Contract Law in Pakistan:

 In 1872, contract act was made by Europeans and we adopt it, it consist of the rules of
commercial buying and selling..
 The contract is force able and private law comes under contract act.
 Employer contract is also part of contract act and we can enforce our rights in civil law.
 Sale/purchase agreement.
 Law of contract is for all daily personal dealing, each of us encounter with no. of contracts from
day to night.
 In contract one has right and other has obligation.
 It is essential to know your rights and obligation and your opponent rights and obligations
towards you.

Contract:

“Creation and definition of obligation between two parties as an agreement is contract”

“An enforceable agreement is contract”

“Intended to be enforced at law between two or more person is an agreement and is constituted by
acceptance of an offer by a member to other to do or to stop from doing some act”

Three types are;

 Written
 Oral
 Action
Two elements of contract:
1. An agreement:
 When one person offer something to other person, offer is accepted thereto and they made
promise to fulfill the rights and obligation then that promise is called agreement.
 Or an accepted proposal is said to be an agreement.
 Offer: An offer by one person for some kind of work or business according to terms and
conditions.
 Acceptance: when the offered person shows his intention or his consent to accept.

For an agreement these should present:

a. plurality : more than one person
b. consensus ad idem: there must be consent of participants.

2. Enforceability: An agreement is only taken as contract when has lawful enforcibility.

All agreements are not contract because they all are not enforceable at law.
 Social agreement: for example husband refuses to give pocket money to his wife is not
enforceable at law.
 Legal agreement: In family business because they create legal obligation in business transaction
so no relation is considered.

Ingredients of Contract:
 1. There must be an offer and there should be an acceptance to made a contract, intention of offer
is must in legal relation.
2. Legal Relationship: To check whether the relationship is legal or not (for example husband
refuses to give pocket money to his wife is not enforceable at law) this relation is not legal.
3. Lawful Consideration must be in return, it is reason of an agreement. Illegal consideration is
forbidden by law.
4. Capacity of Parties: Parties must be competent to contract. For eligible to contract the parties
must be major (means not minor), and sound mind (not disable) and must not disqualify.
5. Free Consent: When both parties are agreed with their own consent without any mental
pressure or other influences. Consent is free when it is not obtained by coercion (on gun point ,
criminal act) or under influence , fraud or misrepresentation.
6. Lawful Object: Agreement done for fraudulent or illegal objective otherwise has no legal status.
7. Writing & Registration: Contract may be oral or written but it must be written and registered.
Transfer of property or vehicle must be written and registered with the respective department.
8. Certainty: Agreement must be capable to perform or else considered as void.
9. Possibility of Performance: Contract on which acting legally or physically is impossible is void.
10. Not expressly declared void: an agreement must not be illegal or must not expressed illegal like
alcohol or gambling.

Discharge of Contract:
When rights and duties of a contract comes to an end means contract also end.
Contract discharge by;

1. Discharge by Performance:
One of the ways of completion of contract is by performance. when one both parties acted
according to the agreement then contract is considered end as performed.
a) Actual: when participants completed their duties according to agreement is call actual
performance.
b) Tender: One party offers other party to do their activities but opposite party refrain you to
perform their tasks is called “attempted performance” or “tender”

Essentials of tender:
 There have to be no condition. (unconditional)
 Made on designated time and designated place.
 Quantity must be exact according to contract neither less nor more quantity.
 In the delivery of good the promisee can check the quantity and quality of goods.
 In money dealing, accurate money should transfered.

2. Discharge by Agreement:
In order to discharge the contract both parties can discharge the contract by a fresh agreement.
Contract terminated as follow;
a) Novation: It means existing contract can be replaced by new contract, with new parties (in
novation parties may change). If parties are not changed then terms may be change.
b) Alteration: Alteration takes place when one or more terms and condition of a contract is
changed by new terms and conditions with the agreement of all the parties then the contract is
said to be discharge by alteration and new contract is made.
 Difference between alteration and novation is in alteration parties remain same only contract is
changed but in novation parties may change.
c) Rescission: Before the contract being discharged by performance a contract can be cancelled by
the mutual consent of all the parties, cancellation releases the parties from their obligation.
d) Remission: Means to resign, accepting the lesser sum than expected. A person who has a right
to demand may increase the period to perform the tasks or giveup the debt.
e) Waiver: One party may waive its rights and release other party from their obligations.

