making the threat has the intention
of forcing the other party to enter into a contract, then it is considered coercion.
For example, if a person threatens to disclose embarrassing information about
another person unless he enters into a contract, it is coercion.
iv. Absence of Free Consent
The fourth essential of coercion is the absence of free consent. If a party is
compelled to enter into an agreement due to coercion, then his consent is not free.
A contract entered into under coercion is voidable at the option of the party who
was coerced.
v. Causation
The fifth essential of coercion is causation, which means that the coercion must
have caused the person to enter into the agreement. If the person would have
entered into the agreement regardless of the coercion, then it is not considered
coercion.

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The Contract & Sales of Goods Act

Examples of Coercion Include:

• Threatening to harm someone or their family if they don't enter into a contract.
• Forcing someone to enter into an agreement by detaining their property.
• Blackmailing someone into entering into a contract by threatening to reveal damaging
information.
• Using economic pressure to force someone to enter into an agreement, such as
threatening to withhold payment for work already done unless the person agrees to
additional work on unfavourable terms.
Effect of Coercion:
According to Sections (19,64 and 72) Coercion is one of the vitiating factors that can render a
contract voidable. It refers to the act of using force or threats to induce a person to enter into a
contract. When a contract is entered into as a result of coercion, it is considered to be an
unfair and invalid contract.
According to Section 15 of the Contract Act, 1872, "coercion" is the committing, or
threatening to commit, any act forbidden by the Pakistan Penal Code, or the unlawful
detaining or threatening to detain, any property, to the prejudice of any person whatever, with
the intention of causing any person to enter into an agreement.
Examples of coercion in contracts may include:
1) Threats of Physical Harm: If A threatens to harm B or his family members, unless B
enters into a contract with him, the contract would be considered to be entered into
under coercion.
2) Economic Pressure: If A, who has a dominant position in the market, threatens to
harm B's business or cause B to suffer financial losses, unless B enters into a contract
with him, the contract would be considered to be entered into under coercion.
3) Threats of Legal Action: If A threatens to initiate legal proceedings against B, unless
B enters into a contract with him, the contract would be considered to be entered into
under coercion.
4) Threats of Social Harassment: If A threatens to defame or humiliate B, unless B
enters into a contract with him, the contract would be considered to be entered into
under coercion.
In all of the above examples, the party entering into the contract is doing so under duress and
not out of their free will. As such, any contract entered into under coercion is considered
voidable at the option of the aggrieved party. The aggrieved party can either choose to
enforce the contract or to rescind it. If they choose to rescind it, they can ask for restitution or
damages for any losses suffered as a result of the contract.

Burden of Proof:
In cases where coercion is alleged to have been used in the formation of a contract, the
burden of proof falls on the party alleging coercion to prove that coercion was present. The
aggrieved party needs to show that the contract was not entered into willingly but under
duress.

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The Contract & Sales of Goods Act

In cases of coercion, the aggrieved party must prove that they were compelled to enter into
the contract through the use of force, threats or intimidation.
In cases of coercion, the burden of proof is on the aggrieved party to show that the contract
was not entered into freely, and that it was entered into as a result of the use of coercion. To
prove coercion, the aggrieved party may rely on evidence such as witness testimony, emails,
text messages, or other documentation that demonstrates that they were threatened or
intimidated into entering into the contract.
It is important to note that the burden of proof is not absolute. The aggrieved party does not
need to provide conclusive proof of coercion, but only needs to provide sufficient evidence to
raise a presumption of coercion. If such a presumption is raised, the burden of proof shifts to
the other party to prove that there was no coercion involved.

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The Contract & Sales of Goods Act

UNDUE INFLUENCE
Undue influence is another vitiating factor that can render a contract voidable. It refers to a
situation where one party to a contract is in a position of power or authority over the other
party, and uses this position to induce the other party to enter into the contract. This can
happen when a person is in a relationship of trust or dependency with the other party, such as
in cases of parent-child relationships, doctor-patient relationships, or lawyer-client
relationships.
According to Section 16(1) of The Contract Act, 1872, undue influence is said to occur when
one party is in a position to dominate the will of the other and uses that position to obtain an
unfair advantage over the other party. This domination can be the result of a variety of
factors, including the parties respective positions, their mental and physical capacities, or
their emotional and psychological states.
Examples:
• A doctor who induces a patient to sign a contract giving the doctor control over the
patient's finances or property.
• A parent who coerces a child to sign a contract that is not in the child's best interests.
• A financial advisor who convinces an elderly person to sign a contract that benefits
the advisor more than the elderly person.
• A business partner who uses their position of power to induce their partner to enter
into a contract that is not in their best interests.
In all of these examples, one party is in a position of power or authority over the other party
and uses that position to induce the other party to enter into the contract. This creates an
unfair advantage for the party in the position of power, and the other party may not have
entered into the contract if they were not subject to undue influence.
If a contract is entered into under undue influence, it can be deemed voidable at the option of
the aggrieved party. The aggrieved party can either choose to enforce the contract or to
rescind it. If they choose to rescind it, they can ask for restitution or damages for any losses
suffered as a result of the contract.
Essentials of Undue Influence:
Undue influence is a vitiating factor that can render a contract voidable. It occurs when one
party to a contract is in a position of power or authority over the other party and uses that
position to induce the other party to enter into the contract. In order to establish undue
influence, certain essentials must be met. These essentials are discussed below:
1) Relationship of Influence:
The first essential of undue influence is that there must be a relationship of influence
between the parties. This means that one party must be in a position of power or
authority over the other party. Such relationships can include parent-child
relationships, doctor-patient relationships, or lawyer-client relationships.
Example: A wealthy businessman and his financial advisor. The businessman relies
on the advisor to manage his finances and investments, and trusts the advisor's
recommendations without question.

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The Contract & Sales of Goods Act

2) Dominant Party Using Influence:

The second essential of undue influence is that the dominant party must use their
position of power or authority to obtain an unfair advantage over the other party. This
can include using threats, persuasion, or emotional manipulation to induce the other
party to enter into the contract.
Example: A doctor who convinces a patient to sign over their property to them by
suggesting that it will help the patient receive better care.
3) Weaker Party Not Exercising Independent Judgement:
The third essential of undue influence is that the weaker party must not be exercising
independent judgement. This means that they are not able to make a decision based on
their own free will and are instead being coerced into making the decision by the
dominant party.
Example: An elderly person who is persuaded by a financial advisor to invest all their
savings into a risky investment scheme that the advisor knows is likely to fail.
4) Unconscionable Transaction:
The fourth essential of undue influence is that the transaction must be unconscionable.
This means that the terms of the contract are so one-sided that they would shock the
conscience of a reasonable person.
Example: A business owner who enters into a contract with a supplier at a price that is
five times the market rate, based on the supplier's assurance that they will get the
business owner exclusive access to a product.
Presumption of Undue Influence:
In some cases, the law presumes that undue influence exists, even if there is no direct
evidence of it. This is known as the presumption of undue influence, and it shifts the burden
of proof to the party accused of exercising undue influence.
A. The presumption of undue influence can arise in two situations:
Relationship of trust and confidence: If the parties are in a relationship of trust and
confidence, such as that of a parent and child, a doctor and patient, or a lawyer and
client, the law presumes that the dominant party has exercised undue influence over
the weaker party.
For example, if a parent makes a gift to a child or a doctor receives a gift from a
patient, the law presumes that there has been undue influence. The dominant party
would have to prove that the gift was made freely and without any undue influence.
B. Transaction that is onerous, unconscionable, or involves inadequate
consideration:
If the transaction is so one-sided that it shocks the conscience of a reasonable person,
the law presumes that there has been undue influence. This can happen when the
weaker party is induced to enter into a transaction that is onerous, unconscionable, or
involves inadequate consideration, and the dominant party benefits significantly from
the transaction.

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The Contract & Sales of Goods Act

For example, if a person is induced to sell their property for a fraction of its market
value, the law presumes that there has been undue influence. The dominant party
would have to prove that the transaction was fair and reasonable.
It is important to note that the presumption of undue influence is a rebuttable presumption.
This means that the party accused of exercising undue influence can provide evidence to
rebut the presumption, and if they are successful, the presumption will not apply. However, if
the presumption is not rebutted, the burden of proof shifts to the dominant party to show that
the transaction was entered into freely and without any undue influence.

Burden of Proof:
In cases where undue influence is alleged, the burden of proof is on the party alleging undue
influence to prove that it occurred. The aggrieved party must show that there was a
relationship of influence between the parties, that the dominant party used their position of
power to obtain an unfair advantage, that the weaker party did not exercise independent
judgement, and that the transaction was unconscionable.
However, once the aggrieved party has established a prima facie case of undue influence, the
burden of proof shifts to the party accused of exercising undue influence to prove that they
did not do so. This is known as the burden of rebuttal.
The accused party can rebut the presumption of undue influence by showing that the weaker
party entered into the transaction freely and with full knowledge of its terms, and that the
transaction was fair and reasonable. The accused party must provide clear and convincing
evidence to rebut the presumption.
If the accused party is unable to rebut the presumption of undue influence, the contract may
be set aside. In such cases, the court may order that the contract be rescinded or set aside, and
that any property or money transferred under the contract be returned to the aggrieved party.
Effect of Undue Influence:
The effect of undue influence is that it renders a contract or transaction voidable at the option
of the aggrieved party. In other words, the contract is still legally binding unless the
aggrieved party chooses to have it set aside.
Here are some of the main effects of undue influence:
i. Contract is voidable:
When undue influence is established, the contract is voidable at the option of the
aggrieved party. This means that the aggrieved party can choose to have the contract
set aside.
ii. Rescission:
If the contract is set aside, the parties are returned to their pre-contractual position.
Any property or money transferred under the contract is returned to the aggrieved
party.
iii. Damages:
If the aggrieved party suffered financial loss as a result of the undue influence, they
may be entitled to claim damages. This can include any expenses incurred as a result
of the contract, as well as any loss of profits or income.

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The Contract & Sales of Goods Act

iv. Reputation:
The reputation of the dominant party may be affected by the finding of undue
influence. This can be particularly damaging in cases where the dominant party is a
professional, such as a lawyer or financial advisor.
v. Criminal Liability:
In some cases, the use of undue influence may be considered a criminal offense, such
as when it is used to obtain property or money through fraudulent means.
DIFFERENCE BETWEEN COERCION AND UNDUE INFLUENCE

NATURE COERCION UNDUE INFLUENCE

Coercion is a situation where Undue influence, on the other
one party compels the other hand, refers to a situation
party to enter into a contract where one party dominates
by using physical force or the will of the other party and
threats of physical harm. influences them to enter into
Coercion is an unlawful act a contract that is not in their
that takes away the free best interest. The party who
consent of the party who is is exerting undue influence
coerced. In other words, can use their position of
coercion involves the use of power, authority, or trust to
Nature
force or fear to make exploit the other party.
someone do something they Undue influence can be both
would not otherwise do. It is legal and illegal. In legal
generally considered to be a situations, a party may be in
criminal offense. a position of power, such as a
doctor or lawyer, and use that
position to influence a
vulnerable person to make a
decision that is not in their
best interest.
It involves doing or It involves doing or
Act threatening to do an illegal threatening to do an unfair
act. act.
Coercion refers to the use of Undue influence refers to the
physical force or threats of use of more subtle and
physical harm to compel indirect forms of influence to
someone to act against their persuade someone to act in a
will. It involves the use of certain way. It involves
force or the threat of force to taking advantage of
make someone enter into a someone's trust, confidence,
Offence contract or do something or dependency to influence
they otherwise would not their decision-making. For
have done. Coercion is example, a person in a
typically associated with position of power or
criminal activity and is often authority may use their
considered illegal. position to influence another
person's decision to enter into
a contract or to make a

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The Contract & Sales of Goods Act

certain financial transaction.

It typically involves physical Undue influence refers to a
or economic pressure, such situation where one party
as threatening to harm a uses their position of power
person or their property, or or trust to influence another
withholding payment owed party to enter into a contract.
to them. Coercion is often Unlike coercion, undue
used by a stronger party to influence may not involve
Parties
gain an unfair advantage over any direct threats or physical
a weaker party, and it is force. Instead, it relies on a
generally considered to be a psychological advantage,
criminal offense. such as emotional
dependence or trust, to
persuade the other party to
agree to the contract terms.
Coercion involves the use of Undue influence involves
force or threats, and can be taking advantage of a
Relationship
used by anyone. relationship of trust,
confidence, or dependency.
If a person has received a If a person has received a
benefit by coercion, they may benefit by undue influence,
be able to recover the benefit they may be able to recover
Return of
by demonstrating that their the benefit by demonstrating
Benefit
consent to the contract was that their consent to the
obtained under duress. contract was obtained
through improper means.
If a person has received a Undue influence renders a
benefit by coercion, they may contract voidable at the
be able to recover the benefit option of the influenced
Effect by demonstrating that their party. This means that the
consent to the contract was influenced party has the
obtained under duress. option to either enforce the
contract or void it.

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The Contract & Sales of Goods Act

FRAUD
Under The Contract Act of 1872, fraud is defined as any act committed with the intent to
deceive another party, inducing them to enter into a contract, with the knowledge that the
information given is false. In other words, fraud is an intentional misrepresentation of a
material fact made to induce another party to enter into a contract.
According to the Act, the following are the essential elements of fraud:
i. A false representation or a concealment of a material fact.
ii. The representation must be made with knowledge that it is false, or without belief in
its truth, or recklessly.
iii. The representation must be made with the intention that the other party should act
upon it.
iv. The other party must have been induced to act upon the representation.
v. The other party must have suffered damages as a result of acting upon the
representation.
According to Section 17 of The Contract Act:
"Fraud" means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agent, with intent to deceive another party thereto or his agent,
or to induce him to enter into the contract:-
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be
true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.

If fraud is proven, the party who was defrauded may have the contract declared voidable and
can seek damages. The defrauded party has the option to either affirm the contract or rescind
it. If the contract is rescinded, the parties are restored to their original positions before the
contract was made. The party committing fraud may also be subject to legal action and may
face criminal charges.
Explain Essentials of Fraud:

1. False Representation or Suppression of Material Facts:

Fraud occurs when one party makes a false statement or suppresses material facts in
order to deceive the other party. The false statement can be made by words, actions,
or even silence, while the suppression of material facts refers to a deliberate failure to
disclose important information that one party has a duty to disclose. For example, if a
seller of a used car knowingly hides a defect in the car from the buyer, it can be
considered fraud.

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The Contract & Sales of Goods Act

2. Knowledge or Reckless Ignorance of Falsehood:

In order for a false statement to be considered fraud, the person making the statement
must have known that it was false, or must have made the statement with reckless
disregard for its truth. For example, if a contractor knowingly tells a client that a
building project will be completed in six months when they know it will take a year, it
can be considered fraud.
3. Intention to Deceive:
The person making the false statement must have intended to deceive the other party.
In other words, they must have made the statement with the intention that the other
party would rely on it. For example, if a company promises to deliver a product by a
certain date, but never intends to do so, it can be considered fraud.
4. Reliance by the Other Party:
Fraud requires that the other party relies on the false statement or suppression of facts.
The other party must have acted on the false statement in some way, either by
entering into a contract or by taking some other action that they would not have taken
otherwise. For example, if a bank manager promises a loan to a borrower on the
condition that they make a deposit in the bank, but then does not deliver the loan, it
can be considered fraud.
5. Resulting Damage:
Fraud requires that the other party suffers some form of damage or loss as a result of
the false statement or suppression of facts. The damage may be financial or non-
financial, and it must be caused by the other party's reliance on the false statement.
For example, if a real estate agent knowingly misrepresents the condition of a
property to a buyer, and the buyer incurs significant repair costs as a result, it can be
considered fraud.
Exceptions:
The following are some of the exceptions to the rule of fraud:
1) Non-Reliance:
If the defrauded party can prove that they did not rely on the false representation or
that they were aware of its falsity, the contract may not be voidable due to fraud. For
example, if a seller misrepresents the age of a product to a buyer, but the buyer knew
the real age and went ahead with the purchase anyway, the contract would not be
voidable due to fraud.
2) Silence:
In some cases, silence or non-disclosure of a fact may not be considered fraud if the
other party could have easily discovered the fact through reasonable diligence. For
example, if a buyer purchases a car without asking about its accident history, and the
seller does not disclose that the car has been in an accident, the contract may not be
voidable due to fraud.
3) Misrepresentation of Law:
If a party makes a misrepresentation about the law, it may not be considered fraud if
the other party could have easily verified the law themselves. For example, if a seller
tells a buyer that they have the legal right to sell a piece of property, but the buyer

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The Contract & Sales of Goods Act

could have easily verified the ownership status with a land registry, the contract may
not be voidable due to fraud.
4) Implied Representations:
Some representations may be implied in a contract, and the failure to fulfill these
implied representations may not be considered fraud. For example, if a seller of goods
implies that the goods are fit for a particular purpose, but they are not, the contract
may not be voidable due to fraud if it can be shown that the seller did not know that
the goods were not fit for the intended purpose.
5) Ratification:
If the defrauded party, after discovering the fraud, chooses to continue with the
contract, they may be deemed to have ratified the contract, and it may not be voidable
due to fraud. For example, if a buyer discovers that a seller made a false
representation about a product but still chooses to go ahead with the purchase, the
contract may not be voidable due to fraud.
Effects Of Fraud On Contract:
Fraud can have serious effects on a contract. If a contract is found to have been entered into
as a result of fraud, the contract may be voidable at the option of the defrauded party. This
means that the defrauded party has the option to rescind the contract or to continue with the
contract and claim damages. In addition, the following effects may be observed on a contract:
i. The contract may be voidable: Fraud can render a contract voidable, meaning that
the defrauded party has the option to either rescind the contract or to continue with it
and claim damages. If the defrauded party chooses to rescind the contract, they are
released from all obligations under the contract.
ii. The defrauded party may claim damages: If the defrauded party chooses to
continue with the contract, they may claim damages for any losses that they have
suffered as a result of the fraud. The damages may include compensation for any
financial loss, emotional distress, or other harm that the defrauded party has suffered.
iii. The party committing fraud may be liable for criminal prosecution: If the fraud is
found to be criminal in nature, the party committing fraud may be liable for criminal
prosecution. This can result in fines, imprisonment, or other criminal penalties.
iv. The contract may be rescinded even after performance: In some cases, a contract
may be rescinded even after performance. If a party discovers the fraud after
performance, they may still have the option to rescind the contract and claim
damages.
v. Other parties to the contract may also be affected: If the fraud is committed by one
party to the contract, the other parties to the contract may also be affected. For
example, if a bank manager fraudulently promises a loan to a borrower on the
condition that they make a deposit in the bank, but then does not deliver the loan, the
bank itself may be held liable for the fraud.

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The Contract & Sales of Goods Act

MISREPRESENTATION
According to The Contract Act 1872, misrepresentation is the communication of false
information to the other party, which induces that party to enter into a contract.
Misrepresentation can occur when a party makes a false statement, conceals or withholds
material facts, or gives a half-truth or an incomplete statement with the intent to deceive the
other party.
According to Section 18 of The Contract Act:
“Misrepresentation" means and includes:-
(1) the positive assertion, in a manner not warranted by the information of the person making
it, of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage to the person
committing it, or any one claiming under him, by misleading another to his prejudice or to the
prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement to make a mistake as to the
substance of the thing which is the subject of the agreement.
Explanation:
Section 18 of the Contract Act defines misrepresentation as "The positive assertion, in a
manner not warranted by the information of the person making it, of that which is not
true, though he believes it to be true." This means that a person may make a statement that
they believe to be true but, in reality, is false. If the other party relies on this statement and
enters into a contract, then that person has been misled and has suffered a loss as a result of
the misrepresentation.
The Contract Act recognizes three types of misrepresentation:
i. Fraudulent Misrepresentation:
When a person makes a false statement knowing it to be false or without belief in its
truth or with the intention to deceive the other party, it is known as fraudulent
misrepresentation.
ii. Negligent Misrepresentation:
When a person makes a false statement without reasonable grounds for believing it to
be true, it is known as negligent misrepresentation.
iii. Innocent Misrepresentation:
When a person makes a false statement without any intention to deceive, and believes
it to be true, it is known as innocent misrepresentation.
Essential Elements Of Misrepresentation:

Here are the essential elements of misrepresentation with headings and examples:

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The Contract & Sales of Goods Act

1. False Statement of Fact

Misrepresentation must involve a false statement of fact, which can be either an
express statement or an implied statement. The statement must be objectively false,
meaning that it must be capable of being proven false. Opinions and statements of
future intentions are not considered false statements of fact.
Example: A seller tells a buyer that a car has never been in an accident when it has
been in a major accident and repaired.
2. Made By One Party To Another
Misrepresentation must be made by one party to the other party. It can be made orally,
in writing, or through conduct.
Example: A real estate agent tells a buyer that a property is in a quiet neighbourhood
when it is actually located near a busy highway.
3. Intension To Induces into The Contract:
Misrepresentation must have induced the other party to enter into the contract. This
means that the false statement must have influenced the decision of the other party to
enter into the contract.
Example: A salesperson tells a customer that a product can cure a disease when it
cannot, and the customer purchases the product based on that false claim.
4. Materiality of The False Statement
Misrepresentation must be material, meaning that it must be important enough to
influence the decision of the other party to enter into the contract.
Example: A seller tells a buyer that a painting is by a famous artist when it is actually
a forgery, and the buyer purchases the painting based on the false claim.
5. Knowledge of Falsity :
The person making the false statement must either know that the statement is false or
must believe that it is false.
Example: An employee of a company tells a customer that a product is made in the
USA when they know that it is actually made in China.
These are the essential elements of misrepresentation that must be present for a
misrepresentation to occur. If these elements are met, the party that has been induced to enter
into the contract may have the right to seek remedies such as rescission, damages or other
legal remedies.
Effect of Misrepresentation:
The effect of misrepresentation on a contract depends on the nature and severity of the
misrepresentation. If a misrepresentation is found to have occurred, it may have the following
effects on the contract:
i. Terminate The Contract
If a misrepresentation is found to have induced one party to enter into the contract, the
innocent party may have the right to rescind or terminate the contract. Rescission

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means that the contract is treated as if it never existed, and the parties are restored to
their original positions before the contract was entered into.
ii. Right To Claim Damages
If the innocent party has suffered losses as a result of the misrepresentation, they may
have the right to claim damages. Damages are a monetary award intended to
compensate the innocent party for any losses suffered as a result of the
misrepresentation.
iii. Contract is Voidable
If the misrepresentation is serious enough, the contract may be considered voidable. A
voidable contract is one that is initially valid, but one or both parties have the option
to rescind or terminate the contract due to a defect such as misrepresentation.
iv. Time Lapse
In some cases, the right to rescind or terminate the contract due to misrepresentation
may be subject to time limits. For example, if the innocent party has continued to use
the goods or services provided under the contract for an extended period of time, they
may be deemed to have accepted the contract despite the misrepresentation.
Difference Between Fraud and Misrepresentation
Fraud and misrepresentation are both types of false statements made during the formation of
a contract. However, there are some key differences between the two. Here are the main
differences between fraud and misrepresentation, along with examples:
Nature of Difference Fraud Misrepresentation
Fraud requires a higher level Misrepresentation can be
of intent to deceive the other innocent or negligent in
party. nature.
Example of fraud: A car Example of
dealer knowingly sells a car misrepresentation:
with a rolled-back odometer, A car dealer innocently
1. Intention
falsely representing the car as misrepresents the model year
having low mileage, in order of a car, mistakenly believing
to get a higher sale price. it to be a newer model year,
when in fact it is an older
model year.

In fraud, the party making In misrepresentation, the

the false statement must party making the false
know or believe that it is statement may not have
false. known that the statement was
Example of fraud: An false or may have made the
employee of a company statement without due care.
2. Knowledge or Belief
falsely tells a potential Example of
customer that the company misrepresentation: A real
has won awards and estate agent negligently
certifications that it has not misrepresents the square
actually earned, in order to footage of a property, failing
get the customer to sign a to verify the measurements,

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The Contract & Sales of Goods Act

contract. and giving the buyer a false

impression of the size of the
property.

The remedies for fraud tend In case of misrepresentation

to be more severe than for the remedies are less severe.
misrepresentation due to the Example of
higher level of intent and misrepresentation remedy: A
knowledge required for buyer who has been misled
fraud. by a real estate agent may be
Example of fraud remedy: A entitled to rescind the
3. Remedy customer who has been contract, receive damages, or
defrauded by a car dealer ask for the contract to be
may be entitled to rescind the reformed to reflect the true
contract, receive a full square footage of the
refund, and also seek property.
punitive damages against the
dealer.

In conclusion, while fraud and misrepresentation share some similarities, the key differences
between them lie in the intent to deceive, the level of knowledge or belief, and the remedies
available. It is important to distinguish between the two when seeking legal remedies for a
false statement made during the formation of a contract.

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The Contract & Sales of Goods Act

MISTAKE
Mistake is a term used in contract law to describe a situation where one or both parties to a
contract have made an incorrect assumption about a material fact upon which the contract
was based. A mistake can occur during the formation of a contract, such as in the terms of the
contract, or during the performance of the contract. A mistake can invalidate the contract or
provide a remedy for the party affected by the mistake.
The Contract Act, 1872 recognizes two types of mistakes:
1. Mistake of Fact
2. Mistake of Law
1. Mistake of Fact:
A mistake of fact is an erroneous belief by one or both parties about a material fact or
circumstance relating to the contract. A mistake of fact occurs when one or both parties have
misunderstood or overlooked a fact or circumstance that is essential to the contract.
Under The Contract Act, 1872, a mistake of fact can invalidate a contract if it goes to the root
of the contract. If a mistake of fact occurs, it can be categorized into two types:
i. Mutual or Bilateral Mistake of Fact:
This occurs when both parties to a contract make the same mistake about a material
fact or circumstance. In this case, the contract may be voidable at the option of either
party.
For example, if A agrees to sell a painting to B, believing it to be an original work of
a famous artist, and B also believes it to be original, but it is later discovered that the
painting is a forgery, this would be a mutual mistake of fact that could invalidate the
contract.
ii. Unilateral Mistake of Fact:
This occurs when only one party to the contract makes a mistake about a material fact
or circumstance, and the other party is aware of the mistake or takes advantage of it.
In this case, the contract may be voidable at the option of the party who made the
mistake.
For example, if A offers to sell a piece of land to B, mistakenly believing that it
includes a mineral deposit, and B knows about the mistake, B may be able to take
advantage of the mistake and purchase the land at a lower price. In this case, A may
be able to seek rescission of the contract.
It is important to note that not all mistakes of fact will invalidate a contract. The mistake must
be material and go to the heart of the contract. Additionally, the mistake must be a genuine
mistake and not the result of negligence or lack of due diligence by the party making the
mistake.
Case Laws:
There have been many cases in contract law where a mistake of fact has led to a dispute
between the parties. Here are two examples of case law about mistake of fact:

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• Raffles v Wichelhaus (1864) - In this case, the parties entered into a contract for the
sale of cotton to be shipped from Bombay to Liverpool on a ship called "Peerless."
However, there were two ships named "Peerless," and the parties did not specify
which ship was intended. The seller shipped the cotton on one "Peerless," while the
buyer expected it to be shipped on the other "Peerless." The buyer refused to accept
the cotton, and the seller sued for breach of contract.
The court held that there was a mistake of fact on the part of both parties as to which
ship was intended, and as a result, the contract was void for uncertainty. The court
held that for a contract to be valid, the parties must have a common intention, and in
this case, there was no such common intention.
• Cundy v Lindsay (1878) - In this case, a fraudulent party posed as a legitimate
company and ordered goods from the plaintiff. The plaintiff delivered the goods to the
fraudulent party, believing that they were dealing with the legitimate company. The
fraudulent party sold the goods to a third party, and the plaintiff sued the third party
for the return of the goods.
The court held that the plaintiff had made a mistake of fact in delivering the goods to
the fraudulent party, and as a result, the contract was void. The court held that a
contract based on a mistake of fact is void, and the innocent party is entitled to
recover any property that was transferred under the contract.
These cases demonstrate that a mistake of fact can have significant consequences for the
validity of a contract. If the mistake is fundamental and goes to the heart of the contract, the
contract may be void, and the innocent party may be entitled to relief.
2. Mistake of Law:
In contract law, a mistake of law is an erroneous belief by one or both parties about the legal
effect of a particular rule, regulation or statute. Mistakes of law differ from mistakes of fact,
which relate to errors about the physical or factual aspects of a situation. Mistakes of law can
be complicated because ignorance of the law is generally not an excuse.
There are two types of mistake of law:
i. Mistake of Law Common To Both Parties :
This occurs when both parties are mistaken about the legal effect of a rule or statute.
In this case, the contract may be voidable if the mistake is fundamental and goes to
the heart of the contract.
For example, if both parties to a contract are under the mistaken belief that a
particular law has been repealed, when in fact it is still in effect, this could be a
mistake of law that would make the contract voidable.
ii. Mistake of Law By One Party:
This occurs when only one party is mistaken about the legal effect of a rule or statute.
In this case, the contract is generally enforceable, but the mistaken party may be able
to seek relief in certain circumstances.
For example, if one party to a contract mistakenly believes that they have a legal right
to terminate the contract, when in fact they do not, this could be a mistake of law. If

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the other party is aware of this mistake and takes advantage of it, the mistaken party
may be able to seek relief from the court.
It is important to note that ignorance of the law is generally not an excuse for making a
mistake of law. However, in certain circumstances, a party may be able to rely on a mistake
of law to avoid liability or seek relief from the court.
Case Laws:
• One of the most famous cases in contract law regarding mistake of law is the case of
Cooper v. Phibbs, which was decided by the House of Lords in 1867. In this case,
the plaintiff and the defendant entered into an agreement to lease a fishery. The
plaintiff believed that he was entitled to a one-third share of the fishery, but it later
turned out that he was mistaken and that the defendant owned the entire fishery. The
plaintiff sued for the return of the one-third rent he had paid, claiming that he had
made a mistake of law.
The House of Lords held that the plaintiff was entitled to recover the rent, even
though his mistake was one of law rather than fact. The court held that a person who
enters into a contract based on a mistake of law is entitled to relief, provided that the
mistake is fundamental to the contract and the other party is not prejudiced.
• In another case, Solle v. Butcher, which was decided by the UK Supreme Court in
2009, the court considered a case where a tenant leased a property for a term of 99
years, but mistakenly believed that he was entitled to a 125-year lease. The tenant
sued for rectification of the lease, claiming that the mistake was a mutual mistake of
law. The court held that the tenant was not entitled to rectification, because the
mistake was not mutual, and the other party was not aware of the mistake.
These cases demonstrate that the courts are generally willing to grant relief for
mistakes of law, provided that the mistake is fundamental to the contract and the other
party is not prejudiced. However, the courts are less likely to grant relief for mistakes
of law that are unilateral, or where the other party was aware of the mistake and took
advantage of it.
Law in Pakistan:
In Pakistani contract law, mistake of law is generally not considered a valid ground for
avoiding a contract. According to Section 21 of the Contract Act, 1872, a contract is not
voidable merely because one of the parties made a mistake as to the law in force in Pakistan.
This means that if a party enters into a contract based on a mistaken understanding of the law,
they cannot avoid the contract on that ground alone.
However, there are some exceptions to this rule. Pakistani courts have recognized that in
certain circumstances, a mistake of law can render a contract void or voidable. For example:
• If a statute or law is declared invalid by a competent court after a contract has been
made, the parties may be excused from performing the contract if the contract was
entered into with reference to that law.
• If a contract is made with the understanding that it is required by law, but it is later
discovered that the law did not require the contract, the contract may be void.

