2. TYPES OF CONTRACT
A Contract is an agreement; an agreement is a promiseand a promiseis an
accepted proposal. Thus, every agreement is the resultof a proposalfromone
side and its acceptance by the other.
According toSalmon; “A contract is an agreement creating and defining
obligations between the parties”
According toSir Fredick;” Every agreement and promiseenforceable at law is a
contract”
A contract is a legally binding or valid agreement between two parties. The law
will consider a contractto be valid if the agreement contains all of the following
elements:
Offer and Acceptance
Legal Relationship. Must Create Legal relationship between parties
LawfulConsideration
Capacity of Parties
LawfulObject
Free Consent
Certainty: Agreements the meaning of which is not certain are void.
Possibility of Performance: An agreement to do an act impossiblein itself is void.
Must not be declared expressly void i.e. restriction of trade etc
An agreement that lacks one or moreof the elements listed aboveis not a valid
contract.
The law relating to contracts in Pakistan is called ContractAct 1872.
Contract Act 1872:
Under Contract Act 1872 Sec 2(h); “An Agreement enforceable by law is a
contract “
Interpretationclause: In this Act the following words and expressions areused
in the following senses, unless, a contrary intention appears fromthe context:-
3. (a) When one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtaining -the assentof that other to such act or
abstinence, he is said to makea proposal;
(b) When the person to whomthe proposalis made signifies his assentthereto,
the proposalis said to be accepted. A proposal, when accepted becomes a
promise;
(c) The person making the proposalis called the 'promisor', and the person
accepting the proposalis called the 'promisee';
(d) when, at the desireof the promisor, thepromisee or any other person who
has done or abstained fromdoing, or does or abstains fromdoing, or promises to
do or to abstain from doing, something, such act or abstinence or promiseis
called a consideration for the promise;
(e) Every promiseand every set of promises, forming the consideration for each
other, is an agreement;
(h) An agreement enforceable by laws a contract;
TWO MAJOR COMPONENTS OF CONTRACT
1. An Agreement
2. Enforceable by law
4. Classification Of Contract:
The classification of contract is done on the basis of:
• Enforceability/ Validity
• Formation
• Performance
Types Of Contract On Basis Of Validity:
Following are kinds of contract by virtue of legal effects:
• Valid Contract
• Void Agreement
• Void Contract
• Void-able contract
• Contract un enforceableby Law
Valid Contract:
A contract that complies with all the essentials of a contractand is binding and
enforceable on all parties is said to be valid contract.
A valid contractis a written or expressed agreement between two parties to
providea product or service. There are essentially six elements of a contractthat
make it a legal and binding document. In order for a contract to be enforceable, it
must contain:
Agreement
Enforceability
Contract
5. An offer that specifically details exactly what will be provided
Acceptance, or the agreement by the other party to the offer presented
Consideration, or the money or something of interest being exchanged
between the parties
Capacity of the parties in terms of age and mental ability
Intentof both parties to carry out their promise
Objectof a contract is legal and not against public policy or in violation of
law
Example: A homeowner (who is over the age of 18 and of sound mind) signed a
contract with the appliance store to buy a refrigerator. The homeowner pays for
the refrigerator and the appliance storepresents the refrigerator for the home
owner to take home.
Void Agreement:
“An agreementnotenforceableby law is said to bevoid” [Sec.2(g)].
In such agreementsoneormorefundamentalsofcontractaremissingexceptfree
consent.
Example:thereis a ContractbetweenX and YwhereYis a minorwho hasno capacity
to contract.
Contract
Essentia;s
of Valid
Contract
Valid
Contract
Agreement
Not Fulfilling
Essentia;s of
Valid
Contract
Void
Contract
6. Void Contract:
Void Contractis defined bySec 2(J)i.e.a contractwhich islegallyenforceablewhen
entered butbecomevoiddueto superveningimpossibilityof performance.
Void Contractis notvoid frombeginning, itbecomevoid atsubsequentstage before
theperformancedueto theoccurrenceof an event.Contractbecomesvoiddueto the
following reasons;
Legally performancebecomesimpossible
Physicallyperformancebecomesimpossible
When a option ofrejectionis usedin voidablecontract
Impossibilityof thehappening ofdependingevent
Example:A contractbetweenCitizen ofIndia and Pakistanis validatthetimeof peace
butbecomesvoid if a warbreaksoutbetween thetwocountries.
