1st Lecture (Contracts)

8/13/2019 1st Lecture (Contracts)

http://slidepdf.com/reader/full/1st-lecture-contracts 1/33

1st lecture

•Essential of contracts

•Kinds of Contract

•Distention b/w dif ferent kinds of contract



What is a promise?

s.2(b) of Contract Act 1872

“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.



Definition of agreement

• According to sec.2(e) of Contract Act 1872

• “Every promise or every set of promises

forming the consideration for each other is

called agreement”.



Definition of Contract

s.2(b) of Contract Act 1872

Every agreement which is enforceable by law is a contract.

Some other definitions.According to Pollack:-

“Every agreement and promise enforceable at law is

contract”.

According to Salmond:-

“A contract is an agreement creating and defining

obligations between the parties”.



In short What is a Contract?

Offer promise agreement contract



Agreement and Contract

• Every contract is an agreement but every

agreement is not a contract.

• As it is clear from very definition of contract thatevery agreement which is enforceable by law is a

contract.

• But so far as agreement is concerned there are

some social agreements as well, but they lake

enforceability therefore are not enforceable by

law, like invitation to attend a birthday party.



Examples

Agreement:

Invitation to attend the marriage party,

promise by other party to come. (notenforceable by law).

Contract:

Offer to sell a car by one party accepted byother party for a price of 10,00,000.(enforceable by law).



What is meant by Enforceability?

• Recognize by courts

• Creating legal obligation

• Right of compensation

• In simple words enforceability means incase of violation or breach of contract,

proper legal proceedings can be initiatedagainst the breaching party.



Essentials of contract

1. Offer

• What constitute offer?

• Intention of person to do or abstain from doingsomething

• Expressing the willingness to do what he intends

to do• Conveying the willingness

All these three things together constitute an offer.



Kinds of offer

• Particular offer

• General offer (like auction)

• Unconditional offer

• Conditional offer




2. Acceptance• Acceptance of offer by other party

• Example (A offer to sell his cycle to B for Rs.

3000. If B accepts this offer, this is an

acceptance).

3. Law full consideration

• Consideration may be some benefit to other party.

• Example (A agrees to sell his house to B for 60

lacs. For A 60 lacs and for B house is the

consideration.




4. Legal obligations

• Parties to an agreement must create legal obligation.

• If one party does not fulfill his part of legal obligation he

shall be liable for breach of contract.5. Capacity of parties

• Agreement is enforceable only if it is made by parties whoare competent to contract.

• According to contract Act following persons are

competent to contract.(a) Person attaining the age of majority

(b) Person of sound mind

(c) Who are not disqualified to enter into any contract.




6. Law full objects• Object should not be illegal or immoral

(example: vine)

7. Free consent• Consent is consider to be free if it is not

made by following things

• Fraud• coercion




• Undue influence

• Mistake

9. Must be in writing

10. Law full agreement

• Agreement must be law full as unlawful

agreements are not enforceable by law.



Kinds of Contract

1. Valid Contracts

2. Voidable Contracts

3. Void Contracts



1. Valid Contract

• A valid contract is enforceable by law. An

agreement becomes enforceable by law

when all the essentials of a valid contractare present.

• Examples.



Rights and Obligations of Parties

• In valid contract all the parties are legally

responsible for the performance of the contract.

• If one of the parties breaches the contract, theother party can enforce it through the court of law.

• If one party fails to fulfill his part of obligation

under the contract the other party is entitled to

compensation.

• Example:




• Sec 2(i) of Contract Act 1872

“An agreement which is enforceable by law at theoption of one or more of the parties thereto, but

not at the option of the other or others, is avoidable contract”.

• A contract becomes voidable in the followingthree cases.

1. When the consent of one or more of the parties toa contract is not free i.e. the same is obtained bycoercion, fraud, undue influence,misrepresentation.



1. Coercion

• Sec 15(i) of Contract Act, 1872

“Coercion means the committing or

threatening to commit any act forbidden byPakistan Penal Code”.

• In simple words we can say coercion means

forcibly.



2. Undue Influence

• “ Contract is said to be induced 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 uses the position to obtain

an unfair advantage over the other”.



Elements of Undue Influence

• Existence of fiduciary relations b/w the

parties

• Dominating position of one party due tocertain relationship

• Use of that position by that party



3. Misrepresentation

• “Misrepresentation means “misstatement”

about the facts. In other words, it means to

conceal the facts deliberately aboutsomething in such a way that other party

may be induced and become ready to enter

into the contract”.• Examples.



4. Fraud

• Section 17 of the Contract Act provides, “Fraud meansand includes any of the following acts committed by a

party to a contract or by his agent, with intent to deceiveanother party thereto or his agent or to induce him to enterinto the contract”.

1. False Statement

2. Active Concealment

3. Intention of Non-performance

4. Intention to Deceive

• Fraud simply means “to deceive someone so that believing on such fraud he be induced to act as such”.




• According to Section 53 of the Contract

Act, when a person promises to do

something for another person but that other person prevents him from performing his

promise, the contract becomes voidable at

the option of promisor.• Example




3. According to Section 55 of the Contract

Act, when a party to contract promises to

do a certain thing within a specified time but fails to do it, then the contract

becomes voidable at the option of the

promisee, if time is essence of thecontract.

• Example



Rights and Obligations of Parties in

Voidable Contracts1. Contract may be avoided/rejected.

• On rejection contract become void.

• When the voidable contracts become void no party will

have any right or obligation.2. Contract may be accepted/acted upon.

• When the voidable contracts are acted upon they becomevalid.

• When the voidable contracts become valid both parties

will have the same right and obligation as in case of avalid contract.



3. Void Contracts

• The word void means not binding in law.

• This contract is absolutely null.

• Section 2(i) defines “A contract which ceases to beenforceable by law becomes void contract, 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.

• For example non existence of subject matter etc.



Rights and Obligation of Parties in Void

Contracts • In void contract both the 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 the other party.



When a Contract becomes Void?

• A contract becomes void under the following

circumstances:

i. Impossible of Performance

• A contract becomes void due to impossibility of

performance. Such contract becomes void before

performance.

• Example:

ii. Subsequent Illegality

• A contract becomes void by subsequent illegality.

• Example: (private sale of wheat if ban by govt)





Distinction b/w Valid and Void

Contracts• Legal Status( Effective and null)

• Enforceability

• Obligation of Performance

• Right of Compensation



Distinction b/w Valid and Voidable

Contracts• Legal Status

• Enforceability


• Right of Ratification



Distinction b/w Void and Voidable

Contracts• Enforceability


• Right of Compensation

• Right of Rejection

• Conversion into a valid contract

Documents

1st Lecture (Contracts)