Law of Contract

What is a Contract?
A Contract

 Meaning
A legally binding agreement.
In other words…“A promise or set of promises which the law will
enforce”.
 Definition
The agreement will create rights and obligations that may be
enforced in the courts.
A contract is an agreement giving rise to obligations which are
enforced or recognized by law
 Law
Contract Act 1872
 Parties
Method of Enforcement

Action for damages for breach of contract

Performance by the party in default.
Free Contract

The parties must have entered into the agreement freely.

The purpose of the agreement must not be illegal or
contrary to public policy.
Forms of Contract

 Written
 Oral
 Partly Written
 Partly Oral
Classes of Contracts

Contracts by Deed
 A deed is a formal legal document signed, witnessed
and delivered to effect a conveyance or transfer of
property or to create a legal obligation.
Simple contracts
 Simple contracts are informal contracts and may be
made in any way – in writing, orally or they may be
implied from conduct
Bilateral, Unilateral and Multilateral Contracts

Bilateral contracts
 A promise by one party in exchanged for a promise by
another party
 A one to one contract
 Example : Sale of goods contract
 The Buyer promises to pay the price
 The Seller promises to deliver the goods
Unilateral contracts

 A promise by one party in exchanged for an action by

another party
 A one to all contract
 Example :
 X promises a reward to anyone who will find his lost
wallet.
 X bound himself to the promise, but no one is bound to
search for
 the lost wallet. But if Y, having seen the offer, recovers
the wallet
 and returns it, he is entitled to the reward.
Multilateral Contracts

 Accord among three or more parties, agencies, or

national governments.
 Such agreements between two such parties is called
bilateral agreement.
Elements of 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:
Continued…..

 Intention to create a contract

 Meeting of Minds (Consensus ad idem)
 Offer and acceptance
 Consideration – lawful consideration with a lawful object
 Capacity of parties to contract – competent parties
 Free consent
 An agreement must not be expressly declared to be void.
 Writing and Registration if so required by law
 Legal relationship
 Certainty
 Possibility of performance
 Enforceable by law.
 Good faith
Who can enter into a contract

 Minors and the mentally incompetent lack the legal

capacity to enter into contracts.
 All others are generally assumed to have full power to
bind themselves by entering into contracts.
 Legal age for entering into contracts is 18.
 The test for mental capacity is whether the party
understood the nature and consequences of the
transaction in question.
Continued……

 Corporations have the power to enter into contracts.

 They make contracts through the acts of their agents,
officers, and employees.
 Whether a particular employee has the power to bind
the corporation to a contract is determined by an area
of law called agency law or corporate law.
 If you doubt whether an individual with whom you are
dealing has authority to enter into a contract with you,
insist that the contract be reviewed and signed by the
corporation's head.
Continued……

 A corporation has a separate legal existence from its

founders, officers, and employees. Generally, the
individuals associated with a corporation are not
themselves responsible for the corporation's debts or
liabilities, including liability for breach of contract.
Offer and Acceptance

 A contract is formed when one party (the "offeror") makes an offer

which is accepted by the other party (the "offeree").
 An offer - a proposal to form a contract - can be as simple as the
words, "I'll wash your car for you for Rs. 200/-.
 " An acceptance - the offeree's assent to the terms of the offer - can
be as simple as, "You've got a deal." Sometimes acceptance can be
shown by conduct rather than by words.
 When an offer has been made, no contract is formed until the
offeree accepts the offer.
 When you make an offer, never assume that the offeree will accept
the offer. Contractual liability is based on consent.
Example

 Developer offered to pay Photographer Rs.50,000/- to

use Photographer's photo in Developer's multimedia
work. Photographer said, "Let me think about it."
Developer, assuming that Photographer would accept
the offer, went ahead and used the photo.
Photographer then rejected Developer's offer.
Developer has infringed Photographer's copyright by
reproducing the photograph for use in the multimedia
work. Developer must now either remove the photo
from the multimedia work before distributing the work
(or showing the work to others) or reach an agreement
with Photographer.
Continued…..
 When you are an offeree, do not assume that an offer
will remain open indefinitely.
 In general, an offeror is free to revoke the offer at any
time before acceptance by the offeree.
 Once the offeror terminates the offer, the offeree no
longer has the legal power to accept the offer and form
a contract.
CONSIDERATION

 Consideration, in legal terminology, is what one party

to a contract will get from the other party in return for
performing contract obligations.
 Developer promised to pay Artist Rs.50,000/- if Artist
would let Developer use one of Artist's drawings in
Developer's multimedia work. The consideration for
Developer's promise to pay Artist Rs.50,000/- is Artist's
promise to let Developer use the drawing. The
consideration for Artist's promise to let Developer use
the drawing is Developer's promise to pay Artist
Rs.50,000/-
Continued…….

