1. Contract and its kinds
A Contract is an agreement the object of which is to create a legal obligation, i-e a duty
enforceable by law
Essentials of a Valid Contract
According to Sec 10, “all agreements are Contract if they are made by the free consent of
parties, competent to Contract, for lawful consideration with lawful object and or not hereby
expressly declared to be Void.
Where necessary the agreement must satisfy the requirements of Law regarding writing,
attestation or registration.
1. Offer and Acceptance
For nay agreement there must be lawful offer by one party and lawful acceptance of that offer
from other party. The term lawful means that the offer and acceptance must satisfy the
requirements of Contract.
2. Legal Obligation
The parties to an agreement must create a legal obligation. It means that if one party does not
fulfill his part of promise he shall be liable for breach of Contract.
Example:
a. A offers to sell his watch to B for rupees 200. B agrees to buy. It is a Contract as it creates
legal obligation.
b. A husband promise to pay his wife an allowance of $30 every month. Later the parties
separated and the husband refused to pay. The wife sued. Held that wife was not entitled as
agreement did not create legal obligation. (Belfour vs. Belfour)
3. Lawful Consideration
An agreement is enforceable only when parties get and give something. The something given or
obtained is called consideration. Consideration must be lawful as well.
Example:
A promise to give him a government job and B promises to pay Rs. 1 Lac. The agreement is void
because consideration is unlawful.
4. Capacity of Parties
An agreement is enforceable only if it is made by parties who are competent to Contract. To be
competent to Contract, the parties must be of the age of majority, of sound mind and not
disqualified from Contracting by law.
Example
M a person of unsound mind agrees to sell his house to S for Rs. 2 Lac. It is not a valid Contract
because M is not competent to Contract
5. Free Consent
Consent means that parties must agree upon the same thing in same sense. For a valid Contract
the consent of parties must be free.
(According to Sec. 14) consent is free when it is not obtained by coercion, undue influence,
fraud, misrepresentation or mistake. If the consent of either of the parties is not free, the
agreement cannot become a Contract.
Example
A compels B to enter into a Contract at gunpoint. It is not a valid Contract as the consent of B is
not free.
6. Lawful Object
(According to Sec. 23) it is necessary that agreement should be made for a lawful object. The
object of agreement must not be fraudulent, illegal, immoral opposed to public policy, imply
injury to the person or property of another. Every agreement with unlawful object is void.
Example
A hires a house to use for gambling, the object of agreement is unlawful, so the agreement is
illegal and void.
7. Writing and registration
A Contract may be oral or in writing. If required by law, a particular Contract must be in writing,
signed, attested by witnesses and registered; e.g. sales and mortgage of land
Example
A verbally promise to sell his house to B. it is not a valid Contract because the law requires it to
be in writing.
8. Certainty of terms
According to section 29, “agreements the meaning of which is not certain or capable of being
made certain, are void.”
The terms of agreement must be clear, complete and certain. If the terms are uncertain the
agreement is void.
Example
A promise to sell 20 books to B without specifying their titles. The agreement is void because
the terms are not clear.
9. Possibility of performance
(According to Sec. 56) The valid Contract must be capable of being performance. An agreement
to do an impossible act is void. If the act is legally or physically impossible to be performed, the
agreement cannot be enforced by law.
Example
A agrees with B to discover a treasure by magic, the agreement is not enforceable.
10. Not expressly declared void
For a valid Contract, the agreement must not be one of those, which have been declared to be
void by the law. Sec (24-30) explains certain agreements which have been expressly declared to
be void e.g. agreements in restraint of trade and of wager etc. are expressly declared void.
Example
A promise to pay Rs. 2000 to B if Pakistan wins the world cup final, the agreement is void being
a wagering agreement.
Kinds of Contract
The Contracts can be classified into four categories as follows
a. Valid Contract
A valid Contract is enforceable by law. An agreement becomes enforceable by law when all the
essentials of a valid Contract are present.
Obligations of parties
In a valid Contract all the parties are legally responsible for the performance of Contract. If one
of the party breaches the Contract, the other party can enforce through the court of law.
b. Void Contract
The word void means not binding in law. Section 2 (j) A Contract which ceases to be
enforceable by law becomes void, when it ceases to be enforceable. It means that a void
Contract is not void from the beginning. It is valid Contract when it is made but subsequently it
becomes void due to certain reasons.
