CONTRACT

Contract is a legally enforceable promise. Contracts are vital to society because

they facilitate cooperation and trust. Rather than relying on fear of reprisal or the
hope of reciprocity to get others to meet their obligations, people can enlist other
people to pursue common purposes by submitting to contracts that are backed by
impartial authority. Without contracts and their supporting institutions, promises
would be much more vulnerable to ill will, misunderstanding, forgetfulness, and
other human flaws. Indeed, contracts allow people who have never even met to
reach agreements, such as lending/borrowing money to buy a house, that they
would never consider making outside of a legal framework.
Any agreement enforceable by law is called contract.
The contract act 1872 , An agreement which enables a man to compell another to
due some thing or not todue something it is called Contract.
(section 1-75 ) General principle governing.
(section 124-238) Contract of Indemnity, Guarantee, Bailent, Pledge and Agency.
(section 76-123) Sale of good.
(section239-266) Partnership.
pollack: Every agreement and promise enforceableat law is a contract.
salmond: A contract is an agreement creating and defining obligations b/w
theparties.sir william anson: An agreement enforceable by law made b/w two or
more personsby which rights are acquiryby one or more to acts or forbearance on
the part of otheror others.
Sir william Anson: An agreement enforceable by law made between two or more
persons, by which rights are acquired by one or more to acts or forbearance on
the part of other or others.
EXAMPLE:
Suppose there is an agreement between MR. Nawaz & Ms.Anam . Mr.Nawaz
purchase car from Karachi for Ms Anam & Ms Anam will pay rupee 10 Lac. To Mr.
nawaz.

CONTRACT ELEMENTS
As a legally enforceable promise, a contract differs from a simple verbal promise
in that either party may ask the state to force the other party to honor its
promise.
To distinguish contracts from other types of promises and agreements, courts
have established basic elements that are necessary for a contract to exist.
A contract may be legally defined as a voluntary, legal, written agreement made
by persons with the proper capacity.
It should include:
1) an offer;
2) an acceptance; and
3) consideration, or an exchange of value.
There are legal exceptions to most of these conditions, and all of them are
subject to interpretation in the courts. Furthermore, some contracts do not meet
these requirements, such as implied contracts and those created under
promissory estoppel, both of which are discussed later.
Contracts not entered into voluntarily are voidable.
For example, a company might tell a supplier that it was considering ending their
business relationship if, within the next ten minutes, the supplier did not sign a
contract to provide materials at a certain cost. If the supplier signed the
agreement, it might be able to convince the courts that it did so under duress or
undue influence, and therefore was not bound by its terms. In general, contracts
created under duress, undue influences, fraud, and misrepresentation are
voidable by the injured party.
Contracts are also void if they involve a promise that is illegal or violates public
policy. For instance, a contract regarding the sale of illegal drugs is unenforceable.
Likewise, contracts that are legal but are not in the public interest may be
rendered null.

For example, a contract in which a company requires a customer to pay an

extremely high rate of interest on borrowed funds could be deemed invalid by the
courts. Similarly, a retail company that required an employee to sign an
agreement that he would never work for another retailer would likely not be able
to enforce the contract because it had unreasonable restrictions or imposed
undue hardship on the worker.
Contracts do not have to be written to be enforceable in court. In fact, most oral
contracts are legally enforceable. However, they are obviously much more
difficult to prove. Furthermore, most states have adopted "statutes of frauds"
which specify certain types of contracts that must be in writing. Examples of
contracts that typically fall under the statues of frauds include agreements related
to the sale of real estate, contracts for the sale of goods above $500, and
contracts in which one person agrees to perform the obligation of another
person. Such contracts need not be overly long or involved. In fact, a simple
memo or receipt may satisfy all legal requirements. There are exceptions in this
area, however. For instance, when one party will suffer serious losses as a result
of reliance on an oral agreement, the statute of frauds may be waived (see
promissory estoppel below).
An otherwise acceptable contract may also be voided if one (or both) of the
parties making the agreement does not have the mental or legal capacity to do
so. Obviously, a mentally retarded individual or a child could not be bound by a
contract. But a contract signed by a person exceeding his authority to make an
agreement may also be voided.
In addition to being voluntary, legal, written, and made by persons with proper
capacity, contracts usually must possess three basic components: an offer, an
acceptance, and consideration. An offer is a promise to perform an act
conditioned on a return promise of performance by another party. It is recognized
by a specific proposal communicated to another party. Once a legal offer has
been made, the offering party is bound to its terms if the other party accepts.
Therefore, the offering party must clearly indicate whether the proposal is an
offer or some other communique, such as an invitation to negotiate. The offering
party, however, may stipulate certain terms of acceptance, such as time limits,
and even withdraw the offer before the other party accepts.