3. Discharge by Subsequent Impossibility:

a. Initial Impossibility: Not possible to perform initially.
b. Subsiquent Impossibilty: Can be performed at the time of formation but after sometime it
becomes impossible to perform.
c. Doctrine of frustration or subsequent impossibility: means impossibility or illegality, it will be
discharge.
Specific reasons of frustration:
 Destruction of subject matter
 Fail to complete the ultimate purpose
 Death of a person incapable to contract.
 Anything change in law.
 Threat of war or war declared.

4. Discharge by lapse of time:

It should performed within the given time if the contract is not performed within time period
and no legal action has not been taken by other party then the contract will terminate after the
completion of time.

5. Discharge by operation of Law:

a. Insolvency is where the obligated person is said bankrupt by the court.
b. Merger is when an inferior party merge with superior party under some other contract.
c. Unauthorized material alteration is when one party makes some changes in term without
the consent of other part.

6. Discharge by breach of contract:

When terms and conditions are compromised during the performance of contract then a
contract is discharge by breach of contract.
It may be;
a. Actual breach: one party wants to perform but could not perform at the appointed time.
b. Anticipatory breach: breach before the fixed time to perform the task has arrived.
Express breach: one express the willingness of not to perform the contract.
Implied breach: one party does an act that made impossible to perform the task.

Remedies for Breaching Of Contract:

1. When one party breach the contract and other party resigned from their right or release other
party from obligation then they can file suit for rescission of contract.
2. In case of any damage the suffered party may file suits for damage and other party will
compensate the damages.
 Kinds of damages:
1. In general damage Injured party can recover the damage from guilty ones.
2. Special damage arise when person make special contract for large profits.
3. The exemplary damages are awarded to the guilty one as a punishment and not to compensate
the injured party.
4. Liquidated damages.
5. Nominal damage: in recognition of rights of the aggrieved party the court may award them
nominal damages even if the party suffers no loss.

CONTRACT OF AGENCY
It is difficult to run a modern business these days so an indivisual must rely on others, on someone
whom he can delegate some of his powers.
Under the agency contract an agent is authorized to made business between principle (whom an agent
is representing) and third party. An agent is a connecting link between two parties.
The person who only gives advices for the business can’t be agent similarly if the person I working in
company of his master can’t be called an agent.
Agency arises only when one person represents other in business dealing to create a contract between
principle and third party.

Test of Agency:
In order to test the agency contract we need to consider these questions:
1. Whether the person is capable of binding the principle and made him answerable to third party.
2. Whether he can create legal relation between two parties and keep the privacy of contract or
not.

Purpose of Agency:
Agency is made to perform the tasks principle himself can perform, the objective of agency should not
be illegal or against public policy. There are some acts which must be perform by the person himself and
cannot be delegated to an agent for example voting.

Rules of Agency:
a. A person who is competent to contract can hire an agent to perform whatever he can do himself
except personal qualification.
b. Principle acts through agent can act himself.

A person competent to contract can hire an agent and a person competent to contract can be hired as
an agent.

Creation of Agency:
1. By express agreement
2. By implied agreement.
a) By Estoppel: An agent without any authority done something or incurred obligation on
principle’s behalf then agent is bound for those obligations.
b) Holding out: Happens by some earlier positive acts by agent on the part of principle.
c) Necessity: in times of necessity a person can act as agent without asking principle.

3. Ratification:
 When someone acts on behalf of other without their consent or authority so the person can
disown or ratify the act. It simply means owning or acceptance of unauthorized acts.

