THE

CONTRACT ACT, 1872

INTRODUCTION TO CONTRACT ACT, 1872

1. Definition of a Contract

2. Essentials of a Valid Contract

3. Classifications of Contract
1. Definitions
Contract [Section 2(h)]
An agreement enforceable by law is a contract.

A contract is an agreement which legally binds the parties.

The analysis of the above definition reveals that a contract has following
two elements:
1. Agreement
a) Offer
b) Acceptance
2. Enforceability
a) Legal obligation
1. Definitions
Agreement [Section 2(e)]
Every promise and every set of promises forming the consideration for each other is an
agreement.

The analysis of the above definition reveals that an agreement comes into existence
only when one party makes a proposal or offer to the other party and the other party
signifies his acceptance thereto. Thus an agreement can be an accepted proposal.

Promise [Section 2(b)]

When the person to whom the proposal is made signifies his assent to it, the proposal is
said to be accepted. A proposal, when accepted becomes a promise.

The person making the proposal is called the promisor and the person accepting the
proposal is called the promisee.
1. Definitions
Proposal [Section 2(a)]
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.
[[[[[[[

Enforceability
Every contract is an agreement, but every agreement is not always a contract. An agreement
creating a legal obligation is said to be enforceable by law. The parties to an agreement must be
bound to perform their promises and in case of default by either of them, must intend to sue. For an
agreement to be enforceable by law there should be legal obligation instead of social, moral or
religious obligation.
Example:
◦ A, offers to sell his furniture to B of Rs. 50,000. B accepts this offer. In this agreement if there is
default by either party, an action for breach of contract can be enforced through a court of law
provided all the essential elements of a valid contract are present in this agreement.
◦ A invites B to dinner. B accepts the invitation but fails to turn up. Here, A cannot sue B for
damages because the parties to this agreement do not intend to create legal obligations.
2. Essentials of Valid Contract
1. Offer and Acceptance
There must be an agreement between parties to create a valid contract. An agreement involves a
valid offer and its acceptance.
Example: A offers to buy bike from B for Rs.50,000 to which B responds positively.
Here A has made an offer and B has accepted it.

2. Legal Relationship
A contract to become valid must have a legal relationship. In case of social or domestic
agreements, the usual presumption is that the parties do not intend to create legal relationship but
in commercial or business agreements, the usual presumption is that the parties intend to create
legal relationship unless otherwise agreed upon.
Example: A invited B on a dinner at his home. B accepted the invitation. It is a social agreement. If
A fails to serve dinner to B than B cannot go to court for enforcing the agreement and similarly if B
did not turn up than A cannot go to court for enforcing the agreement.
2. Essentials of Valid Contract
3. Competency of Parties
As per section 11 the parties to an agreement must be competent to contract. In other words, the
person must be of
◦ The age of majority
◦ Person of sound mind and
◦ Not declared as disqualified from contracting by any law to which he is subject.
Example: A (Minor) borrowed Rs. 100,000 from B and executed mortgage of his property in favour
of the lender. This is not a valid contract because A is not competent to contract.

4. Consideration
As per section 23 an agreement must be supported by lawful consideration. Gratuitous (without
consideration) promises are not enforceable at law. Consideration requires not only presence of
consideration but also lawfulness of consideration.
Example: A offers to buy IPAD from B for Rs. 50,000 to which B responds positively.
Here A’s promise to pay Rs. 50,000 is the consideration for B’s promise and B’s promise to sell the
IPAD is the consideration for A’s promise.
2. Essentials of Valid Contract
5. Free Consent
As per section 14 an agreement must be made between parties by free consent. In other words,
the consent must not be obtained from following:
◦ Coercion
◦ Undue influence
◦ Fraud
◦ Misrepresentation
◦ Mistake
Example:
◦ A beats B and compels him to sell his bike for Rs. 20,000. Here, B’s consent has been obtained by
coercion because beating someone is an offence under the Pakistan Penal Code.
◦ A having advanced money to his son, B during his minority, upon B’s coming of age obtains, by
misuse of parental influence, a bond from B for a greater amount than the sum due in respect of
the advances. A employs undue influence.
2. Essentials of Valid Contract
6. Lawful Object
As per section 23 the object of an agreement must be lawful. An object is said to be unlawful
when:
◦ It is forbidden by law
◦ Is of such a nature that if permitted would defeat the provisions of any law
◦ It is fraudulent
◦ It involves an injury to the person or property of another
◦ The court regards it as immoral, or opposed to public policy
Example:
◦ A, B and C enter into an agreement of the division among them of gains acquired, or be
acquired, by them by fraud. The agreement is void, as its object is unlawful.
◦ A promises to obtain for B an employment in the public service, and B promises to pay
Rs.10,000,000/-to A. The agreement is void as the consideration for it is unlawful.
◦ A, who knows that B has stolen goods amounting to Rs.500,000, receives Rs.100,000 from B in
consideration of not exposing A. This agreement is illegal.
2. Essentials of Valid Contract
7. Not declared as Void
◦ As per section 24 to 30 an agreement which is not enforceable by law is called void agreement. There are
certain agreements which have been expressly declared as void such as:
◦ Agreement, the consideration or object of which is partly unlawful
◦ Agreement made without consideration
◦ Agreement in restraint of marriage
◦ Agreement in restraint of legal proceedings
◦ Agreement in restraint of trade
◦ Uncertain agreements
◦ Wagering agreement
Example:
◦ A and B carried on business in a certain locality in Karachi. A promised to stop business in that locality if B
paid him Rs 1,000 per day. A stopped his business but B did not pay him the promised money. It was held
that A could not recover anything from B because the agreement was in restraint of trade and was thus void
(restraint of trade).
◦ A promises to pay Rs 10,000 to B if it rained today, and B promises to pay Rs 1,000 to A if it did not. The
agreement is void because the happening and non-happening is dependent on future uncertain event
(wager).
2. Essentials of Valid Contract
8. Certainty
As per section 29 an agreement may be void on the grounds of uncertainty. The meaning of the
agreement must be certain or capable of being certain.
Example: A agrees to sell to B "a hundred ton of oil." There is nothing whatever to show what kind
of oil was intended. The agreement is void for uncertainty.