Acceptance, the second basic requirement for the existence of a contract, is

legally defined as "a manifestation of asset to the terms [of the offer] made by
the offeree in the manner invited or required by the offer." As with offers and
offerors, the courts look for an intent to contract on the part of the acceptor. The
difference is that the offeror may stipulate terms of acceptance with which the
other party must comply. If the offeree attempts to change the terms of the offer
in any way, a rejection is implied and the response is considered a counteroffer,
which the original offeror may reject or counter. As with most rules regarding
contracts, exceptions exist. For example, the Uniform Commercial Code includes a
"Battle of the Forms" provision whereby an offeree may imply acceptance under
certain circumstances even if it changes or alters the offer.
Even if an offer is accepted, it must be consummated by consideration for a
legally enforceable contract to exist. Consideration entails doing something that
you were not previously bound to do outside of the agreement. In other words,
promisees must pay the price (consideration) that they agreed to pay the
promisor in order to gain the right to enforce the promisor's obligation.
The requirement of consideration serves an important purpose. It protects the
promisor from being liable for granting, or relying on, gratuitous promises. For
example, suppose that a person told her roommate that she would always pay
the entire rent for their apartment. If she later changed her mind, she could not
be held liable for the rent because she had neither asked for, nor received,
anything in exchange for the promise. Had the other roommate promised to clean
the apartment in exchange for the roommate's promise to pay the rent, an
enforceable contract would exist (assuming other requirements were met).

KINDS OF CONTRACT
VALID CONTRACT:
According to the contract act "A valid contract is that which is enforceable at law ,
it creates legal responsible/ obligations b/w the parties .It enable one party to
compell another party to due something or not to due something.

Partyies obligation: In a case of valid contract all the party to the contract are
legally responsible for the performance of contract. if one party bracks the
contract other as rights to enforce to the court.
Example: Ali purpose sell his one land to Naeem for 1Lac. .The party of capable to
do the contract by law. so, his contract is Valid. If Ali fails to delivered the land
Naeem can cliam hi in the court for the delivery of land, on the other hand Naeem
fails to makes payments so Ali can sue hi o recovery of payment.
VOID CONTRACT:
An agreement not enforceable a law is void contract.:" Originally it is valid
contract but due to certain reason it become void. After its formation a void
contract. can not be enforce by either party . The basic features of void
contract.are ,
1) It is not enforceable by law.
2)Its create not legal obligation /rights.
3)its create no responsibility any party.
4) An agreement which is against the public policy or against to law.
5)under this contract no compensation can be paid to any party.
6) an agreement is restraint of mange & trade arecommon examples of void
contract.
Example: Wasim & Nadia contracts to marriage on next sunday.Wasim die before
the Sunday the contract becomes void.
Rights & duties: In this case the parties are not legally responsible to fulfill the
contract . If any party hae received any benefits his bound to return. this contract
takes place when the consent of one of the party is not free.
VOIDABLE CONTRACT:

According to contract act," An agreement which is enforceable by law at the

option of one or more of the parties. Their to but not act the option of but not act
the opton of the other &othersis voidable contract.
The important features of voidable contract.
1)It is enforceable by lawat the option of one or more party .
2)Avoidable contract can only be objected by the party who has been subject to
fraud, coercion ,misrepresentation, & undue influence.
3) If the conteract is revoked bya person rightfully .Then he can also received the
compensation .
4)The contract is voidable at the option of the party whoes consent is caused.
5) Contract caused by fraud ,coercion ,misrepresentation, & undue influence ,are
voidable contract.
Exapmle: Mr. Qadir threatens to shoot Mr Nasir to purchase a car of 50 lac. Mr
nasir agrees the contract wa made by coercion so itis voidable contract.
Rights & duties: The aggreived party can cancelled such contract with in a
reasnable time, it is also & entitled to be copellsented by the other party.
Proof: It is the responsibilty of aggreived party to proof that her consent was
obtained by fraud if it is failed to proof in the court than contract will remained if
contract is not wriitten or registrated. it can not be enforce.
Example: Suppose Mr Rashid borrows the money from Mr Kashif & writtens a
pro-note but proper amount stamps are not posted on the peo-notes. now in this
case the contract is valid but not enforceable.
UNFORCEABLE CONTRAT:
When due to soe technical deficulties or lack of any formality required by the
special provision of law a valid contract but not enforceable incourt.

CONTRACT WHICH HAVE BE DECLAIRED VOID

(AGREEMENT RESTRAIGHT OF MARRIAGE VOID)
(AGREEMENT RESTRAIGHT FOR LEGAL PROCEEDINGS VOID)
void contract are those which are not enforceable by law ,following contracts
havebeen declaired void.
1- Agreement of restraight of marriage:An agreement in which adults person
isprevented from marriage is decleared void by law .The law regards marriage as
theright of every person but law does not fever the minor.e.g: Mr Ashraf agrees
with Ms Nadia that she will not marry with Arsalan so thiscontract decleared void.
2- Agreement in restraint of business: section 27 Any lawful proffision trade
orbusiness of any kinds , restraint by any agreement is decleared void.e.g: Mr.Adil
a publisher offered Rs 1Lac.to Mr A not to deal in a business .A acceptedthe
agreement is void.
3- Mistake by both parties: If both the party of agreement are undermistake as
tomatter of effect , essential to agreement is void.
4- Agreement by way of wages: Acording to section 30: the agreement by way
of wages is oid with certain assumption .The wagering contract wager is
game of chance .In which loss or gane depends on uncertain events.e.g: Mr Shah
bets with r hasan & losses agreement b/w .So the contract is void.
5- Uncertainty in agreement : For the valid agreement it is necessary that it
shouldbe certain of all aspect if the meanings of the agreement is not cleared . it
is notcapable being certain.
6- Unlawfull object: (TARGET) if the object & consideration of the agreement
isagainst the law will decleared void any target / object of the agreement which
isforbitten by law of its defeats the law .
7- Immoral: If any agreement is against the moral values of the society is
declearedvoid.
8- Fradulent: if the object or consideration of an agreement is to demolishthe
otheris also void agreement ,
9- The agreement with out object: section 23 :The agreement may not
existeswithout object is void.
10- Agreement to due impossible acts: section 56:if the target of agreement is
notpossible such types of agreement is void." An agreement to due in act
impossible in its self is void.e.g: Suupose Mr A agrees to pay Mr Q Rs 1000 if he
out the moon on his hand .
11- Agreement is restraint of legal proceedings: section 28: Every is allowed by
lawto obtain is legal writes through the legal proceedings.

THOSE GROUNDS ON WHICH CONTRACT IS DECLEARED

VOIDABLE(DISTINGUISHED BETWEEN VOID & VOIDABLE)

1- Contract by fraud: In the contract if the consent of any party is taken by

fraud toan agreement it becomes a voidable at the option of injuired party.
2- Contract by coercion: If the consent of the party of the other party is
obtained bycoercion in the contract it is oidable contract.
3- Contract by undue influence: In the contract if the consent of any party
is taken byundue influence in the contract it becomes voidable contract at
the option of thatparty whose consent was obtained by undue influence.
4- Contract by misrepresentation: The agreement becomes voidable at
the option of that party whose consent was taken by misrepresentation.
5- Contract by minor: A contract with a minor about sale & partnership
is voidableduring minority or before attaining age of maturity .
6- Contract by unsoundmind: A man who is senseless or drunk or mad he
can'tenters to the agreement.
ESSENTIALS OF VALID CONTRACT
(Section 2), A valid contract is an agreement which is binding and enforceable
.Invalid contrac all the parties legally bound to performed the contract.
PROPOSAL:
For valid contract proposal is necessary . There are two parties inproposal.
Example: A says to z that he will sell his cycle to him for Rs. 2500. This is an
proposal.
ACCEPTANCE:
When the promisee significe the willingness then proposal is saidto be acceptance
Example: A says to z that he will sell his cycle to him for Rs. 2500. This is an
proposal. If zaccepts this offer there is an acceptance.
AGREEMENT
After the acceptance or offer it will be only promise . For the validcontract there
must be an agreement enforceable by law.
LEGAL RELATIONSHIP:

Agreement must create legal relationship b/w theparties of the contract each
party should no the rights & duties.e.g: If A offered to sell his house to B Rs 80Lac.
& B agree o buy . It is legalrelationshipin both the party
Lawful object:
The object of the contract is not lawful . Then it is invalidcontract ,Illegal or
immoral object makes the contract in valid.e.g: MR Arshad promises to pay 1 Lac.
to Mr Adil in condition , he killed Mr Ahmad .The agreeent is legal but object is
illegal.
FREE CONCENT:(PAGE NO.5 WITH EXAMPLE)9. PARTIES CONSIDERATION:
It is also essentilas of valid contract when at thewish of the promiser . THe
promisery does or steps fro doing any act or promise .
COMPETENCY OF THE PARTY :
Only competent parties can into thecontract ,According to contract act following
persons are competent.a)Any one the age of majurity.b)Who is soundmind.c)Who
is not disqualified to enter into the contract.
CERTAINTY OF TERMS & DEFINITE:
It must be clear if the performance of the contract is not possible when it will not
be a void ontract.
DICLEARED VOID:
It is also essentials the agreements must happeneddecleared void by any law of
country.
a)Agreement of immoral acts.
b)Agreement will both parties are under-mistake.
c)Agreement to stop the trade.
d)Agreement to stop legally proceedings.
e)Agreement to due an act which is possible.
f)Agreement to stop the marriage of any person .
g)Agreement by way of bet

Contingent contracts
A contingent contract is a contract to do or not to do something if some event,
collateral to such contract, does not happen.
Usually occur when both negotiating parties fail to reach an agreement.
The contract is characterized as contingent because the terms are not final and
are based on certain events or conditions occurring. Contingent contracts can be
likened unto if-then agreements that state which actions under certain conditions
will result in specific outcomes.
A contingency contract can also be viewed as protection against a future change
of plans. Contingent contracts can also lead to effective agreement when each
party has different time preferences.
For example:
one party may desire immediate payoffs, while the other party may be interested
in more long-term payoffs.

Basing on the presence or absence of Conditions, Contracts can be classified into

two groups namely; Absolute Contracts and Contingent Contracts. In case where
there is no condition, it is called Absolute Contract. As there is no condition,
absolute contract is to be performed under all circumstances.
In case where there is condition, then such contract is called Contingent Contract.
Therefore Contingent Contract means Conditional Contract. When imposed and
condition is fulfilled, the Contingent Contract becomes valid and then parties have
to perform their obligations. If imposed and Condition is not fulfilled, the
Contingent Contract become Void and then it need not be performed. So
Contingent Contract is to be performed under some circumstances only.
Example: There is a Contract between A and B according to which A has to sell his
goods which are in voyage, to B if the ship reaches the harbor safely. Here
condition can be seen and it is Contingent Contract. All indemnity contracts,
guarantee contracts and insurance contracts are Contingent Contracts. According
to Sec. 31 of Indian Contracts Act, a Contract performance of which depends upon
happening or non happening of an un-certain event is called Contingent Contract.

