Business Law

Today the business activities become so complex which needs legal environment
for its validity and effectiveness. This legal environment consists of legal principals
and formalities, called Business Law. These principles provide a path of safety
and security for the commercial activities of the people in the society. These
principles also protect the rights and explain the legal obligations of contracting
parties. Every public and private organization cannot function properly without the
implementation of business law.

Question. Define contract and explain the essentials of a valid

contract? OR “all agreements are not contracts but all contracts are
agreements” discuss this statement and discuss the essentials of a
valid contract.

Law of Contract
The law governing the contract in Pakistan is contained in the contract act, 1872.
This contains 238 sections.
Contract Act 1872
Contract act 1872 extends to the whole of Pakistan and come into force on the 1 st
day of September 1872. It contains 238 sections.
Previously section 76-123 of sale of goods and section 239-266 of partnership
were included in contract act. But these sections were repealed and the separate
act called sale of goods act 1930 and partnership act 1932 came into force.

DEFINITIONS
According to Section 2(h) of the contract Act 1872
“An agreement enforceable by law is a contract”
According to Pollack
“Every agreement and promise enforceable at law is a contract”
According to Salmond
“A contract is an agreement creating and defining obligations between the parties”
According to Sir William Anson
“A legally binding agreement between two or more persons by which rights are
acquired by one or more to acts on the part of others.”
Simple Definition
“A contract is and agreement between two or more persons to do or not to do
some particular thing, such agreement being enforceable at law”

The above definitions show that in order to make a contract there must be
I) An agreement and
II) That agreement should be enforceable by law
So, Contract=Agreement + Enforceability
Elements of Contract
1) Agreement
2) Enforceability
1. Agreement According to Section 2(e)
“Every promise and every set of promises, forming the consideration for each
other is an agreement.”
Promise According to Section 2(b)
“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”
Types of agreement
1. Social agreement (An agreement which not enjoy the benefits of law)
2. Legal agreement (An agreement which creates legal obligation between two
parties)
3. Void agreement (“An agreement not enforceable by law is called void”
4. Illegal agreement (An agreement which is against the law)
2. Enforceability
An agreement is said to be enforceable if recognized by the courts. In order to be
enforceable by law an agreement must create legal obligation between the parties.
Offer + acceptance = promise
Promise + Consideration = Agreement
Agreement + Enforceability = Contract

Offer Promise Agreement Contract

Acceptance Consideration Enforceability

Essential of a valid contract

1) Offers and Acceptance
For a valid contract there must be lawful offer by one party and lawful acceptance
of that offer from the other party. i.e Proposer and Acceptor)
2) Legal relationship
An agreement must create legal relationship because social and domestic
agreements do not create legal relationship. Legal relationships determine the
rights and duties of the contracting parties.
3) Lawful consideration (Section 23)
Consideration means something in return or price paid by one party for the
promise of other. Lawful consideration is most essential for a valid contract
because if there is no consideration no agreement and no contract.
The consideration of an agreement is lawful, if it is,
(i) Not forbidden by law
(ii) Not fraudulent
(iii) Not involve injury to the person or property of another
(iv) Not immoral
(v) Not opposed to public policy
4) Capacity of parties (Section 11 and section 68)
To made contract enforceable by law the parties of contract must be competent to
contract. So, contracting parties must be,
I) Of mature age, above 18 years
II) Sound mind and
 III) Qualified by law
5) Free consent (Section 14)
Consent involves identity of minds or consensus ad idem, which means agreeing
upon the same thing in the same sense.
According to Sec.14 Consent is free when it’s not caused by,
Coercion.
Undue influence
Fraud
Misrepresentation
Mistake
6) Lawful object (Section 23,24)
The object of contract must be lawful. Every agreement which have unlawful
object or consideration is illegal and therefore void.
The object of a contract is lawful if it is not,
I) Forbidden by law
II) Fraudulent
III)Involves injury to the person or property of another
IV) Immoral or
V) Opposed to public policy
7) Legal Formalities of Writing and registration
Contract may be oral or in writing, but in practice it is always in the interest of
parties that the contract should be made in writing. Legal formalities regarding the
contract must be fulfilled,
Writing
Witness
Attestation and
Registration.
8) Certainty of terms (Section 29)
It should be clear and definite; agreement must not be vague, uncertain or
indefinite.
9) Possibility of performance (Section 56)
Contract must be of such type which performances legally and physically is
possible; an agreement to do an act impossible in itself is void.
10) Not expressly declared void (Section 24-30)
In order to make a valid contract an agreement must not be one of those
agreements that are expressly declared void. For example, an agreement without
consideration and agreement with incompetent person is void.
I) Agreements in restraint of marriage
II) Agreements in restraint of trade
III) Agreements in restraints of legal proceedings
IV) Uncertain agreements
V) Wagering agreements
Question: Define and explain various kinds of contract?