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The Contract & Sales of Goods Act

• If a party is induced to enter into a contract by the misrepresentation of another party

as to the law, the contract may be voidable on the ground of misrepresentation.
In these cases, the mistake of law is not the sole ground for avoiding the contract, but rather is
part of a larger set of circumstances that make the contract void or voidable.
It is important to note that the burden of proving a mistake of law is on the party seeking to
avoid the contract. The party must show that the mistake was material, i.e., that it was a
fundamental assumption on which the contract was based and that it would not have entered
into the contract if it had known the true legal position.

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The Contract & Sales of Goods Act

VOID AGREEMENT
In contract law, a void agreement is one that is considered to have no legal effect from the
outset. A void agreement is different from a voidable agreement, which is a contract that may
be deemed unenforceable, but not necessarily from the outset. A void agreement is essentially
a non-existent contract, and as such, it cannot be enforced by either party.
There are various reasons why an agreement may be considered void. Some common
examples of void agreements include:
1. Agreement made by parties who are not legally capable of entering into a contract.
For example, an agreement made by a minor (a person under the age of 18) is
considered void.
2. Agreement made under duress or coercion. An agreement made under threats or force
is considered void.
3. Agreement made for an illegal purpose. An agreement made for a purpose that is
illegal or against public policy is considered void.
4. Agreement made with an uncertain or impossible object. An agreement that is made
with an object that is impossible to perform or that is uncertain is considered void.
It is important to note that a void agreement is different from an illegal agreement. An illegal
agreement is one that is against the law or public policy, whereas a void agreement is one that
has no legal effect from the outset.
When an agreement is considered void, neither party can enforce it, and neither party has any
legal obligations or rights under the contract. Any money or property that has been
transferred under the agreement must be returned to the rightful owner.

1. Agreement in Restraint of Marriage:

An agreement in restraint of marriage is a type of contract in which one or both
parties agree to restrict their freedom to marry. Such agreements are generally
considered void under the law because they are against public policy and the interest
of society.
An agreement in restraint of marriage may take many forms, such as a promise not to
marry anyone, a promise to marry a specific person, or a promise to marry only with
the consent of the other party. For example, suppose that A and B, who are engaged to
be married, sign a prenuptial agreement that states that A will not marry anyone other
than B, and that B will not marry anyone other than A. This agreement would be
considered an agreement in restraint of marriage because it restricts the freedom of
both parties to marry anyone else.
The reason that agreements in restraint of marriage are generally considered void is
that they interfere with the fundamental right of individuals to marry and create a
family. The law recognizes that the ability to marry is an essential aspect of personal
freedom and autonomy, and any attempt to restrict this right is against public policy.
It is important to note that there are some exceptions to the general rule that
agreements in restraint of marriage are void. For example, a covenant not to marry

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The Contract & Sales of Goods Act

may be enforceable in certain limited circumstances, such as when it is part of a

commercial transaction, such as a merger or acquisition, or when it is part of a divorce
settlement agreement.
2. Agreements in Restraint of Trade:
In Pakistani contract law, agreements in restraint of trade are generally void, except in
certain limited circumstances. This means that a contract that restricts a person's
freedom to carry on a trade or profession is not enforceable, unless the contract falls
within one of the recognized exceptions.
Section 27 of the Contract Act, 1872, provides that every agreement by which anyone
is restrained from exercising a lawful profession, trade or business of any kind is to
that extent void. This provision applies to all types of agreements, including
employment contracts, partnership agreements, and sale of business agreements.
The general rule is that any restraint on trade is contrary to public policy, and the
courts will not enforce such agreements. However, there are some exceptions to this
rule. Pakistani courts have recognized that agreements in restraint of trade may be
enforceable in the following circumstances:
• If the restraint is reasonable in terms of duration, geographic scope, and the
nature of the business. For example, a non-compete clause in an employment
contract may be enforceable if it is limited to a specific period of time, a
certain geographic area, and only prohibits the employee from working in a
similar business.
• If the restraint is necessary to protect a legitimate interest, such as trade secrets
or confidential information. For example, a contract that prohibits an
employee from disclosing confidential information to a competitor may be
enforceable.
• If the restraint is part of a larger transaction, such as a sale of business or
partnership agreement, and is necessary to protect the interests of the parties
involved.
In determining whether a restraint on trade is reasonable and necessary, the courts will
consider the specific circumstances of each case. The burden of proving that a
restraint on trade is reasonable and necessary falls on the party seeking to enforce the
agreement.
3. Agreements in Restraint of legal proceedings:
An agreement in restraint of legal proceedings is a type of contract that restricts a
person's right to approach the courts for the redressal of grievances. Such agreements
are generally considered void under the law because they are against public policy
and the interest of justice.
Section 28 of the Contract Act, 1872, provides that every agreement by which any
party is restricted from enforcing their legal rights through legal proceedings is to that
extent void. This means that any contract that restricts a party's right to approach the
courts or other legal tribunals for the resolution of disputes is unenforceable.

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The Contract & Sales of Goods Act

The reason that agreements in restraint of legal proceedings are considered void is
that they interfere with the fundamental right of individuals to access justice. The
right to approach the courts for the resolution of disputes is a fundamental aspect of
the rule of law and any attempt to restrict this right is against public policy.
It is important to note that there are some exceptions to the general rule that
agreements in restraint of legal proceedings are void. For example, a contract may
include a clause requiring the parties to engage in mediation or arbitration before
initiating legal proceedings. Such clauses are generally considered enforceable
because they encourage the parties to resolve disputes through non-adversarial means.
In addition, settlement agreements that arise from legal proceedings may include
clauses that restrict the parties from initiating further legal proceedings relating to the
same dispute. Such clauses may be enforceable if they are considered reasonable and
necessary to achieve a final settlement of the dispute.
Exceptions:
While agreements in restraint of legal proceedings are generally considered void
under the law, there are some exceptions to this rule. The following are some of the
exceptions recognized by Pakistani law:
• Arbitration agreements: Parties may agree to submit their disputes to
arbitration instead of approaching the courts. Such agreements are
generally considered enforceable, as long as they are not unconscionable
or contrary to public policy.
• Mediation agreements: Parties may agree to participate in mediation as a
means of resolving their disputes. Such agreements are also generally
enforceable, as long as they are not unconscionable or contrary to public
policy.
• Stipulations as to time: Parties may agree to a limitation period within
which legal proceedings must be initiated. Such agreements are generally
considered enforceable, as long as they are not unconscionable or contrary
to public policy.
• Waiver of claims: Parties may agree to waive their right to make a claim
or pursue legal action. Such agreements are generally considered
enforceable, as long as they are not unconscionable or contrary to public
policy.
• Settlement agreements: Parties may enter into settlement agreements to
resolve their disputes. Such agreements may include clauses that restrict
the parties from initiating further legal proceedings relating to the same
dispute. Such clauses may be enforceable if they are considered reasonable
and necessary to achieve a final settlement of the dispute.
It is important to note that the exceptions to the rule against agreements in restraint of
legal proceedings are limited, and any such agreement will be closely scrutinized by
the courts to ensure that it is not unconscionable or contrary to public policy. Parties
should seek legal advice before including any clauses in their agreements that restrict
their ability to approach the courts for the resolution of disputes.

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4. Uncertain Agreements:
An uncertain agreement is a contract that is not clear or definite enough to be
enforceable by law. In other words, the terms of the contract are so vague, ambiguous
or incomplete that it is impossible to determine the rights and obligations of the
parties.
Under Section 29 of the Contract Act, 1872, agreements that are uncertain or vague
are void. This means that a contract that is not clear and definite enough cannot be
enforced by law.
For example, if two parties enter into a contract for the sale of a "quantity of goods,"
without specifying the amount or type of goods, the agreement is uncertain and cannot
be enforced by law. Similarly, an agreement to "do something useful" or "provide a
service at a reasonable price" may be considered uncertain and unenforceable.
However, if the contract can be interpreted in a way that makes it certain, the court
may give effect to the contract. For example, if two parties enter into a contract for the
sale of "all the wheat grown in the seller's fields during the current harvest season,"
the contract may be considered certain, even though the exact amount of wheat to be
sold is unknown at the time of contracting.

5. Wagering Agreements:
A wagering agreement is a type of contract in which two parties agree to bet on the
outcome of a future event. The contract involves a promise by each party to pay a sum
of money or something of value to the other party, depending on the outcome of the
event.
Under the law, wagering agreements are considered void and unenforceable. This
means that if one party fails to pay the other party in accordance with the terms of the
agreement, the courts will not provide a remedy to enforce the contract.
The reason that wagering agreements are void is that they are considered to be against
public policy. Such agreements encourage gambling, which is considered to be a vice
by society. The law seeks to discourage gambling by making wagering agreements
unenforceable.
For example, if two friends agree to bet on the outcome of a cricket match and one
friend agrees to pay the other Rs. 5,000 if their team loses, this would be considered a
wagering agreement. If the losing friend refuses to pay the Rs. 5,000, the winning
friend cannot go to court to enforce the agreement because wagering agreements are
void.
6. Agreements of Contingent on Impossible Events
An agreement that is contingent on an impossible event is considered void under the
law. Such an agreement is one where the performance of the contract is conditional on
an event that is impossible to happen, either at the time the contract was made or in
the future.

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Section 36 of the Contract Act, 1872 provides that an agreement that is contingent on
an event that is impossible is void. An impossible event could be one that is
physically impossible, legally impossible, or commercially impossible. For example,
an agreement to sell a house that has already been destroyed by fire is an example of
an agreement that is contingent on an impossible event.
Similarly, an agreement to sell a piece of land on the moon is an example of an
agreement that is contingent on an impossible event. As of now, it is not possible for
anyone to own land on the moon, so any agreement to sell such land would be void.
Another example of an agreement that is contingent on an impossible event is an
agreement to pay a sum of money in exchange for a person's death. Such an
agreement is illegal and void under the law, as it is against public policy to encourage
or profit from someone's death.
7. Agreements to do Impossible Acts
An agreement to do an impossible act is a contract that is void under the law because
it is impossible to perform. Section 56 of the Contract Act, 1872, states that a contract
to do an act which is impossible to perform is void. Such contracts are considered
void ab initio, which means they are void from the beginning and cannot be enforced
by either party.
For example, if two parties enter into an agreement to transport goods to a location
that does not exist, the contract will be void because it is impossible to perform.
Similarly, if two parties enter into an agreement to travel through time or to perform
an act that is physically impossible, such as jumping over a building, the contract will
be void.
SPECIAL CASES
Agreements of Commercial Transactions
Agreements of commercial transactions are contracts between two or more parties for the sale
or exchange of goods or services. Such agreements are the backbone of business transactions
and are used to establish the terms and conditions under which goods and services are
exchanged.
These agreements typically include details such as the quantity, quality, price, payment terms,
delivery terms, warranties, and representations of the goods or services being exchanged. The
parties to the agreement may also include provisions relating to dispute resolution,
intellectual property rights, confidentiality, and non-compete clauses.
Examples of agreements of commercial transactions include purchase agreements, supply
agreements, distribution agreements, licensing agreements, and service agreements. These
agreements are essential to ensuring that parties understand their obligations and rights under
the agreement and that the transaction proceeds smoothly.
Insurance Contract
An insurance contract is a legal agreement between an insurer and an insured, whereby the
insurer agrees to provide financial compensation to the insured in the event of a covered loss
or damage. The insured pays a premium to the insurer in exchange for this coverage.

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The Contract & Sales of Goods Act

For example, a person may purchase car insurance to protect themselves from financial losses
in the event of an accident. In this case, the insurer agrees to compensate the insured for
damages or losses to their car and any injuries sustained in the accident, up to the limits of the
policy.
Lottery:
A lottery is a type of gambling game in which participants purchase tickets, and a winner or
winners are determined by chance or random selection. In a lottery, the prize or reward is
usually a large sum of money or other valuable item.
Lotteries can take many forms, including state-sponsored lotteries, private lotteries, and
online lotteries. The rules and regulations governing lotteries vary by jurisdiction, and some
jurisdictions may have restrictions on the types of lotteries that are permitted.
In most lotteries, participants purchase tickets with a set of numbers or symbols. The winning
numbers or symbols are then drawn at random, and the participant with the matching
numbers or symbols wins the prize.
Lotteries are often used to raise funds for various causes, such as charity organizations or
government programs. However, lotteries are also subject to criticism due to their association
with gambling addiction and the potential for fraud or manipulation.
Crossword Puzzles:
Crossword puzzles are word games that consist of a grid of squares, typically in a rectangular
or square shape. The objective of the game is to fill in the squares with words or phrases that
fit the corresponding clues, which are usually listed alongside the grid.

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The Contract & Sales of Goods Act

CONTINGENT AND QUASI CONTRACTS

CONTINGENT CONTRACTS
According to Section 31 of the Contract Act, 1872, a contingent contract is a contract to do or
not to do something if an uncertain future event occurs. The event must be collateral or
outside the control of both the parties involved in the contract. The contract is enforceable
only if and when the specified event occurs or fails to occur.
Section 31 of the Contract Act defines a contingent contract as follows:
"A contingent contract is a contract to do or not to do something if some event, collateral
to such contract, does or does not happen."
In simple terms, a contingent contract is a contract that depends on the occurrence or non-
occurrence of a specific event in the future. Until that event occurs or fails to occur, the
contract is not enforceable. The event must be outside the control of both parties to the
contract, and it must be a collateral event, which means it should not be directly related to the
contract.
For example, a contract between a buyer and a seller for the sale of goods can be contingent
on the arrival of the goods at the port of shipment. If the goods do not arrive at the port of
shipment, the contract becomes void. Similarly, a contract between a landlord and a tenant
for the lease of a property can be contingent on the completion of repairs or renovations to
the property. If the repairs are not completed, the contract may not be enforceable.
Types of Contingent Contracts:
Contingent contracts can be classified into two types:
1. Contracts Based On Uncertain Events
2. Contracts Based On Future Conduct
1. Contracts based on uncertain events
A contingent contract based on an uncertain event is a contract in which the
performance of one or both parties is dependent on the occurrence or non-occurrence
of an uncertain event. In other words, the contract is not enforceable until the
specified event takes place. Here are a few examples of contingent contracts based on
uncertain events:
a. A contract between an event organizer and a singer: Suppose an event organizer
wants to hire a famous singer for a concert. However, the singer's availability is
uncertain because they have an upcoming movie shoot that might clash with the
concert date. So, the contract between the organizer and the singer can be made
contingent on the singer's availability. The contract can state that the singer will
perform only if they are not required for the movie shoot.
b. A contract between a landlord and a tenant: Suppose a landlord has a commercial
property that is available for rent. However, the property is currently undergoing
renovations, and the completion date is uncertain. The contract between the landlord
and the tenant can be made contingent on the completion of the renovations. The

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contract can state that the tenant will start paying rent only after the renovations are
completed.
c. A contract between a seller and a buyer: Suppose a seller is selling a car that is
currently undergoing repairs. The seller is uncertain about whether the car will be
repaired and ready for sale by the agreed-upon date. The contract between the seller
and the buyer can be made contingent on the car's repair. The contract can state that
the buyer will purchase the car only if it is repaired and ready for sale by the agreed-
upon date.
In each of these examples, the contract is contingent upon an uncertain event that must
occur before the contract can be executed. Until the event occurs, the contract is not
enforceable.
2. Contracts Based on Future Conduct
A contingent contract based on future conduct is a type of contract in which the
performance of one or both parties is dependent on the future conduct of a person or
event. In other words, the contract will only be executed if a particular condition is
met, which is the occurrence of a future event.
Here are a few examples of contingent contracts based on future conduct:
a. Employment Contracts: Employment contracts are often contingent upon the future
conduct of an employee. For instance, an employer may promise to pay a bonus to an
employee if they achieve certain performance targets or complete a project within a
specified time frame. The payment of the bonus is contingent upon the employee's
performance, which is a future conduct that needs to occur.
b. Construction Contracts: A construction contract may include a clause that makes
the payment contingent upon the completion of the construction project by the
contractor within a specified time frame. The payment of the contract amount is
dependent on the future conduct of the contractor, which is the completion of the
construction project.
c. Service Contracts: Service contracts are often contingent upon the future conduct of
the service provider. For example, a contract for IT services may specify that the
service provider will be paid only if they can solve a particular technical problem. In
this case, the payment is contingent upon the future conduct of the service provider,
which is solving the technical problem.
d. Sales Contracts: Sales contracts can also be contingent upon future conduct. For
example, a buyer may agree to purchase a product only if the seller can deliver it
within a specified time frame. The payment is contingent upon the future conduct of
the seller, which is delivering the product on time.
In all of these examples, the contract is contingent upon the occurrence of a future event,
which is the conduct of one or both parties involved. The parties must agree on the
specific conduct or event that will trigger the performance of the contract, and the terms
of the contract must be clear and unambiguous.

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QUASI CONTRACTS
Quasi contract, also known as an implied-in-law contract, is a legal concept used in contract
law to describe a contractual relationship created by law even in the absence of an actual
contract between the parties.
A quasi contract is created by a court to prevent one party from unjustly enriching themselves
at the expense of another party. It is based on the principle of fairness and equity, and is not
based on the parties intentions to form a contract.
The essential elements of a quasi contract include:
1. A benefit conferred on one party by another party.
2. The knowledge and acceptance of the benefit by the party who received it.
3. The unjust retention of the benefit by the party who received it.
In other words, a quasi contract is formed when one party has received a benefit that they did
not intend to receive, but which would be unjust for them to retain without paying for it.
For example, if a person mistakenly pays a debt that they do not owe, the court may create a
quasi contract between the parties, requiring the other party to return the payment. Similarly,
if a person provides emergency services to someone in need, a quasi-contract may be created
to require the other party to compensate them for their services.
In both cases, there was no intention to create a contract between the parties, but the court
recognizes that it would be unfair for one party to keep the benefit without compensating the
other party. Thus, a quasi contract is used to provide an equitable remedy to the injured party.
Circumstances of Quasi Contracts:
The following are different circumstance in which a quasi contract arises:
• Liability for Necessaries
• Payment by Interested Person
• Compensation for Non-Gratuitous Act
• Finder of Goods
• Mistake of Coercion

Liability for Necessaries

One of the circumstances in which a quasi-contract can be created is when one party is liable
for necessaries provided to another party. A quasi-contractual relationship may arise when
one party provides necessaries to another party who is unable to pay for them, such as a
minor or an incapacitated person.
Under this circumstance, the provider of the necessaries can be considered to have conferred
a benefit on the recipient, and the recipient has a duty to pay for them even in the absence of
an actual contract. This principle is based on the legal doctrine of "necessaries" and is
designed to prevent one party from taking advantage of the other in situations where basic
human needs are at stake.
For example, if a person is hospitalized and unable to make medical decisions for themselves,
and someone pays for their medical expenses, a quasi-contract may be created between the

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parties. Similarly, if a parent fails to provide adequate food or shelter for their child, and
another person steps in to provide these necessities, a quasi-contractual relationship may be
created between the parties.
Payment by Interested Person
Under the principle of quasi contract, a person who receives a benefit that they did not intend
to receive, but which would be unjust for them to retain without paying for it, may be
required to compensate the person who provided the benefit. One such circumstance is when
a payment is made by an interested person.
A payment by an interested person occurs when someone pays a debt or obligation owed by
another person, but with their own interest in mind, and not as a gift or charity. In such a
situation, the person who made the payment may be able to recover the amount from the
debtor, under the doctrine of quasi-contract.
Here's an example to illustrate the concept:
Suppose a son takes out a loan from a bank for his business, and his father, who is a
guarantor for the loan, pays off the loan amount with his own money. The father pays off the
loan because he is interested in the success of his son's business and wants to protect his own
investment. In this case, the father is considered an interested person because he paid off the
loan with his own interest in mind.
If the son defaults on the loan, the bank may seek repayment from the father as a guarantor.
However, the father may be able to recover the amount he paid under the principle of quasi
contract. The court may create a quasi contract requiring the son to repay the father for the
loan amount paid by him, as it would be unjust for the son to keep the benefit of the loan
without compensating the father.
In this example, the father's payment of the loan was made with his own interest in mind, and
he did not intend to make a gift or charity to his son. Therefore, the court may require the son
to repay the father for the loan amount paid by him under the principle of quasi contract.
Compensation for Non-Gratuitous Act
A quasi-contractual relationship can arise in situations where one party has performed a non-
gratuitous act, meaning an act that was not intended to be a gift or a voluntary act of
kindness, and the other party has received a benefit as a result. In such situations, the law
implies a contract to compensate the performing party for the benefit conferred upon the
other party.
Here is an example of compensation for non-gratuitous act:
Suppose that a contractor is hired to build a house, but due to unforeseen circumstances, the
contractor is unable to complete the work. Another contractor steps in and completes the
work, and the homeowner is able to move into the house. In this case, the second contractor
has performed a non-gratuitous act by completing the work that the first contractor was
unable to finish.
The second contractor has conferred a benefit upon the homeowner by completing the work,
and the homeowner has received the benefit of a completed house. In this situation, the law

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implies a quasi-contractual relationship, requiring the homeowner to compensate the second

contractor for the work that was performed.
The amount of compensation is usually based on the reasonable value of the services
provided and may be determined by the court. The quasi-contractual relationship is intended
to prevent the unjust enrichment of one party at the expense of the other party.
Finder of Goods
One of the circumstances in which a quasi-contract arises is when a person finds goods
belonging to another person and, as a result, is entitled to compensation for the efforts taken
to preserve or take care of the goods. This is known as a "finder of goods" quasi-contract.
Here's an example of a finder of goods quasi-contract:
Suppose Sadia finds a lost dog on the street. She takes the dog to the vet, where it receives
medical care and is housed for several days. The dog has a tag on its collar with the owner's
name and phone number, and Sadia eventually returns the dog to its rightful owner. However,
the owner refuses to pay for the vet bills or the cost of housing the dog.
In this case, Sadia may be entitled to compensation for the expenses she incurred in taking
care of the dog. Even though there was no contract between Sadia and the dog's owner, a
quasi-contract may arise to compensate Sadia for her efforts. This is because Sadia provided
a benefit to the dog's owner by taking care of the dog and returning it, and it would be unfair
for her to bear the expenses of doing so.
Therefore, the court may create a quasi-contract, requiring the dog's owner to compensate
Sadia for her expenses. This compensation would be based on the reasonable value of the
services Sadia provided, and would be considered an implied contract, even though no actual
contract existed between the parties.
Mistake of Coercion
Quasi contracts can arise in situations where one party is mistaken or coerced into performing
an action or providing a benefit to another party. In the case of a mistake of coercion, a quasi
contract may be used to provide relief to the injured party.
A mistake of coercion occurs when a person is induced to act or refrain from acting due to the
use of force or threats by another party. In this situation, the injured party did not intend to
provide a benefit to the other party, but did so under duress. The court may use the doctrine
of quasi contract to prevent the unjust enrichment of the other party.
Here is an example to illustrate a quasi contract arising from a mistake of coercion:
Suppose that a person, A, is threatened with physical harm by another person, B, if they do
not give B a valuable piece of jewellery that they own. A, fearing for their safety, gives the
jewellery to B. In this case, A did not intend to give the jewellery to B, but was coerced into
doing so.
Under these circumstances, the court may create a quasi contract between A and B. The court
may order B to return the jewellery to A, or to pay A the value of the jewellery, on the basis
of the quasi contract. This is because A did not intend to provide a benefit to B, but did so
under duress, and it would be unfair for B to retain the benefit without compensating A.

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In conclusion, a quasi contract can arise in situations where one party is coerced into
performing an action or providing a benefit to another party. In the case of a mistake of
coercion, the court may use the doctrine of quasi contract to prevent the unjust enrichment of
the other party.

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PERFORMANCE OF CONTRACT
Section 37 of the Contract Act 1872 in Pakistan deals with the performance of contracts. It
states that
"The parties to a contract must either perform, or offer to perform, their respective
promises, unless such performance is dispensed with or excused under the provisions of
this Act, or of any other law."
In simpler terms, this means that both parties to a contract have an obligation to fulfill their
respective promises or obligations under the contract, unless there is a valid reason for non-
performance.
For example, if Party A promises to pay Party B Rs. 10,000 in exchange for goods delivered
by Party B, Party A must pay the Rs. 10,000 to Party B in a timely manner as per the terms of
the contract. Similarly, Party B must deliver the goods as per the agreed-upon terms.
If either party fails to fulfill their obligations, they may be liable for breach of contract and
may be subject to legal action by the other party. However, there are certain circumstances
under which non-performance may be excused, such as in cases of force majeure or
impossibility of performance due to unforeseen circumstances.
It is important for both parties to a contract to fully understand their obligations and to act in
good faith to fulfill their promises. Any deviation from the terms of the contract may lead to
legal disputes and financial losses for both parties.
Performance of A Single Promise:
The concept of "performance of a single promise" refers to the obligation of one party to
fulfill a single promise or obligation under a contract. This concept is explained in Section 38
of the Contract Act 1872 in Pakistan. Here's an explanation of the performance of a single
promise:
Definition of a single promise:
A single promise refers to a contractual obligation that can be fulfilled by a single act
or omission.
Obligation to perform a single promise:
Under Section 38 of the Contract Act 1872 in Pakistan, the promisor (the party
making the promise) is obligated to fulfill their single promise or obligation under the
contract.
Consequences of non-performance:
If the promisor fails to fulfill their obligation, they will be liable for breach of contract
and may be subject to legal action by the promisee (the party to whom the promise
was made).
Example: A common example of a single promise is a contract to sell a specific item
to a buyer for a fixed price. The seller is obligated to transfer ownership of the item to
the buyer and the buyer is obligated to pay the agreed-upon price. If the seller fails to
transfer ownership of the item, they are in breach of contract, and the buyer can take
legal action to enforce the contract.

