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/ 40
pee y MOU Stullo 9 2 Le eStore
UNIT—1
INTRODUCTION TO CONTRACT LAW
Written by:
Naeenr Sultan Butt
Revised by:
Mohammad Sadiq Khan UA ASE ay MOU Stati LL eS Saty ep JF ote
CONTENTS
INTRODUCTION 4
OBJECTIVES 5
“SECTION-T
1, CONTRACTS AND THEIR FORMATION 6
1.1 Defisition of “Contract” 6
“2 Conimunication 6
1.3 Revoeation of Proposal and Acceptance 1
14 Acceptance to be Absolute 8
1.5 Contracts to be either expressed or implied (S.9) 8
1.6 Consideration 9
1.7 Self Assessment Questions—1 9
SECTION=Il
2. VOID AND VOIDABLE CONTRACTS 10
21 Void contracts 10
2.2 Agreements in Restraint of ‘Trade is void 10
2.3 Goodwill in contracts n
24 Agreements in restraint of Legal Proceedings Void a
2.5. Agreement void for uncertainty (Section 29) 12
2.6 Agreements involving wager Void 2
2.7 Voidable contracts 13
2.8 Self-Assesament Questions—Il 3
SECTION—
3. VAL‘DITY OF CONTRACTS 13
3.1 Essentials cf a valid conteset 13
8.2 Competency ie evatracting 15 UA ASE ay MOU Stati LL eS Saty ep JF ote
22 Free consent 15
3.4 Coercion 16
3.5 Undue Influence 16
3.6 Fraud 18
3.7. Misrepresentation 4
3.8 Agreements without free consent 21
3.9 Power to set aside contract, induced by Undue 21
Influence
3.10 Mistakes n
_ 8.11 Self-Assessment Questions—III 23
SECTION—IV .
4. CONSIDERATION 4
4.1 Legality of considerations 24
4.2 Agreements without consideration 26
4.3 Self-Assessment Questions—IV 23
SECTION—V
5. CONTINGENT AND QUASI CONTRACTS 28
5.1. Contingent contracts 28
5.2 Quasi Contracts (contracts implied by Law) aI
5.3 Self-Assessment Questions-V 2
6. SUMMARY a
7, ANSWERS TO SELF-ASSESSMENT QUESTION 37
GLOSSARY 39 UA ASE ay MOU Stati LL eS Saty ep JF ote
INTRODUCTION
Law of contract affects our everyday life. When you buy a tube of
toothpaste and pay the shopkeeper ten rupees, you make a contract with the
shopkeeper when you travel a bus and pay fare to the conductor, you make
a contract with the bus owner that he would carry you to the destination.
Purchasing ticket from the Railway Station is a contract with the Railways
that they will give you a ride in the train upto the place where you want to
go. Purchasing vegetables, grocery, cloth, etc, all involves contracts. Such
transactions are based on agreements creating mutual rights and obligations
ie, when you get a bag of flour from the shopkeeper, it is you obligation to
pay fifty rupees and it is his obligation to give you a bag of flour. When pro-
mises are kept. and obligations are carried out, then very little remains to be
said, But in some transactions disputes do arise, The object and function of
the Law of contract is to see that expectations created by promises of the
parties are fulfilled and obligations imposed by the agreement arg enforced.
‘The contract Act starts with a preamble, Preamble is the introductory
part of a statute or Act which states the reason and intent of law. It indicates
in general, the object of the legislatare in passing the Act.
The Contract Act came into force on the 1st September, 1872. The
‘Act is divided into sections. Sections are further divided into sub-sections
and sub-sections into clauses. UA AS E_aey AIQU Stuttio 9 jsutiog 2 £ ee Sey pi blo
OBJECTIVE
‘The study of this unit will enable you to:
explain the d
inition of contract
~elaborate the formation of « ulraets;
discuss the communication of proposal and acceptance;
understand the revocation of the proposal and acceptance;
—define essentials of a valid contract;
elaborate what are contracts;
—define what are voidable contracts;
define vt are void contract:
~ distinuuish the persons, who are competent to contract;
know when consent is free:
tind out Coercion, undue influence, fraud and misake;
explain Misrepresentation and ils effec
—Enumerate lawful consideration, objects ard its e-fect;
identify void agreements declared by la
—define contingent contracts,
explain quasi contracts: SE
TION=1
1, CONTRACY'S AND THEIR FORMATION
1.1 Definition of “Contract
“As stated in intoductio., we come “cross contsacts almost daily in
every day life. All mercantile transactions involve contr
account that the syllaous of “Mere:
Law-“e" vs now cle
ets. IL is on th
ntile Law" has started with contract
ly widerstand what is a “contract”.
Evéry promise fo-ming the consiGeration 7s an ngreemeat. An agree:
ment enforceable at law is a contract, A cortract is aa agreergent, made
tween two or nrore persons which is intended to be and is, enforceable at
law. It is constituted by the acceptance of one party cf an alfer (Proposal)
nade to him by thé other party to do or to abstain from, doing an act
Consideration is not the only an element, essential to constitute an
enforceable agreement, but the parties to it must be competent to contrac
their consent to it must be free and the object at the agreement must not he
egal. A contract signifies consideration, competent parties, free cansent
and legal object to be performed, All these aspects will be discussed in detail
in this unit.
1,2 Communication
‘The first characteristic of a contract or an agreement is the existence of
two or more persons, In order to-create rights and obligations, it is necessary
for them to get irito communication with each other. This is usually done by
one party making an offer or the proposal to the other, Communication of
proposal to the other party is essential in order to obt
other, It is only when a proposal is accepted, then it becomes a promise or
an agreement, Similarly it i necessary that acceptance «! the proposal,
be communicated to the proposer, The following paragraphs lay down *hy
rules of communicatonof proposal and acceptance and reyoeation of pre:
posal and acceptance.
in the assey
of the ae UA ASE ay MOU Stati LL eS Saty ep JF ote
The proposal or acceptance may be communicated to the other party
by word or conduct. Similarly proposal or acceptance may be revoked by
word or conduct or by any act or mission, which has the effect of communi-
eating it
ILLUSTRATIONS
(a) ‘A’ writes a letter to ‘B’ saying that he intends to sell his house to B
‘The proposal is communicated to B, when B receives the letter.
