Business Law & Taxation

CONTRACT ACT
1872

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 Business Law & Taxation
Law of CONTRACT

Stages of Agreement
1) Offer : Proposal by one Party to another
Two parties = Offeror (Proposer) and Offeree (Propose)
2) Acceptance: by Offeree

3) Promise : Offer + Acceptance

4) Consideration: Some thing for some thing (Car against Money)

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 Business Law & Taxation
Law of CONTRACT

• An Agreement enforceable by Law is a Contract.

• Thus, the Contract consists of two elements

1. Agreement
2. Enforceable by Law

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 Business Law & Taxation
Law of CONTRACT

1. Agreement
Every Promise or every Set of promises, forming the consideration for each other is
an agreement.
A offer to sell his car to B for Rs 8 Lac, B gives acceptance. It is an agreement.

2. Enforceability
An agreement enforceable by law if it is recognized by the court. In order to be en-
forceable by law , the agreement must create legal obligation between the parties.
Thus the term agreement is wider than contract. All agreements are contracts, but
all the contracts are not agreement.

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 Business Law & Taxation
Law of CONTRACT
Types of Agreement:
Agreement are of two types.
a) Social Agreement
Social agreement are not enforceable by law because they do not create legal
obligation between the parties.
e.g. A invites B on dinner. B accept the invitation but does not attend. A can not
sui B for damages. It is a social agreement
b) Legal Agreement
Legal Agreement are enforceable by Law because create legal obligation be-
tween the parties. All the business agreements are contracts as there is an in-
tention to create a legal obligation. e.g. A promise to sell his car to B for Rs. 10
lac, It is a legal agreement because it creates a legal obligation.
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Essential of a Valid Contract

A valid contract is binding and enforceable. All the parties are legally bound to
perform the contract. Thus, the contract can be enforceable by either of the parties.
If one party refuse to perform the other party can enforce through the court.
All agreements are contract if they are made by free consent of the parties. Competent
to contract for a lawful consideration and with lawful object and hereby not expressly
declared void.

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Essential of a Valid Contract
1) Offer and Acceptance
Lawful offer by one person and lawful acceptance by other.
2) Legal Obligation
If one party does not fulfill the promise, he shall be liable for breach of contract.

3) Lawful Consideration
Some thing for some thing (Car against Money)
A promise B to give him job and B promise to pay 1 lac. The agreement is void and
unlawful.
4) Capacity of Parties
Contract with a person of unsound mind or minor is void from the beginning.
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Essential of a Valid Contract

5) Free Consent.
Consent of both parties must be free, it is not influenced, fraud or gunpoint.
e.g A force to transfer his plot to B on gun point.
6) Lawful object
The object of agreement must not be fraudulent or unlawful.
e.g A promise to B to pay 5000, if B beat C
7) In Writing and Registration
The contract can be oral or in writing, it is preferable that contract in writing
because it is easy to prove in court of law.

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Essential of a Valid Contract

8) Certainty of terms
The term of agreement must be clear . e.g. A promise to sell 20 books to B without
specifying the book titles. This agreement is void.
9) Possibility of performance
The agreement to do an impossible work is void, e.g. A agree to put life into B’s dead
brother.
10) Not expressly declared void
Certain agreements which have been expressly declared void by law. e.g agreement
restrained from trade or wager.

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ESSENTIALS OF VALID CONTRACT

F L3 I P C2 A N

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 Business Law & Taxation

F L3 I P C2 A N

 Free Consent  Possibility of Performance

 Lawful Object  Capacity of Parties
 Legal Obligation  Certainty of Terms
 Lawful Consideration  Offer and Acceptance
 In Writing and Registration  Not expressly declared void

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Kinds of Contract

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Kinds of Contract

1. According to Enforceability
2. Kinds of Contract According to formation
3. Kinds of Contract According to Performance
4. Kinds of Contract According to Parties.

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Kind of Contracts
A) According to Enforceability

1. Valid Contract
A valid contract is enforceable by law, as it meets all essential of a valid contract. If one party
breaches the contract the other party can enforce it through court of law.

2. Void Contact
The word void mean not binding by law. A contract which ceases to be enforceable by law
become void. It mean the void contract is not void from beginning. In void contract both
parties are not legally responsible to fulfill the contract. e.g. A agree to sell his house to B
after two days. The house is burnt next day. The contract become void.
*Impossibility of performance
**Subsequent Illegality
*** Rejection of a Voidable Contract
**** Impossibility of depending Event
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Kind of Contracts According to Enforceability
3. Void Agreement
An agreement not enforceable by law is said to be void. The void agreement does
not create legal obligation among the parties.
e.g. A agree to sell his Dog to B. The Dog was dead before the contract. The parties
were unaware, The agreement become void.
4. Voidable Contract
A agreement which is enforceable by law at the option of one or more parties thereto
but not at the option of other or others is voidable contract.
A contract is void when consent of one or more party is not free.
e.g. A compels B to sell his car on gunpoint. The contract is made by coercion and
voidable at the option of B.
a. Consent.
b. Prevent performance
c. Time * Burden of Proof
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Kind of Contracts According to Enforceability

5. Unenforceable Contract ( technical defects)

Which cannot be enforceable in court of law. Some technical defects such as ab-
sence of writing, registration, requisite stamp etc. when these defects are re-
moved the contract can be enforceable.
e.g. A borrow Rs. 1 billion from B and Pronote on a Rs. 10 stamp paper. It is unen-
forceable because pronote is undervalued.