KINDS OF CONTRACTS

DIAGRAMETIC EXPLANATION

According to According to According to Special Contracts

enforceability Formation performance 1. Guarantee
1. Valid 1. Express 1. Executed 2. Indemnity
2. Voidable 2. Implied 2. Executory 3. Bailment
3. Void 3. Constructive 3. Unilateral 4. Agency
4. Unenforcea or quasi 4. Bilateral 5. Contingent
ble 6. Wagering
5. Illegal
Agreement
1) According to enforceability
A. Valid Contract
When all the essentials of a valid contract are present and agreement becomes
enforceable by law is called valid contract.
Obligation of parties (in a valid contract all the parties to the contract are
legally responsible for the performance of a contract)
B. Voidable contract (Section 2(i))
An agreement which is enforceable at the option of one or more parties, If one
party reject it, it will become void but if the injured party accept, it will be a valid
contract.
Circumstance when contract becomes void
Consent of one party obtained by coercion, undue influence fraud
When other person prevents him from performing his promise
When promises not fulfill with in specified time.
C. Void contract (Section 2(j))
Word void means not binding in law, a contract which is not enforceable by law, a
void contract is not void from very beginning.
Circumstance when contract becomes void
Impossibility of performance
Subsequent illegality
Rejection of a Voidable contract
Contingent contract when depending event becomes impossible
D. Unenforceable contract
Unenforceable is one, which is valid but cannot enforced in a court of law because
of some technical defect, such as absence of writing, registration etc. when these
defects are removed the contract can be enforced.
E. Illegal agreement (Section 23)
 An agreement is illegal when its performance is forbidden by any law of the
country.
According to formation
A. Express contract
It is that contract in which the parties directly state the terms of the contract
orally or in writing at the time the contract is made.
B. Implied contract
An implied contract is one which is not made by words, written or spoken. But
it is made by act or conduct.
C. Constructive or quasi contract
This contract is based on the principle of equity (justice) that no one shall be
allowed to become rich unjustly at the expense of another.
According to performance
A. Executed contract
Executed means that contract which is performed by the parties,
B. Executory contract
A contract which is completely un performed or some thing still remains.
C. Unilateral contract
A contract that has been performed by one of the contracting parties and the
other party is still to perform his respective responsibility.
D. Bilateral contract.
A contract where responsibilities of both contracting parties are still
unperformed it is called bilateral contract.
Special Contracts
A. Bailment Contract
A contract where one person transfer or agree to transfer the possession of
his personal property to another person under an agreement that the second
person will return the identical (Same) property to the first person or to
disposed of according to the agreement.
B. Indemnity Contract
A contract where one party promises to save the other from losses is called
contract of indemnity. Fire insurance and marine insurance etc
C. Guarantee Contract
A contract in which one person promise to perform or discharge the liability of
a third person, in case of his default
D. Agency Contract
A contract where one person, the agent is authorized to act for his principal in
dealing with third party
E. Contingent Contract
In contingent contract the promisor in a contract binds himself to perform the
contract at the time when an uncertain future event will happen or will not
happen.
F. Wagering (bet) Contract
A contract to give money upon the determination or ascertainment of an
uncertain event
Question: Define the term OFFER and ACCEPTANCE? Explain the
essential of a valid offer and acceptance; also explain the way of
revocation an offer.

OFFER OR PROPOSAL:

INTRODUCTION
Proposal and offer both are used in the same sense and there is no difference in
their meanings. When one party makes offer, or proposal and the other party
involved accept it, this becomes an agreement. And lawful agreement becomes a
contract. It means to make a contract there must be a lawful offer by one party
and lawful acceptance of the offer by the other party.
DEFINITION ACCORDING TO SECTION 2(a)
“When one person signifies to another his willingness to do or to abstain from
doing any thing, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.”
PARTIES
OFFEROR
The person making the offer is called the Offeror or promisor or proposer.
OFFEREE
The person to whom the offer is made is called the offeree or proposee.
PROMISEE
The person accepting the offer is called the promisee or acceptor.
TYPES OF OFFER
SPECIFIC OFFER
If offer is made to specific group of people it is called specific offer.
GENERAL OFFER
If offer is made to all the people it is called general offer.
Essential of a valid offer
1) Express or implied
An offer made by words (written, oral) it is called express offer & an offer
made through conduct or action is called implied offer.
2) Create legal relations
An offer must create legal relationship between offeror and offeree, if any
one violates any term of the offer, he is liable to face court.
3) Definite & clear
Every term of offer must be clear, there should not be any doubt regarding
the terms of offer.
4) Different from invitation to offer
Where a party invites other to make an offer, it is invitation to offer. For
example auction sale, exhibition of goods for sale, advertisement.
5) Specific or general
It can be for some specific group of peoples of for all the peoples.
6) Communicated to the offeree
An offer must be communicated to offeree.
7) Should not contain negative condition
 An offer should not contain negative condition for example if acceptance is
not communicated up to a certain date, the offer would be presumed to have
been accepted.
8) Terms & conditions
An offer may contain any term and conditions but not negative condition for
example, mode of acceptance, specific date, documents required etc.
9) Not contain cross offers
Mean two parties make similar offer to each other is called cross offer

