MERCANTILE LAW

What is Law?

Law is a rule of conduct developed by government or society over a certain territory. Law
follows certain practices and customs in order to deal with crime, business, social
relationships, property, finance, etc. The Law is controlled and enforced by the controlling
authority.

What is Mercantile/ Business Law?

Business Law is the part of civil law which deals with the rights and obligations of persons
dealing with each other. It includes laws relating to contracts, partnership, sales of goods,
negotiable instruments etc.

Sources of Mercantile Law:

Following are the sources of Mercantile Law:

1. Common Law: The first source of the law is the customary conduct of community life. Customs
are created when people live together and these customs are widely accepted and respected by
the every member of the society and become formally expressed in judicial decisions and then
Law is made. Thus, the Common Law consists of principles based on immemorial custom and
enforced by the courts.

2. Equity: The law of equity is a set of rules created by the courts of Chancery in order to mitigate
the harshness that the common law system provided to the country. The common law availed
only monetary remedies when addressing grievances brought forward by the parties of a case
in order to determine which party can claim victory of a case. This limited the ability of the
courts of law to address other issues that fell outside the scope of monetary compensation. The
Courts of Chancery introduced the law of equity in order to fill in the gaps of law that common
law failed to address. In addition, equity sought to avail a kind of flexibility in the law because
the common law presented a rigid system where writs governed the system of judgment.

3. The Law of Merchant: The law Merchant was based on customs and usages prevalent among
merchants and traders. In the beginning, Law Merchant was administered by tribunals
consisting, mainly, of the merchants. Gradually, it came to be recognized by the Common Law
Courts also.

4. The Statute Law: It is the law passed by the Parliament. These laws are superior to Common
Law and Equity as Parliament is supreme. The authority of the Parliament is supreme, and
subject to natural limitations and those laid down by the Constitution, it can pass any law it
pleases.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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SOURCES OF LAW IN PAKISTAN
The legal system is derived from English common law (Equity) and is based on the
constitution of Pakistan 1973 as well as Islamic law (Sharia). Thus we can say that in
Pakistan the main sources of law are following:

1. Legislation
2. Precedent
3. Custom
4. Agreement

THE CONTRACT ACT 1872

Contract Section 2(h): An AGREEMENT enforceable by law is a contract.
Agreement Section 2(e): Every PROMISE and every set of promises forming the
consideration for each other is called an agreement.
Promise Section 2(b): When the person to whom the PROPOSAL is made signifies his
assent to it, the proposal is said to be accepted. A proposal, when accepted becomes a
promise.
Proposal Section 2(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 said to make a proposal.
Enforceability: Every contract is an agreement, but every agreement is not always a
contact. An agreement creating a legal obligation is said to be enforceable by law. The
parties to an agreement must be bound to perform their promises and in case of default
by either of them, must intend to sue. For an agreement to be enforceable by law there
should be legal obligation instead of social, moral or religious obligations.
Essentials of a Valid Contract

i. Offer/ Proposal and Acceptance

ii. Legal Relationship
iii. Capacity/ Competency
iv. Consideration
v. Free Consent
vi. Freedom from Uncertainty/ Certainty
vii. Possibility of Performance
viii. Lawful object
ix. Not declared as Void
x. Legal Formalities

CLASSIFICATION OF CONTRACT
a) As per Formation

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 Express Contract- An Express contract is one in which the parties have made an
oral or written declaration of their intentions and of the terms of the transaction.

 Implied/ Tacit Contract- An Implied contract is that the terms of which are
inferred from the conduct of parties, or from the circumstances of the case or
course of dealings between them.

 Quasi Contract- Under certain conditions, the law creates and enforces legal rights
and obligations, when no real contract, express or implied, exists. These
obligations are known as Quasi Contracts. A Quasi or Constructive contract rests
upon the equitable principle that a person shall not be allowed to enrich himself
unjustly at the expense of other.

b) As per Enforceability
 Valid Contract- An agreement which is binding and enforceable by law. It has all
the essential elements.

 Void agreement- An agreement which is not enforceable by law.

 Void Contract- A contract which ceases to be enforceable by law becomes void

when it ceases to be enforceable.

 Voidable Contract- An agreement which is enforceable by law at the option of one

or more of the parties thereto, but not at the option of the other or others, is a
voidable contract.

A voidable contract is a valid contract which may be either affirmed or rejected at

the option of one of the parties (aggrieved parties). At most, one party to the
contract is bound. The unbound party may repudiate (reject) the contract, at
which time the contract becomes void.
Such as:
• Contracts where one party was forced or tricked into entering it.
• Contracts entered when one party was incapacitated (drunk, insane,
delusional).
• Contracts which are made by mistake are voidable.
• Also, the contracts which are made by misrepresentation are voidable.
• Further, contracts made out of undue influence are also voidable.

 Illegal agreement- An agreement the object of which is illegal. An illegal agreement

is something against the law itself. If the content of the agreement causes the
parties to perform illegal actions, then the agreement/contract is illegal.

 Unenforceable agreement- An agreement which is otherwise valid but due to some

technical lacking, such as writing etc. remains unenforceable.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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 c) As per Performance

 Executed Contract- An executed contract is one which is completely performed i.e.

nothing remains to be done by either party.

 Executory Contract- An executory contract is one which is wholly unperformed or

in which something remains to be done by the parties.

 Unilateral Contract- A contract is which a promise on one side is exchanged for an

act on the other side. In such contract one party to a contract has performed his
part and performance is outstanding against the other party.

 Bilateral Contract- A contract in which a promise on one side is exchanged for a

promise on the other.

1. OFFER/PROPOSAL AND ACCEPTANCE - Section 2(a)

One of the first steps in the formation of a contract lies in arriving at an agreement
between the contracting parties by means of offer and acceptance. Thus Proposal is
defined as under:

“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 said to make a proposal.”