{b) B agrees to purchase the house as per offer of A at the agreed price and
sends a letter to A, On receipt of B's letter by A, the acceptance
stands completed.
Thus the communication of a proposal is complete, when it comes to
the knowledge of the person to whom it is made.
‘The communication of the acceptance is complete:—
— as against the proposer when it is put in the course of trans-
mission to him so as to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the
proposer
ILLUSTRATION
B accepts A proposal by letter sent by post. The communication of
acceptance is complete
— _asagainst A (proposer), when the letter is posted;
— _ asagainst B (acceptor), when the letter is received by A.
1,3. Revocation of Proposal and Acceptance
‘The proposal can be revoked or cancelled at any time before the com-
munication of its acceptance is complete as against the proposer and not
afterwards.
An acceptance may be revoked at any time before the communication
of acceptance is complete as against the proposer, but not afterwards. yp Kever(R ey MOU Stull 9 2 Lote Sheet Gow
ILLUSTRATION
A proposes, by a letter sent by post, to sell the house to B
B accepts the proposal by a letter sent by post
A may revoke his proposal at any time before or at the moment when
B posts his letter of acceptance, but not afterwards.
B may revoke his acceptance at: any time before or at the moment
whep the letter communicating jt reaches A but not afterwards.
14 Acceptance must be Absolute
It is an jnvariable principle of law that an ofter by one person made to
another imposes no obligation on the former until it is accepted by the latter
according to the terms in which the offer is made, Section 7 of the Act says
that in order to convert a proposal into a promise, the acceptance must be:—
(1) absolute and unqualified;
(2) be expressed in some usual and reasonable manner. But if the
proposal prescribes a manner in which it isto be accepted and
the acceptance is not made in such manner, the proposer has
the right to insist that his proposal shall be accepted in the pre-
scribed manner and if he does not exercise this right he accepts
the acceptance.
ILLUSTRATION
B offered to purchase a house on certain terms,
given on or before 25th July
nd possession to be
A agreed to the terms, but said he would give possession on the Ist. of
August, It is not acceptance of an offer as it is conditional acceptance
and not absolute and unqualified.
1.5 Contracts to be either Expressed and Implied (8.9)
When proposal or acceptance of any promise is made in words, the
promise is said to be expressed and when proposal or acceptance is made in
any other manner, it is said to be implied,
8 pA ay MOU Stuti9 DLL ee eet Nb
Coysideration
Ahern the
oof dhe: joreanisi
promisee or anvot her pers
Jojotned from dam: something, stich act on abstinane
Hot considenition Lor the promise:
ILLUSTRATION
Av agrees to sell his house to B for 10,000 rupees. Here B's promist
pay the sian af 10,000 rupees is Hie consideration for A's promina
sell the heuse and A’s promise tr sell the house is the considerat
for B's promise to pay 10,000 mpees.
A promise nef supported by consideration is called a nudum pact
The agreement (a pay somethi
on one side without any compensa
either in service or in any other manner will certainly not support an actic
Few details of consideration are explained in section: Hof this a
1.7 Self-Assessinent Questions—1
1 yya te Bs SWAL yeu bay iny house for Rs, 150,000" B se
s, Lwould bay it for Bs, 150,000"
Study the above case and answer following questions:
i) Who makes the offer?
ii) who aecepts the offer?
joy what is the consideration?
iv) sen the acceptance is complete?
2. Would the above case constitute a contract?
$. Complete following sentences,
4) Acceptance becomes completed when the letter accep
the proposal is. ——--——- by —
hb) Proposal stands communicate
when the letter is
©) A proposal ean be resoked UA ASE ay MOU Stati LL eS Saty ep JF ote
TION=HE
2, "VOID" AND “VOIDABLE CONTRACTS
Void Contracts
st enforceable at said to be void
An agreement
\ valid agreement is-one which is fully operative in accordance with
s intention of the parties, Bat, which is void, has no legal effect at all
suon ay itis shown that the agreement is void, the whole tratsaetion tills
the ground, All illegal contracts are void, A void agreement is destitute of
al effect, Agreement in restraint of marriage or agreement in restraint of
de are vo enforced in any court of law
vc. (39 cannot bn
ILLUSTRATION
Aly ve in * shore agrees to an Indian smugeler to provide in 1000
bays of tiew on the border, ‘This is’ void Contract
Salim agrees with kalw that he will kill the magistrate whi had given
judgement against Kalu we years ajo, Kalle has to pay Rs. 100,000
Jim for (his aet, This is a void contract,
2) Agreement in Restraint of Trade is Void
Every agreement by which any one is restriined from exercising a law
I profession, trade or business of any kind, is to that extent void
ILLUSTRATION
(i) Baccepts A's employment. B accepts (o bind himself during the
tert of agreement not to take service with any one else or to
compete with the employer, ‘The contract is not in restraint of
lawful profession, trade or business.