9. Possibility of Performance
As per section 56 the terms of the agreement must be capable of being performed. An agreement
to do an act impossible in itself is void.
Example: A agrees with B to discover treasure by magic. The agreement is void.

10. Legal Formalities

As per section 25 an oral contract is a perfectly valid contract, except in certain cases where a
contract must comply with the necessary formalities as to writing, registration etc.
Example: An oral agreement for arbitration about present disputes is unenforceable because the
law requires that such arbitration agreement must be in writing.
3. Classifications of Contract
Express contracts A contract created by words i.e. verbally or in writing
A contract created by conduct of a person or the
Implied contracts
circumstances of a particular case.
Quasi contracts An obligation imposed by law.
Valid contract An agreement which is enforceable by law.
Void agreement Section 2(g) An agreement which is not enforecable by law.
A contract which ceases to be enforceable by law becomes void
Void contract Section 2(j)
when it ceases to be enforceable.
An agreement which is enforceable by law at the option of the
Voidable contract Section 2(i)
aggrieved party.
Illegal agreements An agreement the object of which is illegal.
An agreement which is otherwise valid but due to some technical
Unenforecable agreement
lacking, such as writing etc. remains unenforceable.
A contract where both the parties have performed their respective
Executed contract
promises.
Executory contract A contract in which something remains to be done.
A contract is which a promise on one side is exchanged for an act on
Unilateral contract the other side. In such contract one party to a contract has performed
his part and performance is outstanding against the other party.
A contract in which a promise on one side is exchanged for a promise
Bilateral contract
on the other.
Examples of Contracts
Void Contract: A music hall was rented out for a series of concerts. The hall caught fire
before the date of first concert. The contract was valid at the time of its formation but
became void when hall caught fire.

Void Agreement: A (Minor) borrowed Rs. 100,000 from B and executed mortgage of his
property in favour of the lender. This is a void agreement because A is not competent to
contract and B cannot legally enforce against A.

Voidable Contract: A threatens to kill B if he does not sell his BMW for Rs 1 million to A. B
contracted to sell his BMW to A and receives the payments. Here, B’s consent has been
obtained by coercion. Hence, this contract is voidable at the option of B but B has no right
to insist that contract shall be performed.

Illegal Agreement: A, who knows that B has stolen goods amounting to Rs.500,000, receives
Rs.100,000 from B in consideration of not exposing A. This agreement is illegal.

Unenforceable Agreement: An oral agreement for arbitration about present disputes is

unenforceable because the law requires that such arbitration agreement must be in writing.
OFFER AND ACCEPTANCE

1. Offer

2. Acceptance

3. Revocation of Offer and Acceptance

1. Offer
◦Definition of Proposal / Offer

◦Essentials of an Offer

◦Types of Offer
Definition of Offer/Proposal
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.

Thus, an offer is a proposal by one person to another

for entering into a legally binding agreement with him.
Essentials of an Offer
1. Two Persons: For a valid offer there needs to be two persons. A person
cannot make an offer to himself. The person making the proposal is
called offeror and the person to whom offer is made is called offeree.
2. Certain & Definite: A valid offer is one which is certain and definite.
Thus, no contract can come into existence if offer is uncertain.
3. Contractual Intention: An offer must be made with an intention to
create a contract.
4. Communication: The offer must be communicated to the offeree. The
communication is complete when it comes to the knowledge of the
person to whom it is made. In case an offer is made by post, its
communication will complete when the letter reaches the offeree. An
offer can be made by words spoken or written or through conduct of
the person. [Section 4]
Essentials of an Offer
5. Objective of Consent: An offer must be made with a view to obtain the consent of the
other person to proposed act or abstinence.
6. Conditional: An offer may be subject to some condition. It is on the sole discretion of
the person to whom such offer is made to either accept or reject it. A conditional offer
lapses when condition is not accepted.
7. Negative Confirmation: An offer cannot be in the form of negative confirmation i.e. if it
is not accepted within a specific time then it will be presumed to have been accepted.
8. Invitation of an Offer: An offer is different from an invitation of an offer. The intention in
invitation of an offer is to circulate information of his readiness to do the transaction. Such
intentions are not offers and do not tantamount to promise on acceptance.
9. Communication of Special Conditions: When there are special terms and conditions in
an offer they must be specifically communicated to the other party.
Types of Offer
1. Specific Offer: If an offer is made to definite or a particular person or
specific group of persons it is said to be specific offer. Such offer can be
accepted only by that definite person or that specific group of persons.

Example:
A offers to buy bike from B for Rs.50,000.
Types of Offer
2. General Offer: If an offer is made to the world or public than it is said to
be general offer. Such offer can be accepted by any person. The
contract is made with person who having the knowledge of the offer
comes forward and acts according to the conditions of the offer.

Example:
A advertised in the newspaper that he would pay Rs.50,000 to anyone
who traces his d o g . B, who knew about the reward traced that dog and
sent a message to A that he had found his dog. It was held that A was
entitled to receive the amount of reward.
Types of Offer
3. Cross Offers: If two parties ignorant of each other’s offer made similar
offers to each other they are called cross offers. Cross offers are not equal
to acceptance.