4. Operation of Law:
For the purpose of business every partner is an agent like incase of company board of directors
are agent through which firm acts.

Duties of Agents:
 To perform the tasks according to the directions of principle.
 To work carefully and persistently with all the skills and resources for the benefit of principle.
 Not to keep any secret profit rendered account with principle.
 To communicate among the parties.
 Agent cannot deal on his own personal account.
 As soon as work is done agent can terminate the agency.
 Cannot make his own sub-agent for delegating his duties.

Rights of Agent:
 To retain until the work is done, not to terminate.
 Receive profit or commission of work.
 In case of injuries compensation should be made.
 In case of any dangerous business agent has right to be protected.

Rights of Principle:
 Any damage done by agent principle has right recovers the damage.
 To obtain secret profit earn by agent.
 Due to the negligence of agent if damage occurs to agent then principle refuse to indemnify.

Duties of Principle:
 To protect agent for all the legal acts.
 To protect the agent that has been done in good faith.
 To protect the agent against the damage of agent cause by negligence of principle.

Termination of Agency:
 Either of the party can terminate the contract of agency by agreement.
 Principle/agent both can revoke.
 On the completion of business for which the agency was made.
 On contract in which the tenure is mentioned, after the completion of tenure agency will
terminate.
 Incapacity in case of minor or sound mind.
 In case of bankruptcy of principle.

INDEMNITY AND GUARANTEE

INDEMNITY: A contract in which one person promise to save the loss occur by him is called contract of
indemnity.

Indemnifier: The person who promise to protect against loss.

Indemnity Holder: the person to whom the promise is made to the loss.

Rights of Indemnity Holder:

 He may recover any damages liable to pay for suit filed against him.
 He can recover all the expenses of suits filed by him against other.
 In term of any compromise insurance company or the person for whom you are working all
expenses may recover.

Rights of Indemnifier: One person promise to protect the other.

Guarantee: In order to get a loan or credit a contract is made, guarantee enables a person to take loan.

Surety: The person who gives the guarantee of other person is guarantor or surety.
Creditors: The person who require the guarantee. Guarantee is given to creditors.
Principle: Loan taker.

ESSENTIAL FEATURES:
1. Secondary contract done between who give the guarantee and who requires the guarantee.
2. Consideration is any promise to debtor for their promise.
3. Any guarantee given by misrepresentation of the facts is considered as invalid.
4. Written contracts are helpful for proofing in court but not in case of guarantee contract.

Kinds:
1. Guarantee given for Specifically one job, it will end after the completion of job.
2. Guarantee contract made for multiple tasks.

Rights of Surety:
A. Against the Creditor:
 Has right to ask for security given at the time of contract.
 Has right to use the defenses of principle against creditor.

B. Against the Principle:

 Rights to protect himself, Protection of surety.
 Entitled for all the rights, creditor has against debtor.

C. Against Co Sureties: When guarantee is given by more than one guarantor they called co-
sureties.
 Similar amount
 Different amount

Discharge of surety from liability:

1. Any specific guarantee can be revoked by giving notice to the creditor if the debtor has no
incurred liabilities.
2. If the surety giver died before any incurred liability then death of surety discharge him from
liabilities incurred after his death in case of continuing guarantee.
3. Any change made by debtor or creditor in contract without the consent of other future
transactions will be terminated.
4. Debtor will charge by any act of creditor surety will also discharge.
 5. Creditor makes an arrangement with principle without surety consent to give him time or not to
take any legal action against him, surety will be discharge.
6. With invalid guarantee contract surety will discharge.
7. Loss of security.

Difference:
INDEMNITY GUARANTEE
It is between two members. More than two (can be three) parties.
Single contract only. More than two contracts.
Indemnifier’s liability is independent. In case of failure of debtor surety is liable.
Indemnifier can act independently without Debtor’s request is required to work.
request.
Indemnity contract is for recovery of incurred loss. It is for debt security.
Third party can’t be sued by indemnifier by itself. After discharge of debt can take legal action
against debtor on his own.