Law of Contract

Law of Contract

The law of contract is that branch of law which

determines the circumstances in which promises
made by the parties to a contract shall be legally
binding on them

In simple words, the purpose of law of contract is to

ensure the parties who enter in to contract
understand the terms of the contract
OBJECT OF LAW OF CONTRACT

The law of contract is intended to ensure

that, ‘what a man has been led to expect
shall come to pass, and that what has
been promised to him shall be performed’
Sir William Anson
 Definition of Contract

‘a written or spoken agreement,

especially one concerning employment,
sales, or tenancy, that is intended to be
enforceable by law’ Oxford Dictionary
 Consensus ad idem

Meeting of the minds - when the two parties

to a contract, both have the same
understanding of the terms of the agreement.

There would not be a meeting of the minds if Bill Buyer said, "I'll
buy all your stock," and he meant shares in a corporation, and
Sam Seller said, "I'll sell all my stock to you," and meant his
cattle.
 Obligation

o An agreement, to become a contract, must

give rise to a legal obligation or duty.

o An obligation is a legal tie which imposes

upon a specific person or persons the
necessity of doing or abstaining from doing
a specific act or acts.
 Agreement

o An agreement which gives rise to social

obligation is not a contract

o An agreement is a wider term

o An agreement may be a social agreement or a

legal agreement

o If A invites B to a dinner and B accepts the invitation, it is a social

agreement.
 Contracts vs Agreements

All contracts are agreements, but not all

agreements are necessarily contracts
 Essentials of a Valid Contract

1. Offer and Acceptance

2. Intention to create legal relationship
3. Lawful consideration
4. Capacity of parties-Competency
5. Free and genuine consent
6. Lawful object
7. Agreement not declared void
8. Certainty of terms
9. Possibility of performance
10. Legal formalities
 Offer and Acceptance

At least two parties to an agreement

 one party making the offer and the other accepting it

Terms of the offer must be definite

Acceptance must be absolute and
unconditional
Acceptance must be as prescribed

A offers to sell his car for Rs. 400K to C

and C accepts the offer.
Intention to create legal relationship

When two parties enter into an agreement,

their intention must be to create legal
relationship between them, otherwise
there is no contract between them.
Lawful consideration
o To be enforceable by law an agreement must be
supported by consideration

o ‘Consideration’ means advantage or benefit

moving from one party to the other

o A promise to do something or getting nothing in

return is usually not enforceable by law.

o Selling house for 10 lacs…. House and 10 lacs are

considerations for parties.
o Killing a person for money?
Capacity of parties-Competency

The parties to the agreement must be capable of

entering in to a valid contract

Every person is competent to contract if they;

o are of the age of majority
o are of sound mind
o are not disqualified from contracting by any law.

o Retired vs serving employee.

Free and genuine consent

There must be free and genuine consent of the

parties to the agreement.

There is absence of free consent if the agreement is induced

by coercion, undue influence, fraud, misrepresentation
Lawful object
The object of the agreement must be lawful

In other words, it means that the object must not

be.

o illegal
o immoral
o opposed to public policy

o Promise to pay Rs. 10000 by A to B, if B beats C.

Legal formalities

• Written of formal but with a proof…

• Written but not signed ………………….. No contract.

Certainty of terms

• Clear terms……

• A promise B to sell 20 books for some money.

• Books without title………and some money is not clear,

Possibility of performance

• Some times it is impossible to perform the terms mentioned in a

contract. The contract is void…

• A promise to sell his house to B for 20,000 in 5 days… the second day
the house is burnt, therefore sale cannot be performed.
• Natural disasters..
Not declared void.

• Certain agreements are considered to be void by the law.

• A promise to pay 20000 rupees to B, if B closes down his business. It

is restraint in trade.

• Promise to pay 1000 rupees if Pakistan wins.

Thank You