Law of Contract and its

Essentials
What is the Law of Contract?
• It is a Law relating to the all types of “Contracts”.

• All Businesses make transactions for which they need

to make contracts.

• Definition: A contract is “written or spoken agreement

enforceable by law”.
• Two important elements
• Agreement
• Enforceable by law
Two important elements of Contract
1. Agreement: A promise that forms consideration
(something to do).
• Example: One person will sell a house for 10 million.
Here two people have made the promise that one will give
10 million and the other will give him the house. So, house
and 10 million is the consideration.
2. Enforceable by Law: it means that courts recognize
it as enforceable.
Example: If you invite a friend on dinner, and he does not
show up, you cannot ask the court to punish him.
But if you have purchased something and did not pay the
shopkeeper, the shopkeeper can sue you and the court will
recognize it.
Meeting of the Minds

• when the two parties to a contract, both have the

same understanding of the terms of the agreement.

• Example: 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.
Contracts vs Agreements
All contracts are agreements, but not all agreements
are necessarily contracts.
•An agreement which gives rise to social obligation is
not a contract
•An agreement may be a social agreement or a legal
agreement

• Example: If A invites B to a dinner and B accepts the

invitation, it is a social agreement.
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. The person making
the offer is known as offeror and to whom the offer is
being made is known as offeree. One person cannot
make an offer to himself.

• Example: 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.

• Example: A offers to sell his car for Rs. 400K to C

and C accepts the offer and they are serious about it,
knowing if they will not fulfil the promise, the court
can punish them.
Lawful consideration
• Consideration’ means advantage or benefit moving
from one party to the other
• A promise to do something or getting nothing in return
is usually not enforceable by law.

• Example: Selling house for 10 lacs…. House and 10 lacs are

considerations for parties.
• Killing a person for money is not lawful as it is prohibited in
the law.
Capacity of parties-Competency
• The parties to the agreement must be capable of
entering into a valid contract

• Every person is competent to contract if they;

• are of the age of majority (above 18 years age)
• are of sound mind
• are not disqualified from contracting by any law.

• A Retired person may not have the capacity vs when a

serving employee is.
 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 (Using force to cause something to occur)

• Undue influence(excessive persuasion—parent to child)
• Fraud (intentional deviation)
• Misrepresentation (Unintentional deviation)
• Mistake
 Lawful Objective
• The objective of the agreement must be lawful

• In other words, it means that the object must not be.

• illegal
• immoral
• opposed to public policy

Example: Promise to pay Rs. 10000 by A to B, if B

beats C.
Not declared void.

• Certain agreements are void by the law.

• Example: 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.

Certainty of terms

• The terms mentioned in the contracts must be Clear

and certain

• Example: A promise B to sell 20 books for some

money. Books without title??? and some money is
not clear.
Possibility of performance

• Sometimes 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..
Legal formalities

• Some contracts require other formalities

• Example: We said that contact can be verbal or written,

but property transfer contract cannot be written and also
require other formalities.
Thank You