Example:
A of Karachi sends by post to B of Lahore offering to sell his bike for
Rs.50,000. The letter is posted on 1st December and on same day, B of
Lahore sends a letter by post to A of Karachi offering to buy A’s bike for
Rs.50,000.
Types of Offer
4. Standing / Open / Continuing Offer / Tender: If an offer is of on-going
nature it is said to be a standing offer. A contract is entered only when the
person signifies his acceptance on the basis of the tender.

Example:
A required a large quantity of certain goods during a year and offered
this by an advertisement. B supplied those goods at a specific rate. Every
supply of B is an acceptance of the standing offer of A.
2. Acceptance
◦Meaning of Acceptance

◦Essentials of Acceptance
Meaning of Acceptance
When the person to whom the proposal is made
signifies his assent to it, the proposal is said to be
accepted. [Section 2(b)]

Thus, an acceptance means assenting to an offer

made. An offer when accepted becomes a promise.
Essentials of Acceptance
The essentials of acceptance are shown below:
1. Absolute and Unconditional
2. Communication
3. Reasonable Time
4. Reasonable Mode
5. Awareness of Proposal
6. Before Lapse of an Offer
7. Negative Confirmation
3. Revocation of Offer and Acceptance
◦Timing of Revocation

◦Communication of Revocation

◦Lapse of an Offer
Timing of Revocation
According to Section 5 of the Contract Act:

◦ Timing of Revocation of an Offer:

A proposal may be revoked at any time before acceptance or the
communication of its acceptance is complete as against the proposer,
but not afterwards.
◦ Timing of Revocation of an Acceptance
An acceptance can be revoked at any time before the communication
of the acceptance is complete as against the acceptor i.e. when
acceptance comes to the knowledge of the offeror, but not afterwards.
Communication of Revocation
The rules regarding the communication of revocation are as
under [Section4]:

◦ As against the person who makes it:

When it is put in a course of transmission so as to be out of the power of
the revoker.
◦ As against the person to whom it is made:
When it comes to the knowledge of the revokee.
Lapse of an Offer
An offer is lapsed in the following ways:
Revocation: An offer may be revoked before its acceptance by the offeree. [Section 5]
Lapse of Time: An offer will come to an end if it is not accepted within the time specified or within a
reasonable time where no time is specified. What is the reasonable time is a question of fact
depending upon the subject matter and circumstances. [Section 6(2)]
Death or Insanity: An offer comes to an end by the death or insanity of the offeror if the fact of his
death or insanity comes to the knowledge of the acceptor before acceptance. [Section 6(4)]
Non-fulfilment of Condition Precedent: An offer comes to an end when the acceptor fails to fulfil
the conditions precedent to the offer. [Section 6(3)]
Counter Offer: An offer comes to an end if the counter offer is made.
Non-acceptance according to requirement: An offer comes to an end if it is not accepted
according to the requirement (if any) of the offeror.
Non-acceptance / Rejection: An offer comes to an end if it is not accepted by the offeree. An
offer is said to be rejected if the offeree expressly rejects.
Subsequent illegality or destruction: An offer comes to an end if it becomes illegal or the subject
matter is destroyed before its acceptance.
CAPACITY OF PARTIES
1. Who are Competent to Contract?

2. Agreements with a Minor

3. Agreements by Persons of Unsound Mind

4. Agreements with Persons Disqualified by Law

1. Who are Competent to Contract?
According to Section 11 of the Contract Act every
person is competent to contract:
◦Who is of the age of majority according to the law to
which he is subject, and
◦Who is of sound mind, and
◦Is not disqualified from contracting by any law to
which he is subject.
2. Agreements with a Minor
In Pakistan a minor is a person who has not attained
majority which is:
◦21 years where a guardian of a minor’s person or
property is appointed by the court of law under the
Guardians and Wards Act, 1890; or
◦18 years in other cases.
Position of agreements by a minor
The law pertaining to agreements with a minor is given below:
◦ An agreement with a minor is void
◦ Where an infant / minor represents fraudulently or otherwise that he is of the age of
majority and induces another to enter into a contract with him, he will not be liable
◦ Since ratification has a retrospective application it is necessary that the minor must be
competent to contract at the time when the contract is entered into. Therefore, an
agreement with a minor cannot be ratified subsequently after he attains majority
◦ If a minor enters into an agreement jointly with a major person then such agreement
can be enforced against the major person who has jointly promised to perform
◦ A minor can be agent but cannot be a principal but if anyone acts on behalf of minor
principal, he will be personally liable. [Section 184]
◦ A minor cannot be declared insolvent because he is incompetent to contract
◦ A minor can file a suit but cannot be sued
3. Agreements by persons of Unsound Mind
Meaning of Sound Mind
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 to understand the terms of the contract,
◦ to form a rational judgment as to its effect upon his interests.
Thus, if a person is not capable of both, he is said to have suffered from unsoundness of
mind.