ACCEPTANCE
INTRODUCTION
When one party makes offer, or proposal and the other party involved accept it,
this becomes an agreement. And lawful agreement becomes a contract. It means
to make a contract there must be a lawful offer by one party and lawful
acceptance of the offer by the other party.
DEFINITION ACCORDING TO SEC 2(b)
“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”
Acceptance convert proposal into promise. With out acceptance of the proposal no
agreement can come into existence.
PARTIES
OFFEROR
The person making the offer is called the Offeror or promisor or proposer.
PROMISEE
The person accepting the offer is called the promisee or acceptor.
ESSENTIALS OF A VALID ACCEPTANCE
1) Given by the offeree
For a valid acceptance it is essential that it should be accepted only by the
person to whom it is made.
2) Absolute & unconditional
A valid acceptance must be complete and unconditional and according to
terms and conditions of offer.
3) Acceptance in prescribed (agreed) mode
Where offeror mention the prescribed mode for the acceptance of an offer, it
is necessary that acceptance should be made in the required manner.
4) Communicated to the offeror
In order to form a contract the acceptance must be communicated to the
offeror by word or conduct. The acceptance must show an intention on the
part of the acceptor to fulfill terms of a promise.
5) Express or implied
When acceptance is given in words, spoken or written it is called express
acceptance. When the acceptance is communicated through conduct or
action by the offeree, it is called implied acceptance.
6) Follow the offer
Acceptance must be given after receiving the offer, acceptance always follow
the offer.
7) Within reasonable time
It must be given with within the specified time allowed by the offeror.
 8) Acceptance made before revocation of offer
Acceptance must be given before the revocation of the offer. If any time
limit is fixed the acceptance must be made in with in that time.

REVOCATION OR TERMINATION OF OFFER (SEC 6)

Revocation of offer means when an offer comes to an end it is called revocation or
termination of an offer. According to contract act 1872 an offer may revoke or
terminated in the following circumstances.
1) Notice of revocation
An offer is revoked by the communication of notice of revocation by the
offeror to the other party.
2) Lapse of time
An offer is revoked by the lapse of time mentioned in offer for its
acceptance.
3) Failure to fulfill condition
An offer is revoked if the acceptor fail to fulfill condition required for
acceptance.
4) Revocation of offer by offeree
An offer revoked when offeree reject the offer by sending refusal.
5) Counter offer by the offeree
An offer is revoked when a cross offer is made by the other party.
6) Death of Offeror or offeree
If offeror or offeree died before acceptance of offer, the offer may come to
an end.
7) Insanity (Madness) of Offeror or offeree
An offer is revoked by the insanity of offeror or offeree before the acceptance
of an offer.
8) Subsequent illegality
An offer comes to an end when performance of contract becomes impossible
due to subsequent illegality.
9) Destruction of subject matter
An offer comes to an end by the destruction of subject matter.

COMMUNICATION OF OFFER ACCEPTANCE AND REVOCATION

1) COMMUNICATION OF AN OFFER
Communication of offer is complete, when it comes to the knowledge of
person to whom it is made.
Illustration: Mr Ali offer by letter to sell his car to Mr Hassan at a certain
price. The communication of offer is completed when Mr. Hassan will receive
the letter.
2) COMMUNICATION OF AN ACCEPTANCE
Communication of acceptance is complete, when it comes to the knowledge
of the proposer.
Illustration: Mr Ali offer by letter to sell his car to Mr Hassan at a certain
price. Mr Hassan accepts the offer and inform to Ali by letter. The
communication of acceptance is completed when Mr. Ali will receive the
letter.
3) COMMUNICATION OF A REVOCATION
Communication of revocation of offer is complete, when it comes to the
knowledge of both the parties.
Question: Define and explain consideration, also explain exception
to consideration and unlawful consideration. OR Explain the
statement No Consideration No Contract.

CONSIDERATION AND OBJECT

INTRODUCTION
According to Sec 10 Consideration is one of the essential elements of a valid
contract. An agreement without consideration is void.
DEFINITIONS
Section 2(d) of the contract act 1872
“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 abstain
from doing something, such act or abstinence or promise is called a consideration
for the promise.”
According to Pollock
“The consideration is the price for which the promise of the other is bought and
the promise thus gives for value is enforceable”
According to Justice Patterson
“Consideration means something which is of some values in the eyes of law. It
may be some benefit to the plaintiff (applicant) or some detriment to the
defendant.”
TYPES OF CONSIDERATION
There are three types of consideration
1. Past consideration
If the act has been done in past or before promise is made it is called past
consideration.
2. Present consideration
If consideration moves at the same time when contract is made it is called
present consideration i.e cash sales.
3. Future consideration
When the promise is made to do some thing in future, it is called future
consideration.
ESSENTIAL OF A VALID CONSIDERATION
1) Consideration must move at the desire of the promisor
In order to create valid consideration, the act or abstinence creating the
consideration must be done at the desire of the promisor. It means
Consideration must be framed at the desire of promisor.
2) Consideration may move form the promisee or any other person
Consideration may move at the desire of promisee, or if the promisor has no
objection, from any other person.
3) It may be an act, abstinence or promise
a) Act (Means doing something)
b) Abstinence (It means to stop some one from doing something)
c) Promise (It means promise to do something from both sides)
4) It may be past present or future
a) Past consideration
If the act has been done in past or before promise is made it is called past
consideration.
 b) Present consideration
If consideration moves at the same time when contract is made it is called
present consideration i.e cash sales.
c) Future consideration
When the promise is made to do some thing in future it is called future
consideration.
5) It need not be inadequate (sufficient)
It is not necessary that consideration should be equal the value of the promise.
It is the duty of the contracting parties to decide the value of the consideration
and the counts are not concerned about it
6) It must be real
It is necessary that consideration must be real and complete.
Where consideration is
a) Physically impossible
b)Legally impossible
c) Uncertain consideration
d)Unreal consideration
It is not real therefore shall not be a valid consideration