But an agreement binding B not to compete with his employer
atter termination of employment is void as it is in restraint of
trade,
fi, A manufceturer agrees to sell to a merchant all the goods af a
certain class manufactured by him with a stipulation ne. te sell
10 UA ASE ay MOU Stati LL eS Saty ep JF ote
the same to a third person, is valid if the merchant agrees to buy
the whole quantity
But the above rule is subject to an exception. One who sells the good-
will of a business may agree with the buyer to refrain from carrying on a
similar business, within specified limits,
2.3 Goodwill in Contracts
Goodwill consists of benefit or advantage which a business has in its
connection with customers, It is based on the probability that old customers
continue to come to the old place of business or will continue to deal
with the firm of the same name,
ILLUSTRATION
A buys from B the goodwill of bis business of playing ferry boats bet-
ween certain places on a river. B agrees that he would not ply boats
between the places in in question, The agreement is an agreement for
sale of goodwill and is valid.
2.4 Agreements in Restraint of Legal Proceedings Void
An agreement which tends to pervent the course of justice would be
void owing to illegality of its object. Law does not tolerate an agreement
whereby it is sought to oust the jurisdiction of a Court of Law,
Section 28 of the Act, prescribes that every agreement, by which any
party there to is restricted absolutely from enforcing his rights under any
contract, by the usual proceedings in the ordinary tribunals or which limits
the time within which he may enforce his rights, is void to that extent.
Exception to Section 28 provides that where the parties have agreed
that no action shall be brought, until the dispute, which may arise between
them, is referred to arbitration, and that only the amount awarded in such
‘ation shall be recoverable.
Nor any contract in writing shall be rendered illegal, by which two or
more persons agree to refer to arbitration any question between them which
has already arisen.
u UA ASE ay MOU Stati LL eS Saty ep JF ote
2.5 Agreement Void for Uncertainty. (Section 29).
Agreements the meaning of which is not certain or capable of being
made certain are void.
ILLUSTRATIONS
a), ‘A’ agrees to sell to B ‘a hundred tons of oil. ' There is nothing what-
soever to show what kind of oil was intended, The agreement ‘s void
for uncertainity.
b). ‘A’ agrees to sell to B one hundred tons of oil of a specified descrip-
tion, known as an article of commerce. There is no uncertainty here
to make the agreement void,
©). 'A', who is a dealer in coconut oil only, agrees to sell to B “‘one
hundred tons of oil.” The nature of A's trade affords an indication of
meaning of words and A has entered into contract for the sale of 100
tons of coconut oil,
d). ‘A’ agrees to sell to B “all the grain in his granary at Shahkot.” There
is no uncertainty here to make the agreement void.
e). ‘A’ agrees to sell to B “one thousand maunds of rice at a price to be
fixed by C”, As the is capable of being made certain, there is no
uncertainty here to make the agreement void.
f), ‘A’ agrees to sell to B “my white horse for rupees five hundred or
rupees one thousand”, There is nothing to show which of the two
prices was to be given. The agreement is void.
2.6 Agreements Involving Wager Void
An agreement between two parties to the effect that if a given event is
determined one way, one of them shall pay to the other a sum of money,
and in the conirary event the latter shall pay to the former.
Section 30 provides that agreements by way of wager are void; and no
suit shall be brought for recovering anything alleged to be won on any
wager,
ILLUSTRATION
An insurance agreement on jhe life of another in which the insurer has
12 [Pie AE ey MOU Stunt 9 LL ee Kedyepsi lle
27
~ no interest would be void as being a wager. \
Voidable Contracts
An agreement which is enforceable at law at the option of one or
more of the parties thereto, but not at the option of the other or others, is a
voidable contract,
An agreement induced by coercion, undue influence fraud or misre-
presentation is voidable. A voidable contract may be defined as a contract,
where one or more of the parties thereto may avoid or repudiate, while
another or others cannot do so, but which is binding also on the party
entitled to avoid unless and until he exercises his right to avoid
2.8
31
()
ILLUSTRATION
‘A. aman enfoebled by disease or age, is induced, by B's influence over
him as his medical attendant, agree to pay B an unreasonable sum for
his professional services. B employes undue influence. The contract is
voidable and A can opt to avoid the contract.
‘The student will go through many other examples in later paragraphs
which will show him more clearby cases of voidable contracts and the
ground or grounds on which these are classified as voidable. He will
naturally ask them what is a valid"r correct contract, This is ex-
plained in next paragraph.
Self-Assessment Questions—II
1. Define void contract, Give two examples.
2. Define voidable contract giving an example of the same.
SECTION III
3. VALIDITY OF CONTRACTS
Essentials of a Valid Contract
It must be an agreement i.e, there must have been an offer and acce-
ptance: UA ASE ay MOU Stati LL eS Saty ep JF ote
(2) The parties must be competent to contract ie. they should be of the
age of majority (18 years or above) and of sound mind and not dis
qualified from contracting by any law
a) A person less than 18 years of age is not competent to contract
b) A lunatic is not competent to contract, as he is not of sound
mind,
©) A registered company is diqualitied by law from contracting in
excess of its powers as defined in the Memorandum of Asso-
ciation.
(3) ‘The agreement must have been made by free consent of the parties ie.
they must have agreed to the same thing in the same sense and consent
of the parties must not have been secured by coercion, undue in-
fluence, fraud, misrepresentation or mistake
(4) The afreement must’ be for lawful consideration and with a lawful
object. Consideration is said to be unlawful —
a) when it is forbidden by law; or
b) © when it'is of such a nature that if permitted it would defeat the
provisions of any law? or
c) itis fraudulent; or
d) it involves an injury to the person or property of another; or
e) the court regards it as inumoral or opposed to publie policy.
(5) The agreement must not have been declared to be void such as agree-
ment in restraint of marriage has been declared as yoid by Section 26
of the Contract Act or an agreement by way o! wager has heen dec
lared as void by Section 80 of the Contract Act
(6) It must be in writing, attested and registered. if so required by any
law. In case of certain contracts, Acts of legislature, require writing as
the condition of existence of or proof of contracts, such as lease.
aif’, mortgage or sale of immoveable property.