Rules/ Requirement/ Conditions/ Principles of an Offer

i) Contractual Intension:
To constitute an offer, the offeror must intend to create a legal obligation.
Following are the examples of a lack of contractual intention of the part of the
offeror.

a) Social Invitations:
Ordinary invitations to social affairs are not offers in the eyes of law, because
the idea of bargain is absent in such cases and there is no such intention to
create a legal relationship.

b) Offer made in Jest or Excitement

A person may make a statement in a jest without any thought or intention of
creating a binding obligation. A proposal made in jest cannot be expected by
the offeree as a reasonable man, to have been made with the intention of
making a contract. Similarly, a statement made by a laboring person in stress
of great emotion or excitement is not termed as an offer. Likewise, promises
held out on loudspeakers are often claptraps.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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 c) Invitation to Negotiate:
An offer in the nature of a preliminary discussion or an invitation to
negotiate or a business talk is not an offer.

d) Invitation to Treat/ Offer:

The intention in invitation of an offer is to circulate information of his
readiness to do the transaction. Such intentions are not offers and do not
tantamount to promise on acceptance.

In other words, an invitation of an offer means an intention of a person to

invite others with a view to enter into an agreement.

Example: Invitation of an offer Goods were displayed in a departmental

store for sale and self-service system was there. One customer selected an
item. Here the display of goods is an invitation to offer and selection by the
customer is an offer to buy.

ii) Definiteness:
An offer must be definite and certain. If it indefinite, loose or vague of if an
essential provision is lacking it cannot be accepted.

iii) Communication to the offeree:

An offer to be an effective and complete must be communicated to the offeree. A
mere desire of a person to make an offer which remains hidden in his mind is no
offer. Until an offer is made known to the offeree, he does not know what he has
to accept.

Kinds of Offer/ Proposal

a) Specific Offer (Particular): If an offer is made to definite or a particular person or

specific group of persons it is said to be specific offer. Such offer can be accepted
only by that definite person or that specific group of persons.

b) General Offer (Public at Large): If an offer is made to the world or public than it is
said to be general offer. Such offer can be accepted by any person. The contract is
made with person who having the knowledge of the offer comes forward and acts
according to the conditions of the offer.

c) Cross Offer: If two parties ignorant of each other’s offer made similar offers to each
other they are called cross offers. Cross offers are not equal to acceptance.

d) Standing/ Open/ Continuing / Offer (Tender): If an offer is of on-going nature it

is said to be a standing offer. A contract is entered only when the person signifies his
acceptance on the basis of the tender.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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Lapse/ Expiry/ Termination/ Duration/ End of Offer

a) By Revocation (Cancel/ Withdrawn): An offer may be revoked before its

acceptance by the offeree.

b) By Time: An offer will come to an end if it is not accepted within the time specified
or within a reasonable time where no time is specified. What is the reasonable time
is a question of fact depending upon the subject matter and circumstances.

c) By Death/ Insanity: An offer comes to an end by the death or insanity of the offeror
if the fact of his death or insanity comes to the knowledge of the acceptor before
acceptance.

d) By Non fulfillment of Condition Precedent: When offeror makes a conditional

offer, it lapses when offeree does not fulfill that condition.

e) By Mode of Acceptance: Sometimes offeror prescribes a manner in which offer is

to be accepted and if it not accepted in such manner, the offeror may within a
reasonable time after the acceptance has been communicated to him, insist that his
offer must be accepted in the prescribed manner and not otherwise. If he fails to do
so, he accepts the acceptance as made. (Means offer may or may not be lapsed,
until offeror accepts or rejects the manner of acceptance within a reasonable
time)

f) By Rejection: An offer comes to an end if it is not accepted by the offeree. An offer is

said to be rejected if the offeree expressly rejects.

g) By Subsequent Illegality: If the performance of contract becomes illegal after the

offer is made, it lapses.

h) By Counter Offer: An offer lapses by the counter offer from offeree. Counter offer is
in fact a rejection of the original offer and a new offer from the offeree who now
become offeror.

Rejection of Offer

a) Express Rejection: Express rejection is made when offeree by words spoken or

written rejects the offer.
b) Implied Rejection: It occurs when a rejection is implied by law i.e. (i) by
counter offer (ii) By conditional acceptance.

COMMUNICATION OF REVOCATION

A revocation of an offer must be communicated or made known to the person to whom it is

made. Until it is communicated to the offeree, he has reasons to believe that there is still an
offer, which he may accept and may rely on this belief and accept the offer. A letter

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 6
revoking an offer made to a particular offeree is effective and revocation against a person
who makes it, when it is put into course of transmission (i.e. when the letter is posted) and
as against the offeree, when the revocation comes to his knowledge (i.e. when he receives
the letter)

2. ACCEPTANCE

An agreement consists of an offer by one party and its acceptance by the person or persons
to whom it is made. Acceptance is the manifestation by the offeree of his willingness to be
bound by the terms of the offer. Acceptance is defined as under:

“When the person the person to whom is offer is made signifies his assent thereto, he is
said to have accepted the offer. A proposal when accepted becomes a promise.”

Conditions/ Essentials of Acceptance

1) Absolute: A valid contract arises only if the acceptance is absolute i.e. complete

2) Unqualified or Unconditional: An acceptance must be unqualified or

unconditional. If such acceptance contains some condition, it will be termed as
counter offer.

3) Mode of Communication: An acceptance must be communicated in some usual and

reasonable manner, unless the proposal prescribes a manner in which it is to be
accepted.

While Communication of acceptance is essential it is open to the offeror to waive

it. Discuss OR Exceptions to the Communication of acceptance. OR Tacit
acceptance OR Implied acceptance

1) Acceptance of General Offer: If the offer is not made to a specific person rather to
public at large, it can be accepted by any member of the public at large. In such case
no communication of acceptance is required.

2) Fulfillment of Condition Precedent: If a conditional offer is made, then offer is

accepted when that condition is fulfilled, hence no communication of acceptance is
required because fulfilling condition is itself acceptance of the offer.

3) Acceptance of Consideration: When the offeree accepts the consideration of the

offer, no communication of acceptance is required. e.g. Mother purchasing milk for
her baby from milk shop.

Rules for Communication and Revocation of Offer, Acceptance and Revocation

(Postal Rule):

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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COMMUNICATION WHEN COMPLETE
1) OFFER: The communication of offer is complete when it comes to the knowledge of
the person to whom it is made. (When offeree receives letter of offer)

Example: A proposes, by a letter posted on 3rd June to sell his house to B at a certain
price. The letter reaches to B on 8th June. The communication of offer is complete on
8th June.

2) ACCEPTANCE: Communication of acceptance has following two aspects:

a) As against the proposer / offeror: When it is put into a course of
transmission to him, so as to be out of the power of the acceptor (offeree).
b) As against the acceptor/ offeree: When it comes to the knowledge of
proposer.

