“Legal Aptitude: Contract Law”

🟢 Lite — Quick Review (1h–1d)

Rapid summary covering the essential elements and types of contracts for the LAT exam.

A contract is a legally binding agreement between two or more parties that creates mutual obligations enforceable by law.

The 6 Essential Elements of a Valid Contract:

1. Offer — One party proposes definite terms to another
2. Acceptance — The other party agrees to those exact terms
3. Consideration — Something of value is exchanged
4. Intention to create legal relations — Parties must intend the agreement to be legally binding
5. Capacity — All parties must be legally capable of entering a contract
6. Free consent — Agreement must be made without coercion, fraud, undue influence, misrepresentation, or mistake

Types of Contracts:

Type	Description
Express Contract	Terms stated explicitly (oral or written)
Implied Contract	Terms inferred from conduct or circumstances
Unilateral Contract	One party promises; other performs
Bilateral Contract	Both parties exchange promises
Void Contract	No legal effect from the start
Voidable Contract	One party can rescind the contract
Illegal Contract	Prohibited by law

Key Principle — Privity of Contract: Only the parties to a contract have rights and obligations under it. A third party cannot sue on a contract (established in Tweddle v. Atkinson, 1861).

⚡ LAT Exam Tip: LAT questions often test whether students can identify missing elements. If a scenario lacks “consideration” or “intention to create legal relations,” the contract may be unenforceable. Always check all six elements systematically.

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🟡 Standard — Regular Study (2d–2mo)

For students preparing for the LAT who want a solid grasp of contract law principles.

Offer and Acceptance:

An offer must be distinguished from an invitation to treat. Advertisements, shop displays, and auction announcements are generally invitations to treat, not offers (Fisher v. Bell, 1961 — shop display of a flick knife was an invitation to treat, not an offer to sell).

An offer can be terminated by:

• Revocation (withdrawal by the offeror, communicated before acceptance)
• Rejection (offeree refuses the offer)
• Counter-offer (new terms proposed — this destroys the original offer)
• Lapse of time (specified deadline or reasonable time passes)
• Death of either party (in most jurisdictions)
• Failure of a condition precedent

Acceptance must be:

• Absolute and unconditional (Smith v. Hughes, 1871 — buyer accepting oats they believed were old was still bound)
• Communicated to the offeror (postal rule: acceptance is valid when posted, but only if the offer specified post as the mode)
• Made by the offeree (acceptance by a third party is generally ineffective)

Consideration:

Consideration must be:

• Something of value — benefit to the promisor or detriment to the promisee
• Moving from the promisee — must come from the person seeking to enforce
• Executory or executed — a promise to do something, or something already done
• Legal — must not be illegal

Rules Regarding Consideration:

• Past consideration is not sufficient (must be given at the time of the promise, not before)
• Consideration need not be adequate (courts do not assess whether the exchange is fair)
• Performance of an existing duty is not good consideration (except where there is a new contractual chain)
• Contractual modifications require fresh consideration

Exceptions to the Privity Rule: In Pakistan and many Commonwealth jurisdictions, a third party who is a beneficiary of a contract can enforce it if the contract expressly confers a benefit on them (Pakistan Contract Act, 1872 — Section 2(d)(h)).

Capacity:

The following persons have limited or no capacity to contract:

• Minors (under 18 in Pakistan): Contracts with minors are generally voidable at the minor’s option
• Persons of unsound mind: Contracts with mentally incapacitated persons are void
• Bankrupts: Cannot enter certain contracts without permission
• Foreign sovereigns and diplomats: Immunity from jurisdiction

Free Consent:

Consent is not free if obtained through:

1. Coercion — illegal or improper threats (Pakistan Contract Act, Section 15)
2. Undue influence — relationship of trust exploited (e.g., doctor and patient)
3. Fraud — false statement made knowingly to induce agreement
4. Misrepresentation — innocent but false statement that induced the contract
5. Mistake — mutual mistake about a material fact makes contract void (Section 20)

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🔴 Extended — Deep Study (3mo+)

Comprehensive coverage of contract law for students aiming for top LAT scores.

Classification of Contracts:

On the Basis of Formation:

• Express Contract: Terms are explicitly stated in words (oral or written)
• Implied Contract: Terms are inferred from conduct and surrounding circumstances

On the Basis of Execution:

• Executory Contract: Both parties have future obligations remaining
• Executed Contract: All obligations have been performed
• Unilateral Contract: One party has performed; the other promises to do something upon performance

On the Basis of Validity:

• Valid Contract: All essential elements present — legally enforceable
• Void Contract: No legal effect from the beginning — parties owe no obligations
• Voidable Contract: Valid until rescinded by the injured party (e.g., due to coercion, fraud, undue influence, misrepresentation, minority)
• Illegal Contract: Contrary to law or public policy — no remedy for either party; courts may not assist either party even if they seek to withdraw

The Doctrine of Privity:

The rule in Tweddle v. Atkinson (1861) established that only parties to a contract can sue or be sued. However, equity developed exceptions through trusts: if a third party is the beneficiary of a trust, they may sue. The Contracts Act 1872 (Pakistan) partially modifies this through Section 2(h).

Breach of Contract and Remedies:

When one party fails to perform their obligations, the other party may seek:

1. Damages — monetary compensation for loss suffered

   • Compensatory damages: restore the injured party to position as if contract performed
   • Nominal damages: small amount when breach caused no actual loss
   • Consequential damages: indirect losses flowing from breach
   • Liquidated damages: pre-agreed sum in contract (enforceable if genuine estimate of loss)

2. Specific Performance — court orders the defaulting party to perform their obligations (used when damages are inadequate, e.g., unique goods)

3. Injunction — court orders a party to stop doing something or to do something

4. Rescission — contract is cancelled and parties restored to original positions

Discharge of Contracts:

A contract may be discharged (ended) by:

• Performance: Both parties fulfill their obligations
• Agreement: Mutually agreed to end or alter the contract
• Breach: One party fails to perform (allows other party to sue)
• Frustration: Circumstances make performance impossible (doctrine of frustration)
• Operation of law: Merger, alteration, rescission
• Lapse of time: Statute of limitations

The Pakistan Contract Act 1872 — Key Provisions for LAT:

• Section 2(a): Proposal/Offer
• Section 2(b): Promise
• Section 2(c): Proposal and acceptance
• Section 2(e): Consideration
• Section 2(h): Agreement defined
• Section 2(i): Void agreements
• Section 10: Proposals with free consent
• Section 11: Who can contract (capacity)
• Sections 14-22: Free consent
• Sections 23-30: Contingent contracts, Wagering agreements
• Sections 37-67: Performance of contracts
• Sections 68-75: Breach and remedies

⚡ LAT Exam Strategy:

Contract law questions typically present a scenario and ask you to identify:

1. Whether a valid contract exists
2. Which element is missing or defective
3. What type of contract it is
4. What remedies are available

Use the CHECKLIST METHOD:

1. Is there an offer? Was it communicated?
2. Was there acceptance? Was it absolute?
3. Is there consideration? Is it valid?
4. Did parties intend legal relations?
5. Do all parties have capacity?
6. Was consent freely given?

If all six elements are present, you likely have a valid and enforceable contract.