Ghulam Murtaza Korai IoBM

Proposal or Offer: Proposal is the initial stage of a contract Definition1: When one person signifies to another his willingness to do or abstain from doing something with a view to obtaining the assent of that other person.
Definition2: A proposal is a statement (by one party) of willingness to enter into a contract on stated terms provided that it is accepted by the party to whom it is addressed.

Intention to create legal relationship: The maker of the proposal must intent to enter into contractual relationship. The terms of offer must be certain(clear) not loose or vague: The terms of an offer must be definite and certain. Communication of Proposal: It means that proposal must be communicated to the other party.

Express Proposal: A proposal made by words of mouth or by writing is an express proposal. Implied Proposal: A proposal made neither verbally nor in writing is an implied proposal. It is made by the conduct of the party. A common example is taking goods to the cash counter in a super-market. That is an implied proposal. Specific Proposal: An offer made to an individual or to a specific group of persons. It can only be accepted by the person to whom it is made. General Proposal: An offer may be made to the public at large. It may be accepted by anyone who complies with the terms of the offer

Counter Proposal: A statement (by the offeree) which does not accept all the terms and conditions proposed by the offerer, but which in fact introduces a new terms is a new proposal and it is called a counter proposal. A counter proposal is capable of being accepted or rejected. The legal effect of a counter proposal is that terminates the original proposal. Cross Proposal: Two manifestations of willingness to make the same bargain are said to be cross proposals if the following conditions are fulfilled. I) subject matter of both the offers must be same; ii) terms of both the offers must be same; and iii) they must be made simultaneously.

Definition: When the person to whom the proposal is made signifies assent to it, the proposal is said to be accepted. The acceptance should be absolute and unconditional. It is called Mirror Image Rule. Promise, Promiser and Promisee Proposal+ Acceptance= Promise. A proposal when accepted becomes a promise. Promise is an accepted proposal.

Promiser: The person making the proposal is called the promise or the one whose proposal is accepted and he becomes bound by his promise. Promisee: The person accepting the proposal is called the promise.

A proposal may be revoked at any time before the communication of the acceptance. Revocation of Acceptance An acceptance may be revoked at any time before the communication of the acceptance The Postal Rule Where the postal service is used as the means of communication, an acceptance is deemed to be complete as soon as the properly addressed and stamped letter is posted. The contract is concluded on posting the letter even if the letter subsequently fails to reach the proposer.

By revocation By lapse of time i) prescribed time or ii) reasonable time. By death or insanity of proposer By death or insanity of offeree By Rejection By counter proposal By mode of acceptance

OFFER An offer is a promise to be bound on particular terms. It may (If it is accepted by an offeree) result in a legally enforceable contract. Acceptance is necessary for the formation of a contract but once the offeree has assented to the terms offered, a contract comes into effect and both parties are bound. The proposer can no longer withdraw his offer nor can the offeree withdraw his acceptance.
INVITATION TO TREAT An invitation to treat is simply an expression of willingness to enter into negotiations which it is hoped will lead to the conclusion of a contract at a later date.

Display of goods for sale The display of goods constitutes an invitation to treat and that the offer is made by the customer when he presents the goods at the cash counter where the offer may be accepted by the shopkeeper. Tenders Tenders an other example of invitation to treat. They occur where someone wishes particular work to be done and issues a statement asking interested parties to submit the terms on which they are willing to carry out the work. The person who invites the tender makes an invitation to treat. The person who submits the tender is the offerer and the other party is at liberty to accept or reject the offer.

Auction Sales The general rule is that an auctioneer (by inviting bids to be made) makes an invitation to treat. The offer is made by the bidder which in turn is accepted when the auctioneer strikes the table with his hammer. The advertisement of an auction-sale is generally an invitation to treat. Certain Statements Which Do Not Amount to Proposal Supply of information A statement of wish

Consideration is the price by which the promise of the other party is bought. When at the desire of the promise, the promisee who does or abstains from doing something such act or abstinence or promise is called a consideration for the promise (by the promisee to the promisor).

Consent is said to be free when it is not obtained by means of: Coercion Undue influence Fraud Misrepresentation Mistake

Coercion : Coercion is the committing or threatening to commit any act forbidden by the Pakistan Penal Code (PPC 1860) or the unlawful detaining or threatening to detain any property to the prejudice of any person with the intention of causing any person enter into an agreement. Effect of Coercion When consent to agreement is caused by coercion, the agreement is a contract voidable at the option of the party whose consent was so caused.

Burden or Onus of Proof Burden of proof that the consent for the agreement was obtained by coercion lies on the party intending to avoid the contract.