Example: A proposes, by a letter posted on 3rd June to sell his house to B at a certain
price. The letter reaches to B on 8th June. B accepts it on 8th June and sent letter back
to A, which reaches to A on 10th June. The communication of acceptance is complete:
a) As against A, when the letter is posted by B i.e. on 8th June.
b) As against B, when the letter is received by A i.e. 10th June.

3) COMMUNICATION OF REVOCATION: The communication of revocation (of an offer

and acceptance) is complete:
a) As against the person who makes its: When it is put into course of
transmission to the person to whom it is made, so as to be out of the power of
the person to whom it is made.
b) As against the person to whom it is made: When it comes to his knowledge.
Example: A proposes, by a letter posted on 3rd June to sell his house to B at a
certain price. The letter reaches to B on 8th June. A revokes it on 7th June by post
which reaches to B on 9th June. The revocation is complete:
a) As against A, when the letter is posted i.e. on 7th June.
b) As against B, when the letter is received it i.e. 9th June.
IMPORTANT NOTE: An Offer may be revoked at any time before the
communication of its acceptance is complete as against the offeror, but not
afterwards. Whereas, an acceptance may be revoked at any time before the
communication of its acceptance is complete as against the acceptor but not
afterwards.
Contracts over telephone / telex / fax: A contract by telephone / telex / fax is
treated on the same principle as an oral agreement made between two parties when
they are face to face with each other. In such cases, the contract will complete only
when the acceptance is received by the proposer and not when it is transmitted by
the acceptor.

3. CAPACITY/ COMPETENCY OF PARTIES (Sec: 11)

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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 Generally, every person is presumed by law to be competent to enter into contract.
According to section 10, an agreement becomes a contract, if it is entered into
between the parties who are competent to contract. According to this section every
person is competent to contract who:

AGE SANITY OTHER

DISQUALIFICATION

a) is of age of majority according to the law to which he is subject.

b) is of sound mind.
c) is not disqualified from contracting by any law to which he is subject.

That means:
a) Minor (b) person of unsound mind (c) person disqualified by any law to which
they are subject, are not competent to contract.

1) AGE
i) Age of Majority: A person who is attaining the age of 18 years or shall have
completed the age of 18 years and not before becomes a major person. In case of
guardianship and superintendence of his property, age of majority is 21 years,
which commences from the death of parents.

ii) Nature of Minor’s Agreements

The law pertaining to agreements with a minor is given below:
 An agreement with a minor is void.
 Where an infant / minor represents fraudulently or otherwise that he is of the
age of majority and induces another to enter into a contract with him, he will
not be liable.
 Since ratification (accepting/ consenting) has a retrospective application, it is
necessary that the minor must be competent to contract at the time when the
contract is entered into. Therefore, an agreement with a minor cannot be
ratified subsequently after he attains majority.
 If a minor enters into an agreement jointly with a major person, then, such
agreement can be enforced against the major person who has jointly promised
to perform.
 A minor can be admitted for the benefits of partnership with the consent of all
the partners. He cannot be a partner until he attains majority. [Section 30 of
the Partnership Act]
 (As per section 184 of Contract of Agency) A minor cannot be an agent but
if a minor is appointed as an agent, he will not be personally liable rather his
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 9
 principal will be responsible. Similarly, a minor cannot be a principal but if
anyone acts on behalf of minor principal, he will be personally liable.
 A minor cannot be declared insolvent because he is incompetent to contract
 A minor can file a suit but cannot be sued.
 If the parent of a minor entered into on behalf of a minor being within the
scope of the authority and for the benefit of the minor then such agreements
can be enforced by or against the minor.
 A person who supplied necessaries to a minor is entitled to be reimbursed
from the property of such minor. Such claim is against the property of the
minor and not against the minor personally. [Section 68]

2. PERSON OF UNSOUND MIND

A person’s soundness of mind depends on two facts (i) his ability to

understand the business concerned, and (ii) his liability to form a rational
judgment as to its effect on his interests. (Sec. 12) etc. contracts with such
persons are void when entered into at a time when the person was in an
unsound state of mind. But the estate of the person is liable under Section 68 for
the necessaries supplied to him or their dependents, to whom they are
legally bound to support.
a) Lunacy: A lunatic person cannot understand the terms of contract and cannot make
rational judgment as to the effects upon his interest.
b) Idiocy: Idiocy is permanent in nature, such a person cannot understand the terms of
the contract and cannot make rational judgment as to affect upon his interest.
c) Effects of Drinks, Drugs and Illness: A contract with a drunk person or a person
who is in effect of drugs or a person who is seriously ill i.e. in comma, is void
altogether. Such person cannot understand the terms of the contract or make
rational judgment as to effect upon his interest.

Position of agreements with a person of unsound mind

The positions of such agreements are given below:
 If a lunatic enters into a contract while he is of unsound mind, an agreement
during this period is void.
 If a lunatic enters into a contract while he is of sound mind, an agreement during
this period is valid.
 An agreement with a specific person is void.
 A person delirious from fever or drunken person cannot enter into a contract
while such delirium or drunkenness lasts and he is not able to understand the
terms of the contract or form a rational judgment.
 A person of unsound mind can enforce a contract for his benefits.
 A person who supplied necessaries to a person of unsound mind or his
defendant entitled to be reimbursed from the property of such person of
unsound mind. Such claim is against the property of the person of unsound mind
not against the person personally.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 10
 Position of a person who is usually of unsound mind but occasionally of sound
mind.
A person who is:
 usually of unsound mind but,
 occasionally of sound mind,
may make a contract when he is of sound mind.

Position of a person who is usually of sound mind but occasionally of unsound

mind
A person who is:
 usually of sound mind but,
 occasionally of unsound mind,
may not make a contract when he is of unsound mind.

BURDEN OF PROOF
The rules regarding the burden of proof are following:
a) If a person is usually of sound mind or in drunkenness or in delirium from fever
then the burden of proof that he was of unsound mind lies on the person who
questions the validity of contract.
b) If a person is usually of unsound mind then the burden of proof that he was of
sound mind lies on the person who confirms it.