Obligation of parties
In void Contract both parties are not legally responsible to fulfill the Contract. Under this
Contract the party who has received any benefit is bound to return it to other party.
A Contract becomes void under the following circumstances:
i. Impossibility of performance
A Contract becomes void due to impossibility of performance. A Contract becomes void before
performance, when it becomes impossible to be performed by any party due to any reason (Sec
56)
Example
A agrees to sell his house to B after two days. The house is burnt next day. The Contract
becomes void.
ii. Subsequent illegality
A Contract becomes void subsequent illegality. A Contract may become illegal before
performance due to certain reason. (Sec 56)
Example
A agrees to sell 100 bags of wheat to B. before delivery the government bans private trade in
wheat. The agreement becomes void.
iii. Rejection of voidable Contract
A voidable Contract becomes void when the party whose consent is not free rejects the
Contract (Sec 19)
Example
A forcibly buys B’s car for Rs. 20,000 the Contract is voidable at the option of B. B may accept or
reject it. If B rejects the Contract it becomes void.
iv. Impossibility of depending event
A contingent Contract is that, the performance of which depends upon the happening or nonhappening of a certain event. It becomes void when that event does not happen. (Sec 32)
Example
A Contract to give Rs. 1 Lac to B if B gets admission in Hailey College, B fails to get admission.
The Contract becomes void.
c. Void agreement
An agreement not enforceable by law is said to be void. The void agreement does not create
legal obligation among the parties and is void ab-initio. In void agreement there is absence of
one or more essentials of valid Contract except free consent. An agreement with minor and an
agreement without consideration are void from the beginning. (Sec 2 (g))
Obligation of parties
In void agreement, any party who has received any advantage is bound to restore it to the party
which he received it. Both the parties are not responsible for the performance of the
agreement.
Example
A promise to buy a dog from B for Rs. 10,000 the dog was dead before the Contract. The parties
were unaware. The agreement is void.
d. Voidable Contract
An agreement which is enforceable by law at the option one or more of the parties thereto, but
not at the option of the other or others is a voidable Contract (Sec 2 (i))
1) A Contract becomes voidable when the consent of one or more of the parties to a Contract is
obtained by coercion, undue influence, misrepresentation or fraud. (Sec 15-18)
Example
A compels B to sell his car at gunpoint. The Contract is made by coercion and is voidable at the
option of B.
2) When a person promises to do something for another person but the other person prevents
him from performing his promise, the Contract becomes voidable at his option. (Sec 53)
Example
A Contract to paint B’s house A is ready to paint but B prevents him from doing so. This
Contract is voidable at the option of B.
3) When party to the Contract promises to do a certain thing within a specified time, but fails to
do it, then the Contracts becomes voidable at the option of the promisee, if time is essence of
the Contract. (Sec 55)
Example
A Contract to paint B’s house within week A does not come within specified time. The Contract
is voidable at the option of B.
Obligations of parties
• It is a valid Contract for both the parties if it is not rejected by the party having the right to
reject
• The law gives an option to one of the parties to avoid it
• The party entitled to cancel the Contract is not bound to cancel. If he confirms it, the other
party remains bound to perform.
• The aggrieved party can get damages from the other party
• If one party has received some benefit, he must return it to other
Burden of proof
The burden of proof lies on plaintiff i.e. an aggrieved party. It means that the party who claims
that his consent is not free has to prove in the court of law. If he fails to prove the Contract
remains valid.
e. Unenforceable Contract
An unenforceable Contract is that Contract which cannot be enforced in a court of law because
of some technical defects such as absence of writing, registration, requisite stamp, etc. when
these defects are removed, the Contract can be enforced.
Example
A borrows Rs. 1 billion from B and makes a pronote on Rs. 10 stamp paper. It is unenforceable
because pronote is undervalued.
Obligation of parties
In unenforceable Contract, the parties may perform the Contract but in breach of such
Contract, the aggrieved party is not entitled to the legal remedies.
f. Illegal agreement
An agreement is illegal when its performance is forbidden by law; such an agreement can never
become a Contract. An agreement is illegal and void if it is forbidden by law or is of such a
nature that, if permitted, it would defeat the provision of any law or is fraudulent or it involves
injury to the person or property of another or the court regards it as immoral, or opposed to
public policy.(Sec 23)
Example
A gives money to B, a smuggler to buy smuggled goods. The agreement is illegal and the money
cannot be recovered.
2. Offer & Acceptance
3. Consideration & Object