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Exception:
In some cases, non-performance of a single promise may be excused if it is due to
circumstances beyond the control of the promisor, such as an act of God, war, or other
unforeseen events that make it impossible to fulfill the obligation. This is known as the
doctrine of impossibility of performance.
Remedies For Breach Of A Single Promise:
If the promisor breaches their obligation, the promisee may seek damages, specific
performance, or other remedies as provided for in the contract or under the law.

Performance of Contract:
The rules for performance of contract are outlined in the Contract Act 1872 in Pakistan.
These rules govern how the parties to a contract must perform their respective promises under
the contract. Here's an explanation of the rules for performance of contract:
1. Time and place of performance:
The performance of a contract must be done at the time and place specified in the
contract or as otherwise agreed upon by the parties. For example, if a contract for the
sale of goods specifies that the goods will be delivered on a certain date, the seller
must deliver the goods on that date at the agreed-upon location.
2. Performance in accordance with terms of the contract:
The performance of a contract must be done in accordance with the terms of the
contract. For example, if a contract requires the seller to deliver goods of a certain
quality, the seller must deliver goods that meet that quality standard.
3. Mutual obligations:
Both parties to a contract have mutual obligations to perform their respective
promises under the contract. For example, if a buyer agrees to pay for goods, the
seller must deliver the goods, and the buyer must pay the agreed-upon price.
4. No undue delay:
The performance of a contract must not be unduly delayed. For example, if a contract
requires a seller to deliver goods within a certain time frame, the seller cannot unduly
delay the delivery.
5. No improper performance:
The performance of a contract must not be done in an improper or illegal manner. For
example, if a contract requires a seller to deliver goods, the seller cannot deliver
goods that are stolen or obtained through fraud.
6. Consequences of non-performance:
If a party fails to perform their obligations under the contract, they may be liable for
breach of contract and may be subject to legal action by the other party. The non-
breaching party may seek remedies such as damages or specific performance.
7. Excuse for non-performance:
Non-performance may be excused in certain circumstances, such as in cases of force
majeure, impossibility of performance due to unforeseen circumstances, or where
performance is prevented by the other party.

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The Contract & Sales of Goods Act

In conclusion, understanding the rules for performance of contract is important for both
parties to a contract to ensure that their contractual obligations are fulfilled. By adhering to
these rules, parties can avoid legal disputes and ensure that the contract is enforced in a fair
and equitable manner.
How A Contract Can be Performed:
A contract can be performed by the parties to the contract or their authorized agents. Here's
an explanation of who can perform a contract with headings and examples:
1. Parties to the contract:
The parties to a contract are the individuals or entities who have entered into the
contract and are obligated to perform their respective promises under the contract. For
example, in a contract for the sale of goods, the seller and buyer are the parties to the
contract, and they are both obligated to perform their respective promises, such as
delivering the goods and paying the agreed-upon price.
2. Authorized agents:
Parties to a contract may appoint authorized agents to perform their respective
promises under the contract. The authorized agent must have the legal authority to act
on behalf of the party they represent. For example, a company may appoint an
employee to sign a contract on its behalf and perform the obligations under the
contract.
Example: A common example of contract performance is a contract for the sale of
goods. In such a contract, the seller is obligated to deliver the goods, and the buyer is
obligated to pay the agreed-upon price. The seller can perform their promise by
delivering the goods, and the buyer can perform their promise by paying the agreed-
upon price. Alternatively, the parties may appoint authorized agents to perform their
respective promises under the contract.
3. Consequences of improper performance:
If a party to a contract fails to perform their promise properly, they may be liable for
breach of contract and may be subject to legal action by the other party. The non-
breaching party may seek remedies such as damages or specific performance.
Performance of Joint Promise
Performance of Joint Promise refers to the fulfilment of obligations by multiple parties who
have jointly promised to perform a particular act or series of acts. The rules governing the
performance of joint promises are provided under Section 43 of the Contract Act, 1872 in
Pakistan.
The following are the key elements to consider when discussing the performance of joint
promises:
1. Joint Promise:
A joint promise is a promise made by two or more persons to do the same act. The
performance of the joint promise must be completed jointly, unless the promise is
otherwise specified.
Example: A and B agree to jointly paint a house. Here, A and B have made a joint
promise to paint the house.
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2. Joint Obligation:
When two or more parties make a joint promise, they are under a joint obligation to
fulfill the promise together.
Example: A and B have made a joint promise to paint a house. They are both under a
joint obligation to complete the painting together.
3. Share of the Promise:
Each party to a joint promise has a share in the obligation to fulfill the promise. The
share of each party may be equal or different, as agreed upon between them.
Example: A and B have made a joint promise to paint a house. They have agreed that
A will paint the exterior of the house, and B will paint the interior of the house. Here,
A and B have different shares of the promise.
4. Performance of Promise:
In the case of a joint promise, the promise must be fulfilled jointly, unless the contract
specifies otherwise. The performance of the promise must be done in accordance with
the terms of the contract.
Example: A and B have made a joint promise to paint a house. They must paint the
house together, unless they have agreed otherwise.
5. Liability for Breach of Promise:
If any one of the parties to a joint promise fails to perform their obligation, all the
parties to the promise will be liable for the breach of promise.
Example: A and B have made a joint promise to paint a house. If A fails to fulfill their
obligation, B will also be liable for the breach of promise.

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RECIPROCAL PROMISE
Reciprocal Promise refers to a contract where two or more parties promise to do something in
exchange for the promise of something else. The performance of reciprocal promises is
governed by Section 51 to 54 of the Contract Act, 1872 in Pakistan.
The following are the key elements to consider when discussing reciprocal promises:
1. Reciprocal Promises:
Reciprocal promises are promises that form the basis of a contract where each party
agrees to do something in exchange for the promise of something else.
Example: A promises to deliver a car to B and B promises to pay Rs. 1,000,000 in
exchange for the car.
2. Mutual Obligation:
In the case of reciprocal promises, both parties are under a mutual obligation to fulfill
their respective promises.
Example: A is obligated to deliver the car to B, and B is obligated to pay Rs.
1,000,000 to A.
3. Simultaneous Performance:
Reciprocal promises must be performed simultaneously, unless the contract specifies
otherwise.
Example: A must deliver the car to B at the same time that B pays Rs. 1,000,000 to A.
4. Condition Precedent:
In some cases, the performance of one promise may be a condition precedent to the
performance of the other promise.
Example: A promises to deliver a car to B after B has paid Rs. 1,000,000 in advance.
5. Breach of Contract:
If one party fails to fulfill their promise, the other party may be discharged from their
obligation to perform their promise.
Example: If A fails to deliver the car to B, B may be discharged from their obligation
to pay Rs. 1,000,000 to A.
In conclusion, reciprocal promises are a common feature of many contracts, and the rules
governing their performance are important for ensuring that the parties fulfill their respective
obligations. Both parties are under a mutual obligation to fulfill their respective promises
simultaneously, unless the contract specifies otherwise. The performance of one promise may
be a condition precedent to the performance of the other promise, and if one party fails to
fulfill their promise, the other party may be discharged from their obligation to perform their
promise.

TIME AND PLACE OF

PERFORMANCE OF A CONTRACT
Time and Place of Performance refer to the specific time and location at which a party is
obligated to fulfill their contractual obligations. The rules governing the time and place of

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performance of a contract are provided under Section 46 to 50 of the Contract Act, 1872 in
Pakistan.
The following are the key elements to consider when discussing time and place of
performance:
1. Time of Performance:
The time of performance refers to the specific date or period of time during which a
party is obligated to fulfill their contractual obligations.
Example: A has agreed to deliver goods to B within one month from the date of the
contract.
2. Place of Performance:
The place of performance refers to the location where the contractual obligations must
be fulfilled.
Example: A has agreed to deliver goods to B at B's warehouse.
3. Time and Place as a Condition:
In some contracts, the time and place of performance may be considered a condition
of the contract, meaning that failure to perform at the specified time or place may
constitute a breach of contract.
Example: A has agreed to perform a concert at a specific venue on a specific date. If
A fails to perform at the specified time and place, it may constitute a breach of
contract.
4. Effect of Delay in Performance:
If a party fails to perform their obligations within the specified time or at the specified
place, the other party may have the right to terminate the contract or claim damages
for any losses incurred due to the delay.
Example: A has agreed to deliver goods to B within one month from the date of the
contract. If A fails to deliver the goods within the specified time, B may have the right
to terminate the contract or claim damages for any losses incurred due to the delay.
5. Effect of Change in Circumstances:
If there is a change in circumstances that affects the time or place of performance, the
parties may need to renegotiate the terms of the contract.
Example: A has agreed to deliver goods to B at B's warehouse, but due to unforeseen
circumstances, B's warehouse is no longer available. The parties may need to
renegotiate the place of performance.
In conclusion, the time and place of performance are important aspects of a contract, and the
rules governing them are important for ensuring that both parties fulfill their contractual
obligations. The time and place of performance may be considered a condition of the
contract, and failure to perform within the specified time or place may constitute a breach of
contract. If there is a change in circumstances that affects the time or place of performance,
the parties may need to renegotiate the terms of the contract to ensure that both parties are
able to fulfill their obligations.

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TIME IS OF THE ESSENCE OF CONTRACT
The phrase "Time is of the essence of contract" means that timely performance is a
fundamental and essential term of the contract. Failure to meet the specified deadline or
perform within the agreed-upon timeframe will result in a breach of contract. The following
headings explain this concept in detail:
Meaning of "Time is of the Essence":
When the phrase "time is of the essence" is included in a contract, it means that timely
performance is an essential term of the contract, and any delay in performance may constitute
a breach of contract. This means that if a party fails to perform on or before the specified
deadline, the other party may be entitled to terminate the contract or seek damages for any
losses incurred due to the delay.
Inclusion of "Time is of the Essence" Clause:
To ensure that timely performance is an essential term of the contract, parties can
include a specific clause stating that "time is of the essence." This clause can be
included in any type of contract where timely performance is critical, such as
construction contracts, delivery contracts, and service contracts.
Example: A construction contract between a builder and a client may include a clause
stating that "time is of the essence" for completion of the project by a specific
deadline.
Consequences of Breach of Contract:
If a party fails to perform on or before the specified deadline, the other party may be
entitled to terminate the contract or seek damages for any losses incurred due to the
delay. In some cases, the party may also be able to seek specific performance, which
requires the breaching party to fulfill their contractual obligations as specified.
Example: A contract for the sale of goods may include a specific delivery date. If the
seller fails to deliver the goods by the specified date, the buyer may be entitled to
terminate the contract and seek damages for any losses incurred due to the delay.
Exceptions to "Time is of the Essence":
In some cases, a delay in performance may be excused if the delay was caused by
circumstances beyond the control of the performing party, such as natural disasters,
strikes, or other unforeseen events. However, the contract must explicitly state that
such events will excuse delay.
Example: A delivery contract may include a clause stating that the seller will not be
held responsible for delays caused by unforeseen circumstances, such as natural
disasters or strikes.
Importance of Clear Contract Language:
To ensure that all parties understand the importance of timely performance, it is
important to use clear and specific language in the contract. This includes specifying
the exact deadline or timeframe for performance, as well as any consequences for
failure to perform on time.

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The Contract & Sales of Goods Act

Example: A contract for the provision of services may include a clause stating that the
service provider must complete the work within a specific timeframe, and failure to
do so will result in termination of the contract.
In conclusion, "time is of the essence" is an important concept in contract law that ensures
timely performance of contractual obligations. Parties should include specific clauses in their
contracts to ensure that timely performance is an essential term of the contract and that any
delay will result in a breach. Clear contract language is essential to ensure that all parties
understand their obligations and the consequences of any failure to perform on time.

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APPROPRIATION OF PAYMENT
According to Sections 62 To 67 Appropriation of payment refers to the allocation of a
payment made by one party to a contract towards a particular debt or obligation under that
contract. The following headings explain the concept of appropriation of payment in detail:
Meaning of Appropriation of Payment:
Appropriation of payment refers to the allocation of a payment made by one party to a
contract towards a particular debt or obligation under that contract. The law
recognizes the right of the paying party to allocate the payment to a specific debt,
provided that the payment is sufficient to cover that debt.
Rules for Appropriation of Payment:
The following are the basic rules for appropriation of payment:

a. Payment made by the debtor should be applied in the order of priority of the debts.
b. If the debtor does not indicate how the payment should be appropriated, the creditor
can appropriate the payment as per his choice.
c. If the creditor refuses to appropriate the payment, the court will determine the
appropriation.
Example: A borrower owes money to a lender under two loans, one with a higher
interest rate and one with a lower interest rate. The borrower makes a payment of
$1,000 without indicating which loan the payment should be applied to. The lender
can appropriate the payment to either loan at his discretion.
1. Payment of Interest:
When making a payment, the paying party should ensure that the payment is
sufficient to cover any outstanding interest on the debt. If the payment is not sufficient
to cover both the principal and interest, the payment will be allocated to the
outstanding interest first.
Example: A borrower owes $1,000 in principal and $100 in interest on a loan. The
borrower makes a payment of $900. In this case, the payment will be allocated
towards the interest first, leaving a balance of $100 due on the principal.
2. Payment of Multiple Debts:
When a debtor owes multiple debts to a creditor, the creditor should apply the
payment to the debt that is in default or to the debt with the highest interest rate,
unless the debtor has specified otherwise.
Example: A debtor owes a creditor $5,000 on a loan with a 10% interest rate and
$10,000 on a loan with a 5% interest rate. The debtor makes a payment of $5,000
without specifying which loan the payment should be applied to. The creditor should
apply the payment to the loan with the higher interest rate, leaving a balance of
$5,000 due on the loan with the lower interest rate.
3. Payment of a Debt in Instalments:
If a debtor is required to pay a debt in instalments, the creditor can appropriate each
payment to the outstanding debt or interest, as long as the payment is sufficient to
cover the outstanding balance.

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Example: A debtor owes $10,000 on a loan and is required to make monthly

payments of $1,000. The creditor can appropriate each payment towards the
outstanding debt or interest, as long as the payment is sufficient to cover the
outstanding balance.
In conclusion, appropriation of payment is a legal concept that allows the paying party to
allocate a payment to a specific debt or obligation under a contract. The rules for
appropriation of payment include the order of priority of the debts, payment of interest,
payment of multiple debts, and payment of a debt in instalments. Proper allocation of
payment ensures that debts are paid off in a timely and efficient manner, and helps to avoid
disputes between parties.

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CONTRACTS NEED NOT TO BE PERFORMED

While most contracts are legally binding and must be performed by the parties involved,
there are certain types of contracts that need not be performed. These include contracts that
are void, voidable, or discharged. The following headings explain each type of contract in
detail:
1. Void Contracts:
A void contract is one that is not legally enforceable and has no legal effect. Such
contracts are considered to be invalid from the outset and cannot be performed. The
following are some examples of void contracts:
a) Contracts that are entered into by a person who lacks the legal capacity to
contract, such as minors or individuals who are mentally incapacitated.
b) Contracts that are illegal or against public policy, such as contracts for the sale
of illegal drugs or contracts that require a person to commit a crime.
c) Contracts that are entered into under duress or undue influence, where one
party is coerced into entering into the contract against their will.
2. Voidable Contracts:
A voidable contract is one that is initially binding but can be voided or cancelled by
one or both of the parties involved. The following are some examples of voidable
contracts:
a) Contracts that are entered into by a person who was induced to do so by fraud
or misrepresentation.
b) Contracts that are entered into by a person who was under duress or undue
influence at the time of contracting.
c) Contracts that are entered into by a person who lacked the mental capacity to
fully understand the nature and consequences of the contract.

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3. Discharged Contracts:
A discharged contract is one that is no longer enforceable because it has been
terminated or completed. The following are some examples of discharged contracts:
a) Contracts that are terminated by mutual agreement between the parties
involved, such as when both parties agree to cancel a contract.
b) Contracts that are terminated by operation of law, such as when a contract is
declared illegal or void by a court.
c) Contracts that are completed or fully performed, such as when a contractor
finishes a construction project or when a borrower pays off a loan.
In conclusion, there are certain types of contracts that need not be performed, including
void contracts, voidable contracts, and discharged contracts. Void contracts are invalid
from the outset, while voidable contracts can be cancelled by one or both of the parties
involved. Discharged contracts are no longer enforceable because they have been
terminated or completed. Understanding these types of contracts is important in order to
avoid legal disputes and to ensure that contracts are properly executed and fulfilled.



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DISCHARGE OF CONTRACT
Discharge of contract refers to the termination of a contractual obligation between parties.
When a contract is discharged, the parties are released from their contractual duties and
obligations. This can occur in several ways:
1. Discharge By Performance
2. Discharge By Agreement
3. Discharge By Breach of Contract
4. Discharge By Lapse of Time
5. Discharge By Operation of Law
6. Discharge By Subsequent Impossibility

1) Discharge By Performance
Discharge by performance is the most common way to end a contract. When both
parties fulfill their obligations under the contract, the contract is said to have been
discharged by performance. This section will discuss the requirements for
performance and what constitutes complete performance.
Requirements for Performance:
For performance to discharge a contract, it must be complete and exact, and the
performance must be made at the time and place required by the contract. The
party performing the obligation must also do so without any defects or
deficiencies.
Types of Performance:
There are two types of performance:
a. Actual performance:
This is when the party performs the exact obligations as required by the
contract. For example, if a person agrees to sell a car to another person,
actual performance would occur when the seller delivers the car to the
buyer.
b. Substantial performance:
This occurs when a party performs most of its obligations under the
contract, but there may be minor defects or omissions. For example, if a
person agrees to paint a house, but fails to complete a few small areas, it
may still be considered substantial performance.
Effect of Performance: When a contract is discharged by performance, both
parties are released from their obligations under the contract. The party who
has performed their obligations is entitled to payment or other consideration as
agreed upon in the contract.
Examples: Here are some examples of discharge of contract by performance:
i. Sale of goods: A seller agrees to sell a computer to a buyer for $1,000.
The seller delivers the computer to the buyer, and the buyer pays
$1,000. The contract is discharged by performance.

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ii. Employment contract: An employee agrees to work for an employer

for one year in exchange for a salary of $50,000. The employee works
for one year and receives the salary as agreed. The contract is
discharged by performance.
iii. Construction contract: A contractor agrees to build a house for a
homeowner for $300,000. The contractor completes the construction of
the house according to the plans and specifications, and the
homeowner pays $300,000. The contract is discharged by
performance.
In short we can say that discharge of contract by performance occurs when both
parties fulfill their obligations under the contract. The performance must be
complete and exact, and made at the time and place required by the contract. The
effect of performance is that both parties are released from their obligations under
the contract.
2) Discharge By Agreement
Discharge of contract by agreement is one of the ways in which a contract can be
discharged. It occurs when the parties to a contract agree to cancel or modify the
terms of the contract. In this answer, I will explain the discharge of contract by
agreement in detail, including the types of agreements that can discharge a
contract and some examples.
Types of Agreements that Can Discharge a Contract:
a. Rescission Agreement:
A rescission agreement occurs when the parties agree to cancel the contract
altogether. This means that the parties will be released from their obligations
under the contract and any consideration paid will be returned. A rescission
agreement must be supported by consideration, which could be a promise not to
sue or a payment of money.
Example: A and B enter into a contract for the sale of a car. Before the delivery of
the car, A and B agree to cancel the contract, and A returns the consideration paid
by B.
b. Novation Agreement:
A novation agreement occurs when the parties agree to substitute a new contract
for the original contract. This means that the obligations under the original
contract are discharged, and a new contract is created with new terms and parties.
A novation agreement requires the consent of all parties involved, and
consideration is not necessary.
Example: A and B enter into a contract for the sale of goods. A later agrees to
substitute C as the new buyer, and B agrees to release A from any obligations
under the original contract.
c. Accord and Satisfaction Agreement:

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An accord and satisfaction agreement occurs when the parties agree to modify the
terms of the original contract. This means that the parties agree to accept a
different performance than what was originally promised in exchange for
discharging the obligations under the original contract. An accord and satisfaction
agreement requires the consent of all parties involved, and consideration is
necessary.
Example: A and B enter into a contract for the delivery of 100 widgets. Before the
delivery, A and B agree that A will deliver 80 widgets instead, and B agrees to
accept this as full performance and discharge A from any obligations under the
original contract.
d. Waiver Agreement:
A waiver agreement occurs when one party agrees to release the other party from
their obligations under the contract. This means that the party who waives their
rights cannot later enforce them. A waiver agreement requires the consent of the
party waiving their rights, and consideration is not necessary.
Example: A and B enter into a contract for the sale of a house. A later agrees to
waive its right to enforce a specific provision in the contract, and B agrees to be
released from its obligations under that provision.
In conclusion, discharge of contract by agreement is a common way in which a
contract can be discharged. The parties can agree to cancel, modify, or substitute
the terms of the original contract through a rescission agreement, novation
agreement, accord and satisfaction agreement, or waiver agreement, depending on
the circumstances of the case.
3) Discharge By Breach of Contract
Discharge of a contract by breach of contract occurs when one of the parties to the
contract fails to perform their obligations as per the terms of the contract. This can
happen in various ways, including non-performance, delayed performance, or
defective performance. In such cases, the other party may be entitled to certain
remedies, including damages or specific performance. In this answer, we will
discuss the discharge of a contract by breach of contract in detail, including its
types and examples.
Types of Breach of Contract:
i. Actual Breach:
An actual breach of contract occurs when one party fails to perform their
obligations under the contract at the time of performance. For instance, if a
seller fails to deliver the goods on the agreed-upon date, it would be
considered an actual breach of contract.
ii. Anticipatory Breach:
An anticipatory breach of contract occurs when one party communicates to
the other party that they will not be able to perform their obligations under
the contract. For instance, if a seller notifies the buyer that they will not be

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able to deliver the goods as agreed, it would be considered an anticipatory

breach of contract.
iii. Fundamental Breach:
A fundamental breach of contract occurs when one party fails to perform a
significant obligation under the contract. This breach may be so severe that
it allows the innocent party to terminate the contract and claim damages.
For instance, if a seller delivers goods that are significantly different from
what was agreed upon in the contract, it would be considered a
fundamental breach of contract.
Remedies for Breach of Contract:
a. Damages:
Damages are monetary compensation that the non-breaching party is
entitled to receive from the breaching party to compensate for any
losses suffered due to the breach of contract. The damages awarded
may be actual, consequential, or punitive.
b. Specific Performance:
Specific performance is an equitable remedy that requires the
breaching party to fulfill their obligations under the contract. This
remedy is often used when damages are not an adequate remedy for the
breach.
Examples of Breach of Contract:
• Non-performance: If a contractor fails to complete a construction project
by the agreed-upon date, it would be considered a breach of contract.
• Delayed performance: If a supplier delivers goods after the agreed-upon
delivery date, it would be considered a breach of contract.
• Defective performance: If a manufacturer delivers goods that do not meet
the specifications agreed upon in the contract, it would be considered a
breach of contract.
• Failure to pay: If a buyer fails to make payment for goods or services as
per the terms of the contract, it would be considered a breach of contract.
In conclusion, a breach of contract occurs when one party fails to perform their
obligations under the contract. The type of breach will determine the remedies
available to the non-breaching party. It is important to note that parties may
include specific provisions in their contract regarding the consequences of a
breach of contract.
4) Discharge By Lapse of Time
Discharge of contract by lapse of time is one of the methods by which a contract
can come to an end. This method involves the expiration of the time period
specified in the contract or the passage of a reasonable period of time in cases
where no time period is specified. This method is also known as the discharge of a
contract by operation of law or by limitation. In this answer, we will discuss the
discharge of a contract by lapse of time in detail, including its definition,
examples, and its implications for the parties involved. Discharge of a contract by

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lapse of time occurs when the time period specified in the contract for
performance has expired or when a reasonable period of time has passed without
performance. This method of discharge applies when the contract is of a time-
bound nature, and the contract specifies a specific time for performance or
completion.
Examples
Here are some examples of discharge of a contract by lapse of time:
• A contract for the sale of a house specifies that the buyer has to pay
the entire purchase price within six months of signing the contract.
If the buyer fails to make the payment within the specified time,
the contract will be discharged by lapse of time, and the seller will
be free to sell the house to another buyer.
• An employment contract specifies that an employee must work for
a specific period of time, such as a year or two years. If the
employee leaves the job before the end of the specified period, the
contract will be discharged by lapse of time.
• A contract for the delivery of goods specifies that the goods must
be delivered within a reasonable time. If the seller fails to deliver
the goods within a reasonable time, the buyer may consider the
contract discharged by lapse of time and may be entitled to seek
compensation.
Implications
Discharge of a contract by lapse of time has several implications for the
parties involved:
• Once the time period specified in the contract has expired, the
parties are no longer bound by the terms of the contract.
• If a party fails to perform within a reasonable time, the other
party may consider the contract discharged and may be entitled
to seek compensation.
• The parties may agree to extend the time period specified in the
contract, or they may enter into a new contract altogether.
• The discharge of a contract by lapse of time may have legal
consequences, and it is advisable to seek legal advice if there is
any uncertainty about the implications of the lapse of time.
We can say discharge of contract by lapse of time is a common method by which
contracts come to an end. It is important for the parties involved to understand the
implications of this method of discharge and to seek legal advice if there is any
uncertainty about the implications of the lapse of time.
5) Discharge By Operation of Law
Discharge of a contract by operation of law is one of the ways in which a contract
can be terminated. This occurs when a change in the law or a court decision makes

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it illegal or impossible for the parties to perform the contract. Below are the
examples that explain discharge of contract by operation of law in detail:
Change in Law When a change in the law occurs, the performance of a contract
may become illegal or impossible, leading to the discharge of the contract by
operation of law. Examples of situations where a change in the law may lead to
discharge of a contract include:
▪ A new law or regulation makes it illegal to perform the contract. For
instance, if a contract involves the sale of a product that is later banned by
law, the contract would be discharged.
▪ A change in tax laws may make the performance of a contract financially
unfeasible for one or both parties.
▪ Court Order, A court order can also lead to the discharge of a contract by
operation of law. This occurs when the court makes a decision that renders
the contract impossible or impractical to perform. Examples of situations
where a court order may lead to discharge of a contract include:
o A court order that declares the contract null and void because it is
illegal, unconscionable, or against public policy.
o A court order that requires one or both parties to stop performing
their obligations under the contract due to unforeseen
circumstances, such as a natural disaster or the outbreak of a war.
▪ Impossibility of Performance, A contract can also be discharged by
operation of law when it becomes impossible to perform due to an
unforeseen event. This is known as the doctrine of impossibility of
performance. Examples of situations where impossibility of performance
may lead to discharge of a contract include:
o Destruction of the subject matter of the contract, such as a house or
a car that is destroyed by fire or flood.
o Death or incapacity of one of the parties, where the performance of
the contract was dependent on the individual's unique skills or
abilities.
In conclusion, discharge of contract by operation of law occurs when a change in
law or court decision makes it illegal or impossible for the parties to perform the
contract, or when an unforeseen event renders performance of the contract
impossible. It is important to note that the method of discharge will depend on the
circumstances of the case and the terms of the contract.
6) Discharge By Subsequent Impossibility
Discharge of contract by subsequent impossibility, also known as frustration,
occurs when an unforeseen event occurs that makes it impossible or impracticable
for one or both parties to perform their obligations under the contract. This
concept is recognized under the Contract Act, 1872 in Pakistan, and it allows for
the discharge of a contract in certain circumstances where it would be unjust or
impractical to enforce the original terms of the agreement. Here we will explain
the concept of discharge of contract by subsequent impossibility in detail, with
examples.

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Subsequent impossibility occurs when an event occurs that makes it impossible

for one or both parties to perform their obligations under the contract. This event
must be unforeseen and beyond the control of the parties at the time the contract
was formed. The event must also not be due to the fault or negligence of either
party. The effect of subsequent impossibility is to discharge the contract, releasing
both parties from their obligations.
Types of Subsequent Impossibility
There are two types of subsequent impossibility:
a. Physical impossibility: This occurs when the subject matter of the contract is
destroyed or becomes unavailable. For example, a contract to sell a specific piece
of land would be discharged if the land is destroyed by a natural disaster such as
an earthquake.
b. Legal impossibility: This occurs when the law changes or a government action
makes it illegal to perform the contract. For example, a contract to sell goods to a
country that is subject to economic sanctions would be discharged if the sanctions
are imposed after the contract was formed.
Tests for Subsequent Impossibility
There are two tests that must be satisfied for subsequent impossibility to discharge
a contract:
▪ The event must be beyond the control of the parties: The event that
causes the impossibility must be beyond the control of the parties.
This means that it must not be due to the fault or negligence of
either party.
▪ The event must make performance impossible or impracticable:
The event must make it impossible or impracticable for one or both
parties to perform their obligations under the contract. The
impossibility must be absolute and not merely difficult or
expensive.
Effects of Subsequent Impossibility
When a contract is discharged by subsequent impossibility, both parties are
released from their obligations. This means that neither party is liable for any
further performance under the contract, and any obligations that have already been
performed are considered to be discharged.
Examples of Subsequent Impossibility
Some examples of subsequent impossibility include:
▪ A contract to build a house is frustrated when the land on which the
house was to be built is destroyed by a natural disaster.
▪ A contract to perform a concert is frustrated when the singer
becomes ill and is unable to perform.

