ASSIGNMENT OF

LAW OF CONTRACT-I

SUBMITTED TO

MA’AM SIDRA ASLAM

BY

AISHA RAFIQUE-3056/FSL/LLB/F09

INTERNATIONAL ISLAMIC UNIVERSITY

ISLAMABAD
LAW OF CONTRACT

Assignment Questions

1. What are different types of mistakes? Explain their effect on the

validity of contract.
2. What is a lawful consideration? When would a consideration or
object of an agreement unlawful? Explain with illustration.

1. What are different types of mistakes? Explain their effect on the

validity of contract.

There can be two types of mistakes, a mistake that misleads the parties to an agreement to
consent and a mistake that defeats the consent itself.

Mistake Erroneous Belief about some facts

Mistake of Fact Mistake of Law

Unilateral [22] Bilateral [20] Mistake of Mistake Mistake of
of any
One party under Both parties Pakistan Foreign law.
law
mistake of fact. under mistake of law. relating
to
facts. private
The contract is The contract is right.

valid. void. The contract is valid. Void: - both

Not voidable and parties under
void mistake. mistake of
fact.
A unilateral mistake does not enable a party to avoid contract. It is not that the mistake has
any special operation because it is a mistake, but that the true intention of the parties to make
their agreement conditional on the existence of some state of facts which turns out not to have
existed at the date of the agreement. Avoidance of contract on ground of its being void for
mistake of fact can be effective only when both parties are under mistake of fact essential to
the agreement and not where only one party is under such mistake. Where the contract was
for the sale of an object not existing or which had ceased to exist according to the description
by which it was contracted for, the result is still more easily apprehended if we say that there
was nothing to buy and sell. In England partial destruction or loss of goods contracted for has
the same effect.

The mistake must be “as to a matter of fact essential to the agreement”. It is not enough that
there was an error “as to some point, even though a material point, an error as to which does
not affect the substance of the whole consideration”. The circumstance, therefore, that the
date of lease neither lessor nor the lessee supposed that the government assessment would
ever be increased will not avail the lessor to avoid the lease if the assessment subsequently
enhanced. Similarly a vender is bound to deliver goods at the price set out in contract of sale
although the cost is increased by the subsequent imposition of an excise duty. Where a
property agreed to be sold had been notified for acquisition under the local improvement Act,
and neither the vendor nor the purchaser was aware of the notification at the date of their
agreement, the notification was held to constitute a matter of fact essential to the agreement
within the meaning of this section and the agreement was declared void. Upon the same
principles a compromise of a suit will be set aside if it was brought about under a mistake as
to the subject matter of the agreement.

There are various types of mistakes of fact which might affect the validity or operation of
contracts, namely:-

1. There may be an error in the expression of the contract, i.e., in the language used to
embody the intention of the parties to the contract.
2. Mistake may be made with regard to the nature or terms of the contract (error in
consensuaj idem).
3. Mistake may relate to reason or an error as to the facts which have induced the
formation of contract(error in cause).
If the error which has cause the contract is fundamental, or parties have not really agreed
upon the same thing in the same sense, the agreement would be void. If the mistake is not
fundamental but has only affected the willingness of the promisor to undertake the
obligation, it is covered by sections 17 and 18 and the agreement rendered voidable at the
instance of aggrieved party. A mistake as to a collateral matter or value of subject matter
does not invalidate the contract provided the parties had the same thing in mind.

The agreement would be void if the parties to the agreement are under some mistake of
facts relating to the subject matter which is essential to the agreement. Where there is an
error regarding the identity of the subject matter, i.e. one party understands it one way and
the other party understands it differently, though neither party is aware that a mistake is
being made, such an agreement would be void under this section.

This section has no application where one party is unable to fulfil the contract because of
breach of another contract by third party. In such a case there is no mistake by contracting
parties as to any fact relating to any contract.

Relevant Case

NarsingDass v. Chutto

At an auction sale A purchased a property in Faisalabad and paid earnest money. It then
transpired that nearly half the property was to be acquired by the improvement Trust
which Act was unknown to both the parties at the time of the purchase.

Held, that there was a mistake as to a matter of fact essential to the agreement and that A
could avoid the contract and recover the deposit.

The section considers the following main elements:-

1. That both parties must have been under a mistake;

2. That the mistake must be as to some fact and not as to any matter of law;
3. That the fact must be essential to the agreement;
4. That the mistake must be as to an existing fact.

Exception: - Where contract is not valid (void)

 1. Identity of persons contract with

Ex:- A women, falsely misrepresenting herself to be wife of a well-known Baron

obtained two pearl necklaces from a firm of jewelers on the pretext of showing them to
her husband before buying. She pledged them with a broker who took them in good faith.
Held that there was no contract between jeweler and women and even an innocent buyer
or a broker did not get a good title. Broker must return necklaces to jeweler. Jeweler
intended to deal not with her but with quite a different person, i.e., wife of Baron.

2. As the nature of the contract

Ex: - Illiterate man sign bill of exchanges by mean of false representation that it was a
mere guarantee. It was held that he was not liable for bill of exchange because never
intended to sign the bill of exchange.

