Business Law

Essential of a Valid Contract

Consideration, Capacity , Free Consent &
Lawful Objective
 Lecturer Profile
Prof : Tariq Hussain
FCMA, FCIS, FPFA, MA(Eco) ,MBA, CMILT-UK, M.Phil. (Economics)

1. Former Director Securities & Exchange Commission of Pakistan(SECP)

2. Former Vice President Institute of Corporate Secretaries of Pakistan
3. Former Chairman –Institute of Cost & Management Accountants of Pakistan .(ICMAP)
4. Executive Director –Damsel Consulting
5. Member Karachi Tax Bar Association

6. Visiting Faculty
a. Karachi University , Commerce , Economics & Business administration
b. Institute of Business Administration (IBA)
c. Institute of Cost & Management Accountants of Pakistan(ICMAP)
d. Iqra University

Email: tariqhussainshah@outlook.com
Is Invitation is a offer ?

An invitation to treat is not an offer, but an

indication of a person's willingness to negotiate a
contract. An invitation to treat is an indication that
someone is prepared to receive offers with the
view to forming a binding contract. It is not an
offer in itself.
Is Invitation is a offer ?

An invitation to treat is not an offer, but an

indication of a person's willingness to negotiate a
contract. An invitation to treat is an indication that
someone is prepared to receive offers with the
view to forming a binding contract. It is not an
offer in itself.
Invitation to offer

The offer must be distinguished from an invitation

to offer.

An invitation to offer is only a circulation of an offer;

it is an attempt to induce offers and precedes a
definite offer. Acceptance of an invitation to an offer
does not result contract and only an offer emerges
in the process of negotiation. A statement made by
a person who does not intend to bound by it but,
intends to further act, is an invitation to offer.
Classification of Offer

1. General Offer: Which is made to public in general.

2. Special Offer: Which is made to a definite person.
3. Cross Offer: Exchange of identical offer in
ignorance of each other.
4. Counter Offer: Modification and Variation of
Original offer.
5. Standing, Open or Continuing Offer: Which is
open for a specific period of time.
Classification of Offer

1. General Offer: Which is made to public in general.

2. Special Offer: Which is made to a definite person.
3. Cross Offer: Exchange of identical offer in
ignorance of each other.
4. Counter Offer: Modification and Variation of
Original offer.
5. Standing, Open or Continuing Offer: Which is
open for a specific period of time.
Acceptance of an offer

• Acceptance of an offer may be made verbally or

in writing, or it may be inferred from the conduct
of the parties. However, certain rules must be
complied with before acceptance of an offer is
valid.
• First, acceptance must be communicated by the
offeree to the offeror in the manner requested
by or implied in the offer. Second, the
acceptance must be clear, unequivocal, and
unconditional
Acceptance

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.“ Rules:
1. Acceptance must be absolute and unqualified.
2. Communicated to offeror.
3. Acceptance must be in the mode prescribed.
4. Acceptance must be given within a reasonable time
before the offer lapses.
5. Acceptance by the way of conduct.
6. Mere silence is no acceptance.
Quality of acceptance
Acceptance of an offer must be absolute and must correspond with the terms
of the offer. This rule a key constituent of the basic premise, does not always
accord with the realities of complex business contract negotiations today.
Such negotiations may indeed proceed through a series of proposals,
counter-proposals, withdrawals, variations and qualifications, before
agreement (or otherwise) is reached. When parties carry on lengthy
negotiations, it may be hard to say exactly when an offer has been made and
acceptance. Butler Machine Tool Co. Ltd. v. The Ex Cello Corp. (Eng) Ltd.
(1979) 1 WLR 401]. The court must look at the entire correspondence to
decide whether an apparently unqualified acceptance did, in fact, conclude
the agreement. A conditional offer, if accepted, must be accepted along with
all the conditions. However, in regard to international agreements governed
by the U.N. Convention on contracts for international sale of goods, there is a
slight qualifications, in as much as, article 19 of the Vienna Convention
provides that non material variations between offer and acceptance do not
make a difference.
Legal Consideration

Consideration is the benefit that each party receives, or

expects to receive, when entering into a contract.
Consideration is often monetary, but it can be a
promise to perform a specific act, or a promise to
refrain from doing something. In order for a contract or
agreement to be legally binding, every party to the
contract must receive some type of consideration. In
other words, a contract is a two-way street, so each
party must receive something of value from the other
party or parties. Illegal or immoral acts are not legally
considered to serve as consideration.
Example of Legal
Consideration
John backed into Allen’s car, damaging it. John is liable to pay
for the damages, but does not have the money right now. While
Allen could sue John for the damages to his car, he enters into
an agreement with John to give him 90 days to pay the full
amount of $1,500, plus an additional $250 for the inconvenience.
The agreement states that Allen will not file a lawsuit before the
90 days is up, but is free to do so after that time. This agreement,
or “contract,” provides consideration for both parties:
• John’s benefit: Allen gives up the right to sue for a period of
90 days
• Allen’s benefit: John will pay for the damages, plus an
additional amount of $25
Example 2

Babar agrees to sell her car to Bashir for $1,000.

Bashir’s payment serves as consideration for Babar
promise to sell the car to him. Babar consideration
is his promise to sell him the car.
Example

A landlord and a prospective tenant meet to

discuss the rental of a condo. At the meeting, they
go over the terms of the lease, and agree to enter
into the lease, which is signed by both the landlord
and the tenant. In this type of contract, the
landlord agrees to provide tenant with housing,
and the tenant promises to pay rent in return.
Elements of Consideration
In order for a contract to be considered valid and enforceable
by the courts, three elements of consideration must be met. If
one or more of these elements are missing, the contract lacks
the necessary requirements, it could potentially be deemed
invalid by the court. The required elements of consideration
include:
1. The contract must include a bargain for the terms of the
exchange. This means there must be something that is worth
bargaining over to both the parties.
2. There must be a mutual exchange between the parties. In
simple terms, all parties involved must benefit from the contract.
3. The exchange in the contract must be something of value.
What Can be Used as
Consideration
• Money
• Services
• Personal property
• Real property
• Promise to act
• Promise to refrain from acting
 Thank you

Tariq Hussain –FCMA- ICMA-Pakistan

Director –Corporate Supervision Department –SECP- Islamabad
tariq.hussain@secp.gov.pk