Chapter 3: Validity of Contracts and Agreements

Question 1

List down Essentials of a Valid Contract.

Answer 1

1. Offer and Acceptance.
2. Intention to create legal relationship.
3. Capacity/Competence of parties.
4. Free Consent.
5. Consideration.
6. Lawful Object.
7. Possibility of performance.
8. Certainty.
9. Legal formalities regarding writing and registration.
10. Not expressly declared to be void.

[Chapter 3: LO 1]

Question 2

Briefly Explain the essential of Contract “Consideration”.

Answer 2

There must be a lawful consideration. Generally, an agreement without consideration is void.

[Chapter 3: LO 1]

Question 3

Which parties are not fully competent to contract:

Answer 3

 Minor.
 Person of unsound mind.
 Persons disqualified by law

[Chapter 3: LO 1]

Question 4

What is the effect on contract, if consent of a party is not free:

Answer 4

If consent of a party is not free, contract becomes voidable at the option of party whose consent is not free.

[Chapter 3: LO 1]

Question 5

Which agreements are legally required to be in written form:

Answer 5

 Agreement for natural love and affection.
 Promise to pay time-barred debt.
 Arbitration agreements.
 Gift

[Chapter 3: LO 1]

Question 6

What is the difference between a Void Agreement and Void Contract.

Answer 6

1. A void agreement is an agreement which is void from start (also called void ab-initio) e.g. agreement with illegal object.
2. A void contract is valid at start but subsequently something happened which made it void e.g. subsequent illegality or subsequent impossibility.

[Chapter 3: LO 2]

Question 7

What is a Voidable Contract. Give some examples:

Answer 7

Voidable contract is a contract which is enforceable at the option of one party (i.e. aggrieved party).

For example:
1. If consent of a party is not free.
2. If Promisor does not deliver goods as per terms and conditions (e.g. not on time).
3. If Promisee refuses to accept goods or refuses to provide reasonable facilities to promisor.

[Chapter 3: LO 2]

Question 8

Define Consideration.

Answer 8

When at desire of the promisee, the promisor (or his agent on his behalf) has done or does or promises to do something, such act is called a consideration for the promise.

[Chapter 3: LO 3]

Question 9

List down Essentials of Consideration.

Answer 9

1. Consideration must be offered at the desire of promise.
2. Consideration may be given by promisor or any other person.
3. Consideration may be past, present or future act or abstinence.
4. Consideration must be something in value.
5. Consideration must be real.
6. Consideration must be something which promisor is not already bound to do.
7. Consideration must be lawful.

[Chapter 3: LO 3]

Question 10

Briefly Explain the essential of Consideration “Consideration must be something in value”.

Answer 10

Consideration must be something valuable. However, it is not required to be of equal/adequate value.

[Chapter 3: LO 3]

Question 11

Briefly Explain the essential of Consideration “Consideration must be real”.

Answer 11

Consideration must be real. It should not be:
 Physically impossible (e.g. to make a dead man alive, or to run at a speed of 100 km/hour)
 Uncertain, or illusory (e.g. to make happy).

[Chapter 3: LO 3]

Question 12

Briefly Explain the essential of Consideration “Consideration must be something which promisor is not already bound to do”.

Answer 12

A promise to do what someone is already bound to do is not a valid consideration for a new promise. Similarly, a promise to perform a public duty by a public servant is not a consideration.

[Chapter 3: LO 3]

Question 13

Explain the following Exception of Agreement without Consideration. “Agreement made on account of natural love and affection”

Answer 13

Such an agreement is valid even without consideration if it is:
i. Between parties having a near relation to each other, and
ii. Made on account of natural love and affection, and
iii. Expressed in writing, and
iv. Registered under the law for registration of documents.

Question 14

Explain the following Exception of Agreement without Consideration. “Agreement to pay a time-barred debt”

Answer 14

An agreement to pay a time-barred debt is enforceable provided:
 Debt is time barred, and cannot be recovered as per law of limitation, and
 It is made in writing, and
 Signed by debtor or his authorized agent.

Question 15

Explain the following Exception of Agreement without Consideration. “Gift”

Answer 15

Any gift is valid without consideration if it is completed (i.e. transferred),** written** and registered.

[Chapter 3: LO 4]

Question 16

Explain the following Exception of Agreement without Consideration. “Agreement to contribute to charity”

Answer 16

A promise to contribute to charity would be enforceable if, on the faith of the promise, promisee takes steps and undertakes a liability.

[Chapter 3: LO 4]

Question 17

What is Unlawful Object/Consideration.

Answer 17

An object/consideration is unlawful if:
 It is forbidden by Pakistan Penal Code i.e. punishable by law (e.g. wagering).
 It involves injury to a person or his property.
 It is fraudulent.
 If permitted, it would defeat the provisions of any law.
 Court regards it immoral or opposed to public policy.

[Chapter 3: LO 5]

Question 18

List down the agreements which are opposed to public policy:

Answer 18

1. Trading with an alien enemy.
2. Stifling criminal prosecution (agreement to withdraw legal action against a criminal).
3. Sale of public office.
4. Marriage brokerage agreement.
5. Restraint of parental rights.
6. Restraint of personal liberty.
7. Agreement to create monopoly.