 According to traditional legal doctrine, if one party

makes a promise and the other party offers nothing in
exchange for that promise, the promise is
unenforceable. Such a promise is known as a
"gratuitous promise." Gratuitous promises are said to be
"unenforceable for lack of consideration."
Typical Contract Provisions

 Special Provisions
 Common Provisions
Common Clauses

Duties and Obligations

The duties and obligations section of a contract is a
detailed description of the duties and obligations of the
parties and the deadlines for performance. If one party's
obligation is to create a multimedia work, software, or
content for a multimedia work, detailed specifications
should be stated.
Continued……

 Representations and Warranties

 A warranty is a legal promise that certain facts are true.
Typical representations or warranties in contracts
concern such matters as ownership of the contract's
subject matter (for example, real estate) and the right
to sell or assign the subject matter. In multimedia
industry contracts, warranties of ownership of
intellectual property rights and non infringement of
third parties' intellectual property rights are common.
Continued…….

 Termination Clauses
 These clauses ensure that either or both parties have
the right to terminate the contract under certain
circumstances.
 Generally, termination clauses describe breach of
contract events that trigger the right to terminate the
contract (for example, nonpayment of royalties).
 Termination clauses also describe the methods of
giving notice of exercise of the termination right, and
whether the breaching party must be given an
opportunity to cure the breach before the other party
can terminate the contract.
Continued……

 Remedy Clauses
 These clauses state what rights the non breaching party
has if the other party breaches the contract.
 In contracts for the sale of goods, remedy clauses are
usually designed to limit the seller's liability for
damages.
Continued……

 Arbitration Clauses
 An arbitration clause states that disputes arising under
the contract must be settled through arbitration rather
than through court litigation.
Continued…….

 Merger Clauses
 Merger clauses state that the written document
contains the entire understanding of the parties. The
purpose of merger clauses is to ensure that evidence
outside the written document will not be admissible in
court to contradict or supplement the terms of the
written agreement.
Continued……

 Time of Performance
 Some contracts will provide that "time is of the
essence", which may support an action for breach of
contract where the contract is not completed within a
reasonable (or specified) time. This is often seen in
construction contracts, where it is important that work
be resolved such that a home owner or business can
return to normal life or operations
Continued…….1

 Time is of the essence for the completion of the work

described in this contract. It is anticipated by the parties
that all work described herein will be completed within
two (2) weeks of the date of execution, and that any
delay in the completion of the work described herein
shall constitute a material breach of this contract.
 Others may specifically provide that time is not of the
essence:
 The parties agree that time is not of the essence in the
completion of the work described in this contract. All
parties shall act to complete the work described within a
reasonable time.
 Where a contract includes language of the latter
variety, you may wish to ask yourself why the other
party wants the language. That is, do they anticipate
delays which will leave you dissatisfied with the
timeliness of their performance?
Continued……

 Indemnification Language
 An indemnity clause requires that one party indemnify
the other, in the event that certain expenses are
incurred. Example language:
 The contractor agrees to indemnify and hold harmless
the contractor against loss or threatened loss or expense
by reason of the liability or potential liability of the
contractor for or arising out of any claims for damages.
 Be careful with this type of clause, as it can significantly
increase your exposure in the extent of an unexpected
event or breach of the contract.
Case Study

 Carlill Vs. Carbolic Smoke Ball Co.

1893 I Q.B.256
Discussion:-
 An offer to be capable of acceptance, must involve a
definite promise by the offeror that he will bind himself
if the exact terms specified by him are accepted
 An offer may be made either to a particular person or
to the public at large
 If an offer takes the form of a promise in return for an
act, the performance of that act is in itself an adequate
indication of assent