Business Law

Answer the following questions?

Question 01:

What do you understand by contract?

Contracts are the foundational elements not just of every business, but if human
cooperation and society. A contract is an agreement (oral or written) that enable
parties (individuals or businesses), businesses, and society to come together and
collaborate towards their specific desires and needs. They are official agreements
that are enforceable by law. In other words, a  contract is a legal obligation.

Businesses rely on contracts to establish the foundation of their professional

relationships while also supplying the agreed-upon procedures that govern those
relationships. With a contract, the parties involved establish how they will work
together and how each party’s duties and responsibilities will be enforced.

Contract Definition:
Every agreement and promise that is enforceable at a court of law is called
contract. There must be two parties in a valid contract.
For example:
“A” offer to sell his bike to “B” for 70000 PKR then “B” accepts this offer. This is
called a valid contract.

Required Elements for a Contract

A contract must contain six essential elements in order to be enforceable:

  Offer: A promise by one party to another that they will or will not perform
a specific action in the future. Example: I will pay you $3,500 for the
purchase of your vehicle.
 Acceptance: Usually mirrors the terms of the offer—an expression, through
words or deeds, that both parties agree to the terms of the contract.
 Awareness: Proof both parties clearly understand and agree to “the basic
substance of the contract.”
 Consideration: Entails something of value promised in exchange for the
actions defined in the offer, the most common of which is payment for
goods delivered distinguishes a contract from a gift because it removes the
voluntary nature of the act/non-act by requiring something of value in
exchange for the promise.
 Capacity: Each signatory to the contract has demonstrated the “legal
capacity” to understand what they are signing.
 Legality: All contracts are subject to the laws of the jurisdiction under
which they operate.

A proposal or offer when accepted by both parties become a promise.

Contract are widely used in commercial law and for the most part from the
legal foundation for transactions across the world. Common example of
contract are:
 Contract of sale of services and goods
 Wholesale business
 Construction contract
 Property contract
Contract typically involved the transfer of goods money or promise to
transfer any of those future date. In the event of breach contract the injured
party may seek judicial remedies such as damages or rescission. Contract
law the field of law of obligations concerned with contract is based on the
principal of agreement must be honoured.
 Question 02:
‘’All contracts are agreement but all agreements are not contract’’
critically analyze the statement?
Every promise and every set of promises, forming the consideration for each
other, is an agreement”. In an agreement, there is a promise between both
parties. For example, A promises to deliver his book to B, and in return
of B promises to pay Rs. 1,000 to A. there is said to be an agreement
between  A and B. After acceptance of the offer/proposal it becomes a promise,
promise is the result of offer acceptance.  

Thus, when there is a proposal/offer from the proposer and the acceptance of
that proposal by the proposal it results in a promise. Promise and reciprocal
promise from promisor and promise form an agreement.

When an agreement enforceable by law is a contract. A contract is an agreement

that is enforceable by law. It is an agreement or set of promises giving rise to
obligations that can be enforced or are recognized by law. In order to become an
agreement into a contract, it has to satisfy all the essentials of a valid contract as
mentioned in section 10 Contract Act 1872.

Section 10 of this act says, “All agreements are contracts if they are made by the
free consent of parties competent to contract, for a lawful consideration and with
a lawful object, and are not hereby expressly declared to be void”.

The essentials of a valid contract:

1. There must be two parties.

2. The agreement should be between the parties who are competent to
contract.
3. There should be a lawful consideration. 
4. The object of the agreement must be lawful.
5. There should be free consent between the parties.
 6. The agreement must not be one that has been expressly declared to be
void.

Lawful consideration:
Consideration must be lawful. “No consideration no contract” means every legal
contract needs a lawful consideration, without any lawful consideration there is
no contract but the exception is always there. Section 25 Contract Act 1872 is the
exception to this statement.

According to section 2(d) of this act “When, at the desire of the promisor, the
promise or any other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from doing, something, such
act or abstinence or promise is called a consideration for the promise”.

Competent to contract:

For making any contract minimum of two persons are required and both the
parties must be competent to contract as per sections 11 and 12 of Contract Act
1872.

According to section 11 of Contract Act 1872 “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.”

According to section 12 of Contract Act 1872 “A person is said to be of 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”.