[Chapter 3: LO 5]

Question 19

What is the status of agreements which are partly lawful and partly unlawful.

Answer 19

 If the illegal part can be separated, then legal part will be enforced and illegal part will be rejected.
 If the illegal part cannot be separated, then whole agreement is void.

[Chapter 3: LO 6]

Question 20

What is the status of agreement if there are alternate promises and one of them is illegal.

Answer 20

Only the legal promise one can be enforced.

[Chapter 3: LO 6]

Question 21

What is the status of agreement if there are dependent promises i.e. first to do one promise and then later to do other promise.

Answer 21

1. If agreement is first to do legal things and secondly illegal things, the first set of promises is contract but second is a void agreement.
2. If agreement is first to do illegal things and secondly legal things, the whole agreement is void.

[Chapter 3: LO 6]

Question 22

Who is a minor:

Answer 22

A minor is a person who has not attained age of majority which is 18 years of age. However, if a guardian is appointed by court for a minor, then age of majority will be 21 years.

[Chapter 3: LO 7]

Question 23

What is the legal status of an agreement made with Minor.

Answer 23

1. Agreement by a minor is void against him.
2. Rule of estoppels does not apply to a minor.
3. No ratification of agreement by minor.
4. Minor in a partnership.
5. Minor in an Agency.
6. Agreement by guardian or parents on behalf of minor.
7. Contracts by minor and adult jointly.
8. Minor and insolvency.
9. Filing suit.

[Chapter 3: LO 7]

Question 24

What is meant by “Rule of estoppels does not apply to a minor”.

Answer 24

If a minor falsely represents himself as of age of majority, he will still not be liable (and can avoid contract).

[Chapter 3: LO 7]

Question 25

What is meant by “No ratification of agreement by minor”.

Answer 25

An agreement made by minor cannot be ratified subsequently by him after he attains age of majority.

[Chapter 3: LO 7]

Question 26

Can a minor become a partner.

Answer 26

A minor cannot be a partner in a partnership firm. However, he can be admitted to the benefits of partnership with the consent of all partners.

[Chapter 3: LO 7]

Question 27

Can a minor become an Agent.

Answer 27

A minor can be an agent, and can bind principal with his acts.
However, minor cannot be personally liable for negligence or breach of duty.

[Chapter 3: LO 7]

Question 28

What is the status of an agreement by guardian or parents on behalf of minor:

Answer 28

If guardian or parents enter into a contract on behalf of minor for the benefit of minor, such agreement can be enforced by or against minor.

[Chapter 3: LO 7]

Question 29

What is the position of a minor in an agreement made by minor and adult jointly:

Answer 29

If a minor and an adult jointly enters into a contract with another person, minor has no liability under the contract and contract can be enforced only against adult.

[Chapter 3: LO 7]

Question 30

Can a person recover the amount if supplied goods to Minor.

Answer 30

If a person supplies necessities of life (e.g. paying expenses for living, medicine, studies) to a minor or to his dependents, he can recover the reasonable price from the property of such minor.
[Same rule applies to person of unsound mind]

[Chapter 3: LO 7]

Question 31

Who is a person of unsound mind:

Answer 31

A person is of unsound mind if at time of making a contract:
 he is not able to understand it, and
 he is not able to judge its effects on his interest.

[Chapter 3: LO 8]

Question 32

What is the legal status of an agreement made with Person of Unsound Mind.

Answer 32

1. If person is of sound mind at time of agreement, agreement is valid.
2. If person is of unsound mind at time of agreement, agreement is Void.

[Chapter 3: LO 8]

Question 33

Who has Burden of Proof if an agreement is made with Person of Unsound Mind.

Answer 33

1. If person is normally of Sound Mind, party avoiding contract will have to prove that there was ‘unsoundness’ at time of contract.
2. If person is normally of Unsound Mind, party enforcing contract will have to prove that there was ‘soundness’ at time of contract.

[Chapter 3: LO 8]

Question 34

Which persons are disqualified by law to make contract:

Answer 34

1. Alien enemy (i.e. citizen of a foreign country which is at war with Pakistan)
2. Foreign Sovereigns and Ambassadors
3. Convicts (i.e. a person who is found guilty and is imprisoned)
4. Insolvent

[Chapter 3: LO 9]

Question 35

What is the status of agreement with Alien Enemies:

Answer 35

An alien-enemy means citizen of a country at war with Pakistan.
 No new contract can be made with alien-enemy during war.
 Existing contracts are suspended. No action can be taken on them. However, they can be revived after war is over.

[Chapter 3: LO 9]

Question 36

What is the status of agreement with Foreign Sovereigns and Ambassadors:

Answer 36

Such persons can enter into contracts and can sue others to enforce contracts. However, they have immunity and cannot be sued unless they choose to submit themselves to our courts.

[Chapter 3: LO 9]

Question 37

What is the status of agreement with Convicts:

Answer 37

During the period of imprisonment, a convict:
 cannot make new contracts, and
 cannot sue on contracts made before conviction.
This disability ends on expiry of sentence or when he is **on **parole.

[Chapter 3: LO 9]

Question 38

What is the status of agreement with Insolvent:

Answer 38

A person who is declared undischarged insolvent cannot make agreements to dispose his property because his property rests with official assignee/receiver.

[Chapter 3: LO 9]