Voidable Contract:
An agreementwhichis enforceablebylawattheoption ofoneormoreof theparties
butnotattheoption ofotherorothersisa voidablecontract. Sec2(i)
However, the contractcontinues to be good and enforceable unless it is
repudiated by the aggrieved party.
For example: there is a Contract between A and B where B has forcibly made A
involved in the Contract. Itis voidable at the option of A.
Contract Un enforceable by Law:
Contract un enforcaeableis a contractwhich is good in substancebut because of
some technical defect cannot be enforced by law is called unenforceable contract.
These contracts are neither void nor voidable.
Types of Contract on Basis of Formation:
Express contract
Implied contract
QuasiContract
Express Contract: The Contracts where there is expression or conversation are
called Express Contracts. Itmay be in written or oral form.
7. Implied Contract: An implied contractis an agreement created by actions of
the parties involved, but it is not written or spoken. This is a contract assumed to
have been drawn. In this case, there is neither written record nor any actual
verbal agreement. A formof an implied contract is an implied warranty provided
automatically by law.
Quasi Contract: In caseof QuasiContract there will be no offer and acceptance
so, Actually there will be no Contractual relations between the partners. Such a
Contract which is created by Virtue of law is called QuasiContract. Sections 68 to
72 of Contract Act read aboutthe situations where courtcan create Quasi
Contract.
Sec. 68: When necessaries aresupplied
Sec. 69: When expenses of one person are paid by another person.
Sec. 70: When one party is benefited by the activity of another party.
Sec. 71: In caseof finder of lost tools.
Sec. 72: When paymentis made by mistake or goods are delivered by
mistake.
Example: A caseon this occasion is Saba Vs Ali. In this caseSaba`s husband
becomes no more. She was very poor and thereforenot capable of meeting even
cost of funeral. Ali one of her relatives, understands her position and spends his
own money for funeral. It is done so without Saba`s request. Afterwards Aliclaims
his amountfrom Saba where sherefuses to pay. Here court applies Sec. 68 and
creates a QuasiContract between them.
Types of Contract on Basis of Performance:
Unilateral contract
Bilateral contract
Executory contract
Executed contract
unilateral contract: A unilateral contract is a legally enforceablepromise -
between legally competent parties - to do or refrain fromdoing a specified, legal
8. act or acts. In a unilateral contract, one party pays the other party to performa
certain duty. If the duty is fulfilled, the party on the other side of the contract is
obligated to transfer the specified funds. Only this party is under obligation of the
contract, whereas the acting party is not legally obliged to performthe duty.
For example, if an individual places an advertisementin the local newspaper to
providean award in the event a missing item is returned, that individual is
obligated to pay the award if the item is indeed returned.
Bilateral contract: A bilateral contractis a is a reciprocal arrangementbetween
two parties where each promises to performan act in exchange for the other
party's act. Each party is an (a person who is bound to another) to its own
promise, and an obligee (a person to whom another is obligated or bound) on the
other party's promise. A bilateral contract specifies a duty to act in exchange for
another party's duty to act.
Example of a bilateral contract would be the contract for the sale of a home. A
home buyer agrees to pay the seller a certain amount of money in exchange for
the title to the home; the home seller agrees to deliver the title in exchange for
the specified sale price. It is bilateral contract between parties.
Executory Contract: A contractwhich has yet not been fully performed.
Something still left to be performed.
Example:John has been looking at a TV he wants to purchase. After somedebate,
he finally decides to go lease it instead. John enters the electronics store, signs
a lease agreement that states the he will pay $100 per month until the purchase
price has been paid in full. Until John makes the final payment, the contracthas
not been fulfilled.
Executed Contract: The contractwhere all the parties to the contracthave
performed their obligations arising fromthe contract, it is said that the contract is
executed. This contract is completely done by both parties.
Example:John has been looking at a TV he wants to purchase. After deciding to
go forward with the purchase, John walks into the electronics storeand pays for
the TV in cash. John walks out of the store with the TV and the storehas the full
payment. This contract is considered executed sincethe TV was paid for in full
and all terms of the contract were met.