Example: The examples of persons having an unsound mind include:

◦ Specific persons/idiots
◦ Lunatics and
◦ Drunken persons.
Position of agreements with a person of unsound mind
◦ The positions of such agreements are given below:
◦ If a lunatic enters into a contract while he is of unsound mind, an agreement during this
period is void.
◦ If a lunatic enters into a contract while he is of sound mind, an agreement during this
period is valid.
◦ A person of unsound mind can enforce a contract for his benefits
◦ A person who supplied necessaries to a person of unsound mind or his defendant
entitled to be reimbursed from the property of such person of unsound mind. Such
claim is against the property of the person of unsound mind not against the person
personally.
◦ A person delirious from fever or drunken person cannot enter into a contract while such
delirium or drunkenness lasts and he is not able to understand the terms of the contract
or form a rational judgment.
Position of a person who is usually of unsound mind but
occasionally of sound mind
A person who is
◦ Usually of unsound mind but
◦ Occasionally of sound mind
may make a contract when he is of sound mind

Example:
A patient in a lunatic asylum who is at intervals of sound mind
may contract during those intervals. Thus, if a person is not
capable of both, he is said to have suffered from unsoundness
of mind.
Position of a person who is usually of sound mind but
occasionally of unsound 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

Example:
A sane man who is so 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 interest cannot enter
into contract while such delirium or drunkenness lasts.
Burden of Proof
The rules regarding the burden of proof are following:
◦ If a person is usually of sound mind or in drunkenness or in
delirium from fever then the burden of proof that he was of
unsound mind lies on the person who questions the validity of
contract.
◦ If a person is usually of unsound mind then the burden of proof
that he was of sound mind lies on the person who confirms it.
4. Agreements with persons disqualified by law
There are some disqualifications imposed on certain persons in respect of their capacity
to contract which are discussed below:

An alien is a person who is the citizen of a foreign country. He can enter into a
contract and be sued during peace time but if a war is declared than an alien
Alien
enemy can neither enter into a contract or be sued during the period of war.
Enemies
Contracts entered before the declaration of war are either suspended or
terminated during the period of war.
Foreign Such persons have immunity unless they choose to submit themselves to the
sovereigns and jurisdictions of our courts. They have a right to enter into a contract but can claim
ambassadors the privilege of not being sued.
A convict while under imprisonment is incapable of contracting but this disability
Convicts
comes to an end after the expiry of the sentence or when he is on parole.
A person declared as insolvent cannot enter into a contract as his property is
Insolvent
dealt with by official assignee or official receiver.
A company is an artificial person and a contract entered into by a company will
Companies
be valid only if it is within the powers granted by the Memorandum of Association.
CONSIDERATION
When at the desire of the promisor, the promisee or any other person who 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.
When a party to an agreement promises to do something, he must get something in return. This
something is in return of consideration. Consideration may be the value by which promise is
bought.
Consideration may be following:
◦ An act i.e. doing of something
◦ An abstaining or refraining from doing something.
◦ A return promise
Example:
◦ A promises B to guarantee payment of price of the goods which B sells on credit to C. Here
selling of goods by B to C on credit is consideration for A’s promise.
◦ A asks B not to sue C for a year for his debts and promises in case of default of C, A would be
liable.
Essentials of Consideration
These essentials are discussed below:
1. Desire of the Promisor
2. Move / from Promisee or any other person
3. Consideration may be Past, Present or Future
4. Consideration to have some value
5. Consideration must be Real
6. Something which the promisor is not already bound to do
7. Lawful
1. Desire of the Promisor
An act or abstinence of promise constituting consideration must
have been done or made at the desire or request of the
promisor. Thus, an act done at the desire of a third party or
without the desire of the promisor cannot constitute a valid
consideration.
Example:
A saves B’s goods from fire without being asked to do so. A
cannot demand payment for his services.
2. Move / from Promisee or any other person
In return consideration may be from the promisee himself or by
any other person even by stranger.
Example:
◦ X transferred certain property to her daughter Y with a
direction that Y should pay Z annuity. On the same day Y
executed a deed in writing in favour of Z and agreed thereby
to pay the annuity. Later, Y refused to pay the annuity on the
plea that no consideration had moved from Z.
◦ Here Z is entitled to maintain suit because a consideration not
necessarily move from the promisee, it may move from any
other person (by X in this case).
3. Consideration may be past, present or future
The consideration may be past (done or abstained from doing), present (does or abstains
from doing) or future (promises to do or to abstain from doing).
Consideration which has moved before the formation of agreement is said to be past
consideration.
Consideration which moves simultaneously with the promise is called present
consideration.
Consideration which moves after the formation of agreement is called future
consideration.
Example:
◦ A sells his car for Rs. 1 million and delivers the car at the time of payment. Here the
consideration is moving simultaneously with the promise and is called present
consideration.
◦ A promises to deliver certain goods to B after 5 days and B promises to pay after 5 days
from the date of delivery. Consideration in this case is future.
4. Consideration to have some value
There is no requirement for the adequacy of consideration but it should
have some value. There should be something in return and this something
in return need not necessarily be equal in value to something given.

5. Something which the promisor is not already bound to do

It may be an act, abstinence, forbearance or a return promise e.g.
compromise of a disputed claim, composition with creditors.
The consideration must be something which the promisor is not already
bound to do because a promise to do what a promisor is already bound
to do adds nothing to the existing obligation.
6. Consideration must be real
Consideration must be real and not illusory.
Example:
◦ A engages B to work as an accountant in his office and promises to
make him happy. This promise is not enforceable because the
consideration is not real but illusory.
◦ A promises to put life into B’s dead wife and B promises to pay Rs. 1
million. This agreement is void because consideration is impossible to
perform and not real.
◦ A engages B to work as an accountant in his office and promises to pay
him Rs. 75,000 per month. This is a real consideration for both the parties.
7. Lawful
The consideration must neither be unlawful nor opposed to public policy.
Example:
◦ A promises B to pay Rs. 100,000 to beat C. B beats C and claims Rs.
100,000 from B. A refuses to pay. B cannot recover because the
agreement is void on the ground of unlawful consideration.
◦ A promises B to obtain an employment in the public service and B
promises to pay Rs. 100,000 to A. The agreement is void on the ground of
unlawful consideration.
CONSENT
Two persons are said to consent when they agree upon the same thing in
the same sense.
Thus, the analysis of the above definition reveals that both the parties
must be at the same frequency of mind at the time of entering into a
contract i.e. Consensus ad ideur.
Effect of absence of consent:
The effect of absence of consent is that the agreement is not valid and is
not enforceable by law. [Section 19]
Example: X has one Alto and one Coure. He wants to sell Coure. Y does
not know that X has two cars. Y offers to buy X’s Alto for Rs. 400,000. X
accepts the offer thinking it to be an offer for his Coure. Here, there is no
identity of minds in respect of the subject matter. Hence, there is no
consent at all and hence there is no agreement.
FREE CONSENT
The consent is said to be free when it is not caused by:
1. Coercion
2. Undue influence
3. Fraud
4. Misrepresentation or
5. Mistake