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▪ A contract to sell goods to a country is frustrated when the country

is subject to economic sanctions, and it becomes illegal to export
the goods to that country.
In all of these examples, the event that caused the impossibility was beyond the
control of the parties, and it made performance impossible or impracticable. As a
result, the contracts would be discharged by subsequent impossibility.

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BREACH OF CONTRACT
Breach of contract means to a situation where one party to a contract fails to fulfill their
obligations under the contract. A breach of contract occurs when there is a violation of any of
the terms or conditions of the contract by one of the parties involved. This can include a
failure to perform the agreed-upon services, a failure to make payments as agreed, or a failure
to deliver goods or services as specified in the contract. When a breach of contract occurs, the
non-breaching party may seek legal remedies, such as suing for damages or seeking specific
performance of the contract. Breach of contract is a serious matter that can result in financial
and reputational harm to the parties involved, and it is important for all parties to understand
their rights and obligations under any contract they enter into.
Remedies Available for Breach of Contract:
When a party breaches a contract, the other party has several remedies available to them to
seek compensation or enforce the contract. The following are the common remedies available
to the aggrieved party against the guilty party:
1. Suit For Damages
2. Suit For Rescission
3. Suit upon Quantum Meruit
4. Suit For Specific Performance
5. Suit For Injunction

1) Suit For Damages:

When a party breaches a contract, one of the most common remedies available to the
aggrieved party is a suit for damages. This remedy aims to compensate the aggrieved
party for the losses suffered as a result of the breach of contract. The following are the
headings to discuss the suit for damages as a remedy against breach of contract in
detail:
What are Damages?
Damages are a monetary award given to the aggrieved party to compensate them for
the losses they have suffered as a result of the breach of contract. The purpose of
damages is to put the aggrieved party in the same position they would have been in if
the contract had been performed as agreed.
Types of Damages :
According to Section 73 , There are several types of damages available to the
aggrieved party, including:
i. Compensatory Damages:
Compensatory damages are designed to compensate the aggrieved party
for the actual losses suffered as a result of the breach of contract.
ii. Consequential Damages:
Consequential damages are damages that arise from the breach but are not
a direct result of the breach. These damages are often referred to as special
or indirect damages.

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iii. Liquidated Damages

Liquidated damages are a pre-determined amount of damages agreed upon
by the parties in the contract. These damages are typically used in
situations where it is difficult to calculate the actual damages that would be
suffered in the event of a breach.
iv. Nominal Damages
Nominal damages are a small amount of damages awarded when the
aggrieved party has suffered a breach of contract but has not suffered any
actual losses.
➢ Calculation of Damages
The calculation of damages will depend on the specific circumstances of the
breach and the nature of the contract. Typically, damages are calculated based
on the actual losses suffered by the aggrieved party as a result of the breach of
contract. This can include costs incurred as a result of the breach, lost profits,
and other related expenses.
➢ Mitigation of Damages:
The aggrieved party has a duty to mitigate their losses as much as possible
after a breach of contract. This means that they should take reasonable steps to
minimize their losses and not allow them to escalate unnecessarily.
➢ Limitations on Damages:
There are certain limitations on the amount of damages that can be awarded in
a breach of contract case. These limitations may be specified in the contract
itself or may be imposed by law.
Examples :
• Sale of Goods:
In a contract for the sale of goods, if the seller fails to deliver the goods as agreed,
the buyer can file a suit for damages. The damages may include the cost of
purchasing the goods from another seller, as well as any additional expenses
incurred as a result of the breach.
• Employment Contract:
In an employment contract, if the employer breaches the contract by terminating
the employee without cause, the employee can file a suit for damages. The
damages may include lost wages and benefits that the employee would have
received if the contract had been performed as agreed.
• Construction Contract:
In a construction contract, if the contractor breaches the contract by failing to
complete the work as agreed, the owner can file a suit for damages. The damages
may include the cost of hiring a new contractor to complete the work, as well as
any additional expenses incurred as a result of the breach.

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A suit for damages is a common remedy available to the aggrieved party in the event
of a breach of contract. The aim of damages is to compensate the aggrieved party for
the losses suffered as a result of the breach. The specific type and amount of damages
awarded will depend on the circumstances of the breach and the nature of the
contract. It is important for parties to understand their rights and obligations under a
contract and seek legal advice if they believe a breach has occurred.
2) Suit For Rescission:
A suit for rescission is a legal remedy available to a party who has been injured by a
breach of contract. Rescission allows the injured party to cancel the contract and be
released from their obligations under it. This remedy is typically used in situations
where one party has been induced to enter into the contract through fraud,
misrepresentation, or duress.
Examples:
• If a party enters into a contract to purchase a car but later discovers that the car
has been damaged in a way that was not disclosed, they may be able to seek
rescission of the contract. This would allow them to cancel the contract and
recover any payments made to the seller.
• Another example of when rescission may be appropriate is when a party is
forced to enter into a contract under duress. For instance, if a person signs a
contract to sell their property because they were threatened with physical
harm, they may be able to seek rescission of the contract.
To bring a suit for rescission, the injured party must generally prove that the other
party's actions or omissions were a material factor in inducing them to enter into the
contract. They must also typically show that they would not have entered into the
contract had they known the true facts.
In some cases, the injured party may also be able to seek damages in addition to
rescission. For instance, if they can show that they suffered financial losses as a result
of the other party's actions, they may be able to recover those losses.
Overall, a suit for rescission is an important legal remedy that allows injured parties to
cancel contracts and be released from their obligations. It can be a powerful tool for
protecting the rights of parties who have been induced to enter into contracts through
fraud, misrepresentation, or duress.
3) Suit upon Quantum Meruit:
A suit upon quantum meruit is a legal remedy that allows a party who has provided
goods or services under a contract to recover the reasonable value of those goods or
services, even if there was no express agreement for payment. This remedy is
typically used in situations where there was a contract, but for some reason, the
contract was not performed or completed, and the aggrieved party provided goods or
services that were necessary for the completion of the contract.
For example, if a construction company is contracted to build a house, but the contract
is terminated before the project is completed, the construction company may be
entitled to sue for the reasonable value of the work they have already completed under

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the contract. The construction company could sue upon quantum meruit to recover the
value of their labour, materials, and other expenses incurred up to the point of
termination of the contract.
Another example could be a scenario where a designer is hired to create a logo for a
company, but the company cancels the contract before the logo is completed. The
designer could sue upon quantum meruit to recover the value of the work they have
already done on the logo.
The remedy of quantum meruit is not limited to any particular type of contract and
can be used in a variety of situations where goods or services are provided under a
contract. It is important to note that the amount recoverable under a suit upon
quantum meruit is typically limited to the reasonable value of the goods or services
provided, and not the full contract price.
4) Suit For Specific Performance:
Suit for specific performance is a legal remedy available to an aggrieved party in the
event of a breach of contract. This remedy requires the guilty party to fulfill their
obligations under the contract as agreed. In other words, the court orders the guilty
party to perform the contract according to its terms. Specific performance is an
equitable remedy that is only granted in limited circumstances where damages are an
inadequate remedy.
Examples of Suit for Specific Performance:
• Real Estate Contract: Specific performance is commonly sought in real
estate contracts. For instance, if a buyer enters into a contract to purchase a
specific property, and the seller breaches the contract by selling the property to
someone else, the buyer can file a suit for specific performance seeking to
force the seller to transfer the property to the buyer.
• Employment Contracts: Specific performance can also be sought in
employment contracts. For example, if an employee has a contract with their
employer that requires them to work for a specified period, and the employer
terminates the contract without cause, the employee can file a suit for specific
performance to force the employer to honour the contract and continue
employing them for the agreed-upon period.
• Intellectual Property Contracts: Specific performance can also be sought in
intellectual property contracts, such as contracts related to patents or
trademarks. For instance, if a party breaches a contract related to the licensing
of a patent, the injured party can file a suit for specific performance to force
the breaching party to license the patent as agreed.
• Sale of Goods Contracts: Specific performance can also be sought in
contracts for the sale of goods. For example, if a seller breaches a contract to
deliver goods, the buyer can file a suit for specific performance to force the
seller to deliver the goods as agreed.
We can say that suit for specific performance is an important legal remedy available
to an aggrieved party in the event of a breach of contract. It is a powerful tool that can
be used to force a party to fulfill their contractual obligations as agreed. However, this

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remedy is only available in limited circumstances, and the court will consider several
factors before granting specific performance, including whether the contract is
capable of being specifically performed, whether damages would be an adequate
remedy, and whether specific performance would cause undue hardship or harm to the
breaching party.
5) Suit For Injunction:
A suit for injunction is a remedy available to the aggrieved party in cases of breach of
contract. It is a court order that restrains the guilty party from continuing the breach of
contract or taking any action that would result in the breach of the contract. This
remedy is often used when the breach of contract is ongoing and causing irreparable
harm to the aggrieved party.
Examples of Suit for Injunction in Breach of Contract Cases:
• Non-Compete Agreements: A non-compete agreement is a contract between
an employer and employee that prohibits the employee from working for a
competitor for a certain period after leaving the employer. If the employee
breaches the non-compete agreement by joining a competitor, the employer
can file a suit for injunction to prevent the employee from working for the
competitor.
• Intellectual Property Disputes: In cases where a contract involves the use of
intellectual property, such as trademarks or copyrights, a suit for injunction
can be used to prevent the guilty party from using the intellectual property
without permission or in violation of the terms of the contract.
• Real Estate Disputes: In cases of breach of contract related to real estate, a
suit for injunction can be used to prevent the guilty party from taking
possession of the property or transferring ownership to another party in
violation of the terms of the contract.
• Service Contracts: In service contracts, a suit for injunction can be used to
prevent the guilty party from providing services to a competitor or to prevent
the guilty party from using confidential information obtained through the
service contract.
A suit for injunction is a great remedy that can be used in cases of breach of contract
to prevent ongoing harm to the aggrieved party. It is important to note that this
remedy is typically used in cases where monetary damages would not be sufficient to
compensate the aggrieved party for the harm caused by the breach. It is important for
parties to seek legal advice before filing a suit for injunction to ensure that this
remedy is appropriate in their particular case.

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INDEMNITY AND GUARANTEE

Indemnity and guarantee are two legal concepts that are often used interchangeably, but they
have distinct meanings and legal implications. Both concepts are related to the transfer of risk
from one party to another, but they do so in different ways.
CONTRACT OF INDEMNITY:
According to the Contract Act 1872 of Pakistan, a contract of indemnity is a legal agreement
by which one party promises to compensate the other party for any loss or damage that may
be suffered by the other party as a result of a specified event. The person who gives the
indemnity is known as the indemnifier, and the person who receives it is known as the
indemnified.
The contract of indemnity can be either express or implied. In an express contract of
indemnity, the terms of the indemnity are explicitly stated, and both parties agree to those
terms. In an implied contract of indemnity, the indemnity arises by operation of law, and the
parties may not have explicitly agreed to the terms.
For a contract of indemnity to be valid, the following elements must be present:
▪ The indemnifier must have made a promise to compensate the indemnified for any
loss or damage.
▪ The promise must be in relation to a specific event.
▪ The indemnified must have suffered a loss or damage as a result of the specified
event.
▪ The loss or damage must not have been caused by the fault or negligence of the
indemnified.
Section 124 of the Contract Act 1872 of Pakistan defines the term "Contract of Indemnity."
According to this section, a contract of indemnity is a promise by one party to compensate
the other party for any loss or damage that may occur due to the conduct of the indemnifier or
any other person.
The section further explains that the contract of indemnity may be either express or implied.
An express contract of indemnity is one in which the terms of the indemnity are explicitly
stated, while an implied contract of indemnity is one that arises by operation of law.
The section also states that the person who gives the indemnity is known as the indemnifier,
and the person who receives it is known as the indemnified. The indemnified party must have
suffered a loss or damage due to the conduct of the indemnifier or any other person. The loss
or damage suffered must not have been caused by the fault or negligence of the indemnified
party.
Section 124 also states that the indemnifier is bound to compensate the indemnified party for
any loss or damage suffered by them due to the conduct of the indemnifier or any other
person. However, the indemnifier is not liable to compensate the indemnified party for any
loss or damage that may have occurred due to the fault or negligence of the indemnified
party.

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Rights of Indemnity Holder:

The rights of an indemnity holder refer to the legal entitlements that an individual or entity
has when they are protected by an indemnity contract. Below are the various rights that an
indemnity holder is entitled to:
a) Right to Compensation:
The primary right of an indemnity holder is to receive compensation for any loss or
damage suffered by them. The indemnifier is obliged to compensate the indemnity
holder for any loss or damage suffered by them as per the terms of the indemnity
contract.
b) Right to Enforce Indemnity:
The indemnity holder has the right to enforce the indemnity contract against the
indemnifier. This means that the indemnity holder can take legal action against the
indemnifier if they fail to fulfill their obligations under the indemnity contract.
c) Right to Sue Third Parties:
If a third party is responsible for the loss or damage suffered by the indemnity holder,
the indemnity holder has the right to sue the third party and recover the compensation
amount from them. The indemnity holder can then recover the amount paid to the
third party from the indemnifier.
d) Right to Defend Legal Proceedings:
If legal proceedings are initiated against the indemnity holder, they have the right to
defend themselves using the indemnity contract. The indemnity holder can recover
any legal costs incurred from the indemnifier as per the terms of the indemnity
contract.
e) Right to Subrogation:
Subrogation refers to the transfer of the indemnity holder's rights to the indemnifier
after they have received compensation for the loss or damage suffered. This means
that the indemnifier has the right to take legal action against the third party
responsible for the loss or damage and recover the compensation amount.
f) Right to Claim Interest:
The indemnity holder has the right to claim interest on the compensation amount if
the indemnifier fails to pay the amount within the specified time frame.
These rights ensure that the indemnity holder is adequately protected and compensated in
case of any loss or damage suffered.
CONTRACT OF GUARANTEE:
A contract of guarantee is a legal agreement between three parties, namely the principal
debtor, the creditor, and the surety. In this contract, the surety agrees to be responsible for the
payment of the debt of the principal debtor if they default. The guarantee contract can be
either oral or written and can be either for a specific period or indefinite.
Section 126 of the Contract Act 1872 of Pakistan lays down the essentials of a contract of
guarantee. According to this section, a contract of guarantee must have the following
features:

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i. A Primary Obligation:
There must be an existing primary obligation between the principal debtor and the
creditor, which the surety has agreed to guarantee.
ii. Consideration:
The surety must receive consideration for their promise to guarantee the debt.
iii. Consent:
The consent of the surety must be free and voluntary, and not obtained through
coercion, fraud, or misrepresentation.
iv. Writing:
If the guarantee is for a sum exceeding Rs. 50,000, it must be in writing and signed by
the surety.
v. Extent of Liability:
The liability of the surety should be clearly specified in the contract.
Section 126 of the Contract Act 1872 of Pakistan ensures that the contract of guarantee is
legally binding and enforceable. It also protects the rights of the surety and ensures that they
are not coerced or misled into entering into the contract.
Examples:
Here are some examples of a contract of guarantee:
▪ A bank requires a guarantor to secure a loan for a borrower who has a low credit
score.
▪ A landlord requires a guarantor to guarantee the rent payment of a tenant who has a
history of defaulting on rent.
▪ A supplier requires a guarantor to guarantee payment by a buyer who has a history of
defaulting on payments.
▪ A contractor requires a guarantor to guarantee the completion of a project by a
subcontractor.
▪ A business requires a guarantor to guarantee the repayment of a business loan.
Essentials of A Contract of Guarantee:
The contract of guarantee is a legal contract where one party (the surety) agrees to be
responsible for the debt or obligation of another party (the principal debtor) in case of their
default. The essential elements of a contract of guarantee can be explained under the
following headings:
1) Three Parties Involved:
A contract of guarantee involves three parties - the creditor, the principal debtor, and
the surety. The creditor is the person who is owed a debt or obligation, the principal
debtor is the person who owes the debt or obligation, and the surety is the person who
agrees to be responsible for the debt or obligation of the principal debtor.
2) Consideration:
A contract of guarantee requires consideration, which means that the surety must
receive something of value in exchange for their promise to be responsible for the
debt or obligation of the principal debtor.

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3) Co-Extensive Liability:
The liability of the surety must be co-extensive with that of the principal debtor,
which means that the surety is responsible for the entire debt or obligation and not just
a portion of it.
4) Written or Oral Contract:
A contract of guarantee can be either written or oral, but it is preferable for it to be in
writing as it is easier to prove in court.
5) Communication of Acceptance:
The acceptance of the guarantee must be communicated to the surety, and the surety
must also communicate their acceptance of the guarantee to the creditor.
6) Principal Debtor's Consent:
The principal debtor must consent to the contract of guarantee, either by being a party
to the contract or by requesting the contract.
7) Continuing Guarantee:
A contract of guarantee can be either a specific guarantee, which is for a specific debt
or obligation, or a continuing guarantee, which is for all future debts or obligations
between the creditor and the principal debtor.
8) Revocation of Guarantee:
The surety can revoke their guarantee at any time before the debt or obligation is
incurred, but they cannot revoke it after the debt or obligation has been incurred.
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DIFFERENCE BETWEEN INDEMNITY AND GUARANTEE
Indemnity and guarantee are two distinct types of contracts in which one party agrees to be
liable for the actions or obligations of another party. While both contracts involve the transfer
of risk from one party to another, there are some key differences between indemnity and
guarantee that distinguish them from one another.
NATURE IDEMNITY GUARANTEE
The primary difference In contrast, a contract of
between indemnity and guarantee involves one party
guarantee is the nature of agreeing to be liable for the
liability. In a contract of debt or obligation of another
Nature of Liability indemnity, one party agrees party in case of their default.
to compensate the other party
for any losses or damages
they may incur as a result of
a specific event or situation.
In an indemnity contract, A guarantee involves three
there are usually only two parties - the creditor, the
parties involved - the principal debtor, and the
indemnifier and the surety. The surety agrees to
Parties Involved indemnified party. The be responsible for the debt or
indemnifier agrees to obligation of the principal
compensate the indemnified debtor in case of their
party for any losses or default.
damages they may incur as a

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result of a specific event or

situation.
The purpose of an indemnity The purpose of a contract of
contract is to protect one guarantee is to provide
party against potential losses assurance to the creditor that
Purpose
or damages that may result they will be repaid in case of
from a specific event or the principal debtor's default.
situation.
The scope of an indemnity A contract of guarantee can
contract is usually limited to be a specific guarantee or a
a specific event or situation, continuing guarantee, which
Scope and the indemnity usually covers all future debts or
covers only the losses or obligations between the
damages that result from that creditor and the principal
event or situation. debtor.
In an indemnity contract, the In a contract of guarantee,
indemnifier's liability is the surety's liability is co-
limited to the losses or extensive with that of the
Limitations on Liability damages that result from a principal debtor, meaning
specific event or situation. that they are responsible for
the entire debt or obligation
and not just a portion of it.
In a contract of indemnity, The creditor in a contract of
the indemnified party has a guarantee has a legal right to
legal right to seek seek payment from the surety
Legal Right
compensation from the only when the principal
indemnifier for any losses or debtor defaults.
damages incurred.
In a contract of indemnity, There are no notice
the indemnified party must requirements in a contract of
provide notice to the guarantee, as the surety is
indemnifier as soon as already aware of their
Notice Requirements
possible when a loss or potential liability
damage occurs, and failure to
do so may release the
indemnifier from liability

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The Contract & Sales of Goods Act

KINDS OF GUARANTEE
A guarantee is a legal agreement in which one party agrees to be liable for the debts or
obligations of another party. Guarantees are commonly used in commercial transactions to
provide assurance to a creditor that they will be repaid in case of the debtor's default. There
are several kinds of guarantees, each with its own characteristics and requirements. Here we
will discuss the various kinds of guarantees, their features, and examples.
1) Specific Guarantee:
A specific guarantee is a type of guarantee that applies to a particular transaction or
obligation. The scope of a specific guarantee is limited to a specific amount or period.
In this type of guarantee, the surety agrees to be liable only for a specific transaction
or obligation.
Example: Suppose a person named Jameel wants to borrow money from a bank. The
bank may require Jameel to provide a specific guarantee for the loan. In this case,
Jameel may ask his friend Tom to be the surety for the loan. Tom would only be liable
for the loan amount that Jameel borrows from the bank.
2) Continuing Guarantee:
A continuing guarantee is a type of guarantee that applies to all future transactions or
obligations between the creditor and the debtor. The scope of a continuing guarantee
is not limited to a specific amount or period. In this type of guarantee, the surety
agrees to be liable for any debt or obligation that the debtor incurs with the creditor in
the future.
Example: Suppose a business owner named Sarah wants to open a line of credit with a
supplier. The supplier may require Sarah to provide a continuing guarantee for the
credit. In this case, Sarah may ask her business partner, Emma, to be the surety for the
credit. Emma would be liable for any debt that Sarah incurs with the supplier in the
future.
3) Performance Guarantee:
A performance guarantee is a type of guarantee that ensures that a particular
performance will be carried out as per the terms of the contract. The performance can
be related to any aspect of the contract, such as quality, quantity, delivery time, or
payment terms. In this type of guarantee, the surety agrees to compensate the creditor
for any losses incurred due to the debtor's failure to perform as per the contract.
Example: Suppose a construction company named XYZ wins a contract to build a
bridge for the government. The government may require XYZ to provide a
performance guarantee for the project. In this case, XYZ may ask a bank to be the
surety for the project. The bank would be liable to compensate the government if
XYZ fails to complete the project as per the contract.
4) Financial Guarantee:
A financial guarantee is a type of guarantee that ensures the payment of a debt or
obligation. In this type of guarantee, the surety agrees to compensate the creditor for
any losses incurred due to the debtor's failure to repay the debt.

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The Contract & Sales of Goods Act

Example: Suppose a person named David wants to rent an apartment, but he has a
poor credit score. The landlord may require David to provide a financial guarantee for
the rent. In this case, David may ask his parent to be the surety for the rent. The parent
would be liable to compensate the landlord if David fails to pay the rent.
5) Conditional Guarantee:
A conditional guarantee is a type of guarantee that applies only under certain
conditions. The surety's liability is triggered only if the conditions are met. In this
type of guarantee, the surety agrees to be liable for the debt or obligation only if
certain conditions are met.
Example: Suppose a company named ABC wants to sell its goods to a foreign buyer.
The foreign buyer may require ABC to provide a conditional guarantee for the
payment. In this case, ABC may ask a bank to be the surety for the payment. The
bank would be liable to compensate the foreign buyer if ABC fails to receive the
payment within a specified time.

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The Contract & Sales of Goods Act

RIGHTS OF SURETY
Surety is a type of contract where one party, called the surety, agrees to be responsible for
fulfilling the obligations of another party, called the principal debtor, to a third party, called
the creditor. The Contract Act 1872 of Pakistan governs the rights and obligations of the
parties involved in a contract of suretyship. The rights of the surety are as follows:
1. Right of Subrogation:
The surety has the right of subrogation, which means that after the surety has paid the
creditor, the surety is entitled to step into the shoes of the creditor and exercise the
creditor's rights against the principal debtor. For example, if the principal debtor has
mortgaged property to the creditor as security for a loan, and the surety pays off the
loan, the surety is entitled to the mortgage and can exercise the creditor's rights
against the principal debtor.
2. Right of Indemnity:
The surety has the right of indemnity, which means that the principal debtor is
obligated to indemnify the surety for any loss suffered by the surety as a result of the
contract of suretyship. For example, if the creditor sues the surety for payment and the
surety is forced to pay the debt, the principal debtor is obligated to indemnify the
surety for the amount paid.
3. Right of Contribution:
If there are multiple sureties for the same debt, each surety has the right of
contribution, which means that each surety is entitled to recover a proportional share
of the debt from the other sureties. For example, if there are three sureties for a debt
of Rs. 3,00,000 and one surety pays the entire amount, that surety is entitled to
recover Rs. 1,00,000 from each of the other two sureties.
4. Right to be Discharged:
The surety has the right to be discharged from the contract of suretyship under certain
circumstances, such as if the terms of the contract are materially altered without the
surety's consent, or if the principal debtor dies or becomes insolvent. If the surety is
discharged, the surety is no longer obligated to fulfill the obligations of the principal
debtor.
5. Right of Set-off:
The surety has the right of set-off, which means that if the principal debtor owes
money to the surety, the surety can set-off that amount against any money owed by
the surety to the principal debtor. For example, if the principal debtor owes Rs. 50,000
to the surety and the surety owes Rs. 20,000 to the principal debtor, the surety can set-
off the amount owed by the principal debtor against the amount owed by the surety.
6. Right to Notice of Default:
The surety has the right to notice of default, which means that the creditor must notify
the surety if the principal debtor fails to fulfill their obligations under the contract.
The surety can then take steps to remedy the default before being held liable for the
debt.