6. Illegal Agreement
A contract is illegal when its performance is forbidden by any Law.
e.g. A gives money to B, a smuggler, to buy smuggled goods. The agreement is illegal
and the money cannot be recovered through legal means.

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Kinds of Contract According to formation
(B)Kinds of Contract According to formation
According to formation contract have following kinds
1. Express Contract:
A contract expressed spoken or written
e.g A called B and agree to sell his car and B inform A to buy his car

2. Implied contract:
It arises when a person render services without request, under circumstance
he needed to be paid.
On a signal one started to clean your car Glass, you allowed him to do so. It is an
implied contract.

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Kinds of Contract According to formation

3. Quasi Contract:
Under some special circumstance law imposed certain obligation.
e.g A found a lost goods of B. A bound to return the goods to B

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Kinds of Contract According to Performance

(3)Kinds of Contract According to Performance

According to performance contract have following kinds

A)Executed Contract
When both parties have completed their obligations .
B)Executory Contract
When both the parties to a contract yet to perform their obligation.

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Kinds of Contract According to Parties.
(4) Kinds of Contract According to Parties.
According to parties' contract have following kinds
A)Unilateral Contract
In a Unilateral contract only one party make commitment and other party chooses
to be bound by it.
e.g. A promise to pay 1,000 to anyone who found his lost bag. B found bag and return
to A.
B)Bilateral Contract
It is a contract where both parties are bound by it, as soon as contract is made.
e.g. A promise to paint a picture for B and B promises to pay PKR 5,000 to A.

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Contract

Formation

Constructive
Expressed Quasi

Oral By Conduct
Implied Contract

Written

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By Conduct

Mean

Silently allow other

Body Language Person to enter into
A contract

Here words &

Written form are not
Shared b/w parties

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 Business Law & Taxation
Contract in written

Mandatory Optional

All contracts
may be made by
Purchase of Immovable Property words of mouth
Charter Party Contract except a few
Agreement on the basis of love & affection contracts
Agreement for time barred debt
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Usefulness of Written Contract

Documentary Easily preserve No party can

Proof For a longer period Easily deny

Less disputes
As some disputes arises as one party forgets

Law considers Written evidence more powerful than Oral

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 Business Law & Taxation

Oral By Conduct Written

Contract

Purchases Sales Service Rent

Amount/ Goods both are immaterial.

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Size of Amount and Goods
Not important

Amount Goods

Rupee One Small

Millions Large

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DISTINCTION B/W VOID AGREEMENT & VOID CONTRACTS

PARTICULARS VOID
AGREEMENTS CONTRACTS

A void contract is
A void agreement is unenforceable enforceable when it is
Enforceability
from the very beginning. originally made. It becomes
un-enforceable later on.
A void contract can be
A void agreement can never be
Enforced enforced before its being un-
enforced.
enforceable.
In a void contract the parties
In a void agreement the parties are
are entitled for restoration of
Restoration of not entitled for restoration of
benefits which they have
Benefit benefits which they have exchange
exchange during the
during the process of contract.
process of contract.

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DISTINCTION B/W ILLEGAL AGREEMENT & VOID CONTRACTS

PARTICULARS ILLEGAL AGREEMENTS VOID AGREEMENTS

An illegal agreement is prohibited A void agreement is not

Prohibited
by law. prohibited by law.
A void agreement is not
Punishable An illegal agreement is punishable
punishable
An illegal agreement is also void A void agreement is not
Nature
agreement illegal agreement
A collateral agreement to a
Collateral A collateral agreement to an illegal
void agreement is
Agreement agreement is not enforceable.
enforceable.

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DISTINCTION B/W VOID AGREEMENT & VOID CONTRACTS

PARTICULARS VOID AGREEMENTS VOIDABLE CONTRACTS

A voidable contract is a valid

A void agreement is un-
Enforceability contract and enforceable till
enforceable by law.
it is rejected.
A voidable contract is not
A void agreement is void ab-initio
Defects void ab-initio and its defects
and its defects are incurable.
are curable.
In a void agreement even a thrid In a voidable contract a third
Rights of Third party cannot acquire any right from party can acquire a right
Party person claiming undr such a from a person claiming
contract. under such a contract.
In a voidable contract a
In a void agreement the person is
person is entitled to
not entitled to compensation fro
Compensation compensation for loss
loss arising due to non
arising due to non-
performance of the agreement.
performance of the contract.
A collateral agreement to a
Collateral Collateral agreement to void
voidable contract is not a
Agrement agreement is a void contract.
void contract.
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 Business Law & Taxation

THANK YOU!

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