Effect of absence of consent:

The effect of absence of free consent is that the contract becomes voidable if the
consent is obtained by coercion or undue influence or fraud or misrepresentation at the
option of the party whose consent was so caused but if the consent is obtained by
mistake then agreement may be void-ab-initio or contract is not voidable depending
upon the nature of the mistake. [Section 19A]
1. COERCION
Coercion is the:
◦ committing or
◦ threatening to commit any act
◦ which is forbidden by Pakistan Penal Code or
◦ unlawful detaining or
◦ threatening to detain,
Any property with an intention of causing any person to enter into an agreement.

The analysis of the above definition reveals that coercion may be compelling a person to
enter into a contract under pressure or a threat.
Example: A beats B and compels him to sell his bike for Rs. 20,000. Here, B’s consent has
been obtained by coercion because beating someone is an offence under the Pakistan
Penal Code.
Effects of Coercion
The effects of coercion are given below: [Section 19, 64 and 72]
◦ The contract becomes voidable at the option of the party whose consent was so
caused. The burden of proof lies on the party who rescinds the contract.
◦ The party rescinding a voidable contract shall, if he has received any benefit from
another party, restore such benefit i.e. restitution.
◦ A person to whom money has been paid or anything delivered by coercion must repay
or return it.

Example: A threatens to kill B if he does not sell his BMW for Rs 1 million to A. B contracted
to sell his BMW to A and receives the payments. Here, B’s consent has been obtained by
coercion. Hence, this contract is voidable at the option of B but B has no right to insist that
contract shall be performed.
2. UNDUE INFLUENCE
A contract is said to be induced by undue influence where the relations subsisting
between the parties are such that one of the parties is in a position to dominate the will of
the other and uses that position to obtain unfair advantage over the other.
Thus the analysis of the above definition reveals that an undue influence means
dominating in a relationship the will of the other person to obtain an unfair advantage. A
contract is said to be induced by undue influence:
◦ Where the relations between the parties are such that
◦ one of them in a position to dominate the will of the other and
◦ uses that position to obtain an unfair advantage over the other

Example: AA having advanced money to his son, B during his minority, upon B’s coming
of age obtains, by misuse of parental influence, a bond from B for a greater amount than
the sum due in respect of the advances. A employs undue influence.
In the following relationships it is presumed that a person is in a position to
dominate the will of another person:
Father and son, Guardian and ward, Employer and Employee, Trustee and
beneficiary, Teacher and student, Doctor and patient, Solicitor and client,
Fiancé and fiancée

In the following relationship there is no presumption that a person is in a

position to dominate the will of another person:
Landlord and tenant, Creditor and debtor, Husband and wife
Difference between Coercion & Undue Influence
Area Coercion Undue Influence

Consent is obtained by giving a

Consent threat of an offence or committing Consent is obtained by dominating the will.
an offence.

Nature of pressure It involves physical pressure It involves moral pressure.

The objective is to compel a person The objective is to obtain an unfair

Reason
to enter into a contract. advantage.

Criminal liability is incurred,

Criminal liability Criminal liability is not incurred.
therefore it is illegal.