Undue influence: A contract is said to be induced by undue influence when the relation between the parties are such that one of them is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. When a person is deemed to be in a position to dominate the will of another? Real authority: Where he holds real or apparent authority over the other. a) officer and his subordinate b) a police officer and an accused c) master and servant Fiduciary Relation: Where he stands in a fiduciary relation to the other. a) spiritual guide and his disciple b) solicitor and client

Affected mental capacity: Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress. Medical attendant and patient.

Effect of Undue Influence When consent to agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Burden or Onus of Proof Burden of proof that the consent for the agreement was obtained by undue influence lies on the party intending to avoid the contract.

Fraud: Fraud is intentional. It is an intention to deceive the party on whom it is employed or induced. The induced also enters into a contract. It includes: False Assertion: A false representation of a fact made knowingly or without belief in its truth constitutes fraud. Active Concealment: Active concealment of a fact by one having knowledge or belief of fact is fraud. For example, where a seller sells goods already sold by him to third person. His conduct amounts to active concealment and fraud. Empty Promise: Making a promise without the intention of performing it is a fraud. For example, buying goods under a contract of sale with the intention of not paying the price is fraud.

Misrepresentation: It is misstatement but innocent. There is no intention to deceive. When a person makes a positive statement that a fact is true when his information does not warrant it to be so, though he believes it to be true this amounts to misrepresentation. If a party to an agreement induces (however innocently) the other party to make a mistake as to the nature or quality of the subject matter of the agreement, this act also amounts to misrepresentation.

Effects: if there is no free consent

Voidability of agreement without free consent A contract is voidable at the option of a party whose consent to the contract is obtained by means of: Coercion; or Undue influence; or Fraud; or Misrepresentation.

Incompetency of Party A minor A person of unsound mind A disqualified person Mistake of Fact Unlawful agreement Forbidden by law Fraudulent Injury to person Immoral or opposed to public policy

Agreements without consideration Restraint of marriage Restraint of trade Restraint of legal proceedings Uncertain agreement Wagering agreement Impossible act

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Incompetency of Parties: An agreement in which one of the contracting parties is an incompetent person is a void agreement. Following Persons are incompetent to enter into a contract: A minor i) Age of Majority 18 years ii) 21 years guardian A person of unsound mind A person disqualified by law

Test of soundness of mind: A person is said to be sound mind for the purpose of making a contract if at the time when he makes it, he is capable of understanding it and of forming rational judgment as to its effect upon his interest. Contract in lucid interval: A person who is usually of unsound mind but occasionally of sound mind may make a contract when he is of sound mind.

Drunkenness: A person who is usually of sound mind but occasionally of unsound mind may make a contract when he is of sound mind. Disqualified persons: a) an alien enemy; b) foreign ambassador; c) a convict; and d) an insolvent

Mistake of fact: where both the parties to the agreement are under a mistake as to a fact essential to the agreement, the agreement is void. Consideration &/ or Object unlawful: Every agreement of which the object or consideration is unlawful is void. The consideration or object of an agreement is unlawful in the following cases:

When it is forbidden by law: A promises to B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of things taken. The agreement is void, as its object is unlawful. If it is Fraudulent: A,B and C enter into agreement for the division among them of gains acquired, or to be acquired, by them by fraud. The agreement is void, as its object is unlawful

Injury to person: X promises to pay Rs 10,000 to Y to publish a libel (i.e. defamatory article against someone). Agreements opposed to public policy: An agreement to sale public property

Agreements without consideration: An agreement without consideration is a void agreement. Restraint of Marriage: Every agreement in restraint of marriage of any person is void. Restraint of trade: An agreement restraining a person from carrying on a lawful profession, or trade, or business is void to that extent.

Restraint of legal proceedings: An agreement by which a party is restricted from enforcing his contractual (legal) rights by the usual legal proceedings in the ordinary tribunals is void. Uncertain Agreements: the agreement, the terms of which are not certain is void.

Performance of Contract means fulfilling of their respective legal obligations created under the contract by both the promisor and the promisee. A contract is said to have been performed when the parties to a contract either perform or offer to perform their respective promises. Section 37 of Contract Act lays down the obligation of the parties regarding performance.

There may be two types of performance as follows:

Actual performance: where a promisor has made an offer of performance to the promisee and the offer has been accepted by the promisee, it is called an actual performance. Example A contracted to deliver B at his warehouse on 1st December 100 bales of cotton of a particular quality. A brought the cotton of required quality to the decided place on the agreed day during the business hours and B took the delivery of goods. This is an actual performance.

 Attempted Performance: where a promisor has made an offer of performance to the promisee, and the offer has not been accepted by the promisee. It is called an attempted performance (section 38). Example if in the aforesaid example, B refused to take the delivery of goods, it is a case of attempted performance because A has done what he was required to do under the contract.

