Contracts are the backbone of legal transactions in both business and personal dealings. However, not every agreement is legally binding. Some contracts, though formed with mutual consent, are unenforceable in law, meaning they cannot be enforced through a court of law. In this article, we’ll explore what makes a contract unenforceable under the Contract Act, 1872, its categories, legal consequences, and relevant case law in Pakistan.
Relevant Law: The Contract Act, 1872 (Pakistan)
The Contract Act, 1872 governs contract law in Pakistan. It lays down the conditions for a valid contract under Section 10:
“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”
What is an Unenforceable Contract?
An unenforceable contract is a legally formed agreement that cannot be enforced by law due to some technical or legal defect. Unlike void or illegal contracts, unenforceable contracts are not invalid in essence, but they cannot be executed or acted upon until corrected or unless the defect is resolved.
Essentials of a Valid Contract
Before understanding unenforceable contracts, let’s recall what makes a contract enforceable under Section 10:
- Offer and acceptance
- Lawful consideration
- Capacity of parties (Section 11)
- Free consent (Sections 13–22)
- Lawful object (Section 23)
- Not expressly declared void
Failure to fulfill any of the above can make a contract void, voidable, or unenforceable.
Types of Unenforceable Contracts in Pakistan
Here are common types of unenforceable contracts under the Contract Act:
1. Oral Agreements Requiring Written Form
Some contracts must be in writing (e.g., sale of immovable property under the Transfer of Property Act or Stamp Act) to be enforceable. An oral agreement in such cases is unenforceable.
Example: An oral sale of a house without a written sale deed.
2. Contracts Lacking Proper Stamp Duty
Under the Stamp Act, 1899, certain agreements require payment of stamp duty. If this is not paid, the contract is inadmissible in evidence and hence unenforceable.
Example: A loan agreement not stamped according to law.
3. Agreements Without Registration (if required)
As per the Registration Act, 1908, agreements involving immovable property of value above Rs. 100 must be registered. Unregistered documents cannot be enforced in court.
4. Agreements with Uncertain Terms (Section 29)
If the terms of the contract are vague or uncertain, such contracts are unenforceable.
Example: “A agrees to sell goods to B at a price to be decided later.”
5. Barred by Limitation (Limitation Act, 1908)
If a party files a case after the expiry of the limitation period, the contract is unenforceable even though it may have been valid.
Example: A promissory note not enforced within 3 years.
6. Contracts Opposed to Public Policy (Section 23)
Contracts that go against morality or public interest are not enforceable, even if not directly illegal.
Example: Agreements to suppress evidence, or interfere with court proceedings.
Legal Distinction: Unenforceable vs Void Contracts
| Aspect | Unenforceable Contract | Void Contract |
|---|---|---|
| Legality of formation | Legally formed but defective | Void from the beginning |
| Enforceability | Not enforceable unless defect removed | Never enforceable |
| Examples | Oral sale of land, unstamped agreements | Agreement with minor, or without consent |
Case Law Examples in Pakistan
- Laclaire Pakistan Corporation v. The Islamic Republic of Pakistan, PLD 1957 Karachi 285: This case highlights the importance of adhering to contractual terms, particularly concerning inspection protocols.
- Section 21, The Specific Relief Act, 1877: Specifies contracts that are not specifically enforceable, including those for which monetary compensation is adequate or those that involve personal qualifications. This section is directly relevant to the main topic of unenforceable contracts.
- Section 28, THE CONTRACT ACT, 1872: States Agreements in restraint of legal proceedings are void. Rasheedur Rehman Khan v. Mian Iqbal Hussain, PLD 2006 Supreme Court 418 also reinforce its concept.
- Section 56, The Contract Act, 1872: Addresses agreements to do impossible acts and contracts that become impossible after being made, rendering them void. This applies to contracts with non-existent subject matter.
- Muhammad Abdul Kassim versus The MUSLIM COMMERCIAL BANK Ltd., KARACHI, 1984 MLD 370: This case reinforces the enforceability of clauses in service contracts that provide for compensation in case of early termination.
- Hussain Ali v. Government of Pakistan, 1989 M L D 472: This judgment reinforces the principle that statutory authorities cannot recover amounts as arrears of land revenue without properly determining the amount due through a legal process.
- BISMILLAH BEGUM v. Messrs THE PAK CONSTRUCTION Co. Ltd., 1987 MLD 648: This judgment reinforces the principle that contracts, once entered and partially fulfilled with accepted payments, cannot be unilaterally canceled without valid justification.
- Abdul Karim v. Muhammad Sham, 1973 SCMR 225: This judgment reinforces the principle that courts can decree specific performance of a contract for the sale of immovable property, even if the contract includes a penalty clause for non-performance.
- Sheikh MUHAMMAD OBAID‑Appellant Versus MUHAMMAD RAFI QURESHI‑Respondent, PLD 1962 Karachi 409: The judgment underscores the importance of free consent in contracts and the impermissibility of using police pressure to enforce civil claims. It clarifies the distinction between undue influence and coercion under the Contract Act and highlights that agreements to stifle criminal prosecution, especially without court approval for compoundable offenses, are void as against public policy.
Consequences of an Unenforceable Contract
- Cannot be enforced in a court of law
- No remedy available until the legal defect is cured (if curable)
- No damages or specific performance can be claimed
- May be converted into enforceable form (e.g., via stamping or registration)
Practical Steps to Avoid Unenforceable Contracts
- Ensure written contracts for significant transactions
- Get agreements properly stamped under Stamp Act
- Register property and lease agreements
- Avoid vague or open-ended terms
- Keep limitation periods in mind and take timely legal action
- Hire a lawyer to review major contracts
Conclusion
In Pakistan, a contract may be valid in content but still unenforceable due to technical defects like missing stamps, lack of registration, or legal formalities. Understanding what makes a contract unenforceable under the Contract Act, 1872 is crucial for avoiding legal pitfalls in both personal and commercial dealings. It is always wise to ensure compliance with all legal requirements and seek professional legal advice before signing any agreement.