Parties to a contract may or may Parties to a contract are related to each

Relationship
not be related to each other. other under some sort of relationship.
3. FRAUD
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 to it or his agent, or
◦ to induce to enter into a contract
Fraud Types
1. False Assertion
Example: A sells to B locally manufactured goods representing them to be imported
goods charging a higher price, it amounts to fraud.
2. Active Concealment
Example: Z a furniture dealer conceals the cracks in furniture sold by him by using some
packing material and polishing it in such a way that the buyer even after reasonable
examination cannot trace the defect, it would amounts to fraud through active
concealment.
3. Empty Promise
Example: Buying goods under a contract of sale with an intention of not paying the price
is fraud.
4. Declared Act: Any such act or omission as the law specially declares to be fraudulent
5. Fitted Act: Any other act fitted to deceive.
Essentials of Fraud
These essentials are discussed below:
1. Party to a Contract: The fraud must be committed by a party to a contract or by
anyone with his connivance or by his agent. Thus, the fraud by a stranger to the contract
does not affect its validity.
2. False Representation: It means that a false representation is made with the knowledge
of its falsehood. It will equal to fraud if a true representation is made but becomes untrue
at the time of formation of contract the fact is known to the party who made the
representation.
3. Representation as to Fact: A mere opinion does not amount to fraud. A representation
must relate to a fact than it amount to fraud.
4. Actually deceived: A deceit, which does not deceive is not fraud. The fraud must have
actually deceived the other party who has acted on the basis of such representation.
5. Suffered loss: Loss has been suffered by the party who acted on the representation.
Effects of Fraud
The effects of fraud are as follows [Section 19]:
◦ The contract becomes voidable at the option of the party whose consent
was so caused.
◦ The party whose consent was so caused may insist on performance of
the contract.
◦ The party whose consent was so caused is entitled to claim damages.
Silence as to Fraud
Mere silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case are such
that parties stands in fiduciary relationship or where silence itself is
equivalent to speech. [Section 17]
Example:
◦ A sells by auction to B a horse which A knows to be unsound. A says
nothing to B about the horse's unsoundness. This is not fraud by A.
◦ B is A's daughter and has just come of age. Here, the relation between
the parties would make it A's duty to tell B if the horse is unsound.
◦ B says to A, "If you do not deny it, I shall assume that the horse is sound."
A says nothing. Here A's silence is equivalent to speech. If the horse turns
out to be vicious. A can be held liable for fraud.
4. MISREPRESENTATION
Misrepresentation means and includes-
1. Unwarranted statement: When a person makes a positive statement that a fact is true
when his information does not warrant it to be so, though he believes it to be true this
amounts to misrepresentation.
2. Breach of duty: Any breach of duty which
◦ without an intent to deceive,
◦ gains an advantage to the person committing it, or
◦ anyone claiming under him,
by misleading another
◦ to his prejudice or
◦ to the prejudice of anyone claiming under him.
3. Inducing mistake about subject matter (Innocent misrepresentation): A party to an
agreement induces (however innocently) the other party to make a mistake as to the
nature or quality of the subject of the agreement.
Essentials of Misrepresentation
These essentials are discussed below:
1. Party to a Contract: The representation must be made by a party to a contract or by
anyone with his connivance or by his agent. Thus, the representation by a stranger to the
contract does not affect the validity of the contract.
2. False Representation: There must be a false representation and it must be made without
the knowledge of its falsehood i.e. the person making it must honestly believe it to be
true.
3. Representation as to Fact: A mere opinion does not amount to misrepresentation. A
representation must relate to a fact if it amounts to misrepresentation.
4. Object: The objective is to induce the other party to enter into contract without the
intention of deceiving the other party.
5. Actually Acted: The other party must have acted on the faith of the representation.
Effects of Misrepresentation
The effects of representation are following [Section 19]:
◦ The contract becomes voidable at the option of the party whose consent
was so caused.
◦ The party whose consent was so caused may insist on performance of
the contract.
5. MISTAKE
Where both the parties to an agreement are under a mistake as to matters
of facts essential to the agreement, the agreement is void [Section 20].
Types of Mistakes:
1. Mistake of Law
a. Pakistan Law
b. Foreign Law
2. Mistake of Fact
a. Bilateral
a1. Subject Matter
a2. Possibility of Performance
b. Unilateral
b1. Identity of Person
b2. Nature of Contract
LEGALITY OF OBJECT, CONSIDERATION & AGREEMENTS
OPPOSED TO PUBLIC POLICY
1. Circumstances where object or consideration is unlawful

2. Agreement, the consideration or object of which is partly unlawful

3. Agreements opposed to public policy

1. Circumstances where object or consideration is unlawful
The consideration or object of an agreement is lawful unless:
◦ Forbidden by law
◦ Of such a nature that if permitted would defeat the provisions of any law
◦ Fraudulent
◦ Involves an in injury to the person or property of another
◦ Court regards it as immoral, or opposed to public policy
2. Agreement, the consideration or object of which is partly
unlawful

◦ Promise to do legal and illegal things

◦ Alternative promise being illegal
3. Agreements opposed to public policy
◦ Trading with enemy
◦ Stifling prosecution
◦ Maintenance and champerty
◦ Sale of public offices
◦ Restraint of parental rights
◦ Restraint of personal liberty
◦ Agreement to create monopoly
◦ Marriage brokerage agreement
VOID AGREEMENT
An agreement not enforceable by law is said to be void. All agreements
may not be enforceable by law. The agreements which are not
enforceable by law right from the time when they are made are called
void-ab-initio. [Section 2(g)]

Effect on Agreement Collateral to Void Agreement

When an agreement is void, other agreement which is collateral to it is
also void and is not enforceable by law if the other party has knowledge
about it
Contract Act declares certain agreements to be void
1. Agreements by or with persons incompetent to contract [Section 11]
2. Agreements made under mutual mistake of fact [Section 20]
3. Agreements made under mutual mistake of foreign law [Section 21]
4. Agreement, the object or consideration of which is unlawful [Section 23]
5. Agreement, the consideration or object of which is partly unlawful [Section 24]
6. Agreement made without consideration [Section 25]
7. Agreements in restraint of trade [Section 27]
8. Wagering agreement [Section 30]
9. Agreements in restraint of legal proceedings [Section 28]
10. Agreements in restraint of marriage [Section 26]
11. Uncertain agreements [Section 29]
12. Agreements contingent on impossible events [Section 32]
13. Agreements to do impossible acts [Section 56]
14. Agreement to enter into an agreement in future
WAGERING AGREEMENTS
An agreement between two persons under which money or money’s
worth is payable, by one person to another on the happening or non-
happening of a future uncertain event is called a wagering event. An
agreement by way of wager is void. [Section 30]
Example:
◦ A promises to pay Rs. 10,000 to B if it rained today, and B promises to
pay Rs. 1,000 to A if it did not.
◦ Contracts of Insurance.
Effects of Wagering Agreement
The effects of wagering agreements are following:
◦ Such agreements are void
◦ No suit can be filed to recover the amount won on any
wager.
◦ Transactions which are collateral to wagering agreements
may also be void.
OTHER VOID AGREEMENTS
1. Uncertain agreements
2. Agreements contingent on impossible events
3. Agreements to do impossible acts
4. Agreements to enter into an agreement in the future
1. Uncertain Agreements
An agreement the meaning of which is not certain or capable of being
made certain are void. [Section 29]
Example:
◦ A agrees to sell to B "a hundred ton of oil." There is nothing whatever to
show what kind of oil was intended. The agreement is void for
uncertainty.
◦ A, who is a dealer in coconut oil, agrees to sell to B "one hundred ton
of oil." The nature of A's trade affords an indication of the meaning of
the words, and has entered into a contract for the sale of one hundred
tons of coconut oil.
2. Agreements contingent on impossible events
Contingent agreements to do or not to do anything, if an impossible
event happens are void whether the impossibility of the event is known
or not to the parties to the agreement at the time when it is made.
[Section 32]
◦ Example:
◦ A agrees to pay Rs. 1,000 if B marries C (a Hindu) who is already
married to D. This agreement is void.
3. Agreements to do impossible acts
An agreement to do an impossible act is void. [Section 56]
Example:
◦ A agrees with B to discover treasure by magic. The
agreement is void.
4. Agreements to enter into an agreement in the future

