Business Law Assignment Topic: ANALYZE THE RELEVANCE OF CONTRACT ACT 1872 WITH THE CURRENT BUSINESS CONTRACTS

Submitted By: Shireen Hirani-10599 Submitted To: Sir Ghulam Murtaza Korai

CONTRACT LAW 1872

Represented by the Repealing and Amending Act, 1914; Section 3 and Schedule II. Preamble: Whereas it is expedient to define and amend certain parts of the law relating to contracts, it is hereby enacted as follows: 1. Short title. This Act may be called the Contract Act, 1872. Extent & Commencement: It extends to the whole of Pakistan; and it shall come into force on the first day of September, 1872. Enactments Repealed: Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract not inconsistent with the provisions of this Act. 2. Interpretation Clause: In this Act the following words and expressions are used in the following senses, unless, a contrary intention appears from the context: (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is sail w make proposal. (b) 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; (c) The person making the proposal is called the promisor, and the person accepting the proposal is called the promisee; (d) when, at the desire of the promisor, the promisee or any other person who has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise; (e) Every promise and every set of promises, forming the consideration for each other, is an agreement; (f) Promises which form the consideration or part of the consideration for each other called reciprocal promises

LAW OF CONTRACTS
The law governing the contracts in Pakistan is contained in the contract Act1872. The first75 sections of this Act contain a discussion of general principles governing all types of contracts. However, the remaining sections deal with the following three types of contracts 1. Indemnity and guarantee 2. Bailment 3. Agency

THE ORIGIN OF THE CONTRACT

A contract may be defined as an agreement which is enforceable at law. It originates when a person named as proposer makes a proposal or offer and the other party to whom the proposal or offer is made called the propose of offeree, accepts it. Offer and acceptance make an agreement and if it is enforceable at law, it is called a contract. KINDS OF CONTRACT 1. Valid Contract: The agreement which can be enforced at law by either party to the agreement is known as valid contract. 2. Void Able Contract: The agreements which are enforceable at law at the option of one or more parties but not at the option of the other or others are known as void able contacts. Example: A person do contract to B person that he will give some garments importing from London and the B accepts it, after it in the way some thing happen and the product is destroyed then a valid contract will be change in a voidable contract. 3. Void Contract: A contract which is ordinarily enforceable at law but cannot be so enforced due to the happening of certain event. 4. Illegal Contract: It is a contract which contravenes another law. For example some contracts are illegal at common law i.e., contracts of immoral nature. Example: An example of an illegal contract would be a murder-for-hire. Assume that a famous athlete pays a hitman to kill his wife. The athlete pays the hitman $1 million in advance, but the hitman never kills the athletes wife. The athlete cannot sue or take the hitman to court for not performing under the contract. No court would enforce this contract, and the athlete would have to be out of his mind to bring such a case against the hitman.

ESSENTIALS OF A CONTRACT
The general law of contract in Pakistan is contained in the Contract Act 1872. English decision's (where relevant) are also cited in the courts. The Act defines "contract" as an agreement enforceable by law. The essentials of a (valid) contract are: (a) Intention to create a contract; (b) Offer and acceptance; (c) Consideration; (d) Capacity to enter into a contract; (e) Free consent of the parties; (f) Lawful object of the agreement; Writing is not essential for the validity of a contract, except where a specific statutory provision requires writing. An arbitration clause must be in writing. b. OFFER AND ACCEPTANCE: It is an essential ingredient of a contract, that there must be an offer and its acceptance. If there is no offer, there is no contact, because there is no meeting of minds. Again, if there is an offer by one party, but it is not accepted by the other party or if the ostensible acceptance of the offer is defective, then also, there is no agreement and therefore no "contract". These propositions may appear to be elementary. A large bulk of commercial litigation, however, requires the parties to deal with the basic questions, which are: (a) Whether there has there been an offer at all in the particular case, or whether there is something less than an offer; (b) If there is an acceptance; whether it is in the proper form; (c) Whether there has been an acceptance of the offer; (d) Whether the acceptance has been communicated to the offeror. Concept of Offer: An offer (or a "proposal") is not defined by statute. It is generally understood as denoting the expression, by words or conduct, of a willingness to enter into a legally binding contract as soon as it has been accepted, usually, by a return promise or an act on the part of the person (the offeree), to whom it is so addressed. An acceptance, in relation to an offer, is a final and unqualified expression of assent to the terms of the offer. Offer, followed by acceptance, is an "agreement", if an agreement is enforceable by law; it is a "contract". Offer By And To Whom:

An offer must be made by a person legally competent to contract or on his behalf, by someone authorized by him to make the offer. It is usually made to a person (or to a number of persons), but it can be made to the entire world. Practical Example: Carlill v. Carbolic-Smoke Ball. Co., [(1893) 1 QB 256: (1881-94) All ER 127]: In that case, the defendants (manufacturers of medicinal smoke balls) promised to pay 100 to anyone who, after having bought and used their smoke balls, caught influenza. Plaintiff did so and caught influenza. Plaintiff was held entitled to recover. It was no defense that there was no particular individual to whom the announcement was addressed. Such contracts are sometimes called "unilateral contracts" not a very happy term, because a contract can never be "unilateral". There must be two parties. It is really a case of innumerable offers, made to all potential readers of the announcement. Statements Which Are Not Offers: Every statement of intention is not an offer. A statement must be made with the intention that it will be accepted and will constitute a binding contract. Following are not offers: (a) Statement made during negotiation, without indicating that the maker intends to be bound without further negotiation. (b) A statement which invites the other party to make an offer (e.g., a notice inviting tenders). (c) Statement of lowest price. [Harvey v. Facey, (1893) A.C. 552]. It is regarded as an invitation to make offers. [Re Webster (1975) 132 CLR 270 (Australia)]. (d) Display of goods in a ship with price tags. (It is merely an invitation to make an offer, so that the trader may not accept the offer, if the price is incorrectly marked. [Fisher v. Bell, (1960) 3 All ER 731]. Intention to Be Bound: Lets understand the intention to be bound by a practical example of Gibson v. Manchester City Council, [(1979) 1 All ER 192]. Practical Example: In 1970, M adopted a policy of selling council houses to tenants. In February, 1971, the City Treasurer wrote to G, stating that council "may be prepared to sell the house to you at 2,180 (freehold)". The letter asked G to make a formal application. This he did, and the council took the house off the list of council-maintained properties. Before the completion of the normal process of preparation and exchange of contracts when property is sold, control of the council changed hands and the policy of selling council houses was reversed. The new council decided only to complete those transactions where exchange of contracts had already taken place. In the UK Court of Appeal, it was held (by a majority) that a contract had been made between G and M. Lord Denning suggested that "there is no need to look for strict offer and acceptance" in every case; a price had been agreed and the parties intended to carry through the sale. However, the House of Lords held that the February letter was (at the most) an "invitation" of treat. G's application was an offer and not an acceptance. (Informal agreements for the