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The Contract & Sales of Goods Act

In summary, the Contract Act 1872 of Pakistan provides several rights to the surety in a
contract of suretyship, including the right of subrogation, indemnity, contribution, discharge,
set-off, and notice of default. These rights help ensure that the surety is protected and can
exercise their rights under the contract.
THE RIGHTS OF A SURETY AGAINST THE CREDITOR:
In a contract of guarantee, the surety assumes the responsibility to pay the debt of the
principal debtor if the debtor fails to fulfill their obligations. However, the surety also
possesses certain rights against the creditor. The following are the rights of a surety against
the creditor, according to the Contract Act 1872 of Pakistan:
1. Right to Enforce Subrogation:
Subrogation is the right of the surety to be put in the place of the creditor after paying
off the debt of the principal debtor. This means that the surety can claim the rights of
the creditor against the principal debtor, including the right to recover the amount paid
from the principal debtor. The surety can enforce this right after fulfilling their
obligations under the contract of guarantee.
2. Right to Set-Off:
The surety also possesses the right to set-off their liability against any amounts owed
to them by the creditor. This means that if the creditor owes any money to the surety,
the surety can use that amount to offset their liability under the contract of guarantee.
3. Right to be Notified of the Default:
The creditor is obligated to notify the surety in case of a default by the principal
debtor. The notice should be given in writing and in a timely manner. This allows the
surety to take appropriate steps to prevent any further losses or damages.
4. Right to Security:
The surety has the right to demand security from the creditor to ensure that their
liability is limited to the extent of the security provided. The security can be in the
form of a pledge, mortgage, or any other form of collateral. This ensures that the
surety's liability is not unlimited and that they are protected in case the principal
debtor defaults on the debt.
5. Right to Access to Information:
The surety has the right to access all relevant information and documents related to
the contract of guarantee. This includes information about the principal debtor's
financial position, repayment history, and any other relevant information that can
affect the surety's liability.
6. Right to Discharge:
The surety has the right to discharge themselves from their obligations under the
contract of guarantee if the creditor makes any material alteration to the terms of the
contract without their consent. This means that the surety is no longer liable for the
debt of the principal debtor.
In conclusion, the surety possesses certain rights against the creditor in a contract of
guarantee. These include the right to enforce subrogation, right to set-off, right to be notified

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The Contract & Sales of Goods Act

of default, right to security, right to access to information, and the right to discharge. It is
important for the parties to understand these rights to ensure that their interests are protected.
THE RIGHTS OF A SURETY AGAINST THE PRINCIPAL DEBTOR
When a surety provides a guarantee for a principal debtor, they assume a significant amount
of risk and liability. However, the surety is also entitled to certain rights under the Contract
Act 1872 of Pakistan. The following are the rights of a surety against the principal debtor:
1. Right of Indemnification:
The surety has the right to be indemnified by the principal debtor for any loss or
liability incurred as a result of their guarantee. This means that the principal debtor
must compensate the surety for any payments made to the creditor under the contract
of guarantee. For example, if the principal debtor defaults on a loan and the surety
pays off the debt, the principal debtor must reimburse the surety for the amount paid
to the creditor.
2. Right of Subrogation:
The surety has the right of subrogation, which means they can step into the shoes of
the creditor and enforce the rights of the creditor against the principal debtor. This
right allows the surety to recover any losses or damages suffered as a result of the
default of the principal debtor. For example, if the surety pays off the debt owed by
the principal debtor, they can take legal action against the principal debtor to recover
the amount paid to the creditor.
3. Right of Contribution:
If there are multiple sureties for a single obligation, each surety is entitled to a pro-
rata share of the loss or liability incurred. This means that each surety is responsible
for a proportionate amount of the obligation, and each surety is entitled to a
proportionate share of any recovery or contribution from the principal debtor. For
example, if there are three sureties for a loan, each surety is responsible for one-third
of the loan amount, and each surety is entitled to one-third of any recovery from the
principal debtor.
4. Right of Set-Off:
If the principal debtor owes money to the surety, the surety can set off this debt
against any obligation owed to the principal debtor. This means that the surety can
deduct the amount owed by the principal debtor from the amount owed to the
principal debtor by the surety. For example, if the principal debtor owes money to the
surety for a previous loan, the surety can deduct this amount from any obligation
owed to the principal debtor.
5. Right of Notice:
The surety has the right to receive notice from the creditor regarding any default or
breach of the contract of guarantee by the principal debtor. This allows the surety to
take appropriate action to mitigate their losses and to protect their rights under the
contract of guarantee.
In conclusion, the surety has certain rights against the principal debtor under the Contract Act
1872 of Pakistan, including the right of indemnification, the right of subrogation, the right of

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The Contract & Sales of Goods Act

contribution, the right of set-off, and the right of notice. These rights are designed to protect
the interests of the surety and to ensure that they are not unfairly burdened with the
obligations of the principal debtor.
THE RIGHTS OF A SURETY AGAINST THE CO-SURETIES
In a contract of suretyship, a surety may have one or more co-sureties who share the
responsibility of fulfilling the obligations of the principal debtor to the creditor. The rights of
a surety against the co-sureties refer to the rights that the surety has in relation to the co-
sureties in case the surety has to fulfill the obligations of the principal debtor. The following
are the rights of a surety against the co-sureties, according to the Contract Act 1872 of
Pakistan:
1. Right of Contribution:
A surety has the right to demand contribution from the co-sureties in case the surety
has paid more than their fair share of the debt owed to the creditor. The contribution is
calculated based on the proportion of liability that each co-surety has agreed to bear in
the contract. For example, if there are three co-sureties and each has agreed to bear
1/3 of the liability, and one surety pays the entire debt, that surety has the right to
demand contribution from the other two co-sureties.
2. Right of Indemnity:
A surety has the right of indemnity against the co-sureties, which means that the
surety can recover from the co-sureties any loss or damage suffered by the surety as a
result of fulfilling the obligations of the principal debtor. For example, if a surety has
to pay a penalty for the default of the principal debtor, the surety has the right to
recover that amount from the co-sureties.
3. Right of Subrogation:
A surety who pays the debt owed to the creditor has the right of subrogation, which
means that the surety can stand in the shoes of the creditor and recover the amount
paid from the principal debtor or any other person who is liable for the debt. In case
the surety recovers the amount from the principal debtor or any other person, the
surety can then claim contribution from the co-sureties. For example, if a surety pays
the debt owed by the principal debtor and then recovers that amount from the
principal debtor, the surety can claim contribution from the co-sureties.
4. Right of Set-Off:
If a co-surety owes money to the surety, the surety has the right of set-off, which
means that the surety can deduct the amount owed from the contribution that the co-
surety is supposed to pay. For example, if a co-surety owes money to the surety, the
surety can deduct that amount from the contribution that the co-surety is supposed to
pay.
In conclusion, the rights of a surety against the co-sureties include the right of contribution,
the right of indemnity, the right of subrogation, and the right of set-off. It is important for the
parties to a contract of suretyship to understand these rights in order to avoid any potential
disputes or liabilities.
DISCHARGE OF SURETY:

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The Contract & Sales of Goods Act

In a contract of suretyship, the surety is obligated to fulfill the obligations of the principal
debtor to the creditor if the principal debtor fails to do so. However, there are circumstances
under which the surety can be discharged from their obligations. The following are the ways
in which the discharge of surety is possible, according to the Contract Act 1872 of Pakistan:
1) Discharge by Performance:
The surety is discharged from their obligations when the principal debtor fulfills their
obligations to the creditor. For example, if the principal debtor repays the loan to the
creditor, the surety is discharged from their obligations under the contract.
2) Discharge by Release:
The creditor may release the surety from their obligations under the contract if the
creditor and the principal debtor agree to do so. However, the creditor must give
notice to the surety of the release, otherwise the surety will remain liable under the
contract.
3) Discharge by Impossibility:
The surety is discharged from their obligations if the performance of the contract
becomes impossible due to an unforeseen event or circumstances beyond the control
of the parties. For example, if the principal debtor dies, the surety is discharged from
their obligations under the contract.
4) Discharge by Novation:
Novation is a process in which a new contract is substituted for an existing contract.
The surety is discharged from their obligations under the original contract if the
parties enter into a new contract that relieves the surety of their obligations. For
example, if the creditor agrees to accept a different form of security from the principal
debtor, the surety is discharged from their obligations under the original contract.
5) Discharge by Breach of Contract:
If the principal debtor breaches the contract, the surety is discharged from their
obligations if the breach is material and fundamental. For example, if the principal
debtor sells the property that was pledged as security for the loan, the surety is
discharged from their obligations under the contract.
6) Discharge by Operation of Law:
The surety may be discharged by operation of law if there is a change in the law that
makes the contract illegal or if the surety becomes insolvent or bankrupt.
7) Discharge by Lapse of Time:
The surety can be discharged from their obligations if the time limit for the
performance of the contract has expired. For example, if the principal debtor fails to
repay the loan within the agreed-upon time period, the surety is discharged from their
obligations under the contract.
In conclusion, the discharge of surety is possible through performance, release, impossibility,
novation, breach of contract, and operation of law. It is important for the parties to a contract
of suretyship to understand the circumstances under which the surety can be discharged from
their obligations in order to protect their rights and interests.

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CONTRACT OF BAILMENT
A bailment is a legal agreement in which one party (the bailor) delivers personal property to
another party (the bailee) for a specific purpose, under the condition that the property will be
returned to the bailor or disposed of in accordance with the bailor's instructions. The bailee
has temporary custody of the property and is responsible for its safekeeping and return. The
bailment can be for a specified period of time or can be terminated upon the occurrence of a
certain event. Examples of bailment include leaving a car at a valet service, storing goods in a
warehouse, or lending a book to a friend. The terms of the bailment agreement can be
negotiated between the parties and should be carefully documented in writing to avoid any
potential disputes.
Definition:
According to Section 148 of the Contract Act 1872 of Pakistan, a bailment is defined as a
contract where one person delivers some specific property to another person, for a specific
purpose, upon a contract that the property will be returned to the bailor or disposed of
according to the bailor's directions when the purpose is accomplished or the time for which it
was bailed has expired. The person who delivers the property is called the "bailor," and the
person who receives the property is called the "bailee." The contract of bailment can be either
expressed or implied, and the terms of the contract may vary depending on the nature of the
bailment. In a bailment, the bailee is responsible for the safekeeping of the property and must
return it to the bailor or dispose of it as per the bailor's instructions.
ESSENTIALS OF CONTRACT OF BAILMENT:
The essentials of a contract of bailment are the conditions that must be met to form a valid
agreement between the bailor and the bailee. These essentials are based on the provisions of
the Contract Act 1872 of Pakistan. The following are the essentials of a contract of bailment:
A. Delivery of Goods:
The first essential of a contract of bailment is the delivery of goods by the bailor to
the bailee. The delivery must be physical, actual, and voluntary. The bailor must
transfer the possession of the goods to the bailee for a specific purpose. For example,
a person entrusting their car to a valet service for parking is delivering their property
for a specific purpose.
B. Specific Purpose:
The second essential of a contract of bailment is the existence of a specific purpose
for which the goods are delivered. The purpose can be commercial, charitable, or
personal, but it must be clearly stated and understood by both parties. For example, a
person lending a book to a friend for reading is delivering the book for the specific
purpose of reading.
C. Contractual Agreement:
The third essential of a contract of bailment is the existence of a contractual
agreement between the bailor and the bailee. The agreement can be either written or
oral, but it must be clear and unambiguous. It should include the terms and conditions
of the bailment, including the period of the bailment, any fees charged by the bailee,
and any limitations of liability. For example, a person storing their goods in a

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warehouse signs a written agreement with the warehouse owner specifying the terms
and conditions of the bailment.
D. Return of Goods:
The fourth essential of a contract of bailment is the obligation of the bailee to return
the goods to the bailor after the specific purpose of the bailment is fulfilled or the
agreed-upon time has elapsed. The bailee must return the goods in the same condition
as they were delivered, subject to reasonable wear and tear. For example, a person
entrusting their clothes to a dry cleaner for cleaning expects to receive their clothes
back in a clean and undamaged condition.
E. Lawful Possession:
The fifth essential of a contract of bailment is the lawful possession of the goods by
the bailor. The bailor must have the legal right to possess and transfer the goods to the
bailee. For example, a person cannot deliver stolen goods to a bailee for safekeeping.
A valid contract of bailment requires the delivery of goods, a specific purpose for the
bailment, a contractual agreement, the obligation to return the goods, and lawful possession
of the goods by the bailor. It is important for the parties to understand these essentials to
avoid any potential disputes or liabilities.
KINDS OF BAILMENT
Bailment is a legal agreement between two parties, the bailor and the bailee, in which the
bailor delivers personal property to the bailee for a specific purpose. The bailee has
temporary possession of the property and is responsible for its safekeeping and return. There
are various kinds of bailment based on the purpose of the bailment, and each kind has its own
set of rights and obligations for the bailor and the bailee. The following are the different
kinds of bailment :
1. Bailment For The Benefit of The Bailor:
In this type of bailment, the bailor delivers goods to the bailee for safekeeping without
any benefit to the bailee. The bailee must exercise reasonable care in preserving the
goods and returning them to the bailor upon request.
2. Bailment For The Benefit of The Bailee:
In this type of bailment, the bailor delivers goods to the bailee for the bailee's own use
or benefit. The bailee must exercise extraordinary care in preserving the goods and is
responsible for any loss or damage to the goods.
3. Gratuitous/Free Bailment:
In this type of bailment, the bailor delivers goods to the bailee for safekeeping without
any compensation. The bailee must exercise reasonable care in preserving the goods
and returning them to the bailor upon request.
4. Non-Gratuitous Bailment:
In this type of bailment, the bailor delivers goods to the bailee for safekeeping in
exchange for a fee or compensation. The bailee must exercise reasonable care in
preserving the goods and may be held liable for any loss or damage to the goods.

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5. Bailment of Pledge:
In this type of bailment, the bailor delivers goods to the bailee as security for a debt or
obligation. The bailee has a right to retain possession of the goods until the debt or
obligation is fulfilled.
6. Bailment For Hire:
In this type of bailment, the bailor hires the bailee to transport or store goods. The
bailee must exercise reasonable care in preserving the goods and delivering them to
the specified location.
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RIGHTS & DUTIES OF BAILOR AND BAILEE

DUTIES OF BAILOR:
In a contract of bailment, the bailor and the bailee have specific duties and responsibilities to
fulfill. The bailor, who delivers the goods to the bailee, has certain duties to ensure the safety
of the goods during the bailment period. These duties are as follows:
1) Duty To Disclose Defects:
The bailor has a duty to disclose any defects or faults in the goods that may affect
their safety or use to the bailee. Failure to disclose such defects may result in the
bailor being held liable for any loss or damage caused to the goods or to the bailee.
2) Duty To Indemnify:
The bailor has a duty to indemnify the bailee for any loss or damage caused to the
bailee or the goods during the bailment period, unless the loss or damage is caused by
the bailee's negligence or misconduct.
3) Duty To Pay Necessary Expenses:
The bailor has a duty to pay all necessary expenses incurred by the bailee in relation
to the bailment, such as storage, insurance, or transportation costs.
4) Duty To Take Back The Goods:
The bailor has a duty to take back the goods from the bailee once the purpose of the
bailment has been fulfilled, or upon demand by the bailor. If the bailor fails to take
back the goods, the bailee may have the right to sue the bailor for any losses or
expenses incurred in relation to the goods.
5) Duty To Compensate For Unauthorized Use:
If the bailor has given permission to the bailee to use the goods for a specific purpose,
the bailor has a duty to compensate the bailee for any losses incurred as a result of the
unauthorized use of the goods beyond the specified purpose.
The bailor has several duties and responsibilities to ensure the safety and security of the
goods during the bailment period. It is important for the bailor to clearly understand these
duties and fulfill them in order to avoid any potential disputes or liabilities.
RIGHTS OF BAILOR
In a contract of bailment, the bailor has certain rights that protect their interest in the goods
during the bailment period. The following are the rights of the bailor:
1. Right To Receive The Goods Back:
The bailor has the right to receive the goods back from the bailee upon the completion
of the bailment period or upon demand. The bailee has no right to retain the goods
after the purpose of the bailment has been fulfilled.
Example: A bailor delivers their car to a garage for repairs. Once the repairs are
complete, the bailor has the right to receive their car back from the garage.

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2. Right To Compensation For Unauthorized Use:

If the bailee uses the goods for a purpose beyond the scope of the bailment agreement
or without the bailor's permission, the bailor has the right to seek compensation for
any losses incurred as a result of the unauthorized use.
Example: A bailor delivers their camera to a friend for safekeeping. If the friend uses
the camera for a commercial purpose without the bailor's permission, the bailor has
the right to seek compensation for any losses incurred as a result of the unauthorized
use.
3. Right To Terminate The Bailment:
The bailor has the right to terminate the bailment agreement at any time, as long as
they compensate the bailee for any losses incurred as a result of the termination.
Example: A bailor delivers their furniture to a storage facility for safekeeping. If the
bailor decides to terminate the bailment agreement before the end of the agreed
period, they must compensate the storage facility for any losses incurred as a result of
the early termination.
4. Right To Receive Indemnity:
The bailor has the right to receive indemnity from the bailee for any losses or
damages caused to the goods during the bailment period, except for losses caused by
the bailee's negligence or misconduct.
Example: A bailor delivers their jewelry to a pawnshop as collateral for a loan. If the
jewelry is lost or damaged due to a fire in the pawnshop, the bailor has the right to
receive indemnity from the pawnshop for the loss.
5. Right To Restrict Use of The Goods:
The bailor has the right to restrict the use of the goods by the bailee during the
bailment period, as long as such restrictions do not go beyond the scope of the
bailment agreement.
Example: A bailor delivers their laptop to a friend for safekeeping. The bailor restricts
the use of the laptop to personal use only and prohibits the friend from using it for
commercial purposes.
In conclusion, the bailor has several rights in a contract of bailment that protect their interest
in the goods during the bailment period. These rights ensure that the bailor receives the goods
back in the same condition as they were delivered and that they are compensated for any
losses or damages incurred during the bailment period.
DUTIES OF BAILEE:
In a contract of bailment, the bailee has certain duties to perform to ensure the safekeeping of
the goods entrusted to them. The following are the duties of the bailee:
1. Duty to take reasonable care of the goods:
The bailee has a duty to take reasonable care of the goods entrusted to them. This includes
taking necessary precautions to prevent damage or loss of the goods.
Example: A bailee entrusted with a valuable painting must take reasonable care to ensure that
it is not damaged or lost while in their possession.

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2. Duty not to mix goods:

The bailee has a duty not to mix the goods entrusted to them with their own goods or goods
belonging to others.
Example: A bailee entrusted with a shipment of wheat must not mix it with their own wheat
or wheat belonging to others.
3. Duty to return the goods:
The bailee has a duty to return the goods to the bailor upon completion of the bailment period
or upon demand.
Example: A bailee entrusted with a car for repairs must return the car to the bailor once the
repairs are completed.
4. Duty to return any increase or profit:
If the bailee makes any profits or gains from the use of the goods entrusted to them, they have
a duty to return the profits or gains to the bailor.
Example: A bailee entrusted with livestock for breeding purposes must return any increase or
offspring to the bailor.
5. Duty to bear expenses of bailment:
The bailee has a duty to bear the expenses incurred during the bailment period, such as
storage charges and transportation costs.
Example: A bailee entrusted with a shipment of goods must bear the transportation costs and
any storage charges incurred during the bailment period.
6. Duty not to use the goods for personal benefit:
The bailee has a duty not to use the goods for their personal benefit or gain.
Example: A bailee entrusted with a car for repairs must not use the car for their personal use
or benefit.
7. Duty to return goods in same condition:
The bailee has a duty to return the goods in the same condition as they were entrusted to
them, except for normal wear and tear.
Example: A bailee entrusted with a laptop for safekeeping must return the laptop in the same
condition as it was entrusted to them, except for normal wear and tear.
RIGHTS OF BAILEE
In a contract of bailment, the bailee also has certain rights in addition to their duties. The
following are the rights of the bailee:
1. Right to retain the goods:
The bailee has the right to retain the goods entrusted to them until they receive the rightful
compensation for their services.
Example: A bailee entrusted with a painting for restoration has the right to retain the painting
until they receive the agreed-upon compensation for the restoration work.

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2. Right to receive extra expenses:

The bailee has the right to receive any extra expenses incurred while in possession of the
goods, such as transportation and storage charges.
Example: A bailee entrusted with a shipment of goods has the right to receive transportation
charges and storage charges incurred during the bailment period.
3. Right to receive compensation for any damages:
If the goods are damaged while in possession of the bailee, they have the right to receive
compensation for the damages incurred.
Example: A bailee entrusted with a car for repairs has the right to receive compensation if the
car is damaged while in their possession.
4. Right to claim lien:
The bailee has the right to claim a lien over the goods if the rightful compensation is not paid.
Example: A bailee entrusted with a shipment of goods has the right to claim a lien over the
goods if they are not paid the agreed-upon compensation.
5. Right to seek directions from the bailor:
If the bailee is in doubt about the proper course of action regarding the goods, they have the
right to seek directions from the bailor.
Example: A bailee entrusted with a shipment of fragile goods is in doubt about the proper
mode of transportation and seeks directions from the bailor.
6. Right to sue for any damages:
If the bailee suffers any losses or damages while in possession of the goods, they have the
right to sue for damages.
Example: A bailee entrusted with a valuable piece of jewelry suffers losses due to theft while
in their possession and sues for damages.
7. Right to claim ownership:
If the bailee's services improve the condition of the goods, they may have a right to claim
ownership of the goods.
Example: A bailee entrusted with a piece of land improves its fertility and may have a right to
claim ownership of the land.
In conclusion, the bailee has the right to retain the goods until they receive the rightful
compensation, receive extra expenses incurred while in possession of the goods, claim
compensation for any damages, claim lien over the goods if compensation is not paid, seek
directions from the bailor, sue for any damages incurred, and claim ownership if their
services improve the condition of the goods. These rights ensure that the bailee is protected
and compensated for their services while in possession of the goods.

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TERMINATION OF BAILMENT
In a contract of bailment, the bailment can be terminated in several ways. The following are
the ways in which a bailment can be terminated:
1. By Mutual Agreement:
The bailment can be terminated by mutual agreement between the bailor and bailee. Both
parties must agree to terminate the bailment and the terms of the termination must be agreed
upon.
Example: A bailor and bailee agree to terminate the bailment of a car after the repairs are
completed.
2. By Completion of Purpose:
If the purpose of the bailment is completed, the bailment is automatically terminated. The
bailee must return the goods to the bailor after the purpose is completed.
Example: A bailee is entrusted with a camera for a photography project. After the project is
completed, the bailee returns the camera to the bailor and the bailment is terminated.
3. By Expiration of Time:
If the bailment is for a specified time period, the bailment is terminated once the time period
expires. The bailee must return the goods to the bailor after the time period expires.
Example: A bailee is entrusted with a bike for a week. After the week is over, the bailee
returns the bike to the bailor and the bailment is terminated.
4. By Revocation:
The bailor can revoke the bailment at any time before the bailee has taken possession of the
goods. If the bailee has already taken possession of the goods, the bailor can only revoke the
bailment if there is a breach of the contract by the bailee.
Example: A bailor entrusts a ring to a bailee, but before the bailee takes possession of the
ring, the bailor revokes the bailment.
5. By Loss or Destruction of Goods:
If the goods are lost or destroyed, the bailment is terminated. The bailee is not liable for the
loss or destruction of the goods if it is not due to their negligence.
Example: A bailee is entrusted with a painting, but the painting is destroyed in a fire. The
bailment is terminated and the bailee is not liable for the destruction of the painting.
6. By Breach of Contract:
If either party breaches the terms of the contract, the other party can terminate the bailment.
The party that breaches the contract may be liable for damages.
Example: A bailee is entrusted with a car for repairs, but the car is damaged due to the
bailee's negligence. The bailor can terminate the bailment and sue the bailee for damages.
Conclusion:
In conclusion, a bailment can be terminated by mutual agreement, completion of purpose,
expiration of time, revocation, loss or destruction of goods, or breach of contract. These

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termination methods ensure that the bailment is ended properly and that both parties are
aware of the termination.


FINDER OF LOST GOODS
According to Section 71 of the Contract Act 1872, a person who finds lost goods and takes
them into his possession becomes a "finder of lost goods". The finder of lost goods must take
reasonable care of the goods and make reasonable efforts to locate the rightful owner of the
goods. The finder has a right to retain the goods until the rightful owner is found or until he is
reimbursed for any expenses incurred in preserving the goods.
If the finder does not make reasonable efforts to locate the rightful owner or does not take
reasonable care of the goods, he may be held liable for any damages or losses incurred by the
rightful owner. If the rightful owner is not found within a reasonable amount of time, the
finder may be entitled to keep the goods.
However, if the owner of the goods has left a reward for the finder, the finder must return the
goods and claim the reward. If the owner has not left a reward, the finder may keep the goods
if the rightful owner is not found within six months.
A finder of lost goods must take reasonable care of the goods, make reasonable efforts to
locate the rightful owner, and may be entitled to keep the goods if the owner is not found
within a reasonable amount of time. The finder must also return the goods and claim a reward
if the owner has left one.
DUTIES OF FINDER:
The duties of a finder of lost goods can be discussed under the following headings:
1) Duty to take reasonable care of the goods:
As soon as a person finds any lost goods, he becomes responsible for their safekeeping. He is
expected to take reasonable care of the goods and ensure that they are not damaged or lost. If
the goods are perishable or require special care, the finder must take appropriate measures to
preserve them.
2) Duty to make reasonable efforts to find the rightful owner:
The finder has a duty to make reasonable efforts to locate the rightful owner of the goods.
This includes making inquiries in the locality where the goods were found, notifying the
police, and publishing a notice in a local newspaper.
3) Duty to deliver the goods to the rightful owner:
Once the rightful owner of the goods is located, the finder must deliver the goods to him
without delay. The finder cannot retain the goods or demand any compensation for their
safekeeping.
4) Duty to retain the goods for a reasonable period:
If the rightful owner of the goods cannot be found, the finder must retain the goods for a
reasonable period of time. The length of time considered reasonable depends on the

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circumstances of each case. If the rightful owner is not found within a reasonable period, the
finder may be entitled to keep the goods.
5) Duty to claim a reward:
If a reward has been offered for the return of the lost goods, the finder must claim it. If the
finder fails to claim the reward, he may be held liable for any losses suffered by the owner of
the goods.
RIGHTS OF FINDER
The rights of a finder of lost goods can be discussed under the following headings:
1. Right to keep the goods:
If the rightful owner of the lost goods cannot be found, or if the rightful owner does not claim
the goods within a reasonable period of time, the finder may be entitled to keep the goods.
The finder's right to keep the goods is subject to the rules of the law of property.
2. Right to a reward:
If a reward has been offered for the return of the lost goods, the finder has a right to claim the
reward. The finder must return the goods to the rightful owner and claim the reward.
3. Right to claim expenses:
The finder of lost goods has a right to claim expenses incurred in preserving the goods. This
includes any reasonable expenses incurred in the storage, repair, or maintenance of the goods.
4. Right to sell the goods:
If the rightful owner of the goods cannot be found, or if the rightful owner does not claim the
goods within a reasonable period of time, the finder may be entitled to sell the goods. The
finder must take reasonable steps to ensure that the goods are sold at a fair price and must
account to the rightful owner for the proceeds of the sale.
5. Right to sue for the reward or expenses:
If the rightful owner refuses to pay the reward or expenses claimed by the finder, the finder
has a right to sue the owner for the amount claimed.

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PLEDGE OR PAWN
According to Section 172 of the Contract Act, a pledge or pawn is a type of bailment where
the possession of movable goods is transferred by a debtor (the pledger) to a creditor (the
pledgee) as security for the repayment of a debt or the performance of a promise. The pledgee
has a right to retain the goods until the debt or promise is discharged. Once the debt or
promise is discharged, the pledgee is under an obligation to return the goods to the pledger.
The essential characteristics of a pledge or pawn are:
• Delivery of possession:
The pledger must deliver the possession of the goods to the pledgee. This means that the
goods must be physically transferred to the pledgee.
• Security for debt or promise:
The goods must be transferred as security for the repayment of a debt or the performance
of a promise.
• Right to retain possession:
The pledgee has a right to retain possession of the goods until the debt or promise is
discharged.
• Obligation to return the goods:
Once the debt or promise is discharged, the pledgee is under an obligation to return the
goods to the pledger.
For example, if A borrows money from B and pledges his gold watch as security, A is the
pledger and B is the pledgee. B has the right to retain the possession of the gold watch
until A repays the loan. Once A repays the loan, B is obligated to return the gold watch to
A.
A pledge or pawn is a type of bailment where the possession of movable goods is transferred
by a debtor to a creditor as security for the repayment of a debt or the performance of a
promise. The pledgee has a right to retain possession of the goods until the debt or promise is
discharged, and must return the goods to the pledger once the debt or promise is discharged.
ESSENTIALS OF PLEDGE:
The essentials of a pledge or pawn are as follows:
1) Delivery of Possession:
The pledger must deliver the actual possession of the goods to the pledgee. The
delivery must be voluntary, and the pledgee must have actual physical control over
the goods. If the goods are not delivered to the pledgee, the pledge is not valid.
2) Legal Purpose:
The pledge must be for a legal purpose. If the pledge is for an illegal purpose, it will
be considered void.
3) Existence of Debt or Liability:
The pledge must be created as security for the payment of a debt or the performance
of a promise. The debt or liability must be in existence at the time of the creation of
the pledge.

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4) No Transfer of Ownership:
The transfer of possession of the goods does not amount to the transfer of ownership.
The ownership of the goods remains with the pledger.
5) Right To Sell:
The pledgee has a right to sell the goods in case the pledger fails to repay the debt or
perform the promise for which the pledge was created.
6) Duty To Take Care of The Goods:
The pledgee is under a duty to take reasonable care of the goods. If the pledgee fails
to take care of the goods, the pledger can sue for damages.
7) Duty To Return The Goods:
Once the debt or promise is discharged, the pledgee is under an obligation to return
the goods to the pledger. If the pledgee fails to return the goods, the pledger can sue
for their return.
The essentials of a pledge or pawn include the delivery of actual possession, a legal purpose,
the existence of a debt or liability, no transfer of ownership, the right to sell, the duty to take
care of the goods, and the duty to return the goods. All these elements must be present for a
valid pledge to be created.
RIGHTS AND DUTIES OF PLEDGEE & PLEDGOR

Rights and Duties of Pledgee:

A pledgee is a person who holds the goods pledged as security for the debt or obligation
owed to them by the pledger. The following are the rights and duties of the pledgee:
RIGHTS:
i. Right To Retain Possession:
The pledgee has the right to retain possession of the goods until the debt or obligation
is discharged by the pledger.
ii. Right To Sell:
If the pledger fails to pay the debt or perform the obligation, the pledgee has the right
to sell the goods after giving a reasonable notice to the pledger.
iii. Right To Appropriate:
If the pledger has pledged several goods for the same debt, the pledgee has the right to
appropriate any of the goods pledged towards the debt.
DUTIES:
i. Duty To Take Care Of The Goods:
The pledgee is under a duty to take reasonable care of the goods pledged. If the
pledgee fails to take care of the goods, the pledger can sue for damages.
ii. Duty To Return The Surplus:
If the pledgee sells the goods, and the sale proceeds are more than the amount owed to
them, they must return the surplus to the pledger.
iii. Duty To Account:

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The pledgee must account for any profits earned from the use of the goods pledged.
iv. Duty Not To Mix Goods:
The pledgee must not mix the goods pledged with their own goods, or with goods
pledged by another person.
A pledgee has the right to retain possession of the goods, sell the goods if the pledger fails to
pay the debt, appropriate goods towards the debt, take reasonable care of the goods, return
any surplus to the pledger, account for profits earned, and avoid mixing the goods. At the
same time, the pledgee also has a duty to take care of the goods, not to mix them, and to
account for profits.
RIGHTS & DUTIES OF PLEDGOR
A pledgor is a person who pledges the goods as security for the debt or obligation owed to the
pledgee. The following are the rights and duties of the pledgor:
i. Right To Redeem:
The pledgor has the right to redeem the goods pledged by paying the debt or fulfilling
the obligation.
ii. Right To Sue For Wrongful Sale:
If the pledgee wrongfully sells the goods, the pledgor has the right to sue for damages.
Duties:
i. Duty To Disclose Defects:
The pledgor is under a duty to disclose any defects in the goods pledged.
ii. Duty To Pay The Debt Or Perform The Obligation:
The pledgor must pay the debt or perform the obligation for which the goods were
pledged.
iii. Duty Not To Revoke The Authority To Sell:
If the pledgor has given the authority to sell the goods to the pledgee, they cannot
revoke the authority without the consent of the pledgee.
iv. Duty To Indemnify The Pledgee:
If the pledgee suffers any loss due to defects in the goods pledged, the pledgor is
under a duty to indemnify the pledgee.
v. Duty To Pay Expenses:
The pledgor must pay the necessary expenses incurred by the pledgee for the
preservation of the goods.
In conclusion, the pledgor has the right to redeem the goods pledged, sue for wrongful sale,
and the duty to disclose defects, pay the debt or perform the obligation, not to revoke the
authority to sell, indemnify the pledgee, and pay the expenses.