Exceptions to consideration “No Consideration No Contract”

In general agreement without consideration is void. But in the presence of some
exceptions agreements are enforceable even though they are made without
consideration.
1) Agreement on account of natural love and affection
When an agreement is in writing and it is made for natural love and affection
between parties the consideration is not necessary.
2) Agreement to compensate for past voluntary service
Where an agreement is made to compensate a person who has already
voluntarily done something for the promisor, it would be enforceable
although there was only past consideration.
3) Agreement to pay a time barred debt
Where there is an agreement made in writing, signed by the debtor or his
authorized agent, to pay wholly or in part a debt barred by the law of
limitation. The agreement is valid even though it is not supported by any
consideration.
4) Agreement to give something as gift
A gifted does not require consideration in order to be valid. Any gift actually
made and possession delivered will be valid and binding between the donor
and ‘donee’ even though without consideration.
5) Agreement to act as agent
Section 185 of contract act lay down that no consideration is necessary to
create an agency. Generally an agent is paid in form of commission for
services rendered, but no consideration is immediately necessary at the time
of appointment.
6) Agreement to remit by the promisee
If a creditor agrees to give up a part his claim, so there is no need of
consideration for such and agreement.
7) Agreement to donate
Agreement made for donation requires no consideration.
Unlawful consideration and objects
According to sec 10. An agreement can become a contract only when it is made
for a lawful consideration and with a lawful object. If the consideration or object of
a contract is unlawful due to any reason the agreement is illegal and therefore
void.
According to Sec 23. The consideration or object of an agreement is unlawful in
the following cases.
1) If it is forbidden by law
2) If it defeats the provisions of any law
3) If it is fraudulent
4) If it involves injury to person or property of another
5) If it court regards it as immoral
6) If the court regards it as opposed to public policy

Doctrine of privity of contract

Privity of contract means relationship arising between the parties who have formed
a contract. Such contract binds both the parties to perform their part of contract.
Privity of contract mans that a third party cannot take a legal action against the
contracting parties to perform their contract, because he has no Privity of contract.
Effects of Privity of contract
1) Right to sue by third party (A person who is not a party to a contract
cannot sue)
2) Transfer of right and responsibility to third party (The contract can not
transfer rights, duties and liabilities of contracting parties to any third party)
Stranger to a contract cannot sue
A person who is not a party tot the contract is called stranger to the contract. The
stranger to a contract cannot sue.
Exceptions of contract of Privity
1) Case of Trust 2) Case of Agency 3) Family Matters
4) Acceptance of Responsibility (obligations) 5) Assignment (Allocate)
 Question: What is meant by Capacity/competency to Contract?
Explain the provision of law relating to minor’s agreement?