Agreements with persons disqualified by law

There are some disqualifications imposed on certain persons in respect of their capacity
to contract which are discussed below:
a) Alien enemies: An alien is a person who is the citizen of a foreign country. He can
enter into a contract and be sued during peace time but if a war is declared than an
alien enemy can neither enter into a contract or be sued during the period of war.
Contracts entered before the declaration of war are either suspended or terminated
during the period of war.
b) Foreign sovereigns and ambassadors: Such persons have immunity unless they
choose to submit themselves to the jurisdictions of our courts. They have a right to
enter into a contract but can claim the privilege of not being sued.
c) Convicts: A convict while under imprisonment is incapable of contracting but this
disability comes to an end after the expiry of the sentence or when he is on parole.
d) Insolvent: A person declared as insolvent cannot enter into a contract as his
property is dealt with by official assignee or official receiver.

4. CONSIDERATION (Sec: 2)

Contracts results only when one promise is made in exchange for something in
return, that something in return is consideration. Consideration is defined as under:

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 11
 “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 to abstain from doing something, such act or abstinence or promise is
called consideration for promise. ”

Example:
(a) A agrees to sell his house to B for Rs. 1,000,000/-. Here B’s promise to pay sum is
the consideration for A’s promise to sell the house.
(b) A promises to pay B Rs. 1,000/- at the end of 6 months, if C, who owes that sum
to B, fails to pay it. B promises to grant to C accordingly. Here the promise of each
party is the consideration for the promise of the other party.

The analysis of the above definition reveals that a consideration may be the value by
which promise is bought. Consideration may be following:
 An act i.e. doing of something.
 An abstinence or forbearance i.e. abstaining or refraining from doing
something.
 A return promise.

 A promises B to guarantee payment of price of the goods which B sells on credit

to C. Here selling of goods by B to C on credit is consideration for A’s promise.
 A asks B not to sue C for a year for his debts and promises in case of default of C,
A would be liable. Here B not filing a suit for a year is abstinence, which is a
sufficient consideration for A.
 A promises to deliver iPhone to B and B promises to pay Rs. 85,000 on delivery.
Here the consideration for A will be Rs. 85,000 on delivery and consideration for
B will be delivery of goods.

KINDS OF CONSIDERATION

1. Executory Or Future Consideration:

An executory consideration may be defined as a consideration which takes the form
of a promise to be performed in the future, it is the price promised by one party in
return for the promise of the other party.
(Something remains to be done on the part of either party e.g. Credit Sales)
2. Executed or Present Consideration: A consideration which takes place
simultaneously with the promise. (Nothing remains to be done by either party e.g.
cash sales)
3. Past Consideration: Past consideration is a past act or forbearance, that is, one
which took place and is complete before the promise is made. In past consideration
a promise is made after the promisor has benefitted by the act or forbearance. So
such promise may be treated either as an admission of positive bargain.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 12
 (A promise to compensate a person who has already voluntarily done
something for the promisor is called past consideration.)

Essentials elements of Consideration/ Rules Governing Consideration:

1. Desire of the promisor

An act or abstinence of promise constituting consideration must have been done or made
at the desire or request of the promisor. Thus, an act done at the desire of a third party or
without the desire of the promisor cannot constitute a valid consideration.

Example: Desire of the promisor

A saves B’s goods from fire without being asked to do so. A cannot demand payment for his
services.

2. Move / from promisee or any other person

In return consideration may be from the promisee himself or by any other person even by
stranger.

Example: Move / from promisee or any other person

X transferred certain property to her daughter Y with a direction that Y should pay Z
annuity. On the same day Y executed a deed in writing in favour of Z and agreed thereby to
pay the annuity. Later, Y refused to pay the annuity on the plea that no consideration had
moved from Z. Here Z is entitled to maintain suit because a consideration not necessarily
move from the promisee, it may move from any other person (by X in this case).

3. Consideration may be past, present or future

The consideration may be past (done or abstained from doing), present (does or abstains
from doing) or future (promises to do or to abstain from doing).
The consideration which has moved before the formation of agreement is said to be past
consideration.
The consideration which moves simultaneously with the promise is called present
consideration.
The consideration which moves after the formation of agreement is called future
consideration.

Example: Consideration may be past, present or future

 A renders some service to B in the month of August. In September B promises to
compensate A an amount of Rs. 10,000 for the services he rendered to him. Past
services amount to past consideration. A can recover Rs. 10,000 from Y.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 13
 A sells his car for Rs. 1 million and delivers the car at the time of payment. Here the
consideration is moving simultaneously with the promise and is called present
consideration.
 A promises to deliver certain goods to B after 5 days and B promises to pay after 5
days from the date of delivery. Consideration in this case is future.

4. Consideration to have some value

There is no requirement for the adequacy of consideration but it should have some value.
There should be something in return and this something in return need not necessarily be
equal in value to something given.

5. Consideration must be real

The consideration must be real and not illusory.

Example: Consideration must be real

A engages B to work as an accountant in his office and promises to make him happy. This
promise is not enforceable because the consideration is not real but illusory.

A promises to put life into B’s dead wife and B promises to pay Rs. 1 million. This
agreement is void because consideration is impossible to perform and not real.

A engages B to work as an accountant in his office and promises to pay him Rs. 75,000 per
month. This is a real consideration for both the parties.

6. Something which the promisor is not already bound to do

It may be an act, abstinence, forbearance or a return promise e.g. compromise of a disputed
claim, composition with creditors. The consideration must be something which the
promisor is not already bound to do because a promise to do what a promisor is already
bound to do adds nothing to the existing obligation.

7. Lawfulness/ legality
The consideration must neither be unlawful nor opposed to public policy.
Example: Lawful
A promises B to pay Rs. 100,000 to beat C. B beats C and claims Rs. 100,000 from B. A
refuses to pay. B cannot recover because the agreement is void on the ground of unlawful
consideration.
A promises B to obtain an employment in the public service and B promises to pay Rs.
100,000 to A. The agreement is void on the ground of unlawful consideration.

