This document provides an overview of contract law basics in Pakistan. It defines a contract as an agreement that is legally enforceable. The key elements that must be present for an agreement to constitute a valid contract are: offer and acceptance, lawful consideration, capacity of parties, free consent, lawful object, certainty of terms, and compliance with any formalities required by law. The document outlines each of these essential elements in detail and provides examples. It explains that the Contract Act of 1872 in Pakistan governs when promises will be legally binding and affects business, commerce and industry through establishing rights and obligations of contracting parties.

1. Business Law & Legal
Environment
Lecture 3
(The Contract Act-Basics)
Teacher;
ISMATULLAH BUTT
Ph.D. (S)

2. The Law of Contract
Lecture Contents:
 The Contract Act-1872-Basics
 What is a Contract?
 What is an Agreement?
 Essentials of a Contract

3. The Contract Act-1872
3
 An important branch of business law.
 It determines the circumstances in which promises made
shall be legally binding on the parties.
 It affects everybody, more so, trade, commerce and
industry.
 Contracts give rise to certain rights and obligations
devolving on all the contracting parties.
 The law of contract is concerned with the enforceability
of these rights and obligations and the remedies thereof.
 The evolution of the law of contracts is the history of the
efforts of organized society to ensure that promises
intended to be binding shall be kept, so that when a
bargain has been struck, every party to it shall have an
assurance that it will be fulfilled.

4. What is a Contract:
4
 An agreement creating and defining obligations between
the parties is called a contract.
(Salmond)
 A contract is an agreement enforceable at law, made
between two or more persons, by which rights are acquired
by one or more to acts or forbearance, on the part of the
other or others.
(Sir William Anson)
 An agreement enforceable at law is a contract.
[Sec. 2(h)]
 To make a contract, there must be ;
i. An agreement and
ii. That agreement should be enforceable by law.
 Contract = Agreement + Enforceability

5. What is an Agreement?
5
 Every promise or every set of promises forming the
consideration for each other is called an Agreement. [Sec.
2(e)]
 A proposal when accepted becomes a promise. [ Sec.2(b) ]
 An Agreement is made of “ proposal ” on one side, and
“acceptance” by other.
 Agreement is a comprehensive term and include:
1. Social agreements; it is social in nature and do not enjoy
the benefits of law.
2. Legal agreements; it is the sum of ;
a) An agreement and
b) An intention to create legal obligations

6. Essentials of a Contract
6
 Every agreement is a contract if it is made by the free consent of
parties, competent to contract, for a lawful consideration and with
lawful object and not hereby expressly declared to be void. (Sec.
10)
 An agreement becomes enforceable at law when it fulfills the
following conditions called “Essentials of a valid contract” :
1. Agreement . 2. Legal relationship.
3. Lawful consideration. 4. Capacity of parties.
5. Free consent. 6. Lawful object.
7. Agreement not declared void by any law in force.
8. Certainty and possibility of performance.
9. Legal formalities.

7. Essentials of a Contract
7
(1)Agreement :
 Two parties-one making ‘offer’ and the other ‘accepting’ it.
 Acceptance must be unconditional.
 Acceptance must be in the same mode as ‘prescribed’ and
communicated to proposer.
 For a valid contract, there must be “ consensus ad idem”.
(2) Legal relationship :
 Parties must intend to create legal relationship.
 They must realize the legal consequences in case any one of them
fails to fulfill their part of a contract.

8. Essentials of a Contract
8
(3) Lawful Consideration:
 Consideration means ‘something in return’.
 It is the doing or abstinence from an act.
 It may be past or present.
 A promise to give something or to do something for
nothing in return is not enforceable at law.
 It need not be in cash or kind.

9. Essentials of a Contract
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(4)Capacity of Parties: (Sec. 11-12)
 Every person is competent to contract provided he/she is :
i. Of majority age,
ii. Of sound mind,
iii. Not disqualified from contracting by the law of the land.
 Incapacity to contract may arise out of :
A. Mental Capacity:
a. Minor
b. Lunatic
c. Idiot
B. Status:
a. Foreign ambassador. b. Foreign sovereign
c. Alien enemies. d. Convict
e. Corporation (beyond powers)

10. Essentials of a Contract
10
(5) Free Consent :
 The parties must agree upon the same thing in the same sense.
 This emphasizes the need of “ consensus ad idem”.
 Free consent is absent if the contract is induced by :
i. Coercion,
ii. Undue influence,
iii. Misrepresentation,
iv. Fraud,
v. Mistake.
(6) Lawful Object :
The object of the contract must not be:
 Illegal or unlawful,
 Immoral or
 Opposed to public policy.

11. Essentials of a Contract
11
(7) Agreement Declared Void by any Law :
 A void agreement is not enforceable at law.
 It has no legal existence.
 It does not give rise to any rights or obligations.
(8) Certainty and Possibility of Performance :
 Contract must not be uncertain, vague, or indefinite.
 An agreement to do impossible is void.
 Terms of agreement should be definite.

12. Essentials of a Contract
12
(9) Legal Formalities :
Wherever necessary, following legal formalities should be fulfilled:
I. Writing
II. Registration and
III. Attestation etc.
Conclusion
If any of the essential elements is missing, the contract is
either
voidable, void, illegal or unenforceable in the eyes of law.