Capacity of Parties
INTRODUCTION
According to Sec.10 contracting parties must be competent to contract. Who is
competent to contract? Section 11 of the Contract Act 1872 explains capacity to
contract in the following words,
DEFINITION
ACCORDING TO SECTION 11:
“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.”
MINOR
Age of Majority (full age)
According to majority act 1875 a minor is a person who has not completed 18
years of age.
Where a guardian of minors or minor’s property has been appointed under the
guardian and wards act, a minor will attain the age of majority after 21 years of
age.
Nature of Minor’s agreement
Void agreement (Contract act 1872).
According to Contract Act 1872 the agreement with a minor is absolutely void
because he has no legal capacity to enter into a contract.
1) Minor and ratification (Acceptance/Confirmation)
A minor cannot ratify the agreement entered during minority on attaining
majority. Because an agreement which is void at the beginning, cannot be made
valid by subsequent ratification
2) Minor and Estoppel
The principal of estoppel means that when a person makes a false representation
and the other person believes it to be true and acts accordingly. Latter on the
person who has made false representation is stopped from denying the truth of
that representation. The rule of estoppel does not apply to minor.
3) Minor and equitable (reasonable) consideration
A minor, who has received any amount under a contract, cannot be enforced to
pay back the money. But if an infant obtains property or goods by
misrepresentation of his age, he can be compelled to restore it, but only so long as
the same is traceable in his possession.
4) Minor and necessaries (Sec 68)
A minor is not liable for the necessaries supplied to him, only his property is liable.
If minor has no property the supplier will lose the prince of necessaries.
5) Agreement by guardian on behalf of minor
A contract made by guardian on the behalf of minor is binding on the minor. It can
be enforced against as his legal representative. The company is within the
authority of the guardian for the benefit of the minor.
6) Minor can be a promisee or beneficiary
Law does not regard a minor, as incapable of accepting benefits. Any contract,
which is for the benefit of the minor, is valid.
7) Minor as an agent
A minor can act as an agent. If a minor works as an agent, he can make his
principal responsible to third party for his act.
8) Minor as a partner
A minor cannot become a partner of the firm. He can be admitted only in the
benefit of the firm through his guardian with the consent of all the partners.
9) Surety for a minor
A minor cannot become a surety in a contract of guarantee. He will not be
responsible if he will be a surety or his surety is given by any other person.
10) Minor as a member of a company
A minor as incompetent to contract, cannot become a shareholder of a company
unless shares are fully paid. It means incase of fully paid up shares a minor can
become a shareholder of a company.
11) Minor and insolvency
A minor cannot be declared insolvent. Even for necessary supplied to him, he is
not personally liable, only his property is liable.
12) Contract by minor and adult jointly
Where a minor and adult jointly enter into a contract with another person, the
minor is not liable only adult would be liable.
13) Position of minor’s parents
The parents of minor are not liable for any contract regarding purchase
necessaries, under which minor is contracting party. But where the minor act as
an agent of his parents the parents are liable.
14) Minor and negotiable instruments
A minor can make, draw, endorse and deliver the bills of exchange, in order to
bind the other parties except himself, he is not liable but all the other parties are
liable.

PERSONS OF UNSOUND MIND

According to section 11 of contract act 1872, it is necessary that each party to the
contract must have a ‘sound mind’
SOUND MIND (SEC 12)
“A person is said to be a 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”
Causes of unsoundness of mind
Idiocy (idiot/foolishness), insanity, drunkenness, hypnotism and old age
Disqualified persons
1) Joint stock company
2) Diplomatic agent (Sec 86 (A) of civil procedure code 1908)
3) Alien enemies (Sec 83 of civil procedure code 1908)
4) Insolvent
5) Convict
Question: Define free consent? Explain under which circumstances
when consent is not free.

FREE CONSENT
INTRODUCTION
It is essential to the creation of a contract that both the parties should agree to
the same thing in the same sense otherwise contract would not be enforceable.
Definition
According to Sec 13 of contract Act “Two or more persons are said to consent
when they agree upon the same thing in the same sense”
According to Sec 14 of Contract Act “consent is said to be free when it is not
caused by
1. Coercion
2. Undue influence
3. Fraud
4. Misrepresentation
5. Mistake

REASONS WHICH MAKE CONSENT UNFREE

COERCION
According to Sec 15 of Contract Act 1872 “Coercion is committing or
threatening to commit, any act forbidden by Pakistan penal code, or the unlawful
detaining or threatening to detain (Keep in Custody) any property to the
prejudice(Unfair Pressure) of any person whatever with the intention of causing
any person to enter into an agreement”
Coercion means to do any act under the pressure of other party and the free will
of the person is not involved in such act.

ESSENTIALS OF COERCION
1) Committing or threatening to Commit
Force the other party to make a contract
2) Unlawfully detaining or threatening to detain
Unlawfully detain the property of another to compel him to enter into a contract
3) Threat against any third party
Threat to kill one’s parents or children’s
4) Presence of Pakistan penal code
It does not matter Pakistan penal code is not in force at that place where the
coercion is employed, If the suit if filled in Pakistan, the above provision will
apply.

UNDUE INFLUENCE
According to sec 16(1) “A contract is said to be induced (effect) by undue
influence where the relation subsisting between the parties are such that one of
the parties is in a position to dominate the will of the other, and use that position
to obtain an unfair advantage over the other”
Essentials of Undue Influence
1) Position to dominate
In order to prove undue influence it is necessary that relation existing between
the parties should be such that one of them must be in a position to dominate
the will of the other.
2) Unfair advantage of position
The dominating position was used to obtain an unfair advantage from the other.
3) Real or apparent authority
The person in authority is definitely able to dominate the will of the person over
whom the authority is held. Income tax officer and assessee.
4) Fiduciary relation
Fiduciary relation means relation of mutual trust and confidence, e.g father and
son, doctor and patient)
5) Mental distress
Mental capacity is effected due to old age or mental or body illness