The Consideration or object of an agreement is lawful, unless:

a) Forbidden by Law: When the object of an agreement is forbidden by law, its

consideration is unlawful. An agreement the consideration of which is unlawful is
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 void. An act is forbidden by law: (i) when it is punishable by the criminal law, or (b)
when it is prohibited by special legislature pr regulations made under delegated
powers.
b) Defeats the provision of any law: The object of an agreement is of such nature if
permitted would defeat the provision of law. An agreement the consideration of
which is unlawful is void.
c) Fraudulent: when the parties to an agreement intend to commit fraud or to
practice fraud upon some other person, the object of the agreement if fraudulent. An
agreement in fraud of creditors with the intention of defeating their rights is void.
d) Injury to person or property: When the object of an agreement implies injury to
the person or property, its consideration is unlawful. An agreement the
consideration of which is unlawful is void.
e) Immoral or opposed to public policy: An agreement in violation of morality and
founded upon consideration contrary to public moral is void. An agreement which is
made upon immoral conditions or for an immoral purpose is unenforceable.
Similarly, an agreement which is against public policy is void.
Examples: Following agreements have been held to be against public policy:
i. Agreement to trading with enemy.
ii. Agreement interfering with course of justice.
iii. Agreement in restraint of legal proceedings.
iv. Trafficking in public offices and titles.
v. Agreement in restraint of parental rights.
vi. Agreement in restraint of marriage.
vii. Agreement in restraint of trade.

EXCEPTIONS OF CONSIDERATION/ CONSIDERATION IS NOT NECESSARY

An agreement without consideration is void, unless:

a) Written and Registered: If it is in writing and registered under the law and is made
on account of natural love and affection between parties standing in near relation to each
other.

b) Compensation for past voluntary services: If it is made to a person who has

already done something voluntarily for the promisor, or done something which promisor
was legally compelled to do.

c) Time Barred Debt: A written and signed promise by the debtor to pay either whole
or any part of time barred debt is enforceable and valid.

Exception under Special Contract(s):

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 d) Contract of Guarantee : Consideration received by the principal debtor is
sufficient for the surety and it is not necessary to result in some benefit to the surety
himself.

e) Contract of Bailment: A consideration is not necessary for a contract of

bailment i.e. gratuitous contract of bailment.

f) Contract of Agency: A consideration is not necessary for a contract of

agency.

PRIVITY OF CONTRACT : (a stranger to contract cannot sue.)

The basis of this rule is that a contract is a private relationship between the parties who
make it, and no other person can acquire right or liabilities under it.
Privity of contract means a relationship between the parties who have entered into a
contractual obligation and implies a mutuality of will and understanding and creates a legal
bond between the parties to a contract.

Exception to Doctrine of Privity of Contract: (Or a stranger to consideration can sue)

It means the stranger to contract cannot sue, but stranger to consideration can sue.

a) In case of beneficiary of a Trust: A trust is always created for the benefit of some
person called beneficiary. The beneficiary can file a suit to enforce his right, even though he
is not a party to contract.
b) In case of family settlement: When certain arrangements are made for the
marriage or maintenance of a particular member of the family then such person for whose
benefit the provision is made may enforce contract. (Family or marriage settlement
should be in writing)
c) In case of acknowledgment of Liability: When the promisor, by his conduct,
acknowledges or himself acts as an agent of a third party, a binding obligation is thereby
incurred by him towards the third party.
Example: A receives money from B to be paid to C. A admits of this receipt to C. C can
recover this amount from A, who shall be regarded as his agent.

d) In case of assignment of a Contract: Assignment refers to transferring the rights in

a contract to a third person. When a contract is assigned in favour of someone, the assignee
can enforce the contract, even if he is not a party to a contract. (NOTE: A contract
requiring of personal skills eg. Singing, dancing etc, cannot be assigned)

Example: The assignee of an insurance policy, Endorsee of a bill of exchange can

enforce the contract, even though he is not a party to contract.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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5. CONSENT (SECTION-13)

To constitute an agreement or a contract there must be a meeting of minds of the

parties and both must agree on a something in the same sense. Consent is defined as under:

“Two or more persons are said to consent when they agree upon the same thing in the
same sense.”

A agrees to sell his car to B for Rs. 500,000/-. A had 2 cars, Car-1 and Car-2. A was talking
about Car-1, whereas, B believed about Car-2. Here, there is no consensus between the
parties and the contract is void due to mutual mistake of fact.

Difference between Consent and Free Consent

CONSENT FREE CONSENT

In case of lack of consent there is no meetingIn case of lack of free consent, there is
of minds. consent but it is not free.
In case of lack of consent the contract is In case of lack of free consent, the contract is
absolutely void. voidable at the option of the aggrieved
party.
In case of no consent the party does not In case of no free consent the party has a
acquire any right on the property and if such better title over the property unless the
property is passed to third party then even contract is rescinded by the aggrieved party.
the third party does not have a better title. A party can also pass a better title to third
party before the contract is rescinded by the
aggrieved party.

Consent is said to be free when it is NOT obtained or cause by the following:

i. Coercion
ii. Undue Influence
iii. Fraud
iv. Misrepresentation
v. Mistake

1- COERCION: Coercion has been defined as:

“Coercion is the committing, or threatening to commit, any act forbidden by

Pakistan Penal Code (PPC), or the unlawful detaining or threatening to detain, any
property to the prejudice of any person, whatever, with the intention of causing any
person to enter into an agreement.”

Essential Elements of Coercion:

Consent shall be caused by coercion when it is obtained by:

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 a) Committing or threatening to commit any act forbidden by PPC: If any person gets
consent for a contract by any act forbidden by PPC, is said to be obtained by coercion.
eg. Threat to shoot, murder, kidnap, rape, attempt to murder or suicide, beat etc are
examples of forbidden act in Pakistan Penal Code.

b) Unlawful detaining or threatening to detain any property of the other: When any
person unlawfully detains or threatens to detain any property (moveable or
immovable) to the prejudice of any person for getting consent of a party to a contract,
such an act amounts to coercion and the contract becomes voidable at the option of the
party whose consent so obtained.

Example: A, an agent refused to hand over the books of accounts to B, the principal,
unless the principal releases him from all liabilities. The principal had to give him
release deed. The release deed was given under coercion and is voidable at the option
of principal.

c) Coercion may move from any person and directed towards any person: Coercion
need not necessarily be exercised against the promisor or his spouse or children or
parent, it may be directed against any person or property. (Coercion includes fear,
physical compulsion and menace to goods)

Example: X hired Y to kidnap Z’s son in order to threaten Z to enter into contract with X.

d) It is immaterial whether the Pakistan Penal Code is in force in the place where the
coercion is employed.

Threats not Amounting to Coercion

Following threats are not considered as coercion:

i) Threat to sue: Threat to prosecute a person or file a suit against him is not
coercion. Approaching to court for seeking appropriate remedy by filing a suit is the
fundamental right of every person.
ii) Statutory Compulsion: If anything is done at the instance of the order of the court,
it is not coercion.
iii) Threat to Strike: A threat by employee to go on strike for their demands is not
coercion as it is not an offence under PPC.
iv) Detaining property under mortgage: Detention of property under a mortgage
contract, until the payment of the loan is not made, does not amount to coercion.