sale of houses are not likely to be held as binding contracts, because, otherwise, buyers may find themselves committed before securing mortgage finance). Termination of Offer: Some parties clearly indicate that their statements or documents do not constitute offers, e.g., estate agents."These particulars do not form, nor constitute any part of an offer, or a contract, for sale". Until an offer is accepted, it creates no legal rights and it may be terminated at any time in a variety of ways. Principal modes of termination of an offer are: (a) By the offeror revoking (or withdrawing) it before acceptance; (b) By the offeree rejecting the offer outright or by making a counter-offer; (c) By lapse of time, if the offer is stated to be open only for a fixed time; Practical Example: In Great Northern Rly. Co. Ltd. v. Witham, [(1873) LR 9 CP 16]. Great Northern Railway advertised for tenders for the supply of such stores as they might require for one year. W submitted a tender to supply the stores in such quantities as Great Northern Railway might order from time to time and his tender was accepted. Orders were given for some time, but eventually were given an order which he refused to carry out. It was held that W was in breach. A tender of this kind was a standing offer which was converted into a series of contracts as Great Northern Railway made their orders. W might revoke his offer for the remainder of the period covered, but must supply the goods already ordered. Revocation of an offer is effective, only when communicated to the offeree. Quality of Acceptance: Acceptance of an offer must be absolute and must correspond with the terms of the offer. This rule a key constituent of the basic premise, does not always accord with the realities of complex business contract negotiations today. Such negotiations may indeed proceed through a series of proposals, counter-proposals, withdrawals, variations and qualifications, before agreement (or otherwise) is reached. When parties carry on lengthy negotiations, it may be hard to say exactly when an offer has been made and acceptance. Butler Machine Tool Co. Ltd. v. The Ex Cello Corp. (Eng) Ltd. (1979) 1 WLR 401]. the court must look at the entire correspondence to decide whether an apparently unqualified acceptance did, in fact, conclude the agreement. A conditional offer, if accepted, must be accepted along with all the conditions. c. CONSIDERATION: As a rule, an agreement without "consideration" is void. The Act contract defines "consideration" as follows: "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstains from doing, something, such act, abstinence, or promise is called a consideration for the promise."

A mere promise to give a donation, either orally or in writing, is not enforceable. Settlement of bona fide but doubtful claims involves a bargain between the contracting parties and is, therefore, based on consideration. Money is not the only form of consideration. A consideration may consist sometimes in the doing of a requested act, and sometimes in the making of a promise by the offeree. Forbearance to sue at the promisor's desire constitutes good consideration. Consideration is not required for a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do. It is also not required for a written and signed promise by the debtor (or his duly authorised agent) to pay a time-barred debt to the creditor. d. CAPACITY OF THE PARTIES: A person is competent to contract if, at the time of making it, he is of sound mind, major and not disqualified from contracting under law. Where he has not attained the age of 18 years (or being under a court of wards, has not attained the age of 21 years) he cannot contract. Agreements made by minors are void. Minors cannot, on attaining majority, ratify agreements entered into during their minority. But if a minor makes a fraudulent misrepresentation about his age and obtains a loan, he can be required (at the discretion of the court) to refund it or to make compensation for it. An unadjudged lunatic can enter into a valid contract during lucid intervals. A corporation can contract subject to limits imposed by its documents of incorporation. e. CONSENT: When consent of a party to a transaction is procured by coercion, undue influence, fraud or misrepresentation, the agreement is voidable at the option of the party whose consent was so procured. Cases of undue influence arise where the transaction is ex facie unconscionable and one party was in a position to dominate the will of the other. Where parties are bound by a fiduciary relationship, (as in the case of father and son, doctor and patient, master and servant, advocate and client), the law protects the weaker party, throwing on the other party the burden of proving that no undue influence was exercised. Mutual mistake in respect of material facts in the formation of a contract renders the agreement void. A unilateral mistake, however, does not render an agreement void. Nor does a mistake of law affect its validity. f. UNLAWFUL AGREEMENTS: An agreement, whose consideration or object is unlawful, is void. The consideration or object of an agreement is unlawful, if it is forbidden by law or it would defeat the provisions of any law or is fraudulent, or involves or implies injury to the person or property of another or the court regards it as immoral or opposed to public policy. A party to an illegal agreement who has advanced money under it to the other party is entitled to recover it, if the illegal purpose has not been partly or wholly carried out.

Agreements in restraint of marriage, trade and legal proceedings are void. The seller of the good-will of a business may, however, validly agree with the buyer to restrain from carrying on a similar business within specified local limits, provided the limits are reasonable.

PERSONS BOUND BY THE CONTRACT

Promises bind the promisors and in case of death of promisor (before performance) their legal representatives, unless there is contract to the contrary, or the nature of the contract is such that it depends upon the personal qualifications of any party.