Difference between coercion and undue influence

Coercion Undue influence
Meanings
Coercion means to do any act under the When the person who is in a position to
pressure of the other party dominate the will of other this is undue
influence
Pakistan penal code
Coercion is forbidden by Pakistan penal Pakistan penal code is silent about
code the undue influence.
Consent
In coercion consent is obtained by In undue influence a consent is obtained
thereat of an offence and compels the by dominating the will of the other party
party to enter into a contract.
Offence
Coercion falls under criminal act. Undue influence does not fall under any
criminal act
Pressure
Under coercion physical pressure is In case of undue influence there is
applied in order to obtain the consent of moral pressure in order to obtain the
the other party consent of other party.
Contracting parties
The coercion may be applied by any But in undue influence is used only by
party who may or may not be a the contracting parties.
contracting party.
Illegal and unfair act
Coercion considers doing or threatening In case of undue influence the act done
to do an illegal act. by the party is unfair but not illegal.
Relationship
No specific relationship is required in There is need of specific relationship
case of coercion. between contracting parties.
Return of benefit
In coercion the aggrieved party is In undue influence the court order the
bound to return any benefits. arrived party refund the benefit.
FRAUD
INTRODUCTION
Fraud means and includes an act committed by the parties to a contract with
intention to deceive the other.
DEFINITION
According to Sec 17 “Fraud means and includes any of the following acts
committed by the parties to a contract with intention to deceive”
1) False statement about fact
2) Active concealment (Cover Up) of fact
3) Promise made without intention to perform
4) Aim to deceive other
5) Any act or omission (Failure to disclose the material defect of subject
matter)
Essential of Fraud
1) Must be a false representation
2) Representation must relates to the fact
3) Representation made to induce the party into a contract
4) Representation made with the knowledge of its being false
5) Representation made before the conclusion of the contract
6) Other party relied upon the representation
7) Other party have been deceived by fraud
8) Other party must have suffered loss
Causes of fraud
1) False statement about fact
Under fraud a false representation must have been committed intentional by
party to the contract himself or by his agent.
2) Active concealment (Cover Up) of fact
It is the requirement of a valid contract that contracting parties must clear
each and every thing regarding contract. If one party conceals any essential
factor of the contract at the time of formation which may effect the other
party it is consider the case of fraud?
3) Promise made without intention to perform
An offer made with intention that not to perform the promise is also
considered fraud.
4) Aim to deceive other
Any act or unfair means which a party uses to deceive the other is a case of
fraud.
5) Any act or omission
The seller is bound to disclose all the material defects about the goods to the
buyer. If one party fails or omits to disclose facts, it will consider as fraud.

MISREPRESENTATION
INTRODUCTION
Misrepresentation means making a false statement believing it to be true with the
intention that it may be believed to be true by the person to whom it is made and
he may act upon it. So misrepresentations include concealment of the fact about
 anything with this intention that other party may induced and become ready to do
the contract.
DEFINITION
According to Sec 18 “The positive assertion (Statement), in a manner not
warranted by the information of the person making it, of that which is not true,
though he believer it to be true”
Essentials of Misrepresentation
1) Representation made innocently with the intention that it shall be acted
upon by the other party
2) Representation must be false
3) In the eyes of contracting parties Representation is true but it is not true
4) Misrepresentation should be fact essential to the contract
5) Contracting parties have not any intention to deceive each other
6) It must be made before the execution of the contract
7) Contracting parties actually acted upon misrepresentation
8) Misrepresentation need to be made directly
9) Other party should suffer the loss due to the execution of contract
10) The other party should not discover the truth
Effects of misrepresentation
1) Avoid the contract
The party can avoid the contract
2) Affirm the contract
The party can accept the contract and ask the other party for the fulfillment
of its terms.
3) Claim the restitution
He can claim restitution but he can not claim damages, restitution entitles
the injured party to the return of any money which he has paid or property
which he has transferred.

Distinction between Fraud and Misrepresentation

Fraud Misrepresentation
False statement
Fraud is a false statement deliberately Misrepresentation is a false and
made to deceive another. innocent statement without intention to
deceive other party.
Right t claim damages
In case of fraud the aggrieved party can In case of Misrepresentation the
avoid the contract and claim the aggrieved party can only avoid the
damages. contract but cannot claim damages.
Concealment
In case of fraud there is concealment of In case of Misrepresentation the
material fact. material fact are presented in good
faith.
Believe to be true
In case of fraud the person making the In Misrepresentation the person making
offer does not believe it to be true. the offer believes it to be true.
Wider term
Fraud is a wider term, it covers Misrepresentation is not narrow term,
Misrepresentation too. which does not cover fraud.
Undue advantage
A fraud is committed to receive undue Misrepresentation is not made to get
advantage from the other party. undue advantages.
Complete knowledge
In case of fraud the party has complete In Misrepresentation party has no
knowledge of the facts. knowledge about the facts.
Deliberately
Fraud is made by one party Misrepresentation is the result of act,
deliberately. done by the party unintentionally.
Discovery of truth
In fraud the contract is Voidable at the In Misrepresentation the aggrieved
time of discovering the truth. party cannot avoid the contract, until
discovering the truth.