14 pA ay MOU Stuti9 DLL ee eet Nb
3.2 Competency for Contracting
IL is one of the prerequisites of a contract that the parties to it must
be such as are regarded by law as competent to contract. A person is compe-
tent to contract, if he at the time of agreement.—
a) is of the age of majority. A person is deemed to have attained
the age of majority when he has completed 18 years of his age. A
minor (less than 18 years) is not competent to contraet, or
b) is of sound mind. A person is said to be of sound mind, if at the
time of making contract, he is capable of understanding it and of
forming a rational judgement as to its effect upon his interests,
ILLUSTRATION
i) A patient in a lunatie asylum, who at intervals, is of sound mind,
may contract during those intervals during which he is of sound
mind.
ii) A sarfe man who is delitious from fever or who is so drunk that
he cannot understand the terms of a contract or form a rational
judgement as to its effect on his interests, cannot contract
whilst such delirium or drunkenness lasts.
c) is not disqualified from contracting by any law to which he
is subject.
ILLUSTRATION
A registered company cannot contract beyond the powers conferred
on it by Memorandum of Association, Thus it is disqualified by the
Companies Ordinance, 1984, from contracting beyond the powers
conferred on it by the Memorandum of Association.
3.3 Free Consent
Free consent is one of the essential prerequisites of every contract
Consent is said to be free, when two or more persons agree upon the same
thing in the same sense and when it is not caused by —
a) Coercion; or AAAS dy MOU Studio 9 Lo ez yer iG ae
b) Undue influence; or
©) fraud; or
a) misrepresentation; or
e) mistake
34 Coercion
Coercion is the —
(i) committing or threatening to commit any act forbidden by the
Pakistan Penal Code; or
(ii) unlawful detaining or threatening to detain any property, to the
prejudice of any person,
But such act must be done with the intention of causing any person
to enter into an agreement. It is immaterial whether Pakistan Penal Code is
or is not in force in place where coercion is employed.
ILLUSTRATION
A, on board of English ship in the high seas, causes B to enter into
agreement by an act amounting to criminal intimidation under the
Pakistan Penal Code.
A afterwards sues B for breach of contract at Karachi.
A has employed coercion, although his act is not an offence by the
law of England. (When the ship is at his seas, it is governed by the law
of the country the flag of which it is flying.)
An agreement induced by coercion is voidable i.e, it is enforceable
at the option of B and not at the option of A, who has employed coercion,
3.5 Undue Influence
Section 16 of the Contract Act explains undue influence. To esta-
blish undue influence it has to be shown that a person was —
16 pA ay MOU Stuti9 DLL ee eet Nb
(a) ina position to dom nate the will of the other party; and
(b) that he has used that position to obtain unfair advantage to him
self.
A person is deemed to be in a position to dominate the will of
another.
a) when he holds a real or apparent authority over the other; or
where the stands in a fiduciary relation to the other; or
b) where he makes a contract with a person whose mental capacity
is temporarily or permanently affected by the reason of age,
illness or mental or bodily distress,
ILLUSTRATION
(a) A’ having advanced money to his son B, during his minority.
Upon B's coming of age obtains by misue of parental influence a
bond from B for a greater amount than the sum in respect of the
advance. A employs undue influence,
(b) A, a man enfeebled (weakened) by disease or age is induced, by
B’s influence over him as his medical attendant, to agree to pay
B, an unreasonable sum for his professional services. B employs
undue influence.
Parent and child; guardian and ward; solicitor.and client; doctor and
patient; and that of spiritual adviser exercising influence under the quise of
religion and persons dealing with him, are persons standing in a confidential
relation to each other. Parent, guardian, solicitor and doctor are in a position
to dominate the will of child, ward, client and patient respectively.
ILLUSTRATION
Where a Hindu woman gifted away the whole of her property to her
spiritual adviser with a view to securing henefits to her soul in the next
world, the gift is invalid. as it results from undue influence of her
guru.
17 UA ASE ay MOU Stati LL eS Saty ep JF ote
3.6 Fraud
Fraud is the obtaining of a material advantage by unfair or wrongful
means; it involves moral turpitude, Fraud is proved when it is shown that a
false representation is made knowingly, or without belief in its truth or
recklessly without inquiring whether it is true or false. Surprise, trick, cunn-
ing and any other unfair way that is used to cheat anyone, is considered as
fraud.
In order to constitute fraud, there must exist one of the following
five elements;
(a) A suggestion as a fact of that which is not true by one who does
not believe it to be true. The statement must have been made
without belief in its truth;
ILLUSTRATION
Directors of a company issued prospectus inviting subscriptions for
debentures and stated that the objects of the issue were to complete
alterations in the buildings of the company and purchase horses and
vans; the real object was to enable the directors to pay off pressing
liabilities. The statement as to the objects for which the money was
wanted was fraudulent.
(b) An active concealment of fact by one having the knowledge or
belief ofthe fact;
ILLUSTRATION
(i) ‘A’, a horse dealer sold a mare to ‘B'. ‘A* knew that the mare had
a cracked hoof which he filled up in such a way as to defy
detection. The defect was subsequently discovered by ‘B’.
Agreement could be avoided as it was obtained by fraud.
(i) ‘A’ sells by auction to ‘B’, a horse which *A’ knows to be un-
sound. ‘A’ says nothing to ‘B' about the horse’s unsoundness.
‘This is not fraud in ‘A’,
(iii) ‘A’ und “BY, being traders, enter upon a contract. A has private
information of a change in prices which would affect B's willing-
ness to proceed with the contract. ‘A’ is not bound to inform
‘BY.
18 yp eves ty MOU Stullo 9 2 Lo eyes tLe
(ec) A promise made with any intention of performiny
ILLUSTRATIONS
i) A person who buys goods without any intention of paying for
them commits fraud.
i) Where a man and a woman went through a ceremony of marri-
age without any intention on the part of husband to regard it
as real marriage, Held that consent of the wife was obtained by
fraud and that the marriage was a mere pretence.