PERFORMANCE AND FRUSTRATION

There are special provisions dealing with the case where time is the essence of contract. In commercial contracts, it is better to provide specifically that time is of the essence. A contract is validly discharged by faithful performance, by release or remission by the promisee, by "frustration" (under law) or by "Novation" (by agreement). Frustration occurs when unexpected developments subsequent to the making of the contracts render performance impossible. Novation occurs when the old agreement is replaced by a new agreement.

SUBSEQUENT EVENTS AND FRUSTRATION

If, subsequent to the making of the contract, some event happens, which the parties could not control so that the agreement cannot be performed, the contract is said to be "frustrated because the contract then becomes impossible of performance. Frustration may occur by a change in the law, destruction of the subject-matter, supervening incapacity of the contracting party to perform the contract or fundamental change in circumstances after the contract is made. Mere strikes, lock-out in the factory, rise in price of the contracted goods or other commercial difficulties do not, as such, render the contract "impossible" of performance. Introduction of the permit system by statute does not absolve the promisor from supplying the goods. He must make reasonable efforts to procure the permit to fulfill his agreement. Change in market conditions also does not justify a supplier in demanding a price higher than that stipulated, unless there is an "escalation" clause. Frustration leads to automatic termination of the contract, and exempts the parties from performance or further performance of the contract without rendering any of them liable for damages. Where, however, any party has received any benefit under the agreement, he must restore it or make compensation for it to the other party.

SAMPLE BUSINESS CONTRACT in relation with Contract Act 1872

STANDARD SERVICES AGREEMENT THIS AGREEMENT is made on BETWEEN 1. [the Buyer] of (the "Buyer"); and 2. [the Service Provider] of (the "Service Provider"), Collectively referred to as the "Parties". RECITALS The Buyer wishes to be provided with the Services (defined below) by the Service Provider and the Service Provider agrees to provide the Services to the Buyer on the terms and conditions of this Agreement. 1. Key Terms 1.1 Services The Service Provider shall provide the following services ("Services") to the Buyer in accordance with the terms and conditions of this Agreement: [Insert a description of the Services here] 1.2 Delivery of the Services a. Start date: The Service Provider shall commence the provision of the Services on [insert date here]. b. Completion date: The Service Provider shall complete/cease to provide (delete as appropriate) the Services by/on (delete as appropriate) [insert date here] ("Completion Date"). c. Key Dates: The Service Provider agrees to provide the following parts of the Services at the specific dates set out below: [insert dates here] 1.3 Site The Service Provider shall provide the Services at the following site(s): [insert details here if applicable] 1.4 Price d. As consideration for the provision of the Services by the Service Provider, the price for the provision of the Services is [insert price here] ("Price"). e. The Buyer shall/shall not (delete as appropriate) pay for the Service Providers out-ofpocket expenses [comprising [please insert examples here, if agreed]). [Month, day, year]

1.5 Payment f. The Buyer agrees to pay the Price to the Service Provider on the following dates [if appropriate]: [Specify whether the price will be paid in one payment, in installments or upon completion of specific milestones. These details should be specified here.] g. The Service Provider shall invoice the Buyer through Elance for the Services that it has provided to the Buyer weekly/monthly/after the Completion Date] (delete as appropriate). h. The Buyer shall pay such invoices within 21 days of their receipt from the Service Provider. i. The method of payment of the Price by the Buyer to the Service Provider shall be by: i. [check][cheque] sent to the following address: [insert details here] ii. wire transfer through Elance to the following account: iii. credit card payment through Elance (Delete as appropriate) Any charges payable under this Agreement are exclusive of any applicable taxes, tariff surcharges or other like amounts assessed by any governmental entity arising as a result of the provision of the Services by the Service Provider to the Buyer under this Agreement and such shall be payable by the Buyer to the Service Provider in addition to all other charges payable hereunder. 2. General terms 2.1 Intellectual Property Rights The Service Provider agrees to grant to the Buyer a non-exclusive, irrevocable, royalty free licence to use, copy and modify any elements of the Material not specifically created for the Buyer as part of the Services. In respect of the Material specifically created for the Buyer as part of the Services, the Service Provider assigns the full title guarantee to the Buyer and any all of the copyright, other intellectual property rights and any other data or material used or subsisting in the Material whether finished or unfinished. If any third party intellectual property rights are used in the Material the Service Provider shall ensure that it has secured all necessary consents and approvals to use such third party intellectual property rights for the Service Provider and the Buyer. For the purposes of this Clause 2.1, "Material" shall mean the materials, in whatever form, used by the Service Provider to provide the Services and the products, systems, programs or processes, in whatever form, produced by the Service Provider pursuant to this Agreement. 2.2 Warranty a. The Service Provider represents and warrants that: i. it will perform the Services with reasonable care and skill; and j.