MISTAKE

DEFINITION
For a valid contract the consent of contracting parties must be free. If the consent
of contracting parties is obtained by mistake the contract is declared Voidable.
Kinds of Mistake
1) Mistake of fact
When any one or both the contracting parties are under a mistake as to a
matter of fact, which is essential to an agreement it is known as mistake of
fact. It has two kinds
I) Bilateral mistake
When both parties to an agreement are under a mistake as to a matter
of fact, which are essential to the agreement. It is bilateral mistake.
II) Unilateral mistake
When one party to an agreement are under a mistake as to a matter
of fact, which are essential to the agreement. It is unilateral mistake.
2) Mistake of Law
I) Mistake of Pakistani law
If there is a mistake of law of country then the contract is binding as
there is no excuse from it. “Ignorance of law has no excuse”, means
every one is presumed to have some basic knowledge of law.
II) Mistake of foreign law
The mistake of foreign law is treated as mistake of fact. The doctrine
“Ignorance of law has no excuse”, is not applicable in case of foreign
law.
III) Mistake of private rights
Any mistake about the private law is a mistake of fact and is
excusable. Therefore a mistake of private right is treated as mistake of
fact and a contract which make in ignorance of private right is void.
Question: What is void agreement? What arrangements are
expressly declared void under contract act 1872?

Void Agreement
INTRODUCTION
An agreement which is not enforceable by law is a void agreement because such
agreement does not create any legal obligation between the parties.
DEFINITION
Section 2(g) of contract act 1872 defines a void agreement as
“An agreement not enforceable by law is said to be void”
A void agreement is void ab intio and as such it does not create legal obligation.
Agreement expressly declared void
An agreement, in order to become a valid contract must not be of those that are
expressly declared to be void by the law. The agreements that are expressly
declared to be void are as follows.
1) Bilateral mistake of fact
In order to make a contract it is necessary that both of the parties should
agree upon the same thing in the same sense. If both the parties to an
agreement are under a mistake as to matter of fact essentials to the
agreement the agreement is void.
2) Unlawful consideration or object
Every agreement of which the consideration or the object is unlawful is void,
consideration or object of an agreement is unlawful if.
I) It is forbidden by law
II) It defeats the provision of law
III) It if fraudulent
IV) It involves injury to person or property of another
V) It is immoral or
VI) It is opposed to public policy
3) Agreement without consideration
An agreement made without consideration is void.
4) Agreement in restraint of marriage
An agreement that restricts a person form marrying or from marrying a
particular person is called an agreement in restraint of marriage, And is a
void agreement.
5) Agreement in restraint of trade
An agreement that restricts a person’s right to engage himself in a lawful
trade profession or occupation is called an agreement in restraint of trade,
and is a void agreement.
But these are some exceptions and here this rule does not apply
Exceptions to the rule
I) Sale of goodwill
II) Partners agreement
III) Employment contracts
IV) Trade combinations
6) Agreement in restraint of legal proceedings
An agreement in restraint of legal proceeding is one which restraint a person
absolutely from enforcing his rights arising from a contract by the usual legal
 proceedings or which limits the time within which he may enforce such
rights. And such agreement is a void agreement.
Exceptions to the rule
I) Where case is referred to arbitrator
II) Agreeing to submit dispute to one particular court
III) Agreeing not to appeal against the judgment of court.
7) Uncertain agreement
In order to be valid, it is necessary that the terms of the agreement must be
precise and definite. If the terms are uncertain the agreement is void.
8) Wagering agreement
Wagering means gambling or betting, an agreement by way of wager is void
and no suit can be filled to recover anything won on any wager.
9) Agreement contingent on impossible event
A contingent agreement is an agreement to do or not to do something on
the happening of an uncertain event. Law recognizes a contingent
agreement as a valid contract. But the contingent agreement to do or not to
do anything if an impossible event happens is void.
10) Agreement to do impossible
An agreement to an act impossible in itself is void.

SPECIAL CASES
1) Commercial transaction
Where delivery of goods is to be given and taken at a future date, which is
not possible at present, it is a valid contract.
2) Insurance contract
Insurance contracts are valid contract even though the payment of money
depends on the happening of a future uncertain even.
3) Lotteries
A lottery is a game of chance. The lottery business is a wagering transaction
and such business is illegal. If the lottery is authorized by the government
then the transaction of such business will be considered legal.
4) Crossword puzzles
Where prizes depend upon the chance, it is lottery and therefore wagering
transaction. But if prizes depend upon skill or intelligence it is a valid
transaction.
Question: Define contingent contract. What are the rules for the
enforcement of contingent contract?

