DEFINE CONTRACT ALSO EXPLAIN ITS ESSENTIALS

CONTRACT

Question: Define contract, what are the essentials of a contract?

Answer:
            Introduction: Contract law is based on the principle expressed in the Latin phrase pacta sunt servanda, which is usually translated "agreements must be kept" . The security and stability of business world depend upon the law of contract. Indeed the basis of trade and commerce today is the enforceability  of promises, very often contracts are made at one time and the performance is to follow latter, there should be legally enforceable obligation to perform the agreement.
 
Definition:
                Literally: The word contract comes from a Latin word"Contractus" which means consent, agreement or to enter into an agreement with a particular person.
Traditionally: Salmond says , "A contract is an agreement creating and defining obligations between the parties"

Sir John Smith says,"A voluntary, deliberate and legally binding agreement between competent parties."

Example: Asif says to Hamid,"Will you purchase my car for Rs.500000?.it is an offer, Hamid says yes, the offer is accepted and a contract is formed.

Contract law in Pakistan
                                          The law relating to contracts in Pakistan is contained in Contract Act 1872. It extends to whole Pakistan and came in to force on the first day of September 1872. It provides rules relating to commercial transactions. It determines the circumstances in which promises made by the parties shall be legally binding on them.

According to Contract Act1872:
                                        Section 2(h) defines contract as,"An agreement enforceable by law is a contract"
A contract consists of two elements, 1- Agreement    2- Enforceability.
 
Agreement: Section 2(e) defines the term agreement as," every promise and set of promises forming the consideration for each other is an agreement."

Now what is promise?
Section 2(b) says,"when the person to whom the proposal is made, signifies his assent thereto,the proposal is said to be accepted, a proposal, when accepted becomes a promise"

Enforceability:
Enforceability is the second requirement of the contract. An agreement is enforceable if it is recognized by the courts of law. In order to be enforceable by law, the agreement must create legal obligation between the parties.
ESSENTIALS OF A VALID CONTRACT
" To be enforceable by law, an agreement must possess the essential elements of a valid contract as contained in sections 10, 29 and 56. According to section 10, "all agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration, with a lawful object, are not expressly declared by the Act to be void, and where necessary, satisfy the requirements of any law as to writing or attention or registration".            
                            The essential elements of a valid contract are as follows.

1-Agreement:

There must be at least two parties, one making an offer and the other accepting it. Acceptance must be unconditional and in the same mode as prescribed and communicated by the offeror. There must be “consensus ad idem”.(same thing in the same sense) To constitute a valid contract

Example: A offer B to sell his car for Rs.500000. B agrees to buy it. This is an offer by A and acceptance by B

2-Legal relationship:

Parties must intend to create legal relationship. It arises when parties know that if one of them does not fulfill his part of promise, he shall be liable for the failure of the contract. (Balfour vs Balfour)

Example: Asif offers to sell his phone to Alvi for Rs. 1000. Alvi agrees to buy. It is a contract as it creates legal relationship.

3-Lawfull object: (sec.23 ) The object of the contract must be lawful.

Under section 23, “Every agreement of which the object or consideration is unlawful is void”

The object must not be:

1. Illegal or unlawful,

2. Immoral,

3. Opposed to public policy.

Object must not be forbidden by law or is of such a nature that if permitted it will defeat the provisions of law, imputes injury to the person or property of another.

example: Hamid agrees to pay Asif Rs.20000 if he kills Ali. The agreement is illegal as the object is unlawful.

4-Free consent (13)

Two or more parties are said to be consent when they are agreed upon the same thing in the same sense. This emphasizes the need of consensus ad idem. Free consent is absent if contract is induced by coercion, misrepresentation, fraud, undue influence etc.

Example: A compels B to enter into a contract on gun point. It is not a valid contract because consent is not free.

5-Capacity of parties: (sec. 11)

Every person is competent to contract if he is of the age of majority, is of sound mind and is not disqualified from contracting by law to which he is subject.

Example: M, a minor agrees to sell his house to B. It is not a valid contract because he is not competent to make a contract.

6-Lawful consideration:

Consideration is something in return. It is the doing of or abstinence from an act. It is the price paid by one party for the promise of the other. It means that contract is only valid if both the parties get something and give something.

Example: A agrees to sell his car for Rs. 50000 to B. For A the consideration is Rs.500000 and for B consideration is car.

The consideration or object of an agreement is unlawful if….

1-It is forbidden by law,

2-If permitted; it would defeat the provisions of any law,

3-Involes injury to any other person or property,

4-It is fraudulent, or

5-It is opposed to public policy.

7-Agreement is not expressly declared to be void:

A void agreement is not enforceable. It has no legal existence neither it gives rise to any rights or obligations. In order to make a valid contract must not be one of those that are expressly declared to be void.

Examples of void agreements are:

                 a- Agreement in restraint of marriage.

b- Agreement in restraint of legal proceedings.

c- Agreement in restraint of trade.

d- Agreement to do impossible acts.

e- Agreement by way of wager.

8-Possibility of performance:

A contract must be possible to perform otherwise it will not be a valid contract.

Section 56 says that “An agreement to do an act impossible in itself is void”.

Example: An agreement to put the life into a dead body is void as it is not possible.

9-Certainty of terms:

The contract must not be uncertain, vague or indefinite. Where the agreement is vague and its meaning can not be understood, it shall be unenforceable.

According to section 29, Agreement, the meaning of which is not certain or capable of being made certain, is void.

Example: A agrees B to sell one ton of oil without informing the kind of oil. The agreement is void because of its uncertainty.

10-Legal formalities:

Legal formalities should also be fulfilled regarding

1. Writing
2. Registration
3. Attestation etc.

Example: Sale and purchase of land requires registration.

CONCLUSION:

If any of the essential elements is missing the contract is voidable, void, illegal or unenforceable in the eyes of law.