Effects of coercion
The effects of coercion are given below: [Section 19, 64 and 72]
 The contract becomes voidable at the option of the party whose consent was so
caused. The burden of proof lies on the party who rescinds the contract.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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  The party rescinding a voidable contract shall, if he has received any benefit from
another party, restore such benefit i.e. restitution.
 A person to whom money has been paid or anything delivered by coercion must
repay or return it.

Burden of Proof: The burden of proving that the coercion was inducing by coercion lies on
the party who wants to avoid the contract. In other words, it is for the aggrieved party to
prove that his consent was not free.

2. UNDUE INFLUENCE: Undue influence has been defined as:

“Undue influence exists where the relation subsisting between the parties is such
that one of the parties is in a position to dominate the will of the other and uses that
position to obtain unfair advantage over the other.”

Presumption of Undue influence

i) Position to Dominate: Undue influence is presumed to exist where one party uses
his position to dominate the consent of other party.
ii) Unfair Advantage: Only position of party is not sufficient to establish the existence of
undue influence, it is also essential that the dominating party used his position to obtain an unfair
advantage over the other party.
iii) Real and Apparent Authority: A person is deemed to be in a position to dominate the will
of other and exercise undue influence where he holds a real and apparent authority over the other
e.g. parent and child, master and his servant, doctor and patient, Income Tax Officer and taxpayer,
Police Officer and accused etc.
iv) Fiduciary Relation: Where a person stands in a position of fiduciary relation (a
relation of mutual trust and confidence) to the other. E.g. between guardian and child,
trustee and beneficiary etc.
v) Mental Distress: Undue influence is presumed to exist where a person makes a
contract with a person whose mental capacity is temporarily or permanently affected by
reason of age, illness, mental or bodily distress.

Effect of undue influence

The contract becomes voidable at the option of the party whose consent was so caused. The
burden of proof is on the party who was in a position to dominate the will of the other
party not all cases.

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(Mr. Brohi)
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3. FRAUD/ WILLFUL MISREPRESENTATION: Fraud has been defined under section
17 as under:

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 Fraud is a term used in connection with free consent. It means deceiving or cheating
someone intentionally.

“Fraud means and includes any of the following acts committed by a party to a
contract, or with his connivance, or by his agent with the intent to deceive another party
thereto or to induce him to enter into contract.”

Essentials of Fraud:

i. False Suggestion/ Assertion: A party makes a statement or suggestion saying

something as true, which is not true, and the party also believes itself it to be untrue.
Example: A sells to B locally manufactured goods representing them to be imported goods
charging a higher price, it amounts to fraud.

ii. Active Concealment: A party tries to conceal or hide the truth deliberately to keep
the other party in dark.
Example: Mr. Z a furniture dealer conceals the cracks in furniture sold by him by using
some packing material and polishing it in such a way that the buyer even after reasonable
examination cannot trace the defect, it would amounts to fraud through active
concealment.

iii. Empty Promise: A party makes a promise with clear intention not to perform it.
Example: Buying goods under a contract of sale with an intention of not paying the price is
fraud.

iv. Fitted Act: Any other act fitted to deceive the other party.

v. Declared Act: Any act or omission, which any law specially declares any time to be
fraudulent.

Essentials of Fraud

Following are essential of fraud:

1. Party to a contract
The fraud must be committed by a party to a contract or by anyone with his
connivance or by his agent. Thus, the fraud by a stranger to the contract does not
affect its validity.
2. False representation
It means that a false representation is made with the knowledge of its falsehood. It
will equal to fraud if a true representation is made but becomes untrue at the time
of formation of contract the fact is known to the party who made the representation.
3. Representation as to fact
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 A mere opinion does not amount to fraud. A representation must relate to a fact
than it amount to fraud.
4. Actually deceived
A deceit, which does not deceive is not fraud. The fraud must have actually deceived
the other party who has acted on the basis of such representation.

5. Suffered loss
Loss has been suffered by the party who acted on the representation.

Effects of fraud

The effects of fraud are as follows [Section 19]:

 The contract becomes voidable at the option of the party whose consent was so
caused.
 The party whose consent was so caused may insist on performance of the
contract.
 The party whose consent was so caused is entitled to claim damages.
Exceptions to rescind the contract
A party cannot rescind the contract where:
 Silence amounts to fraud and the aggrieved party had the means of discovering the
truth with ordinary diligence
 The party gave the consent in ignorance of fraud
 The party after becoming aware of the fraud takes a benefit under the contract
 An innocent third party before the contract is rescinded acquires for consideration
and in good faith some interest in the property passing under the contract,
 The parties cannot be restored to their original position.
Silence as to fraud
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is
not fraud, unless the circumstances of the case are such that parties stands in fiduciary
relationship or where silence itself is equivalent to speech.
Example: Silence as to fraud
A sells by auction to B a horse which A knows to be unsound. A says nothing to B about the horse's
unsoundness. This is not fraud by A. B is A's daughter and has just come of age. Here, the relation
between the parties would make it A's duty to tell B if the horse is unsound. B says to A, "If you do
not deny it, I shall assume that the horse is sound." A says nothing. Here A's silence is equivalent to
speech. If the horse turns out to be vicious. A can be held liable for fraud.
Note: In the early 80’s the Federal Shariat Court decided that provision regarding
position of silence in Contract Act is not in conformity with the teachings of Islam.

4. MISREPRESENTATION/ INNOCENT MISREPRESENTATION/ INVALIDATING

MISREPRESENTATION: Misrepresentation is a false statement which the person making it
honestly believed to be true, or which he does not know to be false.

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Misrepresentation includes the following:

1- Positive Assertion: A party makes a statement or suggest something emphatically saying

something as true, which is not true but the party believes it to be true.

2- Breach of Promise: A party commits a breach of his duty (i.e. not performing his promise),
which will bring some gains to him, but he innocently believes that it will not be causing loss to the
other party.

3- Innocent Mistake: A party innocently misleads the other party regarding the subject
matter of an agreement.