(d) Any other act fitted to decive. The fertility of man’s invention
in devising new schemes of fraud is so great that it would be
difficult, if not possible, to confine fraud exhaustively. Clause
(4) is intended to cover all those cases of fraud which cannot be
covered by other sub-sections.
(e) Any such act or omission as the law specially declares to be
fraudulent.
ILLUSTRATION
Section 55 of the Transfer of Property Act lays down that it is the
duty of a seller of land to disclose to the buyer any material defect in
the property or in seller's title and that it is the duty of the buyer
to disclose to the seller certain facts if they materially affect the sel-
ler’s interests in land. An omission to make such a disclosure amounts
to fraud.
The explanation to Section 17 laws down the rule that mere silence as
to facts likely to affect the willingriess of a party to enter into contract is
not fraud, unless.—
(a) the circumstances of the case are such that it may be duty of a
person keeping silence to speak;
or
(b) his silence is equivalent to speech.
19 pA ay MOU Stuti9 DLL ee eet Nb
ILLUSTRATION
(i) ‘BY says to ‘A’, “If you do not deny it, I shall assume that the
horse sound.” ‘A’ says nothing. Here ‘A’s silence is equivalent to
speech.
(ii) ‘A’ sells by auction to ‘B’, a horse whieh ‘A’ knows to be
unsound. A says nothing to B about the horse's unsoundness.
‘This is not fraud in A.
3.7 Misrepresentation
(a) Definition
(1) “Misrepresentation” means and includes — the positive assertion not
warranted by the information of the person making it as to that, which was
not true though he believed it to be true;
ILLUSTRATION
Where a person makes a positive assertion to a prospective subscriber
of shares, relyying upon the statement of another that a certain third
person would become a director, he is not warranted in making that
assertion within the meaning of this section.
(2) any breach of duty which, without an intention to deceive, gains an
advantage to the person committing it, or anyone claiming under him, by
misleading another to his prejudice or to the prejudice of anyone claiming
under him. Under this clause fall cases where a person fails to make dis-
closures obligatory on him;
ILLUSTRATION
A contract of insurance requires the fullest disclosure on the part of a
party. Non-disclosure as to any fact likely to affect the willingness of
the other pary in such a case may not amount to fraud, but it would
be would be misrepresentation.
(3) a statement causing, however, innocently, the other party to the
agreement to make & mistake as to the substance of the thing which is the
subject of the agreement.
20 UA ASE ay MOU Stati LL eS Saty ep JF ote
ILLUSTRATION
‘An erroneous statement as to the tonnage of a ship is misrepresentq-
tion,
(b) Effect of Misrepresentation
When a person has been in’ 1 to enter into a contract by misre-
presentation, he may, either —
(i) affirm the contract and insist on the misrepresentation being
made good, if that is possible.
rescind the contract; or
rely upon the misrepresentation as a defence to an action on the
contract.
3.8 Agreements Without Free Consent
When consent to an agreement is caused by coercion, fraud or mis-
representation, the agreement or a contract is voidable at the optionof the
party whose consent was so caused. The party whose consent was obtained
by fraud or misrepresentation may insist that the contract shall be perfor-
med by putting him in the position in which he would have been if the re-
presentation made had heen true,
ILLUSTRATION
‘A’, intending to deceive ‘B’, falsely represents that five hundred
maunds of indigo are made annually at A’s factory, and thereby in-
duces ‘B’ to buy the factory. ‘The contract is voidable at the option
of B.
3.9 Power to Set aside Contract Induced by Undue Influence
When consent to an agreement is caused by undue influence, the
agreement is a contract voidable at the option of the party whose consent
‘was so caused
Any such contract may be set aside either absolutely or if the party
who was entitled to avoid it has received any benefit thereunder, upon such
21 UA ASE ay MOU Stati LL eS Saty ep JF ote
terms and conditions as the court may seem just.
ILLUSTRATIONS
(a) A’s son has forged B’s name to a promissory note, ‘B’ under
threat of prosecuting A’s son, obtains a bond from ‘A’ for the
amount of the forged note. If ‘B' suco on this bond, the court
may set the bond aside.
(b) ‘A’, a money lender, advances Rs. 100 to ‘B’, an. agriculturist,
and by undue influence, induces ‘B’ to execute a bond for
Rs. 200 with interest: at 6% per month. ‘The court may set the
bond aside, ordering ‘B’ to repay the Rs. 100 with such interest
as may seem just.
3.10 Mistakes
Mistake or ignorance of facts in the parties constitutes a material
ingredient in the contract of parties, Mistake or error may be caused in cir-
cumstances as would exclude the existence of consent. Mistake or error is
sometimes caused by the ignorance or misconception of some matter. When
both the parties laboured under some mistake of fact essential to the agree-
ment, the agreement is void
In order to bring section 20 into operation it is necessary
(a) that both the parties must have been under a mistake;
(b) that the mistake must be as to some fact and not as to any
matter of law;
(c) that the fact must be essential to the agreement.
It is essential that both the parties to an agreement are labouring
under a mistake of act i.e. the mistake is mutual. When one party is labour-
ing under a mistake of fact, the contract cannot be avoided.
ILLUSTRATIONS
(a) ‘A’ agreed to sell to ‘B’, a specific cargo supposed to be on its
way from England to Karachi, It turns out that before the day of
bargain, the ship conveying the cargo has been cast away and
22 = AI E_ay MOU Stuttio 9 Lee WutnpilbLu
goods lost. Neither party was aware of facts. The agreement is
void.
(b) ‘A* agrees to buy from ‘B’ a certam horse, It turns out that the
horse was dead at the time of bargain, though neither party was
aware of fact, The agreement is void.