An agreement to enter into an agreement in the

future is void.
CONTINGENT CONTRACT
A “Contingent Contract” is a contract [Section 31]
◦ to do or
◦ not to do something
if some event, collateral to such contract
◦ does or
◦ does not happen.
Insurance contracts and contracts of indemnity and guarantee provide
the best example of contingent contracts.
Example:
A contracts to pay B Rs.10,000 if B’s house is burnt. This is a contingent
contract.
Characteristics of Contingent Contracts
The following are the characteristics of contingent contracts:
◦ the performance of a contingent contract depends upon the
happening or non-happening of some future event.
◦ the event must be collateral to the contract
◦ the event must be uncertain
Rules regarding Contingent Contracts
1. Contracts contingent upon the happening of an uncertain future
event
2. Contracts contingent upon the non-happening of a certain future
event
3. Contracts contingent upon the future conduct of a living person
4. Contracts contingent upon the happening of an uncertain specified
event within a fixed time
5. Contracts contingent upon the non-happening, of an uncertain
specified event within a fixed time
6. Agreements contingent upon impossible events
1. Contracts contingent upon the happening of an
uncertain future event
A contract, the performance of which is contingent on the happening of
an uncertain future event, cannot be enforced by law unless and until
that event has happened. If the event becomes impossible, such
contracts become void. [Section 32]
Example:
◦ A makes a contract with B to buy B's horse if A survives C. This contract
cannot be enforced by law unless and until C dies in A's life time.
◦ A contract to pay B a sum of money when B marries C. C dies without
being married to B. The contract becomes void.
2. Contracts contingent upon the non-happening of a
certain future event
A contract the performance of which is contingent on the non-
happening of a certain future event can be enforced when the
happening of that event becomes impossible and not before. [Section
33]
Example:
◦ A agrees to pay B a sum of money if a certain ship does not return. This
ship is sunk. The contract can be enforced when the ship sink.
3. Contracts contingent upon the future conduct of a
living person
If the future event on which a contract is contingent is the way in which
a person will act at an unspecified time, the event shall be considered
to become impossible when such person does anything which renders it
impossible that he should so act within any definite time or otherwise
than under further contingencies. [Section 34]
Example:
◦ A agrees to pay B a sum of money if B marries C. C marries D. the
marriage of B to C must now be considered impossible, although it is
possible that D may die, and that C may afterwards marry B.
4. Contracts contingent upon the happening of an
uncertain specified event within a fixed time
Contingent contracts to do or not to do anything if a specified uncertain
event happens within a fixed time become void if at the expiration of
the time fixed such event has not happened or if before the time fixed
such event becomes impossible. [Section 35]
Example:
◦ A promises to pay B a sum of money if a certain ship returns within a
year. The contract may be enforced if the ship returns within the year,
and becomes void if the ship is burnt within the year.
5. Contracts contingent upon the non-happening, of an
uncertain specified event within a fixed time
A contract of performance of which is contingent on the non-happening
of a specified uncertain event within a fixed time may be enforced by
law:
◦ When the time fixed has expired and such event has not happened or
◦ If (before the expiry of the time fixed) it becomes certain that such
event will not happen. [Section 35]
Example:
◦ A promises to pay B a sum of money if a certain ship does not return
within a year. The contract may be enforced if the ship does not return
within the year, or is burnt within the year.
6. Agreements contingent upon impossible events
Contingent agreements to do or not to do anything, if an impossible
event happens, are void, whether the impossibility of the event is known
or not to the parties to the agreement at the time when it is made.
[Section 36]
Example:
◦ A agrees to pay B Rs. 1,000 if two straight lines should enclose a space.
The agreement is void.
◦ A agrees to pay B, Rs. 1,000 if B will marry A's daughter C. C was 'dead
at the time of the agreement. The agreement is void.
Difference between Contingent Contract & Wagering
Agreement
Area Contingent Contract Wagering Agreement
Validity It is a valid contract. It is void and illegal.

In a contingent contract parties have

Parties are not interested in the
real interest in the occurrence or non-
Interest of Parties occurrence or non-occurrence of
occurrence of the event e.g. insurable
the event
interest in the property insured.

The uncertain event is the sole

The future uncertain event is merely
Uncertain Event determining factor of the
collateral.
agreement.

It may or may not consist of

Reciprocal Promises It consists of reciprocal promises.
reciprocal promises.
QUASI CONTRACTS
A Quasi contract is an obligation imposed by law in absence of any
agreement between the parties.

A quasi-contract is not an actual contract, but is a legal substitute

formed to impose equity between two parties.

The concept of a quasi-contract is that of a contract that should have

been formed, even though in actuality it was not.

The other name for Quasi contracts is constructive contracts.

Types of Quasi Contracts
The types of Quasi contracts are listed below:
1. Supply of necessaries
2. Payment by interested person
3. Person enjoying benefit of non-gratuitous act / goods
4. Finder of goods
5. Payment by mistake or under coercion
1. Supply of Necessaries
If a person incapable to enter into contract or his dependent is
supplied by another person necessaries suited to his conditions in life
the person supplying such necessaries is entitled to be reimbursed his
price from the property of such incompetent person. [Section 68]

Example:
A supplies B, a lunatic, with necessaries suitable to his condition in life.
A is entitled to be reimbursed from B's property.

