LECTURE # 02

DEFINITION OF CONTRACT
Some definitions of contract are as follows:
• Pollack: “Any agreement or promise enforceable at law is a contract”.
• Blackstone: “An agreement upon consideration basis to do or not to
do a particular thing is called contract”.
• Contract Act (Sec. 2(h)) defines “an agreement enforceable by law is a
contract”. The analysis of definition shows that contract must have
the following two elements;
1. Agreement
2. Enforceable by law
1. DEFINITION OF AGREEMENT
• Section 2(e) defines agreement as, “Every promise and every set of
promises forming the consideration for each other is an agreement”.
• It means every promise is an agreement if it forms a consideration for
both parties. If a promise forms no consideration for both parties, it
cannot become an agreement.
PROMISE & PROPOSAL

PROMISE PROPOSAL
• Section 2(b) defines promise as, • Section 2(a) defines proposal as,
“when the person to whom the “when one person signifies to
proposal is made signifies his another his willingness to do or
assent thereto, the proposal is to abstain from doing any thing,
said to be accepted. A proposal, with a view to obtaining the
when accepted, become a assent of that other to such act
promise”. or abstinence, he is said to make
a proposal”.
2. ENFORCEABLE BY LAW
• An agreement is enforceable by law if it is recognized by the court. In
order to be enforceable by law, the agreement must create legal
obligations between the parties. Thus, the term agreement is wider
than a contract. All contracts are agreements but all agreements are
not contracts. There are two types of agreements:
1. Social Agreement
2. Legal Agreement
 SOCIAL & LEGAL AGREEMENT
• Social Agreement: A social agreement is not enforceable by law because it does not
create legal obligations between the parties. In social agreement, the parties do not
intend to create legal relations.
Example:
• C invites B to a dinner. B accepts the invitation but does not attend. C cannot sue B for
damages. It is a social contract.

• Legal Agreement: A agreement is enforceable by law because it creates legal obligations

between the parties. In legal agreement, the parties intend to create legal relations. All
business agreements are contracts as there is an intention to create legal obligation.
• Example:
• C promises to sell his car to B for Rs. 2 lac. It is a legal agreement because it creates legal
obligations. This agreement is a contract
DIFFERENTIATE BETWEEN:
AGREEMENT CONTRACT
• Formation: An offer and its • Formation: An agreement and its
acceptance make an agreement. enforceability make a contract.
• Legal Obligation: It may or may • Legal Obligation: It necessarily
not create legal obligation. creates legal obligations.
• Scope: All agreements are not • Scope: All contracts are
contracts. agreements.
• Binding: All agreements are not • Binding: All agreements are
binding on the concerned binding on the concerned parties.
parties.
ESSENTIALS OF VALID CONTRACT
• A valid contract is enforceable by law. In a valid contract, all the
parties are legally bound to perform the contract. In order to be
enforceable, an agreement must possess the essentials of a valid
contract given in section 10.

• According section 10. “All agreement 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, where necessary, the agreements must satisfy
the requirements of law regarding writing, attestation and
registration”. The essentials of a valid contract are explained as
follows:
1. OFFER AND ACCEPTANCE
• An offer is a starting point for a contract. In order to form an
agreement, there must be a lawful offer by one party and a lawful
acceptance of that offer by the other party. The term lawful means
that the offer and acceptance must satisfy the requirements of the
contract act.
Example:
• C offers to sell his cycle to B for Rs.4000. this is an offer. If B accepts
this offer, there is an acceptance.
2. LEGAL OBLIGATIONS
• The parties to an agreement must create legal obligations. It means
that if one party does not fulfills his promise, he shall be liable for
breach of contract. It is presumed in commercial agreements that the
parties intend to create legal obligations.