(c) ‘A’, being entitled to an e-late for the life of "B?, agrees to sell it
to °C’. ‘BY was dead al (\ie time of agreement, but both parties
were ignorant of fact, The agreement is void.
to law, which every man is supposed to know does not afford any excuse.
But the mistake of law must be mistake as to general law in Pakistan, which
is applicable to all the citizens of Pakistan. Thus under section 21 of the
Contract Act, relief is not given against a mistake of law. There is also a
‘saying that “ignorance of law is no excuse”.
ILLUSTRATION
*A’ and ‘B’ make a contract grounded on the erroneous belief that a
particular debt is barred by the law of limitation. The contract is
voidable.
ADDITIONAL ILLUSTRATION
Mistake as to fact may afford an excuse to a party, but ignorance as
‘A’, a widow, is entitled to certain occupancy rights, ‘A’ remarries and
believing that she has lost her occupancy rights by reason of her
second marriage agrees to take the land from ‘B’, her Zamindar, on
an increased rate of rent. Both ‘A’ and ‘B' honestly believe that A has
| lost her occupancy rights. The contract is not yoidable,
A contract is not voidable merely because it was caused by one of
the parties to it being under mistake as to matter of fact. In order to render
an agreement void, it is also necessary that the mistake must be as to an
essential fact. In the above illustrations both the parties were ignorant of
fact essential to the contract,
3.11 Self-Assessment Questions—Ili
1. Fill in blanks:—
23 UA ASE ay MOU Stati LL eS Saty ep JF ote
a) — is unlawful detaining or threatening to detain
any person or property to the prejudice of-
b) Anagreement achieved by ———‘is voidable
) Under ————a person is usually in a position to domi:
nate the will of the other party.
2. Are following statements right or wrong?
a) A person of fifteen years of age is competent to enter into
a contract,
b) Ahmad, a landlord of hundred yeurs age, is declared mad.
His signatures are obtained on a contract transferring land
to Sajid.
c) Coercion is committing on threatening to commit any
action forbidden by law.
SECTION-IV
4, CONSIDERATION
4.1 Legality of Consideration
Consideration has already been defined at paragraph 1.06,
‘The consideration or object of agreement is lawful, unless:—
1. It is forbidden by law. A contract is illegal if it is in contraven-
tion of a statute or forbidden by law or legislative enactments.
No action can be brought on a contract which is prohibited by
the general law or a statute;
ILLUSTRATIONS
i) ‘A’, ‘B' and ’C* enter into an agreement for the division among
them of gains acquired or to be acquired by them by fraud, The
agreement is void as its object is unlawful
ji) ‘A’ promises to obtain for ‘B’ an employment in public service
24 Tp Ke ty MOU Stutio 9 LL eS Seiden Blot
and ‘B’ promises to pay 1000 rupees to ‘A’. The agreement is
void as the consideration for it is unlawful
tii) A promises to drop a prosecution which he has instituted against
“B’ for robbery and ‘B’ promises to restore the value of things
taken ‘The agreement is void as its object is unlawful.
OR
2. is of such a nature, that if permitted, it would defeat the pro-
vision of any law.
ILLUSTRATIONS mr
A’s estate is sold for arrears of revenue under the provisions of an Act
of the Legislature, by which the defaulter is prohibited from purchas-
ing the estate. *B’, upon an understanding with ‘A’, becomes the
purchaser and agrees to convey the estate to ‘A’ upon receiving from
him the price, which B has paid, The agreement is void ax it renders
the transaction in effect a purchase by defaulter and would also defeat.
the object of law.
OR
involves or implies injury to the person or property of another;
ILLUSTRATIONS
(i) ‘A’ agrees to pay ‘B’, a sum of Rs, 1000 if *B’ sets on fire the
standing crops of ‘C’, The contract cannot be enforced #3 it
involves injury to the property of ‘C’
(ii) “A’ agrees with “B’ for a consideration of Rs. 1000 to publish
scandalous matter against °C’ in his newspaper. The contract
cannot be enforced as it involves injury to the person of ‘C’
OR
4, is fraudulent:
25 pA ay MOU Stuti9 DLL ee eet Nb
ILLUSTRATIONS
Section 53 of the ‘Transfer of Property Act provides that if a deblor
transfers his property with the object of defeating the rights of credi
tors, the agreement can be avoided
OR
the vourt regards it as immoral or opposed to public policy.
ILLUSTRATIONS
(i) ‘A’ agrees to let her daughter to hire to ‘B’ for concubinage. The
agreement is void, because it is immoral, though the letting may
not be punishable unaer the Pakistan Penal Code
(ii) ‘A’, who is B’s Mukhtar, promises to exercise his influence, as
such, with B in favour of ‘C° and °C” promises to pay 1000 rupees
to A, The agreement is void, because it is immoral.
(iii) *A agrees to let his house on hire to B’ to be used for prosti
tution. The agreement is bad.
4.2 Agteements Without Consideration
For validity of an agreement, consideration is always necessary
Wherein an agreement, consideration is nol present, the agreement is void,
ILLUSTRATIONS
‘A’ promises for no consideration, to give to ‘"B’ Rs.
void agreement.
1000. This is a
But an agreement without consideration can be treated as a contract,—
(1) when it is expressed in writing and registered under the law of
registration of documents and is made on account of natural
love and affection between parties standing in near relations to
other;
ILLUSTRATIONS
A, for his natural love and affection, prumises to give his son B,
Rs. 1000. A puts his promise in writing and registers it. This is a
26 t- beg “
AE ey MOU Stunt 9 LL ee Kedyepsi lle
OR
(2) when it is a promise to compensate, wholly or in part, a person
who has already voluntarily done something for the promisor
‘or something which the promisor was compellable to do;
ILLUSTRATIONS.
(a) A finds B's purse and gives it to him. B promises to give Rs. 50.