Essentials:
Following are the essentials of the conditional contract.
(i) The performance of such contract depends upon the happening or non
happening of some future uncertain event.
(ii) The event must be uncertain,
(iii) The happening or non happening of the events must be collateral.
Rules of the performance of contingent contract:
Rules of the performance of contingent contract are following.
(I) Happening of uncertain event:
According to Sec. 32
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 happened. If the
event becomes impossible, such contract becomes void.
Example:
A contracts to pay B a sum of 100,000/- when B marries C. C dies without being
married, to B. The contract becomes void.
(II) Un happening of uncertain event:
According to Sec 33.
Contingent to do or not to do anything if an uncertain future event does not
happen can beenforced when the happening of that event becomes impossible
but not before.
Example:
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 sinks.
(III) Time not specified:
According to Sec. 34
If the future event which the contract is contingent is the way which the person
will act at an unspecified time, the event shall be considered to become
impossible when such person does anything which renders it will be void contract.
Example:
A agree to pay B a sum of money if B marries to C. But C marries to D. The
marriage of B to C must now be considered impossible. Although it is possible that
D. may die and C may afterwards marry B.
(IV) Time specified:
According to Sec. 35 (1)

Contingent contracts to do or not do anything if a specified uncertain events

happens with in a specified time become void. If at the expiration of the fixed
time such event has not happens or before the time fixed.
Example:
A promises to pay B a sum of money if train returns to Karachi within 24 hours.
The contract is enforceable if train returns with in specified time. But if train
destroyed during the fixed time the contract will be void.
(V) Fixed time expired:
Sec 35 (2)
Contingent contracts to do or not to do anything if a specified uncertain event
does not happened with in a fixed time may be enforced by law when time has
expired and such event has not happened or before the time fixed has expired it
becomes certain that such event will happen.
Example:
A promises B to pay a some of money if certain trains does not turn within day.
The contract may beenforced if train does not return.
(VI) Impossible events:
According to sec 36.
Contingent agreement to do or not to do anything impossible event happens are
void whether the impossibility of the event is known or not to the parties to the
agreement a time when it is made.
Example:
A agree to pay B a sum of money if B will marry As daughters C. C was dead at
the time of agreement. It is void.
5. Conclusion:
To conclusion it can be said that, contingent contract is also known
as conditional contract. It is valid contract. The parties have real interest in
the occurrence or non occurrence of the event. Contracts of guarantee, indemnity
and insurance are its example.

Law of Contingent contract

According to the section 31 of the contract Act 1872, A Contingent contract is
a contract to do or not to do something, if some event, collateral to such
contract, does or does not happen.

A Contingent contract contains a condition promise. A promise is absolute or

unconditional when the promise undertakes to perform it in any event. A
promise is conditional when performance is due only if an even, collateral to
the contract, dose or does not happen. Collateral means subordinate but
from same source, connected but aside from main line.
Characteristic of Contingent contract
From the above discussion it follows that there are two essential
Characteristics of Contingent contracts
The performance of such contracts depends on a Contingency on the
happening or non happening of the future event.
In a Contingent contract, the event must be collateral incidental to the
contract.
The Contingency is uncertain. If the Contingency is bound to happen, the
contract is due to be performed in any case and is not therefore a
Contingent contract.

Using Contingent Contracts.

Contingent contracts can be used in many types of settings such as work, school,
home, etc. In regards to work, a common example of contingent contracts comes
in the form of job negotiations. It usually involves the opportunity to discuss
salary, position, promotion, etc. However, contingent contracts can often include
negotiations regarding flextime, job sharing, responsibilities, etc. Although
contingent contracts concerning employment packages are more the exception
than the norm, these types of negotiations can be very successful, allowing both
parties to walk away feeling very satisfied with the newly agreed upon
arrangement.
The following examples are everyday agreements that may occur in the
workplace:

The employee and employer agree on a 1% bonus increase at the end of the
year if the employee receives all excellent marks on her performance review.

The employee will be allowed to work two days a week from home after
having worked at the company for one year, and if he submits all reports on
time.
The employee will receive full insurance coverage after having worked at the
company for one full year, with less than five sick days.

The following example illustrates a behavioral contract between a teenager and

parents to be used in the home:

The teenager agrees to attend all classes, complete homework on time, return
home before curfew, communicate with parents in a respectful manner, etc.
If the teenager violates any of the agreed upon rules, he will choose to suffer
the consequences which involve being grounded, no television or Internet, not
using the family car, etc.
The parents agree that if the teenager performs the agreed upon behaviors,
then the teenager will be able to keep his privileges.

