Business Law

Topic: Contract and Its Kind

By: Riaz Hussain Ansari

Lecturer Department of Business Administration
University of Sahiwal

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Learning Objectives

You will be able:

Define consideration and identify essentials of

consideration
Understand rules relating to consideration

Identify agreements which are valid without

consideration.

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 What is Law?
 Law means a set of rules or a system of rules of
conduct designed and enforced by the state to
control and regulate the conduct of people.

What is Business Law?

 Law means a set of rules or a system of rules of
conduct designed and enforced by the state to
control and regulate the conduct of people.

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 Sources of Business Law

 Legislation
 Precedent
 Custom
 Agreement

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 Sources of B’Law (Cont’d)
 Legislation
 It is the law created by the Parliament of a country and
other bodies to whom it has delegated authority.

 Precedent
 Precedent is a judgment or decision of a court which are
binding on the subordinate courts.

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 Sources of B’Law (Cont’d)
 Customs
 With the passage of time as the society develops
this source of law diminished its tendency as a
source of law. In Pakistan, the customary law has
been replaced by the Shariat Law.
 Agreement
 Parties in their agreement stipulate terms for
themselves which constitute law for the contracting
parties.

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 Definition of Contract
An agreement enforceable by law is a
contract. .
Agreement [Section 2(e)]

Every promise and every set of promises forming

the consideration for each other is an agreement.
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.
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Definition of Contract(cont’d)
 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

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Definition of Contract(cont’d)

Ch 1 -9
 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.

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 Enforceability Instance
 A, offers to sell his furniture to B or 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.

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Essentials of a valid contract

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 Essentials of a valid contract

 Offer and acceptance

 There must be an agreement between parties to
create a valid contract. An agreement involves a valid
offer and its acceptance.
 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

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 Essentials of a valid contract

 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.
 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.

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 Essentials of a valid contract
 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 favor of the lender. This is not a valid contract
because A is not competent to contract.

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 Essentials of a valid contract

 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.
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 Essentials of a valid contract

 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
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 Essentials of a valid contract

 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

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 Essentials of a valid contract

 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
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 Essentials of a valid contract

 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.

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 Essentials of a valid contract

 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.

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 Essentials of a valid contract

 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.

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Kinds Of Contract

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 Knowledge (Cont’d)

 Formation of Contract
 Express contracts A contract created by
words i.e. verbally or in writing
 Implied contracts A contract created by
conduct of a person or the circumstances of a
particular case.
 Quasi contracts An obligation imposed by
law.

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 Knowledge (Cont’d)

 Enforceability of Contract
 Valid contract An agreement which is enforceable by law.
 Void agreement Section 2(g) An agreement which is not enforecable by
law.
 Void contract Section 2(j) A contract which ceases to be enforceable
by law becomes void when it ceases to be enforceable.
 Voidable contract Section 2(i) An agreement which is enforceable by
law at the option of the aggrieved party.
 Illegal agreements An agreement the object of which is illegal.
 Unenforecable agreement An agreement which is otherwise valid but
due to some technical lacking, such as writing etc. remains
unenforceable.

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 Knowledge (Cont’d)

 Performance of Contract
 Executed contract A contract where both the parties have
performed their respective promises.
 Executory contract A contract in which something remains to be
done.
 Unilateral contract A contract is which a promise on one side is
exchanged for an act on the other side. In such contract one
party to a contract has performed his part and performance is
outstanding against the other party.
 Bilateral contract A contract in which a promise on one side is
exchanged for a promise on the other.

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Any Question?

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Many Thanks

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