Introduction to Law and Law Governing Contracts

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Introduction to Law and Law Governing Contracts

Contract law is a branch of civil law that governs the formation, execution, and enforcement of agreements. The Contract Act, 1872 is the main legal framework in Pakistan regulating all aspects of contractual relationships.

1.1 Origin of the Contract

Definition: The concept of a contract originates from the need to enforce promises made between two or more parties in society. Historically, contracts evolved from social norms to legally binding agreements.

Example: In ancient times, a handshake or verbal promise was enough. With increasing complexity in trade and business, legal systems developed written, enforceable contracts to ensure fairness and accountability.

1.2 Definition of Contract

Definition (Section 2(h), Contract Act 1872):
A contract is an agreement enforceable by law.

Explanation:
A contract = Agreement + Legal enforceability.

Example: If A agrees to sell a bike to B for Rs. 20,000 and B agrees to buy it, this is a contract if all legal conditions are met.

1.3 Communication, Acceptance, and Revocation

Communication: The process of conveying an offer or acceptance.

Acceptance: When the offeree agrees to the terms of the offer.

Revocation: Withdrawal of an offer before it is accepted.

Example:

  • A offers to sell his phone to B via email.
  • B accepts the offer via return email.
  • Before B sends acceptance, A revokes the offer by phone.
  • If revocation reaches B before acceptance is sent, the contract is void.

1.4 Essentials of a Valid Contract

To be legally valid, a contract must have:

  1. Offer and Acceptance
  2. Lawful Consideration
  3. Capacity to Contract (age, sound mind)
  4. Free Consent (no fraud, coercion, etc.)
  5. Lawful Object
  6. Intention to Create Legal Relations

Example:
A contract between two minors is not valid as they lack capacity.

1.5 Performance of the Contract

Definition: Fulfillment of the obligations by the parties as per the agreed terms.

Types:

  • Actual performance (completed as agreed)
  • Attempted performance (tendered but refused)

Example: A contracts to deliver 100 books to B on July 1. A delivers them as promised—this is actual performance.

1.6 Discharge of Contract

Definition: Termination of contractual obligations.

Modes:

  1. By performance
  2. By mutual agreement
  3. By lapse of time
  4. By operation of law
  5. By impossibility
  6. By breach

Example: A agrees to perform at a concert but falls severely ill. The contract is discharged due to impossibility.

1.7 Breach of Contract

Definition: When a party fails to perform their obligation under the contract.

Types:

  • Actual breach
  • Anticipatory breach (intimation in advance)

Example: A contracts to deliver goods on June 10 but refuses to deliver them on June 5—this is an anticipatory breach.

1.8 Damages for Breach of Contract

Definition: Monetary compensation awarded to the aggrieved party.

Types:

  • Compensatory
  • Consequential
  • Punitive (rare in contract law)
  • Nominal
  • Liquidated

Example: If a seller breaches a contract to sell raw material, the buyer may claim damages for any loss in production due to the delay.

 

 

1.9 Contract of Indemnity and Guarantee

Indemnity (Section 124):
A promises to save B from loss caused by A’s act.

Guarantee (Section 126):
A third party assures the creditor that the debtor will fulfill the obligation. If not, the third party (surety) pays.

Example:

  • Indemnity: An insurance company agrees to indemnify you for car damage.
  • Guarantee: A bank guarantees loan repayment on behalf of a borrower.

1.10 Contract of Bailment

Definition (Section 148):
Delivery of goods by one person (bailor) to another (bailee) for a specific purpose, on the condition that the goods will be returned.

Example:
You give your watch to a repair shop (bailee) for fixing. This is a bailment contract.

1.11 Contract of Agency

Definition:
A relationship where one party (agent) is authorized to act on behalf of another (principal).

Creation:

  • Express
  • Implied
  • By ratification

Example:
A real estate agent (agent) negotiates and signs contracts for property on behalf of the property owner (principal).

 


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