Contract & Its Types

Lecture Delivered
By
Dr. MUHAMMAD MANSOOR JAVED

PhD. Islamic Banking & Finance

Fellow Member of ACCA, UK

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Contract: Definition
• A contract may be defined as an agreement which legally binds the parties. The underlying theory
is that a contract is the outcome of 'consenting minds'. However, parties are judged by what they
have said, written or done, rather then by what they were actually thinking.

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Essential of Contract
• The courts will usually look for evidence of three essential elements in any contract.
• There must be an agreement usually made by offer and acceptance. (Will be discussed later)
• There must be a bargain by which the obligations assumed by one party are supported by
consideration (value) given by the other. (Will be discussed later)
• The parties must have an intention to create legal relations
• In business contracts it is assumed that there is an intention to create a legal relations
unless expressly claimed otherwise.
• In family and friendly contracts it is assumed that there is no an intention to create legal
relations (Balfour Vs Balfour) unless expressly claimed otherwise (Merritt Vs. Merritt).

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Balfour Vs. Balfour
• The facts: The defendant was employed in Ceylon. He and his wife
returned to the UK on leave but it was agreed that for health reasons
she would not return to Ceylon with him. He promised to pay her £30
a month as maintenance. Later the marriage ended in divorce and the
wife sued for the monthly allowance which the husband no longer
paid.
• Decision: An informal agreement of indefinite duration made between
husband and wife whose marriage had not at the time broken up was
not intended to be legally binding.

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Merritt Vs. Merritt
• The facts: The husband had left the matrimonial home, which was
owned in the joint names of husband and wife, to live with another
woman. The spouses met and held a discussion, in the course of
which he agreed to pay her £40 a month out of which she agreed to
keep up the mortgage payments. The wife made the husband sign a
note of these terms and an undertaking to transfer the house into her
name when the mortgage had been paid off. The wife paid off the
mortgage but the husband refused to transfer the house to her.
• Decision: In the circumstances, an intention to create legal relations
was to be inferred and the wife could sue for breach of contract.

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Types of Contract
• Valid Contract
• A contract which satisfies all the condition, prescribed by law is a valid contract.
• Void Contract
• A contract which was valid when entered into but later on it becomes impossible to perform
due to change of law or some other reasons.
• Express Contract
• Express contract is one which is made by words spoken or written.
• Implied Contract
• An implied contract is one which is made otherwise than by words spoken or written. It is
inferred from the conduct of a person or the circumstances of the particular case.
• Executed Contract
• It is a contract where both the parties to the contract have performed their respective
obligations under the contract.
• Executory Contract
• It is a contract where both the parties to the contract have still to perform their respective
obligations.
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Exam Focus
1. Define ‘Contract’ and describe its essentials.
2. Define ‘Contract’ and describe its types.