ii.

The Services and the Materials provided by the Service Provider to the Buyer under this Agreement will not infringe or violate any intellectual property rights or other right of any third party.

2.3 Limitation of liability b. Subject to the Buyers obligation to pay the Price to the Service Provider, either partys liability in contract, tort or otherwise (including negligence) arising directly out of or in connection with this Agreement or the performance or observance of its obligations under this Agreement and every applicable part of it shall be limited in aggregate to the Price. c. To the extent it is lawful to exclude the following heads of loss and subject to the Buyers obligation to pay the Price, in no event shall either party be liable for any loss of profits, goodwill, loss of business, loss of data or any other indirect or consequential loss or damage whatsoever. d. Nothing in this Clause 2.3 will serve to limit or exclude either Partys liability for death or personal injury arising from its own negligence. 2.4 Term and Termination e. This Agreement shall be effective on the date hereof and shall continue, unless terminated sooner in accordance with Clause 2.4(b), until the Completion Date. f. Either Party may terminate this Agreement upon notice in writing if: i. the other is in breach of any material obligation contained in this Agreement, which is not remedied (if the same is capable of being remedied) within 30 days of written notice from the other Party so to do; or ii. a voluntary arrangement is approved, a bankruptcy or an administration order is made or a receiver or administrative receiver is appointed over any of the other Party's assets or an undertaking or a resolution or petition to wind up the other Party is passed or presented (other than for the purposes of amalgamation or reconstruction) or any analogous procedure in the country of incorporation of either party or if any circumstances arise which entitle the Court or a creditor to appoint a receiver, administrative receiver or administrator or to present a winding-up petition or make a winding-up order in respect of the other Party. g. [For European Buyers and Service Providers only] If the Buyer is a consumer and the Distance Selling Directive (97/7/EC) (the "Directive") applies to this Agreement, the Buyer may terminate this Agreement within the relevant timescales prescribed by the regulations or laws in the relevant Member State which implement the requirements of the Directive in respect of a right for the Buyer to withdraw from a contract. In the event of termination in accordance with this Clause 2.4(c), the liability of the Buyer to the Service Provider shall be as prescribed in the Directive or in any regulations or laws implementing its requirements in the relevant Member States. h. Any termination of this Agreement (howsoever occasioned) shall not affect any accrued rights or liabilities of either Party nor shall it affect the coming into force or the continuance in force of any provision hereof which is expressly or by implication intended to come into or continue in force on or after such termination. 2.5 Relationship of the Parties

The Parties acknowledge and agree that the Services performed by the Service Provider, its employees, agents or sub-contractors shall be as an independent contractor and that nothing in this Agreement shall be deemed to constitute a partnership, joint venture, agency relationship or otherwise between the parties. 2.6 Confidentiality Neither Party will use, copy, adapt, alter or part with possession of any information of the other which is disclosed or otherwise comes into its possession under or in relation to this Agreement and which is of a confidential nature. This obligation will not apply to information which the recipient can prove was in its possession at the date it was received or obtained or which the recipient obtains from some other person with good legal title to it or which is in or comes into the public domain otherwise than through the default or negligence of the recipient or which is independently developed by or for the recipient. 2.7 Notices Any notice which may be given by a Party under this Agreement shall be deemed to have been duly delivered if delivered by hand, first class post, facsimile transmission or electronic mail to the address of the other Party as specified in this Agreement or any other address notified in writing to the other Party. Subject to any applicable local law provisions to the contrary, any such communication shall be deemed to have been made to the other Party, if delivered by: ix. x. xi. first class post, 2 days from the date of posting; hand or by facsimile transmission, on the date of such delivery or transmission; and Electronic mail, when the Party sending such communication receives confirmation of such delivery by electronic mail.