This is a contract
(b) A supports B's infant son, B promises to pay A’s expenses on
doing so. This is a contract.
(3) when it is a promise made in writing and signed by the person to
be charged therewith, to pay wholly or in party, a debt of which
the creditor might have enforced payment but for the law for the
| limitation of suits.
ILLUSTRATIONS
(a) A owes B Rs. 1000, the debt is barred by Limitation Act, A signs
@ written promise to pay B Rs. 500 on account of the debt. This
| is a promise.
(b
A owes to B Rs. 1000, but the debt is barred by Limitation Act.
A signs a writing “IOU Rs. 1000" B can recover the time barred
debt on the strength of subsequent promise to pay.
Explanation (2) to Section 25 provides that an agreement to which
consent of the promisor is freely given is not void merely because the consi
deration is inadequate.
ILLUSTRATIONS
A agrees to sell a horse worth Rs. 1000 for Rs 10 4's consent to the
agreemen was freely given, The agreement is a contract notwithstand-
ing the inadequacy of consideration,
But the inadequacy of consideration may be taken into account by
27 7c
AAAS ody MOU Stalin 9 Loe ez yer iG ae
vy ving (ho question whether consent of the promi:
tee
ILLUSTRATION
A agirves to jell at Hurse worth Rs, Lt I
siya agreement was freely give oq \
ration ba Get whieh the court shauld take 4 1 \
during whether eon freely give
. id fect Une vatidity as betweer Janet (the
perso: who makes arti) and the done (the person wha receives the wilt.)
ILLUSTRATIONS.
Na fai owner, promises to pay bonus te his emplayees. ‘Pn
imtracl cun be entorced
4.3 Self-Assessment Questions—1V
1. Define “Consideration”, giving two illustrations, when it 1
lawful
2. Fill in blanks
(a) Nocontriet is valid without lawful
(b) sideration is related wo —and ot
contracting parties,
(c) Vhe consideration is valid unless it is by haw
SECTION—V
5, CONTINGENT ANU QUASI CONTRACTS
5.1 Contingent Contracts
(1) Definition
A “contingent contract" is a contract to do or not to do something, if
me event, colateral Lo such contract, ddes oF does not happen
28 Ady MOU Stull 9 LL ee St vep tM we
(2)
ILLUSTRATIONS
A contracts to pay B Rs, 1000, if B’s house is burnt, This is a con-
tingent contract
Enforcement of Contingent Contract on an Event Happening
Contingent contracts to" do or not to do anything if an uncertain
future event happens, cannot be enforced by law unless and until that
event has happened.
(3)
If the event becomes impossible such contracts become void
ILLUSTRATIONS
a). ‘A’, makes a contract with ‘B’ to buy B's horse, if ‘A’ survives
'C 'Phis contract cannot be enforced in law unless and until
dies in A’s lifetime.
b). ‘A’, makes a contract with ‘B’ to sell a horse to ‘B’ at a specified
price, if ‘C’, to whom the horse has been offered, refused to
buy him. ‘The contract cannot be enforced by law unless and
until ‘C” refuses to buy the horse.
¢). ‘A’, contracts to pay “B’ a sum of money when "B' marries ‘C’
C’ dies without being married to ‘B’, The contract becomes void.
Enforcement of Contingent Contract on an Event not Happening
Contingent contracts to do or not to do anything, if an uncertain
future event does not happen, can be enforced when the happening of that
event becomes impossible and not before.
(4)
ILLUSTRATIONS
‘A* agrees to pay ‘B! a sum of money if a certain ship does not return.
‘The ship is sunk. The contract can be enforced when the ship is sunk
When an Event on which Contract is Contingent, to be Deemed
Impossible if it is the Future Conduct of a Living Person
If the future event on which a contract is contingent is the way in
29
en EEE ene UA ASE ay MOU Stati LL eS Saty ep JF ote
which person will act at an unspecified time, the event shall be considered to
become impossible when such person does anything which renders it im-
possible that he should act within any definite time or otherwise than under
further contingencies,
ILLUSTRATION
‘A’, agrees to pay ‘B’, a sum of money if B marries ‘C’. ‘C’ marries
‘D’. The marriage of ‘C’ to ‘B' must now be considered impossible,
although it is possible that ‘D’ may die and that ‘C’ may afterwards
marry
(5) When Contracts become Void which are Contingent on Happening
of Specified Event within Fixed Time
Contingent contracts to do or not do anything if a specified uncer-
tain event happens within a fixed time become void at the expiration of the
time fixed, such event has not happend or if, before the time fixed such
event becomes impossible
ILLUSTRATION
a) ‘A’ agrees to pay ‘B’ Rs, 1000 if B's house is burnt within one
year. The house does not burn within one year. The agreement
becomes void.
b) ‘A’ agrees to pay ‘BRs. 1000, if a certain ship returns within one
year, The ship is cast away one month after the agreement. The
event has become impossible the agreement is void
¢) ‘A’ promises to pay ‘B’ a sum of money, if a certain ship does
not return within one year. The contract mity be enforced, if the
ship does not return within the year or is burnt within the year
(6) Agreement Contingent on Impossible Event are Void
Contingent agreements to do or not to do anything, if an impossible
event happens, are void, whether the impossibility of the event is known or
not, to the parties to the agreement at the time when it is made. pA ay MOU Stuti9 DLL ee eet Nb
ILLUSTIUATION
a) A‘ agrees to pay 'B' L600 rupees if two straight linus should
enclose a space. The agreement is void
bu) A ste pas BR! L000 rupers if B will marry A’ din
vtine
© was deal at the time of the
Rreement, ‘The agreenimnt is vol
5.2 Quasi Contract or Contracts Implied by: Law
(a) Quasi ContractDefinition
Inplied contracts or quasi contracts are contracts by whieh one party.
is bound to pay money in consideration of something done or suffered by
othe other party. They are not founded on actual promises but arise when a
party. bas so conducted himself that he must he deemed to haye made a
promise although in fact he has not. Though no contract has been maile
hy the parties, Jaw makes out contract for them and such a contract Is
termed a contract implied in law
(b) Claim for Necessaries Supplied to Person Incapable of Contracting or
on his Account.