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WRITE DIFFERENCE BETWEEN PLEDGE

AND BAILMENT
Pledge and bailment are two types of legal arrangements that involve transferring possession
of goods from one party to another. Although they share some similarities, they have distinct
differences in terms of their purpose, parties involved, and legal implications. Here are the
main differences between pledge and bailment:
Nature of Difference Pledge Bailment
The primary purpose of Bailment aims to transfer
pledge is to provide security possession of goods for a
Purpose for a debt or obligation specific purpose, such as
repair or storage.

In a pledge, the parties In a bailment, the parties

involved are the pledgor involved are the bailor (who
Parties Involved (who pledges the goods) and gives possession of goods)
the pledgee (to whom the and the bailee (who receives
goods are pledged). the goods).
Pledge creates a security Bailment, on the other hand,
interest in the pledged goods, creates a temporary transfer
which means that the pledgee of possession, and the bailee
Legal Implications has a right to sell the goods if has a duty to return the goods
the pledgor fails to repay the to the bailor after the purpose
debt or perform the of the bailment is fulfilled.
obligation.
In a pledge, possession of the In a bailment, possession of
goods is transferred to the the goods is transferred to the
Possession pledgee, while the pledgor bailee, but ownership
retains ownership. remains with the bailor.

In a pledge, the pledgee is In a bailment, the bailee is

entitled to compensation for entitled to compensation for
Compensation any damages suffered due to any expenses incurred in
the pledgor's breach of the fulfilling the purpose of the
security agreement. bailment.

In summary, the primary difference between pledge and bailment is their purpose: pledge
provides security for a debt or obligation, while bailment is a temporary transfer of
possession for a specific purpose. They also have differences in parties involved, legal
implications, possession, and compensation.

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The Contract & Sales of Goods Act

HYPOTHECATION
Hypothecation is a type of security arrangement where a borrower pledges their asset, usually
movable property, as collateral for a loan or a credit facility. The borrower retains possession
of the asset but the lender has the right to take possession of the asset if the borrower fails to
repay the loan. The lender has a lien over the asset and can sell it to recover the outstanding
debt.
Here is an example of hypothecation:
Suppose a business owner wants to expand his business by purchasing new equipment but
does not have enough funds to buy it. The business owner approaches a bank to obtain a loan
of Rs. 5,00,000. The bank agrees to provide the loan but requires security to mitigate the risk
of default.
The business owner pledges the new equipment they are purchasing as collateral for the loan.
The bank conducts a valuation of the equipment and agrees to provide the loan of Rs.
5,00,000 against the hypothecation of the equipment.
The business owner retains possession of the equipment and uses it for his business. They are
required to make regular payments to the bank to repay the loan. If the business owner
defaults on the loan, the bank has the right to take possession of the equipment and sell it to
recover the outstanding debt.
In this example, the equipment is the hypothecated asset and the bank is the lender. The
business owner is the borrower who retains possession of the asset but has pledged it as
collateral. If the borrower fails to repay the loan, the lender has the right to take possession of
the asset and sell it to recover the outstanding debt.
MORTGAGE
Mortgage is a type of security where the borrower pledges their immovable property as
collateral for a loan. The borrower retains possession of the property but the lender has the
right to take possession of the property if the borrower fails to repay the loan. Here is an
example of a mortgage:
Suppose Jameel wants to buy a house but does not have enough funds to purchase it outright.
He approaches a bank to obtain a loan of Rs. 50,00,000. The bank agrees to provide the loan
but requires security to mitigate the risk of default.
Jameel pledges his newly purchased house as collateral for the loan. The bank conducts a
valuation of the property and agrees to provide the loan of Rs. 50,00,000 against the
mortgage of the property.
Jameel retains possession of the house and uses it as his primary residence. He is required to
make regular payments to the bank to repay the loan. If Jameel defaults on the loan, the bank
has the right to take possession of the house and sell it to recover the outstanding debt.
In this example, the house is the mortgaged asset and the bank is the lender. Jameel is the
borrower who retains possession of the asset but has mortgaged it as collateral. If Jameel fails
to repay the loan, the bank has the right to take possession of the asset and sell it to recover
the outstanding debt.

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CONTRACT OF AGENCY
According to Section 182 of the Contract Act 1872, an agency relationship is formed when
one person (the principal) appoints another person (the agent) to act on their behalf in a legal
or business matter. The agent is authorized to represent the principal and make decisions on
their behalf, as if the principal was present and making those decisions themselves.
The contract of agency can be expressed or implied and can be created for any lawful
purpose. The agent can have various duties, including but not limited to selling goods or
services, collecting payments, making payments, and giving legal advice.
For example, if a company wants to expand its business to a new city, it can appoint an agent
to represent it in that city. The agent can rent an office, hire employees, and market the
company's products or services. The agent can also enter into contracts on behalf of the
company and make financial decisions as authorized by the principal.
The agency relationship is based on trust, and the agent has a fiduciary duty to act in the best
interests of the principal. The principal has the right to control the agent's actions and can
revoke the agent's authority at any time. The agent is entitled to receive compensation from
the principal for his services, unless otherwise agreed upon in the contract of agency.
The contract of agency is a legal agreement between a principal and an agent, in which the
agent is authorized to act on behalf of the principal in legal or business matters. It is an
essential tool for businesses to expand their operations and establish a presence in new
markets while maintaining control over their affairs.
ESSENTIALS OF AGENCY:
The essentials of an agency contract are the fundamental requirements that must be present
for the agency relationship to exist between the principal and agent. These essentials are
provided in Sections 182 to 185 of the Contract Act 1872. They include:
I. Consent:
The contract of agency must be based on the free and mutual consent of both the
principal and the agent. Both parties must agree to the terms of the agency contract
and have the capacity to enter into it.
II. Consideration:
The contract of agency must involve consideration, which is the payment or
compensation that the principal agrees to provide the agent for their services.
Consideration can be monetary or non-monetary.
For example, a company hires a marketing agent to promote its products in a new
market. The principal agrees to pay the agent a commission for each sale made, which
is the consideration for the agent's services.
III. Agent's Authority:
The agent must have the authority to act on behalf of the principal in legal or business
matters. The principal can limit or expand the agent's authority as they see fit.
For example, a company hires an agent to negotiate a contract with a supplier on its
behalf. The agent's authority is limited to the negotiation of the contract, and they
cannot make any other decisions on behalf of the principal without their express
authorization.

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IV. Principal's Control:

The principal has the right to control the agent's actions and decisions. The agent is
obligated to follow the principal's instructions and act in their best interests.
For example, a company hires an agent to manage its affairs in a foreign country. The
principal has the right to control the agent's actions and decisions in that country,
including approving contracts and financial decisions.
V. Agent's Duty:
The agent has a duty to act in the best interests of the principal and not use their
position for personal gain. The agent must maintain the confidentiality of the
principal's information and not disclose it to third parties.
For example, a lawyer is appointed as an agent by a client to represent them in legal
matters. The lawyer has a duty to act in the client's best interests and maintain the
confidentiality of their information.
KINDS OF AGENTS
The Contract Act, 1872 defines an agent as "a person employed to do any act for another or
to represent another in dealings with third persons". Agents are an essential part of modern
business, and their role is to represent the interests of their principal in various transactions.
There are different types of agents, each with its own characteristics and functions. In this
answer, we will discuss the kinds of agents in detail with headings.
i. Special Agent:
A special agent is appointed to carry out a specific task or duty for the principal. The
authority of a special agent is limited to a particular transaction or purpose. For
example, an agent appointed to sell a particular property is a special agent.
ii. General Agent:
A general agent is appointed to act on behalf of the principal in a specific area of
business. The authority of a general agent is broader than that of a special agent. For
example, an agent appointed by a company to sell their products in a specific region is
a general agent.
iii. Universal Agent:
A universal agent is authorized to act on behalf of the principal in all matters. The
authority of a universal agent is comprehensive and wide-ranging. For example, an
attorney authorized to act on behalf of a person in all legal matters is a universal
agent.
iv. Del Credere Agent:
A del credere agent is a type of agent who guarantees the payment of debts by the
third party. The del credere agent is liable to the principal if the third party fails to
make the payment. For example, a commission agent who guarantees the payment of
the goods sold by him to the buyers is a del credere agent.
v. Sub-Agent:
A sub-agent is appointed by an agent to perform a particular task or duty. The sub-
agent is responsible to the agent, and the agent is responsible to the principal. For

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example, an agent appointed to sell a particular product may appoint a sub-agent to

sell the product in a specific area.
vi. Co-Agent:
A co-agent is appointed by the principal along with another agent to perform a
particular task or duty. The co-agent shares the authority and responsibility with the
other agent. For example, two agents.

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CREATION OF AGENCY
The creation of an agency relationship requires the mutual consent of both the principal and
the agent. The principal must have the intention to create an agency relationship and must be
legally competent to do so. The agent, on the other hand, must be willing to act on behalf of
the principal and have the capacity to do so. The creation of an agency can be done through
various means, such as through an express agreement, implied agreement, or by operation of
law. The Contract Act 1872 of Pakistan provides detailed rules and regulations for the
creation of agency relationships, and this article will discuss the different modes of creating
an agency under this act.
A Contract of agency may be created in any of the following ways:
1. Express Agency:
Express agency is created when the principal and the agent enter into an express
agreement, either in writing or orally, where the principal authorizes the agent to act
on their behalf in a specific matter or a range of matters. According to Section 186 of
the Contract Act 1872 of Pakistan, "an agency is said to be express when it is created
by the words spoken or written."
To create an express agency, the agreement between the principal and the agent must
be clear and unambiguous, and the scope of the agency must be clearly defined. The
agreement should also include the terms of compensation, if any, for the agent's
services, and the duration of the agency relationship.
For example, if a company wants to sell its products in a foreign country, it may
appoint an agent to act on its behalf in that country. The company and the agent may
enter into an express agreement that outlines the scope of the agency, such as the
products to be sold, the territories in which the agent is authorized to sell, and the
commission or fees to be paid to the agent for their services. The agreement may also
specify the duration of the agency relationship and any other terms and conditions
agreed upon by the parties.
In an express agency relationship, both the principal and the agent have a clear
understanding of their respective rights and obligations, and the agency relationship is
governed by the terms of the agreement. Any actions taken by the agent outside the
scope of the agency relationship are not binding on the principal.
2. Implied Agency:
An implied agency arises when the parties' conduct implies the existence of an agency
relationship, even though there is no express agreement to that effect. Section 187 of
the Contract Act 1872 of Pakistan provides that an agency may be implied from the
conduct of the parties or from the circumstances of the case. This type of agency is
based on the principle of estoppel, which means that a party may be prevented from
denying the existence of an agency relationship if their conduct led the other party to
believe that such a relationship existed.
For example, suppose a person entrusts their car keys to a friend to park the car. In
this scenario, an implied agency relationship arises, as the friend has the implied
authority to drive the car to the parking spot. Similarly, if a person hires a travel agent

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to book a flight, the agent has the implied authority to make all necessary
arrangements related to the flight, such as booking seats and arranging for meals.
In implied agency, the authority of the agent is limited to the scope of the implied
authority conferred upon them by the principal. The principal is also responsible for
the acts of the agent within the scope of the implied authority. However, the principal
is not responsible for any acts done by the agent outside the scope of the implied
authority, unless the principal ratifies such acts.
It is essential to note that implied agency must be based on clear conduct or
circumstances, as it can be challenging to establish an agency relationship based on
implications. It is always recommended to have an express agency agreement to avoid
any ambiguity or misunderstanding regarding the extent of authority conferred upon
the agent.
3. Agency By Ratification:
Agency by ratification is a type of agency relationship that arises when a person,
known as the principal, ratifies the actions of another person, known as the agent, who
acted without the principal's authority. The ratification of the agent's actions by the
principal retroactively creates an agency relationship between the principal and the
agent from the time when the agent initially acted. The Contract Act 1872 of Pakistan
provides detailed rules and regulations for agency by ratification under Section 196.
To create an agency by ratification, the following elements must be present:
i. The agent must have acted without authority: The agent must have
acted on behalf of the principal without having the express or implied
authority to do so.
ii. The principal must have full knowledge of the agent's actions: The
principal must have knowledge of all the material facts surrounding the
agent's actions.
iii. The principal must have the capacity to ratify: The principal must have
the legal capacity to enter into a contract and ratify the agent's actions.
iv. The principal must expressly or impliedly ratify the agent's actions:
The principal must accept the agent's actions and agree to be bound by
them.
For example, if a company's sales manager, who is not authorized to make contracts,
enters into a contract with a client on behalf of the company, and the company later
ratifies the contract, an agency by ratification is created between the company and the
sales manager. In this case, the company would be bound by the terms of the contract,
even though the sales manager did not have the authority to make it initially.
4. Agency by Operation of Law:
An agency relationship can also be created by operation of law, which means that it
arises by the operation of legal principles without the need for an express or implied
agreement between the principal and the agent. There are several situations where an
agency relationship can be created by operation of law, and these are discussed below:

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a) Agency by Necessity:
An agency by necessity arises when an emergency situation occurs, and the
agent has to act on behalf of the principal to protect their interests. For
example, if a ship captain is stranded in a foreign port and needs to hire a local
agent to sell the cargo and arrange for repairs, an agency by necessity is
created.
b) Agency by Estoppel:
An agency by estoppel arises when the principal, through their words or
actions, leads a third party to believe that someone is their agent, even though
there is no actual agency relationship. For example, if a company allows an
individual to act as their sales agent and the individual enters into contracts
with customers on behalf of the company, an agency by estoppel is created.
In all these cases, the agency relationship is created by operation of law, and the agent
assumes certain duties and responsibilities towards the principal. The agent is
expected to act in the best interests of the principal and to exercise reasonable care
and skill in carrying out their duties. The principal, in turn, is responsible for
compensating the agent for their services and for indemnifying them against any
losses or damages incurred while acting on their behalf.

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RIGHTS AND DUTIES OF PRINCIPAL AND

AGENT
RIGHTS OF PRINCIPAL:
In a contract of agency, the principal is the party who appoints an agent to act on their behalf.
The principal has certain rights under the contract of agency, which are intended to protect
their interests and ensure that the agent is acting in accordance with their wishes. One of the
most important rights of the principal is the right to control the actions of the agent. This
means that the principal can specify the scope of the agent's authority and give instructions on
how certain tasks should be performed. The principal also has the right to receive regular
reports and updates from the agent on their activities, including any contracts or transactions
entered into on the principal's behalf. In addition, the principal has the right to terminate the
agency relationship at any time, provided that they give reasonable notice to the agent.
Overall, the rights of the principal in a contract of agency are designed to ensure that they
retain control over their affairs and that their interests are protected throughout the duration of
the agreement.
1) Recovery of Loss:
Under section 211 of the Contract Act 1872 in Pakistan, the principal has the right to
recover any loss incurred as a result of the agent's actions that are beyond the scope of
their authority. This means that if the agent exceeds their authority or engages in
actions that are not authorized by the principal, the principal can hold the agent liable
for any resulting losses or damages.
For example, suppose a principal hires an agent to sell a property on their behalf. The
agent is given specific instructions to sell the property at a certain price and to only
accept payments through a specific method. However, the agent disregards these
instructions and sells the property at a lower price and accepts payment in a manner
that is not authorized by the principal. As a result, the principal suffers a loss in the
form of reduced proceeds from the sale of the property. In this case, the principal has
the right to recover the loss from the agent, as the agent acted beyond their authority
and caused a financial harm to the principal.
2) Recovery of Benefit:
Under section 216 of the Contract Act 1872 in Pakistan, the principal in a contract of
agency has the right to recover any benefits that the agent has obtained through their
actions on behalf of the principal. This provision applies in situations where the agent
has acted outside the scope of their authority or has acted in a way that is contrary to
the principal's interests.
For example, if an agent is appointed by a company to negotiate a contract for the sale
of a product and the agent ends up selling the product at a lower price than the
company had authorized, the company can claim the difference in price as a benefit
that the agent has obtained through their actions. The company can then seek to
recover this benefit from the agent by deducting the amount from any commission or
other compensation owed to the agent. Similarly, if an agent is authorized to collect
payments on behalf of a principal and the agent collects more money than they were
authorized to collect, the principal has the right to recover the excess amount as a

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benefit obtained by the agent. This could occur if the agent charges unauthorized fees
or collects payments for services that were not provided.
3) Refusal To Indemnify:
Section 215 of the Contract Act 1872 in Pakistan provides the principal with the right
to refuse indemnity to an agent in certain circumstances. Indemnity is the
compensation or reimbursement of losses or damages suffered by the agent while
acting on behalf of the principal. However, the principal has the right to refuse
indemnity if the agent has acted outside the scope of their authority, or if the agent has
acted in a manner that is not in the best interests of the principal.
For example, if a principal hires an agent to sell their property and agrees to pay the
agent a commission for each sale made, but the agent sells the property without the
principal's knowledge and consent, the principal may refuse to indemnify the agent
for any losses or damages suffered as a result of the sale. Similarly, if the agent
engages in unethical or illegal conduct while acting on behalf of the principal, the
principal may refuse to indemnify the agent for any losses or damages resulting from
such conduct.
The right to refuse indemnity is an important tool for principals to protect themselves
from the actions of agents who do not act in accordance with their wishes or interests.
However, it is essential for principals to ensure that they provide clear instructions to
their agents regarding the scope of their authority and the expectations of their
conduct. In the absence of such instructions, the principal may find it difficult to
refuse indemnity to an agent who has acted in good faith, but outside the scope of
their authority.
DUTIES OF PRINCIPAL:
Here are duties of a principal against the agent:
1) Remuneration:
According to section 219 of the Contract Act 1872 in Pakistan, one of the principal's
duties in a contract of agency is to pay remuneration to the agent for their services.
Remuneration refers to the compensation or payment that the principal provides to the
agent in exchange for their services. The amount and method of payment of
remuneration are usually specified in the contract of agency.
For example, if a principal hires an agent to sell their products, the principal may
agree to pay the agent a commission for each sale made. The commission may be a
percentage of the sale price or a fixed amount per sale. The principal is obligated to
pay this commission to the agent upon completion of the sale, as specified in the
contract of agency.
The duty to pay remuneration is essential to the agency relationship, as it provides an
incentive for the agent to perform their duties to the best of their ability. It also
ensures that the agent is compensated fairly for their services, which helps to maintain
a positive relationship between the principal and the agent.
Overall, remuneration is an important aspect of the agency relationship, and the
principal has a legal obligation to pay the agreed-upon amount to the agent in a timely

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manner. Failure to do so may result in a breach of the contract of agency and may lead
to legal action by the agent to recover the unpaid amount.
2) Indemnity For Lawful Acts:
Section 222 of the Contract Act 1872 in Pakistan imposes a duty on the principal to
indemnify the agent for any losses or damages suffered as a result of the agent's
lawful acts performed in the course of their agency. This means that if the agent acts
within the scope of their authority and in accordance with the instructions of the
principal, the principal must compensate the agent for any losses or damages they
incur.
For example, if a principal hires an agent to transport goods from one location to
another and the agent incurs expenses for fuel, repairs, and other related costs, the
principal must reimburse the agent for these expenses. Similarly, if the agent is sued
for damages resulting from their lawful acts while acting on behalf of the principal,
the principal must indemnify the agent for any losses or damages suffered as a result
of the lawsuit.
The duty to indemnify for lawful acts is an important aspect of the agency
relationship, as it ensures that the agent is not unfairly burdened with losses or
damages that result from carrying out their duties in good faith. It also provides an
incentive for agents to act diligently and carefully while carrying out their duties, as
they know that they will be compensated for any losses or damages they may suffer.
3) Indemnity For Acts In Good Faith:
Section 223 of the Contract Act 1872 in Pakistan specifies that the principal has a
duty to indemnify the agent for any losses or damages suffered as a result of acts
performed by the agent in good faith while acting within the scope of their authority.
Indemnity refers to the compensation or reimbursement of losses or damages suffered
by the agent.
For example, if an agent is authorized by a principal to purchase goods on their behalf
and the agent, acting in good faith, enters into a contract to purchase goods from a
supplier, but the supplier fails to deliver the goods, the principal has a duty to
indemnify the agent for any losses or damages suffered as a result of the failed
transaction.
The duty to indemnify is important to encourage agents to act in good faith and to
provide them with the confidence to carry out their duties without fear of financial
loss. It also ensures that the principal takes responsibility for the actions of the agent
when acting within the scope of their authority.
4) Compensation for Injury:
Section 225 of the Contract Act 1872 in Pakistan outlines the duty of a principal to
compensate an agent for any injury caused to them while performing their duties on
behalf of the principal. This duty arises regardless of whether or not the principal is at
fault for the injury.
For example, if an agent is injured while carrying out their duties on behalf of the
principal, such as during a delivery or while visiting a client, the principal has a duty

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to compensate the agent for any resulting medical expenses, loss of income, or other
damages suffered as a result of the injury.
The duty of compensation for injury is an important aspect of the agency relationship,
as it ensures that the agent is protected and treated fairly while carrying out their
duties on behalf of the principal. It also encourages principals to take appropriate
measures to ensure the safety and well-being of their agents, such as providing
adequate training, equipment, and support.
It is important for principals to understand their duty of compensation for injury and
to take appropriate measures to fulfill this duty. Failure to do so may result in legal
liability and damage to the reputation of the principal.

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RIGHTS & DUTIES OF AGENT

An agent is a person who is authorized to act on behalf of another person or organization,
known as the principal, in various matters. The agency relationship is established through a
contract or agreement, either express or implied, between the principal and the agent. As an
agent, one has certain rights and duties that are intended to protect the interests of the
principal while carrying out their responsibilities. These rights and duties are governed by
various laws and regulations and are essential for a successful agency relationship. In this
context, it is important to understand the rights and duties of an agent in order to carry out
their responsibilities effectively and ensure that the interests of both parties are protected.
RIGHTS OF AGENT:
The following are the rights of an agent:
1) Retention Of Money:
Under Section 217 of the Contract Act 1872 in Pakistan, an agent has the right to
retain any money received on behalf of the principal until all debts owed to the agent
by the principal have been settled. This right is intended to protect the agent from any
potential losses or damages resulting from the actions of the principal. For example, if
an agent is owed commission by the principal for services rendered but the principal
fails to pay, the agent may retain any money received from the principal until the debt
is settled. This ensures that the agent is not left out of pocket and that the principal is
held accountable for their obligations. However, it is important for the agent to
exercise this right in good faith and to ensure that they have a valid claim against the
principal before retaining any money received. Failure to do so may result in legal
liability and damage to the reputation of the agent.
2) Remuneration:
Section 219 and 220 of the Contract Act 1872 in Pakistan provide the agent with the
right to receive remuneration or compensation for their services. Remuneration is the
payment or compensation received by the agent for the services they provide on
behalf of the principal. This right to receive remuneration arises when the agent acts
within the scope of their authority and fulfills their duties as outlined in the agency
contract.
For example, if an agent is hired by a principal to sell their products or services, the
agent is entitled to receive a commission or a percentage of the profits generated from
the sales. Similarly, if an agent is hired to manage a property, they may receive a fee
for their services.
The right to receive remuneration is an important aspect of the agency relationship, as
it provides an incentive for agents to carry out their duties effectively and efficiently.
It also ensures that agents are compensated fairly for their efforts and that their
interests are protected. However, it is important to note that the right to remuneration
may be limited by the terms of the agency contract and may be subject to negotiation
between the principal and the agent.
3) Lien:

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Under section 221 of the Contract Act 1872 in Pakistan, an agent has the right of lien
over the goods or property of the principal in their possession until the payment of
their dues or expenses is received. This means that the agent can retain possession of
the principal's property until they are paid for their services or reimbursed for their
expenses.
For example, if a real estate agent is hired by a property owner to sell a piece of land
and incurs expenses such as advertising costs, legal fees, and travel expenses during
the process of finding a buyer, they have the right to retain possession of the property
until the owner pays the outstanding dues.
This right of lien serves as a safeguard for agents, as it ensures that they are
compensated for their efforts and expenses before releasing the property to the
principal. It also provides an incentive for principals to settle their dues promptly, as
they are aware that their property will be held until payment is received.
However, it is important to note that the right of lien should be exercised in good faith
and in accordance with the terms of the agreement between the principal and the
agent. Any wrongful retention of the principal's property may result in legal
consequences and damage to the reputation of the agent.
4) Indemnity For Lawful Acts:
Under Section 222 of the Contract Act 1872 in Pakistan, an agent has the right to be
indemnified by the principal for any losses or expenses incurred by the agent while
carrying out their lawful duties on behalf of the principal. This means that if the agent
has acted within the scope of their authority and in accordance with the instructions of
the principal, the principal is obliged to compensate the agent for any expenses or
losses incurred during the course of their work.
For example, suppose an agent is instructed by the principal to transport goods from
one location to another. During the course of transportation, the goods are damaged
due to reasons beyond the control of the agent, such as a road accident. In this case,
the agent has acted lawfully within the scope of their authority and is entitled to be
indemnified by the principal for any losses or expenses incurred as a result of the
accident.
The right to indemnity for lawful acts is an important protection for agents, as it
ensures that they are not unfairly burdened with the expenses or losses incurred
during the course of their work on behalf of the principal. However, it is important to
note that this right only applies to lawful acts, and the agent is not entitled to
indemnity for any losses or expenses incurred while acting outside the scope of their
authority or in an unlawful manner.
5) Indemnity For Acts In Good Faith:
Section 223 of the Contract Act 1872 in Pakistan provides the agent with the right to
be indemnified by the principal for any losses or damages suffered by the agent while
acting in good faith on behalf of the principal. This means that if the agent acts in a
manner that is consistent with the instructions and authority given by the principal,
but still suffers losses or damages, the principal is obligated to compensate the agent
for those losses or damages.

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For example, if an agent is authorized by the principal to sell a certain product, and
the agent sells the product in good faith but later finds out that the product was
defective and causes harm to the customer, the principal is obligated to indemnify the
agent for any losses or damages resulting from the sale. Similarly, if an agent is
authorized by the principal to sign a contract on their behalf, and the contract is later
found to be unenforceable or results in losses for the principal, the principal is
obligated to indemnify the agent if the agent acted in good faith and in accordance
with their instructions.
The right to indemnity for acts in good faith is an important protection for agents, as it
provides them with the assurance that they will not suffer any losses or damages for
carrying out their duties in good faith. This also encourages agents to act in the best
interests of the principal and to carry out their responsibilities with care and diligence,
knowing that they will be protected in the event of any unforeseen losses or damages.
6) Compensation For Injury:
Section 225 of the Contract Act 1872 in Pakistan grants the right of compensation for
injury to the agent in the agency relationship. It imposes a duty on the principal to
compensate the agent for any injury that the agent may suffer while performing their
duties on behalf of the principal. This duty arises regardless of whether or not the
principal is at fault for the injury.
For instance, if an agent is injured while making a delivery on behalf of the principal,
the principal is obligated to compensate the agent for any medical expenses, loss of
income, or other damages incurred by the agent as a result of the injury. Similarly, if
an agent suffers an injury due to the negligence or wrongdoing of a third party while
performing their duties, the principal is still liable to compensate the agent for any
damages suffered.
The right of compensation for injury is an essential aspect of the agency relationship,
as it ensures that the agent is protected and treated fairly while carrying out their
duties on behalf of the principal. It also encourages principals to take appropriate
measures to ensure the safety and well-being of their agents, such as providing
adequate training, equipment, and support.
7) Stoppage of Goods:
Section 228 of the Contract Act 1872 in Pakistan provides the agent with the right to
stop the delivery of goods to the principal in certain circumstances. This right, known
as the "stoppage of goods," can be exercised if the agent has delivered goods to the
principal but has not yet received payment, and if the agent becomes aware of certain
circumstances that make it unlikely that the principal will be able to pay for the goods.
For example, suppose an agent delivers goods to a principal on credit, with the
understanding that the principal will pay for the goods within a specified period of
time. However, if the agent later discovers that the principal is in financial difficulty,
such as bankruptcy or insolvency, and is unlikely to be able to pay for the goods, the
agent may exercise their right to stop the delivery of any further goods to the principal
until payment is received for the goods already delivered.