Bilateral Mistakes
Subject matter Possibility
Existence Legal
Quantity Physical
Quality
Price
Identity
Title

Mistake of Law

Mistake as to a fact may afford an excuse to a party but a mistake of law except in
certain circumstances does not afford any excuse and the maxim ignorance of law
is no excuse applies.
 Mr. Justice story has stated the ground of distinction between mistake or
ignorance of law and mistake or ignorance of fact “that as every man is presumed
to know the law, and to set upon the rights which it confers when he knows the
facts, it is a culpable negligence in him to do an act or to make a contract, and then
set up his ignorance as a defence. But no person can be presumed to be acquainted
with all matter of fact, nor it is possible by any degree of diligence to acquire that
knowledge, and, therefore, an ignorance of fact does not import culpable
negligence”.
Mistake of law is of following here kinds:-
1. Mistakes as to any law in force Pakistan.
2. Mistake as to any law relating to private right.
3. Mistake as to any law not in force in Pakistan, e.g., a foreign law.

Mistake with regard to ordinary law of the country

Ignorance of a law in force in Pakistan does not affect agreements nor excuse from
the legal consequences of particular acts. It would be a matter of great abuse to permit
a man to reclaim his property upon the mere pretence, that at the time parting with it,
he was ignorant with law acting on his title. The law, therefore, adheres to this
arbitrary rule of imposing upon each man the duty of well considering and
understanding the consequences of his own acts and contracts, otherwise there would
be no limit to the excuse of ignorance, and no security in any contract.

Mistake as to any law relating to private right and foreign law

As for as mistakes regarding to any law relating to private right and foreign law are
concerned if parties contract with mutual mistakes, it is matter of fact rather than
matter of law unless and until and unless they involves misrepresentation, fraud,
undue influence, violation of confidence.

2. What is a lawful consideration? When would a consideration

or object of an agreement unlawful? Explain with illustration.

Meaning

Consideration is a quid pro quo i.e. something in return it may be:-

1. Some benefit right, interest, loss or profit that may accrue to one party or,
2. Some forbearance, detriment, loss or responsibility suffered on undertaken by the
other party.

According to Sir Frederick Pollock, “consideration is the price for which the promise
of the other is bought and the promise thus given for value is enforceable.

Section 2(d):- when at the desire of the promisor, the promisee or any other person

a) Has done or abstain from doing, (past consideration)

b) Does or abstain from doing something, (present consideration)
c) Promises to do or abstain from doing something, (future consideration)
abstinence or promise is called a consideration for the promise.

Example

‘P’ aggresses to sell his car to ‘Q’ for Rs. 50,000. Here ‘Q’s promise to pay Rs.
50,000 is the consideration for ‘P’s promise and ‘P’s promise to sell the car is the
consideration for ‘Q’s promise to pay Rs. 50,000.

Legal rules for valid consideration

I. Consideration must move at the desire of promisor.

D constructed a market at the instance of District collector. Occupants of shops

promised to pay D a commission on articles sold through their shops. Held, there was
no consideration because money was not spent by plaintiff at the request of the
defendants, but at instance of a third person viz. the collateral and, thus the contract
was void.

II. Consideration may move from the promisee or any other

person who is not a party to the contract. [Chennai’s vs.
Ramayya]

A owed Rs.20,000 to B. A persuaded C to sign a Pro Note in favor of B. C promised

B that he would pay the amount. On faith of promise by C, B credited the amount to
A’s account. Held, the discharge of A’s account was consideration for C’s promise.
III. Consideration may be past, present, and future:
 Under English law, past consideration is no consideration.
 Present consideration: - cash sale.
 Future consideration: - A promises to B to deliver him 100 bags of sugar at a
future date. B promise to pay first on delivery.

IV. Consideration should be real and not illusory.

Illusory consideration renders the transaction void consideration is not valid if it is: -

(i) Physically impossible (ii) Legally not permissible

(iii) Uncertain (iii) Illusory

V. Must be legal.

Consideration must not be unlawful, immoral or opposed to public policy.

VI. Consideration need not be adequate.

A contract is not void merely became of the fact that the consideration is
inadequate. The law simply requires that contract should be supported by
consideration. So long as consideration exists and it is of some value, court are not
required to consider its adequacy.

Example:-

A agreed to sell a watch worth Rs.500 for Rs.20, A’s consent to the agreement
was freely given. The consideration, though inadequate will not affect the validity
of the contract. However, the inadequacy of the consideration can be considered in
order to know whether the consent of the promisor.

VII. The performance of an act what one is legally bound

 The performance of an act what one is legally bound to perform is not
consideration for the contract means something other than the promisor’s existing
obligation.

 A contract not supported by consideration is void.

Exceptions to the rule
I. Written and registered agreements arising out of love and
affection : - [sec 25]
 Expressed in writing and registered under law for time being in force for
registration of document.
 Natural love and affection.
 Between parties standing in a near relation to each other.

Example: - An elder brother, on account of natural love and affection, promised to

pay the debts of his younger brother. Agreement was put to writing and registered.
Held, agreement was valid.

Exception: - Rajlukhy Dabee Vs Bhootnath Mukharjee

Example: A Hindu husband by a registered document, after referring to quarrels

and disagreements between himself and his wife, promised to pay his wife a sum
of money for her maintenance and separate residence. Held that the promise was
unenforceable since natural love and affection was missing.

Promise to compensate [25(2)]

Promise to compensate wholly or in part

Who has already voluntarily done something for the promisor

Something which the promisor was legally compellable to do.

Example: - A finds B’s purse and give to him. B Promise to give A Rs.500. This is a valid
contract.

3. Promise to pay a time – barred debt. [Sec 25(3)]

A debt barred by limitation con not recovered. Hence, a promise to pay such a debt is without
any consideration. Can be enforced only when in writing and sighed by Debtor or his
authorized agent.

Example: A owes B Rs.10,000 but the debt is barred by Limitation Act. A signs a written
promise to pay B Rs.8,000 on account of debt. This is a valid contract.