A supplies the wife and children of B, a lunatic, with necessaries

suitable to their condition in life. A is entitled to be reimbursed from B's
property.
2. Payment by Interested Person
A person, who is interested in the payment of money which another is bound by law
to pay, and who therefore pays it, is entitled to be reimbursed by the other. [Section
69].
Thus the essential requirement of this section is:
◦ The payment made should be bona fide for the protection of one’s interest
◦ The payment should not be a voluntary one
◦ The payment must be such as the other party was bound by law to pay
Example:
B holds land in Sindh, on a lease granted by A, a Zamindar. The revenue payable by
A to the Government being in arrears, his land is advertised for sale by the
Government. Under the revenue law, the consequence of such sale will be the
annulment of B's lease. B, to prevent the sale and the consequent annulment of his
own lease, pays the Government the sum due from A. A is bound to make good to B
the amount so paid.
3. Person enjoying Benefit of Non-Gratuitous Act/Goods
Where a person lawfully does anything for another person, or delivers anything to
him, not intending to do so gratuitously and such other person enjoys the benefit
thereof, the latter is bound to make compensation to the former in respect of, or to
restore, the thing so done or delivered. [Section 70]
Following conditions must be satisfied before any right of action arises under this
section:
◦ The thing must have been done lawfully
◦ The person doing the act should not have intended to do it gratuitously
◦ The person for whom the act is done must have enjoyed the benefit of the act.
Example:
◦ A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his
own. He is bound to pay A for them.
◦ A saves B's property from fire. A is not entitled to compensation from B, if the
circumstances show that he intended to act gratuitously.
4. Finder of Goods
Where a person lawfully A person who finds goods belonging to another, and takes
them into his custody, is subject to the same responsibility as a bailee. He is bound to
take as much care of the goods as a man of ordinary prudence would, under similar
circumstances, take of his own goods. He must also take reasonable steps to trace its
owner - if he does not, he will be guilty of wrongful conversion of the property.
[Section 71]
Example:
A found a diamond rings at a wedding reception of B. A told B and other guests
about it with an intention to find the true owner. If he is not able to find the owner he
can retain the ring as bailee.
5. Payment by Mistake or Under Coercion
A person to whom money has been paid, or anything delivered by mistake or under
coercion, must repay or return it. [Section 72]
Example:
◦ A and B jointly owe Rs. 100 to C. A alone pays the amount to C, and B, not knowing
this fact, pays Rs. 100 over again to C. C is bound to repay the amount to B.
◦ A railway company refuses to deliver up certain goods to the consignee, except
upon the payment of an undue charge for carriage. The consignee pays the sum
charged in order to obtain the goods. He is entitled to recover so much of the
charge as was excessive.
Application of Quantum Meruit

Quantum meruit applies in the following cases:

a. Void agreement or a contract that becomes void
b. Person enjoying benefit of non-gratuitous act / goods
c. Act preventing the completion of contract
d. Divisible contract
e. Indivisible contract performed completely but badly
f. Express or implied contract to render services but no remuneration is pre-settled
a. Void agreement or a contract that becomes void

When an agreement is discovered to be void, or when a contract becomes void, any

person who has received any advantage under such agreement or contract is bound
to restore it, or to make compensation for it to the person from whom he received it.
[Section 65]
Example:
◦ A, pays B Rs. 1,000 in consideration of B’s promising to marry C, A’s daughter. C is
dead at the time of the promise. The agreement is void, but B must repay A Rs.
1,000.
◦ A contracts with B to deliver to him 250 kg of rice before May. A delivers 130 kg
only before the agreed time, and none after. B retains the 130 kg. He is bound to
pay A for them.
b. Person enjoying benefit of non-gratuitous act / goods

Where a person lawfully does anything for another person, or delivers anything to
him, not intending to do so gratuitously and such other person enjoys the benefit
thereof, the latter is bound to make compensation to the former in respect of, or to
restore, the thing so done or delivered. [Section 70]
Example:
◦ A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his
own. He is bound to pay A for them.
◦ A saves B's property from fire. A is not entitled to compensation from B, if the
circumstances show that he intended to act gratuitously.
c. Act preventing the completion of contract

If a party does not complete the contract or prevents the other party from completing
it, the aggrieved party can sue on quantum meruit.
Example:
◦ C, an owner of a magazine engaged P to write a book to be published by
instalments in his magazine. After a few instalments were published, the publication
of the magazine was stopped. It was held that P could claim payment for the part
already published.
d. Divisible Contract

The party at default may sue on a quantum meruit if the contract is divisible and the
party not at default has enjoyed benefits of the part performance.
Example:
◦ A hired B to construct a house for Rs. 1 million but B abandoned this contract after
having done the work worth Rs. 0.5 million. Afterwards, A got the work completed. B
could not recover anything for the work done because he was entitled to the
payment only on the completion of the work.
e. Indivisible Contract Performed Completely but Badly

If it is an indivisible contract which has been completely performed but with faults
than the party at default may claim the amount agreed after deducting any amount
which the other party has paid to remove faults.
Example:
A agreed to decorate B's flat for a lump sum of Rs. 200,000. A did the complete work
but B complained of faulty workmanship. It costs B another Rs. 30,000 to remedy the
defect. It was held that A could recover only Rs. 170,000 from B.
f. Express or implied contract to render services but no
remuneration is pre-settled

When there is an express or implied contract to render services but no remuneration is

presettled in such a case reasonable remuneration is payable.