(a) ifs person who is imeapable of entering into contract, oe
(b) any cae whom he is legally bound to support,
is supplied by another person with necessaries suited to his ¢
the person whi
the property of s
Hitvos in tite,
has furnished such supplies is entitled to be reimbursed from
ch incapable person.
ILLUSTRATIONS
(a) AT supplies “BY, a Tunatle, with neces
ticin in life, ‘AT is entitled to ber
aries suitable to his cond
mbursed (rom “B's property
(b) At supplies the wife aud children of BY a lunatic, with neces:
saries suitable to- their condition in life, A’ is entitled to be re
unbursed from 1's! property
te) Reimbursement of Person
ot Which he is Luterested (5.
i Money due hy Another in Payment
‘)
(a) Whore a person, she is bound hy huy to
(b) and another pees
hake a-certain paynent,
who is interested in such payment fwing
31 AAAS ody MOU Stalin 9 Loe ez yer iG ae
I I Hiv AS th \
tot t being tn arredr, his hind is ul
snaviuliyent Wo tu pire ' i
at at Wiis own foise, pays try th he
Lian mbta Bo the i ni
al) 1 of person enjaying benefit of nongratuitons
Bye fin
on (13) ¢ the benefit "
ee (A) for the #0 dlone
ILLUSTRATIONS
(a) CAN a trade
BY treats the
in, leaves goods at H's’ wurel
& as hi
by mistalee
y (AT for ther
n. He is hound t
(b) ‘A' saves “B's! property from fire, ‘At is not entitled to cc
sution from B', if the circumstances show that he Intended to
wot gratuitously
5.3 SELF ASSESSMENT QUESTIONS-V
1) Define a contingent contract giving (wo eximples
(2) Complete following sentences
ay sntingent contract cannot be by I
has happened
b) IF the event becomes pees ay MOU Stulto 9 LL eter iB
3) A tradesman, leaves goods at ‘B’s’ warehouse by mistake ‘B
treats the goods as his own. Is B’ right?
6. SUMMARY ©
Contracts are governed by the contract Act 1872. The salient aspect
of this act are given below
1) Proposal and acceptance
When one person signifies to another his willingness to do, ot to abs
tain from doing anything, with a view to obtaining the assent of that, othe
to such act or abstinence, he is said to make a proposal.
When a person to whom the offer is made signifies his assent thereto
the proposal is said to be accepted and it then becomes a promise.
2) Consideration
When at the desire of the promisor the promisee 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.
xe
3) Void and Voidable Me
‘An agreement which is enforceable at law at the option of one or
‘more of the parties thereto, but not at the option of the other or others, it is
4 voidable contract; whereas a void contract is that witict: not enforceable at
Taw Awd egpeetaeat has 56 legal: exintenoe at all, while! a voidalle
agreement is valid so long it is not avoided by the party entitled.
4) Communication
‘The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made,
‘The communication of an acceptance is complete—
a) as against the proposer, when it is put in a course of transmission
to him, so as to be out of the power of the acceptor:
33 4
UA ASE ay MOU Stati LL eS Saty ep JF ote
of the
b) as against the acceptor, when it comes to the knowledge
proposer.
) Essentials of a valid contract
i. It must be an agreement.
ii, The parties must be competent to contract
iii. The agreement must have been made by free consent of the
parties.
iv. The agreement must be for lawful consideration and with a law-
ful object
v. ‘The agreement must not have been declared to he void.
vi. It must be in writing, attested and registered, if so required
by law.
Who are competent to contract,
A person is competent to contract, if he at the time of agreement.
(a) is of the age of majority;
(b)_ is of sound mind;
(c) isnot disqualified from contracting by any law.
') When consent is said to be free.
Consent is said to be free when two or more persons agree upon the
ame thing in the same sense and when it is not caused by coersion, undue
nfluence, fraud, misrepresentation or mistake.
3) Coercion
Coercion is the
(i) Committing or threatening to commit any act forbidden by the
Pakistan Penal Code; or
(ii) unlawful detaining or threatening to detain any property to the
prejudice of any person
An agreement induced by coercion is voidable.
9) ~~ Un-due influence
34 pA ay MOU Stuti9 DLL ee eet Nb
10
TUR MALEN Mle Indien ty Hagcter Lee shower hata yerrap aw
OC) oy postion Go dominate the will of the other purty, and
Hy hal fe has used that position (y ohtsin unfair advantage to
Neinyself
Fraud”
Fraud is the obtiining of a material advantage
v unfair or wrongful
means, it involves moral turpitude
1)
‘Vhe prove fraud there must be one of the following five elemwnt
ay
{ey
td)
(e)
A suppestion as a faet nf thal which isnot tie hy aye whi dows
not believe it to he true
An active convealment of fact hy one having the knowledge ar
belief of the fact
A promise made without any intention of performing
Any other act fitted to deceive
Any such act or omission ax the law specially: dec
froudulent.
Mistepresentation
Mistopresentation means and includes.
fa)
(b)
fe)
the positive assertion not warranted by the information af the
person making it as to that whieh was not true though he be
lieved it to he Ire:
any brepeh of duty which, without an intention to deceive; gains
an advantage to the person committing it or anyone clainnur
under him, by mistewling another to his prejudice or to phe pre
judice of anyone claiming under him:
a statement causing, however, innocently, the other party to Uh
agreement to make a mistake as to the substance of the (hint
which is the subject of the agreement
35
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