The Contract Act of 1872 was brought into effect by the Imperial legislative Council as an Act No: 9 of 1872, in British India, derived from the propositions of English Common law. Quite a few adjustments were put together in the enactment in accordance with the native circumstances. Earlier on, throughout the times of Muslim rule in the subcontinent, every single matter associated with a contract was adjudicated under the Mohammedan Law of Contract. The Act replaced that and was intended to regulate the contractual correlation between two or more factions, for instance, persons, organizations and governments. It also covers other concerns for contracts namely; their creation, performance, enforceability, agency or indemnities and guarantees.
Plenty of legal specialists & jurists emphasize that there are three central spots where the Contract Act needs to be updated. These include requirement to identify non-competitor limitations, propose & initiate coherence in proviso’s for E-contracts, and to balance unfair terms of a contract. The need for these amendments is added to as there has been a rise in the employment of contracts owing to the rise in business investments in Pakistan. This article will look into some specific areas which must be included in any amendments made to the Contract Act.
Grey Areas in Contract Act
Section 73 of the Act which deals with the redress of loss or damage due to a violation of the terms of the contract, covers only damages which result in the usual course of things following breach of contract. Distant or incidental loss/ damage sustained as a result of breach of the contract is not covered. While many states impose limitations on full compensation to the sum of liquidated damages, section 74 imposes no such limitations for damages resulteing from breach.
Section 27 makes void any agreement which prevents an individual from availing a legal line of work, business or trade. This has become a redundant provision as non-competitor clauses are popular in present day contracts. But if parties have similar management capacities in the dispute then such agreements are not to be termed ‘agreements in restraint of legal proceedings’ under section 28.
Moreover, in accordance with s. 2(d) the consideration for a contract can proceed from any person and not necessarily from the parties to the contract, nonetheless, there is no specified provision in the Act, which is either for or against the principle of Privity of Contract & Assignment of contract. Since this ultimately relates to the third parties in any contract, this area has not been properly addressed by the legislation.
The Doctrine of frustration must be added to the legislation, albeit with some modifications. Although section 56 deals with agreements to do impossible acts, the plea of contract being frustrated is only taken as a defence in most cases by a party which is bound to perform the contract but is trying to avoid its completion. Similarly, the ‘doctrine of impracticability’ must also be considered to be included within the Contract Act. This deals with the performance of a promise where that promise has become unfeasibly tough or costly for the performer. Although it is similar to the doctrine of frustration the doctrine of impracticability comes into effect where the performance is physically feasible but would be very onerous on whom the performance is due.
Similarly, for online business negotiations & transactions, another key fact to remember is that our statute stands in need of notions concerned with offer and acceptance in digital contracts. A separate chapter in the legislation will help to deal with regulations for electronic contracts.
Nearly all developed jurisdictions have advance systems to adjust with unfairness in contracts along with giving recognition to the possibility of procedural and substantive unfairness, while, the Contract Act has no provision dealing with unfair terms in a contract. This needs to be dealt with immediately as terms capable of controllng fairness in contracts can drastically alter the scope of agreements, particularly those between landlord-tenant, builder-developer , lending & arbitration agreements.
Conclusion
Being a very important piece of legislation, the Pakistan Contract Act is a well meaning statute. It must however, be updated specifically regarding the provisions discussed above. Not only will this help the law of contract to deal with problems it is not capable of dealing with but will also encourage businesses from investing in Pakistan. Given the increase in foreign investments in Pakistan, the time is ripe and right to revise the law of Contracts in Pakistan to allow for a legislation which not only encourages such exchanges but facilitates them to the best of its ability.