Features of Contingent Contracts

In order to be most effective, contingent contracts should possess some of the
following characteristics:

The objectives for each party involved must be aligned .

The promise is based on an uncertain event: the action required of one party
is only dependent upon the occurrence of some event in the future.
The event must be minor to the contract: the performance of a promise is not
the event; rather it is part of the contract.
The event is independent of the promising party: the occurrence of an event is
not controlled by the promising partys will or desire.
The agreements should be formalized in writing with appropriate legal
counsel.
The parties must mutually decide how the terms of agreement will be
measured.

A contingency contract can also be viewed as protection against a future change

of plans
Successful Contingent Contracts
In order to develop a successful contingent contract, both parties must apply
integrative negotiating skills. The reason why integrative skills are necessary is
because the contract is built on expected differences from each party. Each party
can leverage their differences through bets that lead to both sides winning.
However, contingent contracts do not increase integrative value, rather they
affect distribution value.
Contingency contracts can create value by causing each negotiating party to stop
arguing about their different beliefs. Both parties will be better off because they
are each confident in their beliefs, ideas or projections.
Risks and Challenges of Contingent Contracts
Contingency contracts can be beneficial for both parties by producing value and
motivating performance, however there are some situations in which contingency
contracts are not the best solution.
Here are some limitations.

Contingency contracts could be threatening if the other party possesses or has

access to more valuable information than you. For example, it would be unfair
if one party wanted to bet on the basis of ratings because they have better
access to that information.
Contingency contracts can be risky if both parties are not in agreement of how
to measure objectively. For example, define clearly what it means to promote
an employee if she does well because each party may have different ideas or
opinions about whether the contract has been met. This can lead to
disagreement, which can cause great distress to the relationship between the
parties.
Contingency contracts can be dangerous if there are unequal incentives for
each party.

For example, there should be incentives for both parties to act in ways that
are compatible with your agreement, thereby creating a win-win situation for
both parties.

Types of Contingent Contracts

Depending Upon Happening of an Uncertain Event: Sometimes Contingent
Contract depends upon happening of uncertain event. Then if such uncertain
event takes place, the Contingent Contract becomes valid and if that uncertain
event does not take place, the Contingent Contract is Void.

Example: According to Contract formed between A and B, A has to sell goods to B,

if ship comes there safely, their Contract is valid and if the ship gets drowned,
their Contract is void.
Depending upon non-happening of an uncertain event: At times the Contingent
Contract may depend upon non-happening of uncertain event. Then if that event
does not happen, the Contract is Valid and if that event takes place, the contract
is void.
Example: There is a contract between A and B according to which A has to sell
goods to B, if the ship does not come back. Here, if the ship come back, the
Contract is void and if the ship gets drowned away, then it is valid.
Depending upon happening of an Uncertain event in a fixed period: At times
Contingent Contract may depend upon happening of uncertain event in a fixed
period. If such event happens within fixed period, the contract is Valid. If such
event does not take place with in fixed period, the contract is void.

Example: As per the contract formed between A and B, A has to sell goods to B, if
the ship comes back within 10 days. If it comes on 8th day (or) 9th day, the
contract is valid and if it comes back on 12th day (or) 13th day, the contract is
void.
Depending upon non-happening of an uncertain event in a fixed period: At times
the Contingent Contract may depend upon non-happening of uncertain event in a

fixed period then if such event place within that fixed period, the contract is void
and if that event does not takes place within agreed period, then it is valid.
Example: A has to sell goods to B if the ship does not come back within 10 days. If
it comes on 8th day (or) 9th day, the contract is void and if it comes back on 12th
day (or) 13th Day, the contract is valid.
Depending upon an Impossible Event: Sometimes the Contingent Contract may
depend upon impossible event. Such a type of Contingent Contract is abinitio
void.
Example: there is a contract between A and B where A will pay Rs.100000/- to B
if B marry C. Assume that C was dead 5 years ago, now element of impossibility
can be seen and their contract is abinitio void.