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The right of stoppage of goods is an important tool for agents to protect themselves
against non-payment or financial losses resulting from the actions of the principal.
However, it is essential for agents to exercise this right in a responsible and
reasonable manner, and to ensure that they provide the principal with notice of the
stoppage and the reasons for it. Failure to do so may result in legal liability and
damage to the reputation of the agent.

DUTIES OF AGENT:
The following are the duties of an agent:
1) Directions or Customs:
Section 211 of the Contract Act 1872 in Pakistan imposes a duty on the agent to
follow the directions of the principal in carrying out their duties, and to act in
accordance with any customs or practices that are customary or reasonable for the
type of agency involved.
For example, if a principal hires an agent to sell their goods in a particular market, the
agent has a duty to follow the directions of the principal regarding the price, quality,
and other aspects of the goods, as well as any other instructions provided by the
principal. Additionally, the agent must also act in accordance with any customs or
practices that are customary or reasonable for the market in question, such as pricing
conventions or marketing practices.
Similarly, if a principal hires an agent to manage their property, the agent has a duty
to follow the directions of the principal regarding the maintenance and upkeep of the
property, as well as any other instructions provided by the principal. Additionally, the
agent must also act in accordance with any customs or practices that are customary or
reasonable for the type of property involved, such as common maintenance practices
for commercial or residential properties.
The duty to follow directions or customs is an important aspect of the agency
relationship, as it ensures that the agent is acting in the best interests of the principal
and is carrying out their duties in a manner that is consistent with industry standards
and practices. Failure to follow directions or customs may result in legal liability and
damage to the reputation of the agent.
2) Skill and Care:
Section 212 of the Contract Act 1872 in Pakistan outlines the duty of an agent to
exercise reasonable skill and care in carrying out their responsibilities on behalf of the
principal. This duty requires the agent to perform their duties to the best of their
abilities and to act in good faith and with the best interests of the principal in mind.
For example, suppose a principal hires an agent to manage their business affairs,
including negotiating contracts and dealing with clients. The agent has a duty to use
their skills and knowledge to negotiate the best possible deals for the principal and to
handle client relationships in a professional and courteous manner. Additionally, the
agent must ensure that they act in accordance with the instructions of the principal and
keep the principal informed of any significant developments or issues.

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The duty of skill and care is an important aspect of the agency relationship, as it
ensures that the agent performs their duties to the best of their abilities and protects
the interests of the principal. It also provides the principal with a level of confidence
and trust in the agent's abilities, which is essential for a successful agency
relationship.
It is important for agents to understand their duty of skill and care and to ensure that
they act in accordance with this duty at all times. Failure to do so may result in legal
liability and damage to the reputation of the agent.
3) Submission of Accounts:
Under section 213 of the Contract Act 1872 in Pakistan, it is the duty of an agent to
submit accounts of their transactions to their principal. This duty arises when the
agency relationship is terminated or when the principal demands the accounts.
For example, if an agent is hired by a principal to sell a product, the agent has a duty
to keep accurate records of all transactions related to the sale of the product, including
sales made, expenses incurred, and any other relevant information. When the agency
relationship is terminated, the agent must submit these accounts to the principal to
provide an accurate record of their activities.
Similarly, if the principal demands the accounts during the agency relationship, the
agent has a duty to submit them in a timely and accurate manner.
The duty of submitting accounts is an essential aspect of the agency relationship, as it
ensures transparency and accountability on the part of the agent and enables the
principal to make informed decisions about the agency. It also enables the principal to
verify that the agent has acted within the scope of their authority and in accordance
with the terms of the agency agreement.
Agents should ensure that they keep accurate and up-to-date records of their
transactions and that they submit accounts to the principal in a timely and accurate
manner to fulfill their duty under section 213. Failure to do so may result in legal
liability and damage to the reputation of the agent.
4) Contact with Principal:
Section 214 of the Contract Act 1872 in Pakistan outlines the duty of an agent to
maintain contact with the principal and to communicate with them in a timely and
appropriate manner. This duty is essential for ensuring that the principal is kept
informed of the agent's activities and is able to make informed decisions regarding the
business being conducted on their behalf.
For example, if an agent is responsible for managing a retail store on behalf of the
principal, they have a duty to communicate with the principal regarding the store's
operations, such as sales figures, inventory levels, and customer feedback. This
communication may take the form of regular reports, phone calls, or meetings,
depending on the preferences of the principal.
By maintaining regular contact with the principal, the agent is able to keep them
informed of any issues or opportunities that may arise, and to seek guidance or
direction as needed. This helps to ensure that the principal's interests are protected and

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that the business is conducted in a manner that is consistent with their wishes and
objectives.
Failure to maintain contact with the principal or to communicate in a timely and
appropriate manner may result in misunderstandings, missed opportunities, and
damage to the reputation of the agent. As such, it is essential for agents to take their
duty to maintain contact with the principal seriously and to ensure that they
communicate effectively and consistently.
5) Protection of Interest:
Section 209 of the Contract Act 1872 in Pakistan outlines the duty of an agent to
protect the interests of the principal while carrying out their duties on behalf of the
principal. This duty arises from the fiduciary relationship between the principal and
the agent, and requires the agent to act in good faith and with due diligence to ensure
that the interests of the principal are protected.
For example, suppose an agent is hired by a principal to negotiate a business deal with
a third party. The agent has a duty to protect the interests of the principal by
negotiating the best possible deal on their behalf, disclosing all relevant information,
and avoiding conflicts of interest. The agent must act in good faith, with due care,
skill, and diligence, to ensure that the principal's interests are protected.
The duty of protection of interest is an essential aspect of the agency relationship, as it
ensures that the principal is able to trust the agent to act in their best interests. It also
helps to prevent conflicts of interest and promotes transparency and accountability in
the relationship between the principal and the agent.
6) Disclosure of Facts:
Section 215 of the Contract Act 1872 in Pakistan outlines the duty of an agent to
disclose all relevant facts to the principal while carrying out their duties on behalf of
the principal. This duty arises from the fiduciary relationship between the principal
and the agent, and requires the agent to act in good faith and with due diligence to
ensure that the principal is fully informed and able to make informed decisions.
For example, suppose an agent is hired by a principal to sell a property on their
behalf. The agent has a duty to disclose all relevant facts about the property to the
principal, such as any defects or issues that may affect the value of the property or the
ability to sell it. The agent must also disclose any offers or negotiations with potential
buyers, as well as any conflicts of interest that may arise.
The duty of disclosure of facts is an essential aspect of the agency relationship, as it
ensures that the principal is able to make informed decisions based on accurate and
complete information. It also helps to prevent conflicts of interest and promotes
transparency and accountability in the relationship between the principal and the
agent.
7) Return of Benefit:
Section 216 of the Contract Act 1872 in Pakistan outlines the duty of an agent to
return any benefit received while acting on behalf of the principal. This duty arises if

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the agent has received a benefit that is not authorized by the principal or that the agent
is not entitled to receive.
For example, suppose an agent is authorized to sell a property on behalf of the
principal. If the agent receives a commission that is higher than what was agreed upon
or is not entitled to any commission at all, the agent has a duty to return the excess
commission to the principal. Similarly, if the agent receives a bribe or secret profit
while acting on behalf of the principal, the agent has a duty to return the benefit to the
principal.
The duty of return of benefit is an essential aspect of the agency relationship, as it
ensures that the agent acts in the best interests of the principal and avoids conflicts of
interest or personal gain. It also promotes transparency and accountability in the
relationship between the principal and the agent.
8) Payment of Amount:
Section 218 of the Contract Act 1872 in Pakistan outlines the duty of an agent to pay
to the principal all sums received on their behalf, along with any profits or benefits
earned from the agency relationship. This duty of payment of amount arises from the
fiduciary relationship between the principal and the agent and is essential for
maintaining trust and transparency in the agency relationship.
For example, suppose an agent is hired by a principal to sell a certain product in the
market, and the agent sells the product for a certain price. The agent has a duty to
promptly pay to the principal the amount received from the sale, after deducting any
agreed-upon commission or expenses incurred in the process. Failure to do so may
result in a breach of the agency relationship and legal liability for the agent.
The duty of payment of amount is an important aspect of the agency relationship, as it
ensures that the principal is able to trust the agent to handle their funds and assets
responsibly. It also promotes transparency and accountability in the relationship
between the principal and the agent.
9) Delegation Of Authority:
Section 190 of the Contract Act 1872 in Pakistan outlines the duty of an agent to
perform their duties personally, unless there is an express or implied agreement
allowing them to delegate their authority to another person. This duty arises from the
principle that the agency relationship is based on personal trust and confidence
between the principal and the agent, and that the principal has a right to expect that
the agent will carry out their duties personally.
However, in certain circumstances, an agent may be allowed to delegate their
authority to another person. For example, if an agent is unable to perform their duties
due to illness or other unforeseen circumstances, they may be allowed to delegate
their authority to another person with the consent of the principal.
It is important for agents to understand their duty to perform their duties personally,
as well as the circumstances in which they may be allowed to delegate their authority.
Failure to do so may result in legal liability and damage to the reputation of the agent.

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The Contract & Sales of Goods Act

Overall, the duty of delegation of authority is an important aspect of the agency

relationship, as it allows for flexibility and adaptability in situations where the agent is
unable to carry out their duties personally, while also maintaining the trust and
confidence of the principal.

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The Contract & Sales of Goods Act

TERMINATION OF AGENCY
Termination of Agency is the process of ending the relationship between the principal and the
agent. It may occur for various reasons, such as completion of the agency task, breach of
contract, mutual agreement, or death of either party. In this discussion, we will examine the
different types of termination of agency and provide examples of each.
Section 201 of the Contract Act 1872 in Pakistan deals with the termination of agency. It
states that an agency relationship can be terminated in the following ways:
1) Termination By Agreement:
This type of termination occurs when both the principal and the agent agree to end the
agency relationship. It can happen for various reasons, such as the completion of the
task or the expiration of the contract. For example, a principal may hire an agent to
sell their property, and once the property is sold, the agency relationship ends by
mutual agreement.
2) Termination By Operation Of Law:
This type of termination occurs when the law automatically terminates the agency
relationship. It can happen for various reasons, such as the death or bankruptcy of
either party. For example, if an agent dies, the agency relationship is automatically
terminated by operation of law.
3) Termination By Breach:
This type of termination occurs when one party fails to fulfill their obligations under
the agency contract, leading to a breach of contract. For example, if an agent fails to
perform their duties as agreed, the principal may terminate the agency relationship for
breach of contract.
4) Termination By Revocation:
This type of termination occurs when the principal revokes the authority given to the
agent. The revocation can be expressed or implied and can happen at any time, as
long as it does not breach the terms of the agency contract. For example, if a principal
hires an agent to manage their business, the principal may revoke the agency
relationship if they become dissatisfied with the agent's performance.
5) Termination By Renunciation:
This type of termination occurs when the agent renounces or gives up their authority.
It can happen for various reasons, such as the agent's resignation or retirement. For
example, if an agent wishes to retire, they may renounce their authority, and the
agency relationship will be terminated.
In conclusion, the termination of the agency relationship can happen for various reasons and
can have legal and financial implications for both parties. It is important for both the principal
and the agent to understand the different types of termination and the circumstances under
which they can occur to avoid any legal disputes or financial losses.

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The Contract & Sales of Goods Act

CONTRACT
OF
SALE OF
GOODS

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The Contract & Sales of Goods Act

SALE OF GOODS ACT

Introduction:
The law relating to the sale of goods is available in the “Sale of Goods Act, 1930”. This Act
came into force on 1st July , 1930 and this act contains 66 sections and extends to the whole
of Pakistan. The Sale of Goods Act, 1930 is an important law in Pakistan that regulates the
sale of goods. The act provides a framework for contracts of sale of goods and outlines the
rights and obligations of buyers and sellers. It applies to all contracts for the sale of goods,
whether they are made in writing or orally.
Contract of Sale of Goods:
A Contract of sale of goods is a contract by which the ownership of movable goods is
transferred from one person (Seller) to an other person (Buyer).
Section 4(1) of the Sale of Goods Act, 1930 defines a sale of goods as a contract in which the
seller transfers or agrees to transfer the property or ownership of goods to the buyer for a
price.
Essential Elements:
Above definition contains the following essential elements:
1. Contract:
A sale of goods is a contractual arrangement between the buyer and the seller. A
contract is a legally binding agreement between two or more parties. It must contain
certain essential elements, such as offer, acceptance, consideration, and intention to
create legal relations. In the context of a sale of goods contract, the parties must agree
on the terms of the sale, including the quantity, quality, and price of the goods.
Example: Ali agrees to sell 100 kilograms of rice to Jameel for Rs. 10,000. They both
agree to the terms of the sale, and a contract of sale of goods is formed.
2. Transfer of Property:
The seller must transfer or agree to transfer the ownership or property in the goods to
the buyer. The property in goods means the ownership of the goods and the right to
use, dispose of, or destroy them. The transfer of property can take place at different
times, depending on the terms of the contract. It can occur either at the time of the
contract, at the time of delivery, or at any other time agreed by the parties.
Example: Jameel agrees to sell a car to Sadia. The contract states that the property in
the car will transfer to Sadia at the time of delivery. Jameel delivers the car to Sadia,
and the property in the car is transferred to her.
3. Goods:
The subject matter of the contract must be goods. Goods refer to movable property,
such as machinery, raw materials, and finished products. The goods must be specific
or identifiable at the time of the contract, and they must be in existence or must come
into existence during the contract.
Example: Jameel agrees to sell 100 kilograms of rice to Sadia. The rice is specific and
in existence, and the contract is valid.

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The Contract & Sales of Goods Act

4. Price:
The buyer must pay or agree to pay a price for the goods. Price refers to the
consideration or value given by the buyer in exchange for the goods. The price can be
fixed, or it can be left to be determined by some means agreed by the parties.
Example: Yasir agrees to sell a car to Ali for Rs. 500,000. The price is fixed, and the
contract is valid.

Difference Between Sale and Agreement to Sell

The Sale of Goods Act, 1930, makes a distinction between a sale and an agreement to sell.
Both terms refer to the transfer of ownership of goods from the seller to the buyer, but they
have different legal implications. Let's explore the key differences between sale and
agreement to sell under the following headings:
Definition:
A sale is a contract in which the seller transfers or agrees to transfer the ownership or
property of goods to the buyer for a price. An agreement to sell is a contract in which the
seller agrees to transfer the ownership or property of goods to the buyer at a future date or
upon the occurrence of a certain event, subject to certain conditions.
Example: Jameel agrees to sell his car to Sadia for Rs. 500,000. This is a sale contract. If
Jameel agrees to sell his car to Sadia upon the payment of Rs. 500,000 at a future date, this is
an agreement to sell.
Transfer of Ownership:
In a sale, the ownership or property in the goods is transferred from the seller to the buyer
immediately. In contrast, in an agreement to sell, the ownership or property in the goods is
not transferred immediately. It is transferred at a future date or upon the occurrence of a
certain event.
Example: Jameel sells his car to Sadia. Ownership in the car is transferred to Sadia
immediately. If Jameel agrees to sell his car to Sadia upon the payment of Rs. 500,000 at a
future date, ownership in the car will not transfer to Sadia until the payment is made.
Risk of Loss:
In a sale, the risk of loss or damage to the goods passes from the seller to the buyer
immediately upon the transfer of ownership. In contrast, in an agreement to sell, the risk of
loss or damage to the goods remains with the seller until the ownership is transferred to the
buyer.
Example: Jameel sells his car to Sadia. The risk of loss or damage to the car passes from
Jameel to Sadia upon the transfer of ownership. If Jameel agrees to sell his car to Sadia upon
the payment of Rs. 500,000 at a future date, the risk of loss or damage to the car remains with
Jameel until the ownership is transferred to Sadia.
Remedies:
In a sale, the buyer can sue the seller for breach of contract if the goods are defective or not
as described in the contract. The buyer can also refuse to accept the goods if they are not as
described in the contract. In contrast, in an agreement to sell, the buyer cannot sue the seller

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The Contract & Sales of Goods Act

for breach of contract until the ownership is transferred. The buyer can, however, refuse to
accept the goods if they are not as described in the contract.
Example: Jameel sells his car to Sadia. If the car is defective or not as described in the
contract, Sadia can sue Jameel for breach of contract or refuse to accept the car. If Jameel
agrees to sell his car to Sadia upon the payment of Rs. 500,000 at a future date, Sadia cannot
sue Jameel for breach of contract until the ownership is transferred, but she can refuse to
accept the car if it is not as described in the contract.
The main difference between a sale and an agreement to sell is that in a sale, the ownership is
transferred immediately, while in an agreement to sell, the ownership is transferred at a future
date or upon the occurrence of a certain event. This distinction has important legal
implications, particularly regarding the risk of loss and remedies for breach of contract.
Types of Goods:
Section 6 of the Sale of Goods Act, 1930, categorizes goods into different types based on
their nature and characteristics. Understanding the different types of goods is essential for
both buyers and sellers in determining their legal rights and obligations. The following are
the types of goods as explained in section 6:
1. Existing Goods:
Existing goods refer to goods that are owned or possessed by the seller at the time of
the contract of sale. In other words, these are goods that are physically present and
available for delivery to the buyer. Existing goods can be either specific or
ascertained.
Example: Jameel owns a car and agrees to sell it to Sadia. The car is an existing good.
2. Future Goods:
Future goods refer to goods that are not owned or possessed by the seller at the time
of the contract of sale. These are goods that are yet to be manufactured, produced,
acquired, or identified. Future goods can be either specific or unascertained.
Example: Jameel is a manufacturer of bicycles and agrees to sell 50 bicycles to Sadia.
The bicycles are yet to be produced, and thus they are future goods.
3. Contingent Goods:
Contingent goods refer to goods whose existence or availability is dependent on the
occurrence of a certain event or condition. These goods are subject to a contingency,
and the contract of sale is conditional on the occurrence of that event or condition.
Example: Jameel agrees to sell his car to Sadia if he can find a new car to buy. The
car is a contingent good, and the sale contract is conditional on Jameel finding a new
car to buy.
4. Specific Goods:
Specific goods refer to goods that are identified and agreed upon by both the buyer
and the seller at the time of the contract of sale. The goods are distinguished by their
individual characteristics, such as quality, quantity, and price.
Example: Jameel agrees to sell his car with a specific make, model, and registration
number to Sadia. The car is a specific good.

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5. Ascertained Goods:
Ascertained goods refer to specific goods that are identified and agreed upon by both
the buyer and the seller at the time of the contract of sale, but they may require some
additional process to make them ready for delivery.
Example: Jameel agrees to sell his car with a specific make, model, and registration
number to Sadia, but the car is currently being serviced, and it will be ready for
delivery after the service is complete. The car is an ascertained good.
6. Unascertained Goods:
Unascertained goods refer to goods that are not identified or agreed upon by both the
buyer and the seller at the time of the contract of sale. The goods are identified only
by their generic description, such as a certain type of commodity, quality, or quantity.
Example: Jameel agrees to sell 100 kilograms of rice to Sadia, but the rice is not
identified or agreed upon by both the parties at the time of the contract of sale. The
rice is an unascertained good.
In short, section 6 of the Sale of Goods Act, 1930, provides a comprehensive framework for
understanding the different types of goods. The categorization of goods is based on their
nature and characteristics and has significant legal implications for buyers and sellers in
terms of their rights and obligations under the contract of sale.

FIXATION OF PRICE
Section 9 of the Sale of Goods Act, 1930 provides rules for determining the price of goods in
a contract of sale. The price is an essential element of a sale contract and must be agreed
upon by both the buyer and the seller. The following are the ways through which the price
can be fixed according to section 9 of the Sale of Goods Act, 1930:
1. Agreement Between The Parties:
The price of goods can be fixed by an agreement between the buyer and the seller.
The parties can mutually decide the price of the goods based on market conditions,
demand, supply, quality, quantity, and other relevant factors. The price can be fixed in
any form, such as a written or verbal agreement.
Example: Ali agrees to sell his car to Ahmad for PKR 500,000, and Ahmad agrees to
buy the car for this price. The price of the car is fixed by the agreement between the
parties.
2. Price Based On The Course Of Dealing:
The price of goods can be determined based on the course of dealing between the
buyer and the seller. The course of dealing refers to the previous transactions between
the parties that establish a customary price for the goods in question.
Example: Ahmed has been buying rice from Ali for the past year at PKR 10,000 per
100 kilograms. The price of rice in their latest contract of sale is fixed at PKR 10,000
per 100 kilograms, based on the course of dealing between them.

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The Contract & Sales of Goods Act

3. Price Based on The Market Price:

The price of goods can be determined based on the market price at the time of the
contract of sale. The market price refers to the prevailing price of goods in the market,
based on demand, supply, quality, and other relevant factors.
Example: Bilal agrees to sell his property to Farhan, and the price is fixed based on
the current market price of similar properties in the area.
4. Price Fixed By A Third Party:
The price of goods can be fixed by a third party agreed upon by the buyer and the seller.
The third party can be a neutral person, such as an arbitrator or an expert, who determines
the price of goods based on relevant factors.
Example: Maryam agrees to sell her business to Salman, and the price is fixed by an
accountant who evaluates the value of the business and determines the price based on
relevant factors.
The Section 9 of the Sale of Goods Act, 1930 provides various ways through which the price
of goods can be fixed in a contract of sale. The price can be determined by an agreement
between the parties, the course of dealing between the parties, the market price, or a third
party agreed upon by the parties. The parties must agree on the price before the sale
transaction can take place.

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The Contract & Sales of Goods Act

CONDITIONS AND WARRANTIES

Condition:
Section 12(2) of the Sale of Goods Act, 1930 defines a "condition" as a term or provision of a
contract of sale that is essential to its nature and performance. A condition is a major term of
the contract that goes to the root of the agreement and has a significant impact on the parties'
obligations and rights.
In simpler terms, a condition is a term of a contract that is of vital importance to the parties,
and if breached, it would give the innocent party the right to terminate the contract and claim
damages.
For example, if a seller agrees to sell a car to a buyer, with the condition that the car has not
been in an accident, and it is later discovered that the car was in an accident, then the buyer
has the right to terminate the contract and claim damages from the seller.
In another example, if a seller agrees to deliver a certain quantity of goods by a specific date,
and the seller fails to deliver the goods on time, the buyer has the right to terminate the
contract and claim damages from the seller.
In summary, a condition is an essential term of a contract of sale, and a breach of a condition
entitles the innocent party to terminate the contract and claim damages.
Warranty:
According to Section 12(3) of the Sale of Goods Act, 1930, a warranty is a stipulation
collateral to the main purpose of the contract of sale. It can be either express or implied in
nature. The following are the key features of warranty under Section 12(3):
1) Collateral stipulation:
A warranty is a collateral stipulation, which means it is not a condition of the contract.
A breach of warranty does not entitle the buyer to repudiate the contract or refuse to
accept the goods.
2) Secondary importance:
A warranty is of secondary importance to the main purpose of the contract, which is
the transfer of property in the goods from the seller to the buyer. The warranty is a
subsidiary undertaking that accompanies the main transaction.
3) Nature of warranty:
A warranty can be either express or implied in nature. An express warranty is a
statement or representation made by the seller regarding the quality, performance, or
fitness for a particular purpose of the goods. An implied warranty, on the other hand,
arises by operation of law or from the circumstances of the sale.
4) Remedy for breach:
If there is a breach of warranty, the buyer is entitled to claim damages for any loss
suffered as a result. The amount of damages will depend on the nature and extent of
the breach.

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Examples:
i. Express Warranty:
Ali sells a laptop to Yasir and tells him that the laptop has a warranty of one
year from the date of purchase. This is an express warranty that Ali has given
to Yasir regarding the laptop.
ii. Implied Warranty:
Zain purchases a bicycle from a shop. There is an implied warranty that the
bicycle is of merchantable quality and is fit for the purpose of cycling. If the
bicycle turns out to be defective, Zain can claim damages for the loss suffered.
Section 12(3) of the Sale of Goods Act, 1930 defines a warranty as a stipulation collateral to
the main purpose of the contract of sale. It can be either express or implied in nature and is of
secondary importance to the main transaction. If there is a breach of warranty, the buyer is
entitled to claim damages for any loss suffered as a result.

Difference Between Conditions And Warranty

Under the Sale of Goods Act, 1930, a contract of sale of goods may contain terms or
stipulations that are either conditions or warranties. The distinction between the two is
important, as it affects the remedies available to the parties in case of a breach. The following
are the key differences between conditions and warranties:
Nature Condition Warranty
A condition is a term that goes to A warranty, on the other hand,
the root of the contract and is is a term that is ancillary to the
essential to its performance. A main purpose of the contract. A
Nature breach of a condition gives the breach of warranty gives the
innocent party the right to innocent party the right to claim
repudiate the contract and claim damages, but not to repudiate
damages. the contract.
Conditions are considered to be Warranties, on the other hand,
more important than warranties, are of secondary importance
Importance as they are essential to the and are not essential to the
performance of the contract. performance of the contract.

A breach of condition entitles the Breach of warranty only entitles

Effect of the
innocent party to repudiate the the innocent party to claim
breach contract and claim damages. damages.
The intention of the parties is a If the parties intended a term to
key factor in determining whether be a warranty, then it will be
a term is a condition or a treated as such, regardless of its
Intention warranty. If the parties intended a importance to the contract.
term to be a condition, then it will
be treated as such, regardless of
its importance to the contract.
Ali agrees to sell a car to Yasir on Zain purchases a phone from a
the condition that the car has not shop, and the shopkeeper
Example been involved in any accidents. If warrants that the phone will be
it turns out that the car was in good working condition for
involved in an accident, Yasir can three months. If the phone stops

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The Contract & Sales of Goods Act

repudiate the contract and claim working after two months, Zain
damages. can claim damages for the loss
suffered, but he cannot
repudiate the contract.

In conclusion, the distinction between conditions and warranties is important in determining

the remedies available to the parties in case of a breach. Conditions are essential to the
performance of the contract, and a breach of condition entitles the innocent party to repudiate
the contract and claim damages. Warranties, on the other hand, are of secondary importance
and only entitle the innocent party to claim damages. The intention of the parties is a key
factor in determining whether a term is a condition or a warranty.
Condition Is Treated As Warranty:
In the Sale of Goods Act, 1930, a condition is a term of a contract that is essential to the
contract and goes to the root of the contract, whereas a warranty is a term that is not essential
to the contract and is considered secondary to the main purpose of the contract. If a condition
is breached, the aggrieved party has the right to terminate the contract and claim damages,
whereas if a warranty is breached, the aggrieved party can only claim damages.
However, in certain cases, a condition may be treated as a warranty. The following are some
situations where a condition can be treated as a warranty:
i. Agreement to treat as warranty:
The parties to a contract can agree to treat a condition as a warranty. For example, the
buyer and seller of a car can agree that if the car breaks down within a year of
purchase, the seller will only be liable to repair the car and not replace it.
ii. Breach does not affect performance:
If a breach of a condition does not affect the performance of the contract, it may be
treated as a warranty. For example, if a seller delivers goods a few days after the
agreed-upon date of delivery, but the delay does not affect the buyer's ability to use
the goods, the breach may be treated as a warranty.
iii. Election of the aggrieved party:
The aggrieved party may choose to waive the breach of a condition and continue with
the contract, treating the breach as a warranty. For example, if a seller delivers goods
that do not match the description, the buyer may choose to accept the goods and claim
damages, treating the breach as a warranty.
We can say that a condition is a term of a contract that is essential to the contract, and if
breached, gives the aggrieved party the right to terminate the contract and claim damages.
However, in certain situations, a condition may be treated as a warranty, such as when the
parties agree to it, when the breach does not affect performance, or when the aggrieved party
elects to treat the breach as a warranty.