If any party to the contract refuses or fails to perform his part of the contract is called breach of contract. Or even by his act makes it impossible to perform his obligation under the contract. A breach may of contract may occur in the following ways.

 Anticipatory Breach of Contract: Anticipatory breach

of contract occurs when the party declares his intention of not performing the contract before the performance is due. Actual Breach of Contract: Actual breach of contract occurs in the following two ways: 1. On due date of performance : if any party to the contract refuses or fails to perform his part of the contract at the fixed time of performance, it is called an actual breach of contract on due date of performance 2. During the course of performance: if any party has performed a part of the contract and refuses or fails

to perform the remaining part of the contract, it is called an actual breach of contract during the course of performance. Consequences of Breach of Contract: The aggrieved party (i.e. the party not at fault) is discharged from his obligation and gets rights to proceed against the party at fault. The various remedies available to an aggrieved party.

Meaning of Remedy: a remedy is the course of action available to an aggrieved party (i.e. the party not at fault) for the enforcement of a right under a contract. Remedies for Breach of Contract: The various remedies available to an aggrieved party are. Rescission of Contract Suit for Damages Suit for Specific Performance Suit for Injunction

Rescission means a right not to perform obligation. In case of breach of contract, the promisee may put an end to the contract. In such a case, the aggrieved party is discharged from all the obligations under the contract and is entitled to claim compensation for the damage which he has sustained because of the nonperformance of the contract. For example X agrees to supply 10 tons of wheat to Y on 20 December. Y promises to pay for goods on delivery. X does not supply the goods on due date. Here Y is discharged from the liability of paying the price. Y is entitled to rescind the contract and to claim compensation for the damage because of non supply of goods.

Damages are monetary compensation allowed for the loss suffered by the aggrieved party due to breach of contract. The object of rewarding damages is not to punish the party at fault but to make good the financial loss suffered by the aggrieved party due to the breach of contract. Types of Damages: Ordinary Damages Special Damages Exemplary or Punitive Damages Nominal Damages

Ordinary damages are those which naturally arise in the usual course of things from such breach. These damages can be recovered if the following two conditions are fulfilled: The aggrieved party must suffer by breach of contract, and The damages must be proximate consequences of the breach of contract and not the indirect consequences.

Measure of Ordinary Damages: In a contract for the sale of goods, the measure of ordinary damages is the difference between the contract price and the market price of such goods on the date of breach. For example on 1st December A contracted to sell and deliver 50 tons of wheat @ Rs. 8,000 per ton to B. On 20 December. A failed to deliver goods on 1st January when the price of the wheat was Rs.9,500 per ton. Y is entitled to recover Rs 75,00 [(i.e. Rs 9,5008,000)*50]

Special damages are those which may reasonably be supposed to have been in the contemplation of both parties as the probable result of the breach of a contract. These damages can be recovered if the special circumstances which would result in a special loss in case of breach of a contract are communicated to the promisor, e.g. loss of profits on account of default by the other party to the contract can be claimed only when an advance notice of such damages has been given before.

Example A, a builder, contracts to construct and finish a house by the 1st January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that, before the first of January it falls down, and has to be rebuilt by B, who, in consequences, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding the house, for the rent lost and for the compensation made to C.

Exemplary damages are those which are in the nature of punishment. The court may award these damages in case of (i) a breach of promise to marry, where damages shall be calculated on the basis of mental injury sustained by the aggrieved party, (ii) wrongful dishonor of a cheque by a banker. In case of wrongful dishonor of a cheque, the rule is smaller the amount of the cheque, larger will be the amount of damages awarded. A trader may recover such damages as wrongful dishonor of cheque shall adversely affect the goodwill but a non trader whose cheque is wrongfully dishonored will have to prove the loss of goodwill before claiming such damages.

Nominal damages are those which are awarded where there is only a technical violation of a legal right but the aggrieved party has not in fact suffered any loss because of breach of contract. These damages are called nominal because they are very small, say, one rupee. The court may or not award these nominal damages.

Suit for specific performance means demanding courts direction to the defaulting party to carry out the promise according to the terms of the contract. Example A agreed to sell his house to B for Rs. I million. Subsequently, A refused to sell the house. Here, B may file a suit against B for the specific performance of the contract.

Suit for injunction means demanding courts stay order. Injunction means an order of the court prohibits a person to do a particular act. Where a party to a contract does something which he promised not to so, the court may issue an order prohibiting him from doing so. Example A agreed to play for Karachi Dolphins only during the contract period. During the contract period, A made contract with IPL to play outside Pakistan and refused to play for Karachi Dolphins, it was held that A could be restrained by injunction from playing for IPL.