2.8 Miscellaneous l. m. The failure of either party to enforce its rights under this Agreement at any time for any period shall not be construed as a waiver of such rights. If any part, term or provision of this Agreement is held to be illegal or unenforceable neither the validity nor enforceability of the remainder of this Agreement shall be affected. Neither Party shall assign or transfer all or any part of its rights under this Agreement without the consent of the other Party. This Agreement may not be amended for any other reason without the prior written agreement of both Parties. This Agreement constitutes the entire understanding between the Parties relating to the subject matter hereof unless any representation or warranty made about this Agreement was made fraudulently and, save as may be expressly referred to or referenced herein, supersedes all prior representations, writings, negotiations or understandings with respect hereto. Neither Party shall be liable for failure to perform or delay in performing any obligation under this Agreement if the failure or delay is caused by any circumstances beyond its reasonable control, including but not limited to acts of god, war, civil commotion or

n. o. p.

q.

industrial dispute. If such delay or failure continues for at least 7 days, the Party not affected by such delay or failure shall be entitled to terminate this Agreement by notice in writing to the other. r. This Clause 2.8(g) and Clauses 2.3, 2.5, 2.6, 2.7 and 2.8 of this Agreement shall survive any termination or expiration. s. This Agreement shall be governed by the laws of the jurisdiction in which the Buyer is located (or if the Buyer is based in more than one country, the country in which its headquarters are located) (the "Territory") and the parties agree to submit disputes arising out of or in connection with this Agreement to the non-exclusive of the courts in the Territory. Amendments to existing clauses Clause(s) [insert amended clause reference(s) here] shall be amended to read as follows: Additional clauses AS WITNESS the hands of the Parties hereto or their duly authorized representatives the day and year first above written. SIGNED by for and on behalf of [the Buyer] ) ) )

SIGNED by for and on behalf of [the Service Provider]

) ) )

STANDARD ENGAGEMENT LETTER [Insert name of Client] [Insert address of Client] [Date] Dear [Name of client] ENGAGEMENT LETTER As promised, I have set out below a description of the services that I/we/[insert name of company/firm] (delete as appropriate) will provide to you together with a suggested fee proposal. I will provide the following services: [Insert description of the services] Please note that I will not be providing these services: [Insert description of the services that will not be provided] My fee for these services will be as follows: [Insert rates e.g. hourly rates] [This fee excludes any applicable VAT and disbursements such as fax charges, photocopying etc.] (Include if agreed) If required, I/we (delete as appropriate) can also send a note to you every week/month/quarter (delete as appropriate) which details the actual time spent providing the services to you. If you agree that the foregoing fairly sets out your understanding of our mutual responsibilities, please sign a copy of this letter in the space indicated below, and return it to me at/on (delete as appropriate) [insert address, fax number or e-mail address]. Yours sincerely, [Name] Agreed and Accepted: __________________________________ [Insert name of client]

__________________________________ Date

REFERENCES http://www.vakilno1.com/saarclaw/pakistan/lawofcontract/law_of_contract_in_pakistan. htm

http://www.google.com.pk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CFE QFjAC&url=http%3A%2F%2Farchiveinside.com%2Fwpcontent%2Fuploads%2F2010%2F02%2FMercantile-and-industrial-laws-inPakistan.doc&ei=GTwEUOKTHufmQWv1OzqCQ&usg=AFQjCNEYAZ1XuOv_S2mxrhLohN-SR2rXRA

Examples of a Void Contract | eHow.com http://www.ehow.com/about_6701774_examples-void-contract.html#ixzz20rbHUgzB http://help.elance.com/entries/34758-sample-contract-agreements