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Chapter 1
Law of contracts
The law governing the contracts in Pakistan is contained in the contract Act1872.
The first75 sections of this Act contain a discussion of general principles
governing all types of contracts. However, the remaining sections deal with the
following three types of contracts
Definitions
Proposal
A person is said to make proposal, when he signifies to another his willingness to
do or to abstain from doing anything with a view to obtaining the assent of the
other to such act or abstinence. A proposal is known as an offer.
Invitation of offer
An invitation to offer is a mere statement of the person’s intentions or his
willingness to enter into negotiations. It is just like an advertisement through
which people are invited to make an offer. The examples of invitation for an offer
are an advertisement for an auction, for tender, catalogue of goods.
Standing offer
When an offer takes a form of continuing offer, it is called standing offer, e.g., a
party may make an offer to supply certain goods at a particular price and have a
fixed period. This would constitute an example of a standing offer.
Acceptance
The proposal is said to be accepted, when the person to whom the proposal is
made signifies his assent thereto.
Promise
When a proposal is accepted, it becomes a promise.
Promisor
The person who makes the proposal or an offer is known as promisor.
Promisee
The person who accepts the proposal is called promise.
Agreement
Every promise constituting an offer and its acceptance is known as agreement.
agreement which is not enforceable at law is known as void agreement. For
example a gambling agreement is not enforceable at law because its object is
unlawful. Therefore, it is a void agreement.
Consent
The consent has been defined in law as “two or more persons are said to consent
when they agree upon the same thing in the same sense”.
Contract
An agreement which is enforceable at law is known as a contract. In order to be a
contract, an agreement must meet the following essentials
Kinds of contract
1. valid contract
The agreement which can be enforced at law by either party
to the agreement is known as valid contract.
3. void contract
A contract which is ordinarily enforceable at law but cannot
be so enforced due to the happening of certain event.
4. Illegal contract
It is a contract which contravenes another law. For example
some contracts are illegal at common law i.e., contracts of
immoral nature.
Communication, Acceptance and Revocation of proposal
Communication of proposal
The communication of proposal is complete when it comes to knowledge of
the person to whom it is made. An illustration in this respect is:
Mr. John proposes by a law to sell a house to Mr. Clarke at a certain price.
The communication of the proposal is complete when Mr. Clarke receives the
letter.
Communication of Acceptance
The communication of an acceptance is complete:
1. As against the proposer, when it is put in a course of transmission to
him, so as to be out of power of the acceptor;
2. As against the acceptor, when it comes to the knowledge of the
proposer. An illustration in this respect is:
Mr. Johan accepts Mr. Smith proposal by a letter sent by post. The
Communication of the acceptance is complete on the part of Mr. Smith when
the letter is posted and on the part of Mr. Johan when the letter is received by
Mr. Smith.
Revocation
2. Contractual Capacity
Every person is competent to contract if he specifies the following three
conditions:
(a) Age of Majority
A major is competent to contract if he suffers from no other disqualification.
A minor is incompetent to contract. A person is deemed to have attained
majority when he completes 18 years and not before. In case of a minor who
has a guardian appointed by a court or the superintendence of whose property
is assumed by Court of Wards, the age of majority is deemed to have been
attained on the completion of 21 years. Ordinarily an agreement with minor
is void. However, an agreement regarding the necessaries supplied to minor
shall be binding on the minor and his estate shall be liable for payment, if the
price is reasonable. Whether a thing is or is not a necessity of life to a minor
shall be decided by the judge.
(b) Sound Mind
An insane is incompetent to contract and, therefore, any agreement entered
into by him will be void.-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 interest. A person who is usually of unsound mind, but occasionally of
sound mind may make a contract when .he is of sound mind. Similarly, a
person who is usually of sound mind, but occasionally of unsound mind, may
not make a contract when he is of unsound mind.
(c) No other Disqualification
In order to be competent to contract, a person must not be disqualified from
contracting by any law to which he is. Subject:
(I) The Court of Wards Act imposes contractual incapacity. Ward of any
Court
of Wards cannot enter into a valid contract as regards property situated
anywhere.
(ii) Certain persons are not capable of contracting owing to their political
status, e.g., foreign enemies or due to their professional status, e.g., a
barrister cannot sue for fees for his professional services ; or due to legal
status, e.g., a company which being an artificial person cannot contract
except through its agent and according to its constitution.
The consent of the parties to a contract must be free. It is said to be free when
it is not caused by:
(a) Coercion
Coercion is the committing, or threatening to commit, any act forbidden by
the Pakistan Penal Code, or the unlawful detaining, or threatening to detain,
any property to the prejudice of any person whatever with the intention of
causing any person to enter into an agreement. Coercion renders the contract
void able at the option of the party who has been coerced. In order that
coercion be effective in law, the following things are necessary:
(I) It must have been exercised.
(ii) The object of coercion must be to cause any person to enter into an
agreement. Coercion without this intention will not be legally effective. It is
however, immaterial whether the Pakistan Penal Code is or is not enforce
in the place where the coercion is employed.
Undue influence
A contract is said to be induced by undue influence where the relations
subsisting between the parties are such that one of the parties is in a position
to dominate the will of the other, and uses that position to obtain an unfair
advantage over the other. Undue influence may be induced:
(I) By a teacher on his taught.
(ii) By a medical doctor on his patient.
(iii) By a lawyer on his client.
(iv) By a guardian on his ward.
Undue influence makes the contract void able at the option of the party
whose consent has been obtained by undue influence. The following
elements constitute undue influence:
(I) Holding of a dominant position.
(ii) Its use to obtain an unfair advantage.
(c)Fraud
Fraud means and includes any of the following acts committed by a party to a
contract or with his connivance, or by his agent, with the intention to deceive
another party thereto or his agent, or induced him to enter into contract;
(I) the suggestion as to a fact, of that which is not true, by one who does not
believe it to be true.
(ii) The active concealment of a fact by one having knowledge or belief of
the
fact.
(iii) A promise made without any intention of performing it.
(d)Misrepresentation
Misrepresentation means and includes:
(I) The positive assertion, in a manner not warranted by the information
of the
person making it, of that which is not true, though he believes it to be true;
(ii) Any breach of duty which, without any intent to deceive, gains an
advantage to the person committing it or any one claiming under him, by
misleading another to his prejudice or to the prejudice of any one claiming
under him.
(iii) Causing, however, innocently, a party to an agreement e.g.,
erroneous
statement of the tonnage of the ship.
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