CONTINGENT CONTRACT
INTRODUCTION
It is a contract to do or not to do something on the happening of a qualified event
called contingency. A promise of conditional performance or abstinence may form
a contingent contract. It means that the contract exists but the performance can
not be demanded unless the considered event happened.
DEFINITION
According to section 31 of contract act 1872
“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”
Essentials of contingent contract
1) Contingent event to be uncertain
The legal condition provided for a contingent of contract is that the particular
event must be uncertain.
2) Contingent even must be collateral
Collateral event means connected even. It is essential for contingent
contract that uncertain event must be collateral to the contract.
3) Performance of contingent contract
The liability of performance of contingent contract is not absolute but it
depends upon the happening of uncertain event which is collateral to the
contract.
Rules of the performance of contingent contract
Happening of uncertain event
When performance of contract depends upon happening of an event, the
contract shall not be performed until the happening of that uncertain event.
Non-happening of uncertain event
When performance of contract depends upon non-happening of an event,
the contract shall not be performed until the non-happening of that
uncertain event.
Uncertain event
Contingent contract to do or not to do anything if an uncertain future event
happens, it can not be enforced by law unless and until that event will
happened.
Happening of uncertain event with in fixed time
When performance of contract depends upon happening of an event with in
fixed time, the contract shall not be performed until the happening of that
uncertain event with in that time.
Non-happening of uncertain event with in fixed time
When performance of contract depends upon non-happening of an event
with in fixed time, the contract shall not be performed until the non-
happening of that uncertain event with in that time.
Dependence on impossible event
Contingent agreement to do or not to do anything, if an impossible event
happens is void, whether the impossibility of event is known or not. But the
 events which are presently impossible to happen, but in future happening
are possible the contract is a valid contract.

Distinction between Contingent and Wagering contracts

Contingent Wagering
Validity

A contingent contract is a valid contract. A wagering contract is absolutely void.

Interest

In a contingent contract the parties In a wagering contract the parties are

have real interest in the occurrence or not interested in the occurrence of the
non-occurrence of the event. event except for the winning or losing
the bet amount.
Uncertain event

In a contingent contract the future In a wagering agreement the uncertain

uncertain event is merely collateral. event is the sole determining factor of
the agreement.
Question: What do you understand by the term discharge of
contract? Explain various modes of discharge of a contract.
Discharge of Contract
INTRODUCTION
In a valid contract both the parties are legally responsible to performance their
part of duties and have legal right to receives their benefits arising out of a
contract. When the rights and obligations arising out of a contract come to an end
the contract is said to be discharged.
DEFINITION
When the rights and obligations arising out of a contract come to an end the
contract is said to be discharge or terminated.
Modes of discharge of contract
1) Discharge by performance
When the parties to a contract perform their respective promises the contract is
discharged. The performance may be
Actual performance
When both the parties to the contract fulfill their promise the contract is
discharged by actual performance.
Attempted performance or tender
Promisor offer to perform his part of promise according to terms of the
contract but promise refuses to accept it later, it is called attempted
performance or tender of performance. The promisor is then excused form
performance and becomes entitled to sue the promisee for the breach of
contract.
Essential of a valid attempted performance or tender
I) It must be unconditional
II) It must be made at proper time and proper place
III) It must be of the whole quantity contracted for
IV) If the tender relates to delivery of goods the promisee must be given
opportunity to check the goods
V) It must be made by a person who is able to perform the promise e.g a
tender by minor or idiot are no a valid tender
VI) It must be made to the promisee or his agent
VII) If there are several joint promisee a tender to any one them is valid.
VIII) In case of ender of money exact amount should be tendered.
Discharge by agreement
Discharge by agreement may take palace in any of the following ways.
Novation
When parties to a contract agree to Replacement of an existing contract with
new contract, it is called Novation.
Alteration
If the parties to a contract make change only in terms of a contract, such
change is called alteration.
Rescission
Recession means cancellation of the contract by mutual agreement.
Remission
Remission means to accept of lesser sum than what was due.
 Waiver
Waiver means the intentional abandonment (withdrawal) of right; here the
party to contract agrees to forego the rights available to it under contract.
Discharge by subsequent impossibility
If the contract becomes impossible to perform after the formation of a contract the
contract is discharged.
Initial impossibility
Subsequent impossibility
Destruction of subject matter
Failure of ultimate purpose
) Death or personal incapacity
Change of law
Declaration of war
Discharge by lapse of time
The limitation act 1908 prescribes time limits during which the contract must be
enforced. At the time of expiry of that time the contract becomes unenforceable
and as such it terminates.
Discharge by operation of law
It includes discharge by.
a) Death
Where the performance depends on personal skills or the promisor, his
dearth discharge the contract
b) Insolvency
When person is declared as insolvent, all the debts contracted by him before
insolvency are discharged
c) Merger
It takes place when inferior right arising under a contract mergers into a
superior right arising to the same party under the same or some other
contract.
d) Unauthorized material alteration
Where a party without consent of the other makes an alteration in the
contract the contract cannot be enforced.
6) Discharge by breach of contract
Where a party fails to perform his promise the breach of contract takes place
and contract is discharged.
a) Actual breach
When a party fails to perform his promise at the time when it is due is
known as actual breach.
b)Anticipatory breach
It may be
I) Express breach
When a party announces his intention to not to perform the
contract when the performance shall be due is called express
anticipatory breach.
II) Implied breach
When a party makes himself incapable to perform before the time
of performance it is called implied anticipatory breach