Business Law
Instructor
Dr. Sami Ullah
Dept. of Management Sciences
FA-2022

Chapter 1
Contract, Types and Essentials

Chapter 1
Definition of Law
Law means a set of rules/procedures/policies/principles made and enforced by state/institutions to
i. control and regulate the conduct of people
ii. Secure justice
iii. Protect the human, property & business rights of the people
iv. Maintain law & order
Business Law
B. Law is also known as commercial law or mercantile law. It is a branch of law which governs &
regulates business/trade/commerce.
i. The contract Act 1872
ii. The sales of goods Act 1930
iii. The partnership Act 1932
iv. The negotiable instruments Act 1881
v. The companies Act 1913

The contract Act 1872
The law relating to contracts in Pakistan is contained in the contract Act 1872. It deals with
i. The general principles of governing all types of contracts (section 1-75)
ii. The contracts of indemnity, guarantee, bailment, pledge, agency ( section 124-238)
Definition(s)
Pollack “ Every agreement and promise enforceable at law is contract”.
Salmond “ A contract is an agreement creating and defining obligations between the parties”.
Section 2(h) of contract act “ An agreement enforceable by law is a contract”.
Two elements
i. Agreement
ii. Enforceable by law

Conti…
Agreement
Section 2 (e) of the contract act defines agreement as “Every promise and every
set of promises, forming the consideration for each other is an agreement”.
Section 2 (b) defines promise as “ When the person to whom the proposal is
made signifies his assent thereto, the proposal is said to be accepted.
A promise come into existence when party/person makes a proposal to other
party/person and that party/person gives consent.
Therefore, a contract is an agreement, an agreement is a promise and a promise
is an accepted proposal.

Conti….
Enforceability
An agreement is enforceable by law if it is recognized by court. In order to be
enforceable by law, the agreement must create legal obligations between the
parties.
The term agreement is wider than contract as all contracts are agreement but all
agreement are not contracts.
i. Social Agreement
ii. Legal agreement
Social agreement is not enforceable by law and does not create legal obligation
between the parties. While legal agreement is opposite to social agreement.
C offers to sell his car to B for Rs. 8 Lac. B accepts the offer. This offer after
acceptance becomes promise. This promise is treated as an offer.

Conti…
Difference between Agreement & Contract
Agreement Contract
1. Formation
An offer and its acceptance make an agreement
2. Legal Obligation
An agreement may or may create legal obligations
3. Scope
All agreements are not contracts
4. Binding
All agreements are not binding on the concerned
parties
An agreement and its enforceability make a contract
A contract necessarily creates legal obligation
All contracts are agreements
All contracts are binding on the concerned parties

Conti…
Essentials of valid contract
In a valid contract, all the parties are legally bound to perform the contract. If one party
refuses to perform the contract, the other party can enforce it through court.
Following are the essentials of a valid contract
i. Offer & Acceptance
ii. Legal obligations
iii. Lawful consideration
iv Capacity of parties
v. Free consent
vi. Lawful object
vii. Writing & registration
viii. Certainty of terms
xi. Possibility of performance

Conti...
Classification of contract
Contracts can be classified into following four categories
i. According to enforceability
ii. According to formation
iii. According to parties
iv. According to performance
According to enforceability
i. Valid Contract
A valid contract is enforceable by law. It becomes enforceable by law when it fulfills all the
essentials of a valid contract.

Conti..
ii. Void contract (Sec, 2 j)
The term void means not binding of law. At the beginning it is valid but
subsequently becomes void. This happen due to impossibility of performance
(Sec, 56) , subsequent illegality (Sec, 56) and impossibility of depending event
(Sec 32).
iii. Voidable contract (sec 2. i)
An agreement which is enforceable by law at the option of one or more parties
but not at the option of other party. A contract becomes voidable when the
consent of one or more of the parties is obtained by coercion, undue influence,
misrepresentation or fraud.

Conti
iv. Unenforceable contract
An unenforceable contract is a contract which can not be enforced through the court due to
technical defects such as absence of writing, registration etc.
v. Illegal agreement
An agreement is illegal when its performance is forbidden by law. Such agreement can never
become a contract.
C gives money to B, a smuggler, to buy smuggled goods. The agreement is illegal and money
can not be recovered.

Conti..
According to formation
According to formation, a contract has the following three types.
i. Express contract (Sec 9)
Express contract is a contract which is expressed in words spoken or written.
ii. Implied contract (Sec 9)
An implied contract is made otherwise than by words spoken or written. It arises from the acts
or conduct of parties.
iii. Quasi contract
Quasi contract is not a contract as there is no intention of the parties to enter into a contract. It
is obligation created by law in the absence of contract.
C leaves his goods at B’s house by mistake. B treat the goods as his own and uses them. B is
bound to pay for the goods.

Conti..
According to performance
i. Executed contract
A contract is called executed when both the parties completely fulfill their obligations. It means
nothing remains to be done by either party under the contract.
ii. Executory contract
In an executory contract, some obligations remains to be fulfilled.
According to parties
i. Unilateral contract
In a unilateral contract only one party makes a commitment. In other words, only one party is
bound to perform.
ii. Bilateral contract
It is a contract where both parties are bound to perform.