Example:
• C offers to sell his watch to B for Rs. 800. B agrees to buy. It is a
contract as it creates legal obligation.
3. LAWFUL CONSIDERATION
• Consideration means something in return. The agreement must be
supported by lawful consideration on both sides. Consideration is the
price paid by one party for the promise of the other part. An
agreement is enforceable only when both the parties give and receive
something; the something given or received is called consideration.
Example:
• C agrees to sell his house to B for Rs. 10 lac. Rs. 10 lac is the
consideration for C, and house is the consideration for B.
• C promises B to get him a government job and B promises to pay
bribe of Rs. 1 lac. The agreement is void as the consideration is
unlawful.
4. CAPACITY OF PARTIES
• An agreement is enforceable if it is made by parties who are
competent to contract. In order to be competent to contract, it is
essential that the parties are of the age of majority, have sound mind
and are not disqualified from contracting by law. An agreement with
incompetent person is not a valid contract.
Example:
• M, a person of unsound mind, agrees to sell his house to S for Rs. 2
lac. It is not a valid contract because M is not competent to contract.
• A, a minor, borrows Rs. 10000 from B and promises to return it within
6 months. It is not a valid contract as A is not competent.
5. FREE CONSENT
• For a valid contract, it is essential that the consent of parties must be
free. Consent is free when it is not obtained by coercion, undue
influence, fraud, misrepresentation or mistake. If the consent of
either of the parties is not free, the agreement cannot become a
contract. (sec 14)
Example:
• C compels B to enter into a contract at gunpoint. It is not a valid
contract as consent of B is not free.
• M, with free consent, promises to sell his cycle to N for Rs. 5000. It is
a valid contract.
6. LAWFUL OBJECT
• The agreement must be made for a lawful object. The object of
agreement must not be fraudulent, illegal, immoral, opposed to
public policy, imply injury to the person or property of another. Every
agreement with unlawful object or consideration is illegal and
therefore void. (sec 23)
Example:
• C promises to pay Rs. 5000 to B, if B beats D. The agreement is illegal
as its object is unlawful.
• B hires a house to use for gambling. The object of the agreement is
unlawful so agreement is illegal and void.
7. WRITING AND REGISTRATION
• A contract may be oral or in writing. It is better that the contract is in
writing because it is easy to prove in court. If required by law, a
particular contract must be in writing, signed, stamped, attested by
witnesses and registered, e.g. sale and mortgage of land.
Example:
• X verbally promises to sell his book to Y for Rs. 200. It is a valid
contract because the law does not require it to be in writing.
• A written agreement was made for sale of immovable property but it
was not signed by the two parties. The court held that no contract
existed.
8. CERTAINITY OF TERMS
• According to section 29, “Agreement the meaning of which is not
certain or capable of being made certain, are void.” The term of an
agreement must be clear, complete and certain. If the terms are
uncertain, the agreement is void.
Example:
• C promises to sell 20 books to B without specifying their titles. The
agreement is void because the terms are not clear.
• O agreed to purchase a van from S. The price was to be paid over
duration of 2 years. The terms of agreement were not certain about
the rate of interest and the mode of payment. There was no contract.
9. POSSIBILITY OF PERFORMANCE
• A valid contract must be capable of being performed. An agreement
to perform an impossible act is void. If the act is legally or physically
impossible to perform, the agreement cannot be enforced by law.
(sec 56)
Example:
• C agrees with B to discover a treasure by magic. The agreement is not
enforceable by law.
• C agrees with B to put life into B’s dead brother. The agreement is
void as it is impossible to perform.
10. NOT EXPRESSLY DECLARED VOID
• The agreement must not be one of those agreements which have
been expressly declared to be void by the law. Section 24-30 explain
certain agreements which have been expressly declared to be void,
e.g. agreement in restraint of trade, agreement by way of wager.
Example:
• C promises to close his business if B pays him Rs. 2 lac. It is a void
agreement because it is in restraint of trade.
• C promises to pay Rs. 2000 to B if Pakistan wins the final of cricket
world cup. The agreement is void being a wagering agreement.