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Express And Implied Conditions And Warranties

The Sale of Goods Act, 1930 distinguishes between express and implied conditions and
warranties. An express term is one that is explicitly agreed upon by the parties, while an
implied term is one that is presumed to be part of the contract, even if it is not expressly
agreed upon.
IMPLIED CONDITIONS:
Implied conditions are those conditions which are presumed to be part of the contract, even if
they are not expressly agreed upon by the parties. These conditions are imposed by law and
are based on common law principles and the Sale of Goods Act, 1930.
The following are the most important implied conditions in the Sale of Goods Act, 1930:
1. Condition as to Title:
According to Sec 14 (a) In every contract of sale, there is an implied condition that
the seller has the right to sell the goods, and that the buyer will enjoy quiet possession
of the goods. This means that the seller must have a good title to the goods and that
the goods must not be subject to any undisclosed liens or encumbrances.
Example: A buys a car from B. It is implied that B has the right to sell the car and that
A will enjoy quiet possession of the car.
2. Condition as to Description:
In Sec 15, a contract of sale, there is an implied condition that the goods sold by
description must correspond with the description given. This means that the goods
must be exactly as described.
Example: A buys a shirt online. It is implied that the shirt will correspond with the
description given on the website.
3. Condition as to Quality or Fitness:
According to sec 16 (1) In a contract of sale, there is an implied condition that the
goods sold are of merchantable quality and fit for their intended purpose. This means
that the goods must be of a reasonable quality and must be fit for the purpose for
which they are intended.
Example: A buys a bicycle. It is implied that the bicycle is of a reasonable quality and
is fit for riding.
Condition as to Sale by Sample:
According to sec 17, a contract of sale, if the goods are sold by sample, there is an
implied condition that the bulk of the goods will correspond with the sample in
quality and that the buyer will have a reasonable opportunity of comparing the bulk
with the sample.
Example: A buys a large quantity of rice based on a sample provided by B. It is
implied that the rice will correspond with the sample in quality.
In conclusion, implied conditions are those conditions which are presumed to be part of the
contract by operation of law, even if they are not expressly agreed upon. These conditions are
based on common law principles and the Sale of Goods Act, 1930, and are essential to the

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contract. If an implied condition is breached, the aggrieved party has the right to terminate
the contract and claim damages.
IMPLIED WARRANTIES:
Implied warranties are promises or guarantees that are presumed to be part of the contract,
even if they are not expressly agreed upon by the parties. These warranties are imposed by
law and are based on common law principles and the Sale of Goods Act, 1930.
The following are the most important implied warranties in the Sale of Goods Act, 1930:
1. Warranty of Quiet Possession:
According to Section 14 (b) In every contract of sale, there is an implied warranty that
the buyer will have quiet possession of the goods, i.e., the buyer will not be disturbed
by any third party claiming an interest in the goods.
Example: A buys a car from B. It is implied that A will have quiet possession of the
car, and no third party will claim an interest in the car.
2. Warranty of Fitness for a Particular Purpose:
If the buyer makes known to the seller the particular purpose for which the goods are
required, and the buyer relies on the seller's skill or judgment, there is an implied
warranty that the goods will be fit for that particular purpose.
Example: A asks B to provide a generator for his restaurant. A tells B that he needs
the generator to run the restaurant's air conditioning system. It is implied that the
generator provided by B will be fit for running the air conditioning system.
3. Warranty of Merchantable Quality:
In a contract of sale, there is an implied warranty that the goods sold are of
merchantable quality, i.e., they are of a reasonable quality considering their price,
description, and intended use.
Example: A buys a laptop from B. It is implied that the laptop is of merchantable
quality, i.e., it is reasonably fit for its intended use as a laptop.
4. Warranty of Sale by Description:
In a contract of sale, if the goods are sold by description, there is an implied warranty
that the goods will correspond with the description.
Example: A buys a phone based on the description provided by B. It is implied that
the phone will correspond with the description.
In conclusion, implied warranties are promises or guarantees that are presumed to be part of
the contract by operation of law, even if they are not expressly agreed upon. These warranties
are based on common law principles and the Sale of Goods Act, 1930, and are essential to the
contract. If an implied warranty is breached, the aggrieved party has the right to claim
damages.

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The Contract & Sales of Goods Act

DOCTRINE OF CAVEAT EMPTOR

The doctrine of "Caveat Emptor" is a legal principle that means "let the buyer beware." It is a
common law principle that applies to the sale of goods, which means that the buyer is
responsible for ensuring the quality and suitability of the goods they are purchasing.
Under this doctrine, the seller is not responsible for any defects or faults in the goods that are
sold, and the buyer has no recourse against the seller if the goods turn out to be faulty or
unsuitable for their intended purpose.
The doctrine of Caveat Emptor was prevalent in the past when buyers had limited access to
information and were not able to inspect the goods thoroughly before purchasing. However,
with advancements in technology and the availability of information, buyers now have more
access to information and can inspect goods before buying.
In modern times, the doctrine of Caveat Emptor is no longer absolute and has been modified
by various statutory provisions and case laws. For example, the Sale of Goods Act, 1930,
provides for implied warranties that protect the buyer in certain circumstances, such as the
warranty of merchantability, warranty of fitness for a particular purpose, and warranty of
quiet possession.
EXCEPTIONS
While the principle of Caveat Emptor generally places the responsibility on the buyer to
inspect the goods and ensure their quality and suitability, there are certain exceptions to this
principle that may provide the buyer with some protection. These exceptions are discussed
below:
1. Fraudulent Misrepresentation:
If the seller makes a fraudulent misrepresentation about the goods, the buyer may be
able to seek recourse against the seller. Fraudulent misrepresentation occurs when the
seller knowingly makes a false statement about the goods, which induces the buyer to
enter into the contract.
Example: A seller tells a buyer that a car has only been driven for 10,000 kilometers
when, in fact, it has been driven for 50,000 kilometers. The seller knows that the
statement is false, and the buyer relies on the false statement to purchase the car.
2. Sale by Description:
If the goods are sold by description, the buyer can rely on the description provided by
the seller, and there is an implied warranty that the goods will correspond with the
description. If the goods do not correspond with the description, the buyer may be
able to seek recourse against the seller.
Example: A seller describes a laptop as having 16GB of RAM, but the laptop only has
8GB of RAM.
3. Sale by Sample:
If the goods are sold by sample, the buyer can rely on the sample provided by the
seller, and there is an implied warranty that the goods will correspond with the
sample. If the goods do not correspond with the sample, the buyer may be able to seek
recourse against the seller.

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The Contract & Sales of Goods Act

Example: A seller provides a sample of fabric to a buyer and sells a large quantity of
fabric based on the sample. The fabric delivered does not correspond with the sample
provided.
4. Implied Warranty of Merchantability:
The Sale of Goods Act, 1930 provides for an implied warranty of merchantability,
which means that the goods sold must be of a reasonable quality, considering their
price, description, and intended use.
Example: A seller sells a car to a buyer, and the car breaks down on the first day of
use due to a mechanical fault that should have been detected before the sale.
In conclusion, while the principle of Caveat Emptor generally places the responsibility on the
buyer to inspect the goods and ensure their quality and suitability, there are certain exceptions
to this principle that may provide the buyer with some protection. These exceptions include
fraudulent misrepresentation, sale by description, sale by sample, and implied warranty of
merchantability.

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PERFORMANCE OF CONTRACT OF SALE

Performance of a contract of sale refers to the fulfillment of obligations by both parties in a
sale transaction. The Sale of Goods Act, 1930, provides for the rights and obligations of both
the buyer and the seller regarding the performance of a contract of sale. The following are the
headings and examples of the performance of a contract of sale:
1. Seller and Buyer:
According to Section 31 of the Sale of Goods Act, 1930, the terms "seller" and
"buyer" refer to the parties to a contract of sale. Let's take an example to understand
this:
Suppose Ali wants to sell his car to Ahmed. Ali is the seller, and Ahmed is the buyer.
They both agree to a price of PKR 1,000,000, and Ali transfers the ownership of the
car to Ahmed in exchange for the payment. In this scenario, Ali is the seller, and
Ahmed is the buyer.
2. Delivery and Payment:
Section 32 provides that the buyer must pay the price for the goods at the time and
place agreed upon by the parties. If there is no agreement regarding the time and place
of payment, the buyer must pay the price at the time and place of delivery of the
goods.
Example: Ali agrees to buy a car from Ahmed for Rs. 500,000. The parties agree that
the payment will be made in two instalments, Rs. 300,000 at the time of delivery of
the car and the remaining Rs. 200,000 within 30 days of the delivery. Ahmed delivers
the car to Ali's house and Ali pays him Rs. 300,000.
Consequences of Non-Delivery and Non-Payment: If the seller fails to deliver the
goods, the buyer may sue the seller for damages for non-delivery, or he may treat the
contract as rescinded and claim the return of any money paid to the seller. Similarly,
if the buyer fails to pay the price for the goods, the seller may sue the buyer for the
price of the goods, or he may treat the contract as rescinded and resell the goods to
another person. The seller is entitled to claim damages for any loss suffered due to the
non-payment of the price.
3. Mode of Delivery:
According to Section 33 of the Sale of Goods Act, the seller is responsible for
delivering the goods to the buyer or any person authorized by the buyer. The mode of
delivery can be agreed upon by the parties or it can be implied by the circumstances
of the sale.
For example, if the buyer is located in another city or country, the mode of delivery
may involve shipping the goods via a courier service or transportation company. In
such cases, the seller may be responsible for packaging the goods and arranging for
their transportation. Alternatively, if the buyer is located nearby, the mode of delivery
may involve the buyer picking up the goods directly from the seller's premises.
4. Delivery by Parts:
Delivery by parts means that the seller delivers the goods to the buyer in instalments
or batches rather than in a single delivery. According to section 34 of the Sale of

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Goods Act, if the goods can be divided into separate parts or units, then the seller may
deliver them in separate instalments or batches, unless otherwise agreed upon in the
contract of sale.
For example, a seller agrees to supply 1,000 bags of rice to a buyer. The seller can
deliver the rice in 10 instalments of 100 bags each, instead of delivering all 1,000
bags at once, as long as the buyer agrees to this arrangement. The buyer must pay for
each instalment as it is delivered, unless otherwise agreed upon.
5. Apply for Delivery:
Section 35 of the Sale of Goods Act, 1930 provides for the right of the buyer to apply
for delivery of goods. It states that unless otherwise agreed, the seller of goods is
bound to deliver them to the buyer upon receiving payment or fulfilling any other
agreed-upon conditions.
In simple terms, it means that the buyer has the right to demand the delivery of goods
after fulfilling their obligation to pay the price or other agreed-upon conditions.
For example, if Ali purchases a laptop from Ahmed for PKR 50,000, Ahmed is bound
to deliver the laptop to Ali once he receives the payment. Ali has the right to demand
the delivery of the laptop after making the payment, and Ahmed cannot refuse to
deliver it.
6. Place of Delivery:
Section 36(1) of the Sale of Goods Act, 1930 deals with the place of delivery of
goods. According to this section, the place of delivery of the goods is the seller's place
of business or residence, unless otherwise agreed upon by the parties.
For example, if a seller and a buyer agree to meet at a specific location for the
delivery of goods, then that location will be considered as the place of delivery.
However, if the parties do not specify any particular place of delivery, then the seller's
place of business or residence will be considered as the place of delivery.
7. Time of Delivery:
Section 36(2) of the Sale of Goods Act 1930 states that unless a different intention
appears from the terms of the contract, stipulations regarding the time of delivery of
goods are usually considered as the condition of the contract.
This means that the delivery of goods must be made within the time specified in the
contract, and any delay in delivery beyond that time will entitle the buyer to terminate
the contract.
For example, if a buyer and seller agree that a shipment of goods must be delivered by
June 1st, and the seller fails to deliver the goods by that date, the buyer may terminate
the contract and seek damages for any losses suffered as a result of the delay.
8. Possession of Third Party:
According to Section 36(3), if the buyer is not able to obtain the possession of the
goods due to the claim of a third party, he can treat the contract as a breach of
warranty by the seller. This means that the seller has not provided the buyer with the
rightful possession of the goods.

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For example, if a person buys a car from a seller but is unable to obtain possession of
the car because a third party claims to have a lien on the car, the buyer can treat it as a
breach of warranty by the seller. The seller has not provided the buyer with the
rightful possession of the car, which is an implied condition of the sale of the car.
9. Expenses of Delivery:
Section 36(5), 1930 deals with the expenses of delivery of goods. It states that unless
otherwise agreed upon by the parties, the seller is responsible for the expenses of and
incidental to putting the goods into a deliverable state. This includes the cost of
packaging, labeling, and preparing the goods for shipment.
For example, if a seller in Pakistan agrees to sell a shipment of mangoes to a buyer in
the USA, the seller is responsible for the expenses of packaging the mangoes in
boxes, labeling them, and preparing them for shipment. The buyer is responsible for
the expenses of shipping the mangoes from Pakistan to the USA.
10.Wrong Delivery:
Section 37 deals with the issue of wrong delivery. It states that if the seller delivers
goods that are not in accordance with the terms of the contract, the buyer has the right
to reject them.
For example, if a buyer orders a car with a specific engine model and the seller
delivers a car with a different engine model, the buyer can reject the car and ask for a
refund or a replacement.
In such a case, the buyer must notify the seller about the wrong delivery within a
reasonable time. The seller then has the option to rectify the mistake by delivering the
correct goods or by reimbursing the buyer for any expenses incurred due to the wrong
delivery.
If the seller fails to rectify the mistake, the buyer can treat the contract as repudiated
and claim damages for any losses suffered as a result of the wrong delivery.
11.Delivery by Instalment:
Section 38, allows for the delivery of goods by instalments, where the contract of sale
provides for such a delivery. In such cases, each instalment is considered a separate
contract of sale. The general rule is that the buyer must accept each instalment and
pay the price for it.
However, if the buyer is entitled to reject an instalment of goods, the right of rejection
does not affect the right to accept future instalments. The buyer may only reject an
instalment if there is a breach of condition in relation to that particular instalment.
For example, if a buyer orders 1000 mobile phones from a seller and the contract
provides for delivery in five instalments of 200 phones each, the delivery of each
instalment will be considered a separate contract of sale. If the seller fails to deliver
the second instalment of 200 phones on time, the buyer may reject that instalment due
to a breach of condition, but will still be obligated to accept and pay for the remaining
three instalments, provided that there are no further breaches of condition.

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12.Delivery by Carrier:
Section 39 deals with the delivery of goods by a carrier to the buyer. According to this
section, when the seller is required to deliver the goods to the buyer, and the goods are
handed over to a carrier for transmission to the buyer, the delivery is considered
complete when the goods are handed over to the carrier.
In such cases, the carrier becomes the agent of the buyer and not the seller. The risk of
loss or damage to the goods during transit is also transferred to the buyer at this point.
However, if the seller fails to make proper arrangements for delivery, the delivery will
not be considered complete.
For example, if a seller in Karachi sells a shipment of mangoes to a buyer in Lahore
and arranges for a courier service to deliver the mangoes, the delivery is considered
complete when the mangoes are handed over to the courier service. If the mangoes get
damaged or lost during transit, the risk of loss or damage will be borne by the buyer.
13. Delivery at Distinct Place:
Section 40 deals with the concept of "delivery at a distinct place". It states that when
there is an agreement to sell goods and it is agreed that the goods will be delivered at
a place other than the seller's place of business, then the delivery must take place at
that agreed-upon place.
In such a case, the seller is responsible for arranging for the delivery of the goods to
the agreed-upon place and must bear any additional expenses that may be incurred in
doing so. The buyer, on the other hand, is responsible for accepting the delivery of the
goods at the agreed-upon place.
If the buyer fails to take delivery of the goods at the agreed-upon place, the seller may
either store the goods until the buyer takes delivery and recover any additional
expenses incurred in doing so, or sell the goods and recover any losses incurred due to
the buyer's failure to take delivery.
14.Examining the Goods:
Section 41 explains the buyer's right to examine the goods before accepting them.
According to this section, the buyer has a duty to examine the goods within a
reasonable time after their delivery or tender of delivery. The examination must be
done in a manner that is reasonable in the circumstances.
The purpose of this provision is to ensure that the buyer has an opportunity to inspect
the goods and ascertain their quality, quantity, and other characteristics before
accepting them. This allows the buyer to identify any defects or deficiencies in the
goods and take appropriate action, such as rejecting the goods or seeking
compensation for any losses suffered.
If the buyer fails to examine the goods within a reasonable time after delivery, the
seller may be discharged from any liability for defects that would have been revealed
by such an examination. However, if the defects are such that they would not be
apparent on a reasonable examination, the seller cannot avoid liability by relying on
the buyer's failure to examine the goods.

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15.Acceptance of Delivery:
According to Section 42 the acceptance of delivery of goods by the buyer. According
to this section, the buyer is deemed to have accepted the goods when he/she intimates
to the seller that he/she has accepted them, or when the goods have been delivered to
him/her, and he/she does any act in relation to the goods that is inconsistent with the
ownership of the seller.
In simpler terms, acceptance of delivery means that the buyer has received the goods
and has either communicated to the seller that he/she has accepted them or has taken
some action that indicates acceptance. This can include things like making payment
for the goods, using them, or selling them to a third party.
It is important to note that if the buyer does not accept delivery of the goods, the seller
may have the right to resell the goods or dispose of them in any other reasonable
manner. However, the seller must give notice to the buyer of his/her intention to resell
or dispose of the goods, and the buyer may be held liable for any loss that the seller
incurs as a result of the breach of contract.
16.Rejection of Goods:
Section 43 of the Sale of Goods Act, 1930 deals with the rejection of goods by the
buyer. According to this section, if the goods delivered to the buyer do not conform to
the contract, the buyer has the right to reject them.
The buyer can reject the goods if:
• The goods do not correspond with the description or sample provided by
the seller.
• The goods are not of merchantable quality.
• The goods are unfit for the purpose for which they were intended.
• The goods are not delivered within the agreed time period.
If the buyer wishes to reject the goods, they must do so within a reasonable time after
delivery. The buyer must also notify the seller of the rejection and the reasons for it.
Once the goods have been rejected, the seller must take them back and refund the
buyer's money. If the seller fails to do so, the buyer may take legal action to recover
the money.
17.Refusal To Take Delivery:
Section 44 of the Sale of Goods Act, 1930 deals with the buyer's refusal to take
delivery of the goods. According to this section, if the buyer wrongfully neglects or
refuses to take delivery of the goods, the seller may either:
• Sue the buyer for damages for non-acceptance; or
• Rescind the contract of sale and sue for damages.
In other words, if the buyer refuses to take delivery of the goods without any lawful
excuse, the seller can either sue the buyer for damages caused by the breach of
contract or cancel the contract and sue for damages. However, the seller must give
notice to the buyer that he intends to do so.

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The Contract & Sales of Goods Act

It is important to note that if the seller decides to rescind the contract, he must do so
promptly and notify the buyer of his decision. The seller must also take reasonable
steps to resell the goods and mitigate the damages caused by the buyer's refusal to
take delivery.

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RIGHTS OF BUYER
The Sale of Goods Act, 1930 in Pakistan provides various rights to the buyer of goods. These
rights are aimed at protecting the interests of the buyer and ensuring that the goods purchased
are of satisfactory quality and fit for their intended purpose. In this answer, we will discuss
the rights of the buyer under the Sale of Goods Act, 1930 in Pakistan, along with examples.
1. Right to receive goods of satisfactory quality:
The buyer has the right to receive goods that are of satisfactory quality and fit for their
intended purpose. This means that the goods should be free from defects and meet the
standards that are expected of them. For example, if a buyer purchases a laptop, he
has the right to receive a laptop that works properly and meets the specifications that
were advertised.
2. Right to reject goods:
If the goods delivered are not of satisfactory quality or do not conform to the contract,
the buyer has the right to reject the goods. The buyer must inform the seller of the
rejection and the reasons for it. For example, if a buyer purchases a shirt but finds that
it has a tear in it, he has the right to reject the shirt and ask for a replacement or a
refund.
3. Right to receive accurate information:
The buyer has the right to receive accurate information about the goods being sold.
This includes information about the quality, quantity, and price of the goods. For
example, if a buyer purchases a mobile phone, he has the right to receive accurate
information about the features, specifications, and price of the phone.
4. Right to receive goods within a reasonable time:
The buyer has the right to receive the goods within a reasonable time. If the delivery
is delayed unreasonably, the buyer has the right to cancel the contract and ask for a
refund. For example, if a buyer purchases a refrigerator but the delivery is delayed by
several weeks without any explanation, he has the right to cancel the contract and ask
for a refund.
5. Right to claim damages for breach of contract:
If the seller breaches the contract of sale, the buyer has the right to claim damages.
This includes compensation for any loss or damage caused by the breach of contract.
For example, if a buyer purchases a car but finds that it has a faulty engine, he has the
right to claim damages for the cost of repairing the engine.
6. Right to sue for specific performance:
If the seller fails to deliver the goods as agreed, the buyer has the right to sue for
specific performance. This means that the court can order the seller to deliver the
goods as per the contract. For example, if a buyer purchases a piece of land but the
seller refuses to transfer the ownership, the buyer has the right to sue for specific
performance and ask the court to order the seller to transfer the ownership.
In conclusion, the Sale of Goods Act, 1930 in Pakistan provides various rights to the buyer of
goods, including the right to receive goods of satisfactory quality, the right to reject goods,
the right to receive accurate information, the right to receive goods within a reasonable time,
the right to claim damages for breach of contract, and the right to sue for specific

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The Contract & Sales of Goods Act

performance. These rights are important for protecting the interests of the buyer and ensuring
that transactions are conducted fairly and efficiently.

DUTIES OF BUYER
Under the Sale of Goods Act, 1930, a buyer has certain duties that he is required to fulfill
when buying goods from a seller. These duties are as follows:
1. Duty to accept delivery:
The buyer has a duty to accept delivery of the goods and pay the price as agreed upon.
If the buyer refuses to accept delivery without a valid reason, the seller can sue the
buyer for damages.
For example, if a buyer in Pakistan orders goods from a seller and refuses to accept
delivery of the goods without any valid reason, the seller can sue the buyer for
damages caused by the breach of contract.
2. Duty to pay the price:
The buyer has a duty to pay the price of the goods as agreed upon in the contract of
sale. The buyer cannot refuse to pay the price without a valid reason. If the buyer fails
to pay the price, the seller can sue the buyer for the amount due.
For example, if a buyer in Pakistan agrees to buy goods from a seller and fails to pay
the price as agreed upon, the seller can sue the buyer for the amount due.
3. Duty to inspect the goods:
The buyer has a duty to inspect the goods before accepting delivery. If the buyer fails
to inspect the goods, he may be held liable for any defects or damages discovered
later.
For example, if a buyer in Pakistan buys a car from a seller and fails to inspect the car
before accepting delivery, he may be held liable for any defects or damages
discovered later.
4. Duty to inform the seller of any defects:
If the buyer discovers any defects in the goods after accepting delivery, he has a duty
to inform the seller within a reasonable time. If the buyer fails to inform the seller, he
may be held liable for any damages caused by the defects.
For example, if a buyer in Pakistan buys a refrigerator from a seller and discovers that
it is not working properly, he has a duty to inform the seller within a reasonable time.
5. Duty to mitigate damages:
If the buyer breaches the contract of sale, he has a duty to mitigate the damages
caused by the breach. This means that the buyer must take reasonable steps to
minimize the losses suffered by the seller.
For example, if a buyer in Pakistan breaches a contract of sale by refusing to accept
delivery of the goods, he has a duty to mitigate the damages by allowing the seller to
resell the goods to someone else.

By : Shahid Naeem (0321-3614222) Kings Law College, Sheikhupura. 179

The Contract & Sales of Goods Act

In conclusion, the Sale of Goods Act, 1930 outlines the duties of a buyer when buying goods
from a seller. These duties include accepting delivery of the goods, paying the price,
inspecting the goods, informing the seller of any defects, and mitigating damages in case of
breach of contract. Failure to fulfill these duties may result in legal action being taken against
the buyer.

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By : Shahid Naeem (0321-3614222) Kings Law College, Sheikhupura. 180

The Contract & Sales of Goods Act

UNPAID SELLER
According to Section 45 of the Sale of Goods Act, 1930, an unpaid seller is a seller who has
not received the full price of the goods sold or a bill of exchange or other negotiable
instrument that he has received as conditional payment.
In other words, a seller who has not received the full price of the goods sold or any other
negotiable instrument representing the price of the goods is considered an unpaid seller.
RIGHTS OF UNPAID SELLER:
Section 45 further states that an unpaid seller has certain rights against the goods and the
buyer, which are as follows:
A. RIGHTS OF UNPAID SELLER AGAINST GOODS
According to the Sale of Goods Act, 1930, an unpaid seller is a seller who has not
received the full price of the goods sold or a bill of exchange or other negotiable
instrument that he has received as conditional payment. Section 45 of the Act
provides the definition of an unpaid seller and specifies the rights of an unpaid seller
against the goods.
The rights of an unpaid seller against the goods are as follows:
1) Right of Lien (Section 47):
An unpaid seller has the right to retain the possession of the goods sold until
the full price of the goods is paid. This right of the seller is called the right of
lien. An unpaid seller can exercise this right even if he has already delivered
the goods to the buyer, provided that he has retained the documents of title to
the goods.
For example, if a seller in Pakistan sells a laptop to a buyer on credit and the
buyer fails to pay the price of the laptop, the seller can exercise his right of
lien by retaining possession of the laptop until he receives the full price of the
laptop.
2) Right of Stoppage in Transit (Section 50):
If the buyer becomes insolvent, an unpaid seller has the right to stop the goods
in transit and take possession of them until the full price of the goods is paid.
This right of the seller is called the right of stoppage in transit. An unpaid
seller can exercise this right even if he has already delivered the goods to the
carrier.
For example, if a seller in Pakistan sends goods to a buyer through a carrier
and learns that the buyer is insolvent, the seller can exercise his right of
stoppage in transit by instructing the carrier to hold the goods until he receives
the full price of the goods.
3) Right of Resale (Section 54):
If the buyer fails to pay the price of the goods within a reasonable time, an
unpaid seller has the right to resell the goods and recover the losses incurred

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The Contract & Sales of Goods Act

by him from the buyer. However, the seller must give notice to the buyer of
his intention to resell the goods.
For example, if a seller in Pakistan sells goods to a buyer on credit and the
buyer fails to pay the price within a reasonable time, the seller can exercise his
right of resale by selling the goods to someone else and recover the losses
from the buyer.
4) Right to Sue for Price (Section 55):
If the buyer refuses to pay the price of the goods, an unpaid seller can sue the
buyer for the price of the goods sold. The seller can exercise this right even if
he has already delivered the goods to the buyer.
For example, if a seller in Pakistan sells goods to a buyer on credit and the
buyer refuses to pay the price of the goods, the seller can exercise his right to
sue for the price of the goods sold.
5) Right to Sue for Damages (Section 56):
If the buyer wrongfully refuses to accept the goods or repudiates the contract
before the delivery of the goods, an unpaid seller can sue the buyer for
damages for non-acceptance or for repudiation of the contract.
For example, if a seller in Pakistan agrees to sell goods to a buyer, but the
buyer wrongfully refuses to accept the goods, the seller can exercise his right
to sue the buyer for damages for non-acceptance.

B. RIGHTS OF UNPAID SELLER AGAINST BUYER

The Sale of Goods Act, 1930 provides certain rights to an unpaid seller against the
buyer who has failed to pay the price of the goods sold. These rights are as follows:
1) Right to sue for price (Section 55):
An unpaid seller can sue the buyer for the price of the goods sold if the buyer
fails to pay the price within the agreed time or within a reasonable time. The
seller can also claim interest on the price of the goods.
For example, if a seller in Pakistan sells goods to a buyer on credit and the
buyer fails to pay the price within the agreed time, the seller can sue the buyer
for the price of the goods and claim interest on the price.
2) Right to claim damages (Section 56):
An unpaid seller can claim damages from the buyer for any loss or damage
suffered by him due to the buyer's breach of contract. The seller can claim
damages even if he has resold the goods to someone else.
For example, if a seller in Pakistan sells goods to a buyer on credit and the
buyer fails to pay the price within the agreed time, the seller can claim
damages from the buyer for any loss or damage suffered by him due to the
buyer's breach of contract.

By : Shahid Naeem (0321-3614222) Kings Law College, Sheikhupura. 182

 The Contract & Sales of Goods Act

In conclusion, the Sale of Goods Act, 1930 provides various rights to an unpaid seller against
the buyer who has failed to pay the price of the goods sold. These rights include the right of
lien, right of stoppage in transit, right of resale, right to sue for price, and right to claim
damages. These rights are important for protecting the interests of the unpaid seller in case of
default by the buyer.

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By : Shahid Naeem (0321-3614222) Kings Law College, Sheikhupura. 183

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