Question 1

When is consent said to be free under the Contract Act?

Accepted Answer

Under section 14 of the Contract Act, 1872, consent is said to be free when it is not caused by:
1. Coercion;
2. Undue influence;
3. Fraud;
4. Misrepresentation; or
5. Mistake, subject to sections 20, 21, and 22.
“Consent” itself means that two or more persons agree upon the same thing in the same sense. (Source: Contract Act 1872, section 14)

Question 2

Is a contract signed by a minor valid in Pakistan?

Accepted Answer

No. In Pakistan, a minor is not competent to enter into a contract, so a contract signed by a person under 18 is generally void.
Under section 11 of the Contract Act, 1872, contractual capacity requires the person to have reached the age of majority. Section 3 of the Majority Act, 1875 generally sets that age at 18. Pakistani case law also confirms that a minor cannot enter into a contract.
A limited exception may apply to an arrangement made on behalf of a minor where it is demonstrably for the minor’s welfare and benefit. An arrangement prejudicial to the minor’s vested rights is not binding merely because others consented to it. (Source: Contract Act 1872, section 11)

Question 3

What compensation can be claimed for breach of contract?

Accepted Answer

Under Pakistan’s Contract Act, 1872, a party suffering from breach of contract may claim:
- Section 73: Compensation for loss or damage that naturally arose in the usual course from the breach, or that the parties knew when contracting was likely to result. Remote or indirect losses are not recoverable. When assessing compensation, the court must consider available means of mitigating the inconvenience caused by non-performance.
- Section 74: If the contract specifies liquidated damages or a penalty, the claimant may receive reasonable compensation not exceeding the amount stipulated, whether or not actual loss is proved. A court may reduce an amount that is oppressive or highly penal and determine what is reasonable in the circumstances.
- For a clause characterized as a penalty, actual damages may be recovered up to the stipulated ceiling. For liquidated damages, the stipulated amount may generally be recovered, subject to the court’s power to refuse or reduce an oppressive or highly penal amount. (Source: Contract Act 1872, section 73)

Question 4

What is a contract of indemnity under the Contract Act?

Accepted Answer

Under section 124 of the Contract Act, 1872, a contract of indemnity is a contract in which one party promises to protect the other from loss caused by the promisor’s own conduct or by the conduct of another person.
For example, if A promises to indemnify B against the consequences of proceedings brought by C concerning a particular sum, that is a contract of indemnity. (Source: Contract Act 1872, section 124)

Question 5

What does an indemnity clause in a contract actually oblige a party to do?

Accepted Answer

An indemnity clause obliges one party—the indemnifier—to protect the other party from losses caused by the indemnifier’s conduct or another person’s conduct, to the extent covered by the clause.

Under sections 124–125 of the Contract Act, 1872, if the indemnified party is sued and acts within the scope of its authority, it may recover:

- damages it is compelled to pay in a suit concerning a covered matter; and
- litigation costs it is compelled to pay, provided it followed the indemnifier’s instructions and acted prudently, or the indemnifier authorized the proceedings.

The precise obligation therefore depends on the scope and wording of the indemnity clause. (Source: Contract Act 1872, section 124)

Question 6

What is a contract of guarantee under the Contract Act?

Accepted Answer

Under section 126 of the Contract Act, 1872, a contract of guarantee is a contract to perform the promise or discharge the liability of a third person if that person defaults.

The parties are:

- Surety: the person giving the guarantee  
- Principal debtor: the person whose default is guaranteed  
- Creditor: the person to whom the guarantee is given

A guarantee may be oral or written. Under section 127, anything done or promised for the principal debtor’s benefit may constitute sufficient consideration for the guarantee. (Source: Contract Act 1872, section 126)

Question 7

What is bailment and what duty does the bailee owe?

Accepted Answer

Bailment is an arrangement in which goods belonging to one person—the bailor—are placed in the possession of another—the bailee—to hold them. Delivery may be physical or effected by anything that puts the goods in the bailee’s possession. A person already possessing another’s goods may also become a bailee by agreeing to hold them in that capacity.

Under the Contract Act, 1872, the bailee must:

- Exercise ordinary prudence: Section 151 requires the same care that a prudent person would take of their own goods of similar bulk, quality, and value.
- Act consistently with the bailment’s conditions: Under section 153, an inconsistent act allows the bailor to avoid the bailment.
- Return the goods on time: Under section 161, if the goods are not duly returned, delivered, or tendered because of the bailee’s default, the bailee is liable for subsequent loss, destruction, or deterioration.
- Deliver any increase or profit: Under section 163, unless agreed otherwise, any increase or profit arising from the goods must also be delivered to the bailor or as directed.

Under section 152, absent a special contract, the bailee is not liable for loss, destruction, or deterioration if the standard of care required by section 151 was exercised. (Source: Contract Act 1872, section 148 and 151)

Question 8

How many days of grace does a promissory note or bill of exchange get at maturity?

Accepted Answer

A promissory note or bill of exchange gets three days of grace after the date on which it is expressed to be payable.

Under section 22 of the Negotiable Instruments Act, 1881, this does not apply to instruments payable on demand, at sight, or on presentment. If maturity falls on a public holiday, section 25 provides that it is due on the preceding business day. (Source: Negotiable Instruments Act 1881, section 22)

Question 9

What is the difference between a guarantee and an indemnity?

Accepted Answer

A guarantee is an undertaking to perform the promise or discharge the liability of a third person if that person defaults, whereas an indemnity, in this context, is the principal debtor’s obligation to reimburse the surety for amounts the surety rightfully pays under the guarantee.

Under sections 126 and 145 of the Contract Act, 1872:

- Guarantee: There are three roles—the surety giving the guarantee, the principal debtor whose default is covered, and the creditor receiving the guarantee. It may be oral or written.
- Indemnity of the surety: Every guarantee carries an implied promise that the principal debtor will repay the surety whatever the surety rightfully pays. Wrongful payments cannot be recovered.
- Legal costs: Reasonable costs incurred in defending a creditor’s claim may also be recovered from the principal debtor, but costs from an unjustified defence cannot. (Source: Contract Act 1872, section 124 and 126)

Contract Law in Pakistan — Free Consent, Minors, Compensation and Indemnity