Effects of Misrepresentation

a. The aggrieved party may repudiate the contract.

b. The aggrieved party may raise misrepresentation as a defense to any action the other party
may bring against him.
c. Sue for rescission of the contract and restitution of anything he has transferred to the
misrepresenter.

Essentials of Misrepresentation

Essentials are discussed below:

a) Party to a contract
The representation must be made by a party to a contract or by anyone with his
connivance or by his agent. Thus, the representation by a stranger to the contract does not
affect the validity of the contract.

b) False representation
There must be a false representation and it must be made without the knowledge of
its falsehood i.e. the person making it must honestly believe it to be true.

c) Representation as to fact
A mere opinion does not amount to misrepresentation. A representation must relate
to a fact if it amounts to misrepresentation.

d) Object
The objective is to induce the other party to enter into contract without the
intention of deceiving the other party.

e) Actually acted
The other party must have acted on the faith of the representation.
Remedies available to aggrieved Party

The aggrieved party in case of misrepresentation has the following remedies:

 He may rescind the contract, or
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  He may affirm the contract
NOTE: In case of misrepresentation the aggrieved party can not claim the damages
from the other party.

Damages: Generally, the injured party cannot get damages for innocent misrepresentation, but
in the following cases he can get damages:

a. From the promoters or directors who make such misrepresentation in a PROSPECTUS

under the Company Law.
b. Against an AGENT who commit a breach or warranty of authority.
c. From a person who is stopped from denying a statement he has made where:
i- he made a positive statement intending that it should be relied on, and
ii- the innocent party did rely on it, and suffered damage.

Difference between Fraud and Misrepresentation

MISREPRESENTATION FRAUD
Nature of Statement
In misrepresentation, a party makes a In fraud, a party makes a statement saying
statement emphatically saying something as something as true, which is not true and the
true, which is not true, but party believes it party also believes it to be untrue.
to be true.
Nature of Concealment
In misrepresentation, a party never In fraud, a party tries to conceal the truth
deliberate to keep the other party in dark. deliberately to keep the other party in dark.
Intention of Parties
In Misrepresentation, party innocently In Fraud, party makes a promise without
breaches his duty. That it will not be causing intention of performing it.
loss to other party.
Claim of Damages
In Misrepresentation, aggrieved party not In Fraud, aggrieved party can always claim
always claim damages. damages.
Effect of Contract
In case of Misrepresentation, contract In case of Fraud, contract becomes voidable.
becomes voidable.

5. MISTAKE:
The term Mistake means a incorrect belief about something. It is, in fact, an erroneous
belief which leads one party to misunderstand the other.

Where both the parties to an agreement are under a mistake as to matters of facts
essential to the agreement, the agreement is void.

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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Types of mistakes
The types of mistakes are shown below:

Mistake of Pakistan law

A contract is not voidable because it was caused by a mistake as to any law in force in
Pakistan. (It means the contract is binding, because everyone is deemed to have knowledge of
his own law, and ignorance of law is no excuse - Ignorantia Juris Haud Excusat)

Not voidable: It can be valid or void depends upon the performance of the contract.

Mistake of foreign law

A mistake as to the law not in force in Pakistan has the same effect as a mistake of fact i.e.
void.
Example: A and B make a contract grounded on the erroneous belief that a particular debt is
barred by the Indian Law of Limitation; the contract is not voidable.

1- Bilateral mistake
Where both the parties to an agreement are under a mistake as to a matter of facts
essential to the agreement, the agreement is void.

An erroneous opinion as to the value of the thing which forms the subject matter of
the agreement is not to be deemed a mistake as to a matter of facts.
Example: Bilateral mistake
A buys' a painting believing it to be worth Rs 100,000 while in fact it is worth only Rs
10,000. The contract is not void.

A agrees to sell to B a specific cargo of goods supposed to be on its way from England to
Karachi. It turns out that, before the date of the bargain, the ship conveying the cargo had been cast
away and the goods lost. Neither party was aware of facts. The agreement is void.

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(Mr. Brohi)
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Bilateral mistake as to the subject matter
A bilateral mistake as to the subject matter includes the following mistakes as to the:

 existence of subject matter

 quantity of subject matter
 quality of subject matter
 price of subject matter
 identity of subject matter
 title of subject matter

Example: Bilateral mistake as to the subject matter

A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of bargain
though neither party was aware of the fact. The agreement is void because there is bilateral mistake
as to the existence of subject matter.

A agrees to buy from B all his horses believing that B has two horses but B actually has three horses.
The agreement is void because there is bilateral mistake as to the quantity of subject matter

A agrees to buy a particular horse from B. Both believe it to be a race horse but it turns to be a cart
horse. The agreement is void because there is bilateral mistake as to the quality of the subject
matter.

A agrees to buy a particular horse from B who mentioned in his letter the price as Rs 1,150 instead
of 5,150. The agreement is void because there is bilateral mistake as to the price of the subject
matter.

A agrees to buy from B a certain horse. B has one race horse and one cart horse. A thinks that he is
buying race horse but B thinks that he is selling cart horse. The agreement is void because there is
bilateral mistake as to the identity of subject matter.

A agrees to buy a particular horse from B. That horse is already owned by A. The agreement is void
because there is bilateral mistake as to the title of the subject matter.

Bilateral mistake as to the possibility of performance

Where the parties believe that an agreement is capable of performance and actually it is not
then it is said to be a bilateral mistake as to the possibility of performance due to which
agreement is void.

2- Unilateral mistake
A contract is not voidable merely because it was caused by one of the parties to it
being under a mistake as to matter of facts.

Example: Unilateral mistake

A buys' a painting believing it to be worth Rs 100,000 while in fact it is worth only Rs 10,000.

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Exceptions
Following are the exceptions where agreement is void on the basis of unilateral mistake:
1. Mistake relating to the identity of the person.
2. Mistake relating to the nature of the contract

Example: Mistake relating to the identity of the person

A knew that on "account of his criticism of the plays in the past, he would not be allowed entry to
the performance of a play at the theatre. The managing director of the theatre gave instructions that
ticket should not be sold to A. A, however, obtained a ticket through one of his friends. On being
refused admission to the theatre, he sued for damages for breach of contract. It was held that there
was no contract between the theatre company and A as the theatre company never intended to
contract with A.

Example: Mistake relating to the nature of contract

An old illiterate man was induced to sign a bill of exchange by means of a false representation
that it was a mere guarantee. It was held that he was not liable for the bill of exchange because
he never intended to sign a bill of exchange.

6. AGREEMENTS DECLARED VOID

Contract Act declares certain agreements to be void. Such agreements are listed below:

As per section 24 to 30 an agreement which is not enforceable by law is called void

agreement.

There are certain agreements which have been expressly declared as void such as:
 Agreement, the consideration or object of which is partly unlawful: When an
agreement constitutes promises to do certain acts lawful as well as unlawful in
nature, then whole of the agreement would be void, if the lawful part is not
separable from unlawful part.
A promises to manage B’s farm, where there is cultivation of rice and unlawful
cultivation of opium. B promises to Rs. 50,000/- to A as per month salary. The whole
agreement is void as the legal part cannot be separated from illegal part.

 Agreement made without consideration: Agreement without consideration, void,

unless it is in writing and registered or is a promise to compensate for something
done or is a promise to pay a debt barred by limitation law.
 Agreement in restraint of marriage: Any agreement that restrains the marriage of
a major (adult) is a void agreement. This does not apply to minors. But if an adult
agrees for some consideration not to marry, such an agreement is expressly a void
agreement according to the contract act.
So A agrees that if B pays him 50,000/- he will not marry such an agreement is a void
agreement.

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 Agreement in restraint of legal proceedings: An agreement that prevents one
party from enforcing his legal rights under a contract through the legal process (of
courts, arbitration etc) then such an agreement is expressly void agreement.
However, if the agreement states that any dispute between parties will be referred to
arbitration and the amount awarded in such arbitration will be final will be a valid
contract.
Also if the parties agree that any dispute between them in the present or the future will
be referred to arbitration, then such an agreement is also valid. But such a contract has
to be in writing.

 Agreement in restraint of trade: An agreement by which any person is restrained

from plying a trade or practicing a legal profession or exercising a business of any kind
is an expressly void agreement. Such an agreement violates the constitutional rights of
a person.
Exceptions:
However, there are a few exceptions to this rule. If a person sells his business along
with the goodwill then the buyer can ask the seller to refrain from practicing the same
business at the local limits. So if according to such an agreement as long as the buyer or
his successor carries on such a business the agreement to restrain the trade of the
seller will be valid.
Similarly, if an outgoing partner can enter into such a restraint of a trade agreement
with the partnership firm. Also, a contract between partners not to carry out any
competing business during the continuance of a partnership is also a valid contract.
Similarly, an employer can restraint his employee from doing job/ work anywhere else
other than that in his business. If after entering into contract, employer terminates the
employee without any valid reason, then restriction ends, but if employee leaves job,
then restriction is valid.
Note: After the end of employment, the employer can restrict his past employee,
where;
i) Good will is involved.
ii) Trade secret is involved.
iii) Any expertise or rare knowledge is involved
iv) Legitimate interest is involved.
One point to keep in mind regarding the above agreements is that the terms of such an
agreement have to reasonable. Such reasonable terms are not defined under the Act but are to
be judged according to each unique situation and circumstance.

Let us take for example the case of physician A, who employs B as his assistant for three years.
For this duration of three years, B agrees not to practice medicine anywhere else. This is a valid
agreement even though it is in restraint of trade.

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 But say A sells his legal practice to B along with the goodwill. And A agrees never to practice as
a lawyer anywhere in the state for the next 20 years. This is not a valid agreement since the
terms are completely unreasonable.
 Uncertain agreements: An agreement whose meaning is uncertain cannot be a valid
agreement, it is a void agreement. If the essential meaning of the contract is not
assured, obviously the contract cannot go ahead. But if such uncertainty can be
removed, then the contract becomes valid.
For example: A agrees to sell to B 100 kg of fruit. This is a void contract since what
type of fruit is not mentioned. But if A exclusively sells only oranges then the
agreement would be valid because the meaning would now be certain.

 Wagering agreement: An agreement to wager is a void agreement. The basis of a

wager is that the agreement depends on the happening or non-happening of an
uncertain event. Here each side would either win or lose money depending on the
outcome of such an uncertain event.

Example: Wagering agreement

A promises to pay Rs. 10,000 to B if it rained today, and B promises to pay Rs. 1,000 to A if it
did not.

The essentials of a wagering agreement are as follows. If all elements are met then the
agreement will be void.
 Must contain a promise to pay money or money’s worth
 Is conditional on the happening or non-happening of a certain event
 The event must be uncertain. Neither party can have any control over it
 Must be the common intention to bet at the time of making the agreement
 Parties should have no other interest other than the stake of the bet

Exception to Wagering agreement

Transactions which are not held wagers:

 Prize competitions which are games of skill, e.g. picture puzzles, athletic competitions. For
example, an agreement to enter into a wrestling event in which winner was to be rewarded
by the entire sale proceeds of tickets is not a wagering contract.
 An agreement to contribute to a plate or prize of the value of Rs. 500 and above to be
awarded to the winner of a horse race.
 Stock market transaction in which the delivery of shares is intended to be given.
 Contracts of insurance

Effects of Wagering Agreement

The effects of wagering agreements are following:

 Such agreements are void

 No suit can be filed to recover the amount won on any wager.
 Transactions which are collateral to wagering agreements may also be void
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(Mr. Brohi)
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 7. Freedom from Uncertainty/ Certainty
Agreements, the meaning of which is not certain or capable of being made certain
are void.
It means, in order to give rise to a valid contract the terms of the agreement must
not be vague or uncertain. It must be possible to ascertain the meaning of the
agreement; otherwise, it cannot be enforced.

Example: Ms. Naheed, agrees to sell “100 dictionaries”, there is nothing whatever to
show what kind of dictionaries, of which company and which edition etc. was intended.
The agreement is void for uncertainty.

8. Possibility of Performance
According section 56, “An agreement to do an act impossible in itself is void”. If the
act is impossible in itself, physically or legally, the agreement cannot be enforced by
law.

Example: Mr. X agrees to Mr. Y to make his dead father alive by magic and receives Rs.
100,000. The agreement is not enforceable.

Possibility of performance of an agreement is impossible in the following cases:

i) Impossible Acts: An agreement to do an impossible act is void.

ii) By Becoming Void: A contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable.

A contract ceases to be enforceable in the following cases:

a) Frustration of parties: A contract to do an act which subsequently becomes

impossible or unlawful due to happening of an event which could not be prevented by the
promisor, becomes void.

9. Lawful object

“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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