This article will evaluate the enforceability of oral contracts in Pakistan. Oral contracts are commonly executed in Pakistan for the sale of goods, services or, where applicable, for conveyance of land. Resultantly, Pakistani courts are required to adjudicate the validity of oral contracts wherein litigants face undue hardship in establishing oral contracts due to lack of acumen and lack of expertise in the legal services received in these matters. This article will endeavor to provide a simple, yet effective, guide for lawyers and judges to establish oral contracts.
Oral contracts fall within the scope of the Contract Act, 1872. The conduct of parties which establishes (i) communication of the offer/proposal; (ii) acceptance of the offer/proposal leading to a promise; (iii) a promisor and a promisee; (iv) consideration; and (v) performance (partial or full), is likely to result in the formation of an agreement and under Section 2(h) of the 1872 Act and such an “…agreement enforceable by law is a contract.” Section 10 of the 1872 Act does not restrict the execution of oral contracts.
However, in order to enforce oral contracts, a claimant is required to see beyond the academic definition of a contract and has to follow two practical steps namely:
- to properly plead the terms of the oral contract in the plaint; and
- to prove the certainty of the terms of the oral contract through cogent evidence.
These steps merit a review of the Code of Civil Procedure (CPC), 1908 and the Qanun-e-Shahadat Order, 1984 (Pakistan’s law of evidence) together with the judgments of the superior courts of Pakistan.
Code of Civil Procedure (CPC), 1908
The first step to enforce an oral contract is to expressly plead its terms in the plaint as per the CPC. Under Order VI Rule 2 of the CPC,
“…every pleading shall contain … a statement in concise form of the material facts on which the party pleading relies for his claim’ and Rule 3 provides that, ‘The forms in Appendix A when applicable, and where they are not applicable forms of the like character, as nearly as may be, shall be used for all pleadings.”
In Appendix A to the CPC, Form 13 (breach of agreement to purchase land), Form 14 (not delivering goods sold), Form 15 (wrongful dismissal), Form 16 (breach of contract to serve), Form 17 (against a builder for defective workmanship), Forms 47 and 48 (specific performance) and Form 49 (partnership) expressly require a plaintiff to plead the contract.
Resultantly, the plaintiff must provide the description of the contract (such as the property, goods, services or works) and its terms (such as consideration) and other minute details of the contract including, most importantly, the witnesses to the agreement. In particular, Form 49 (partnerships) requires the plaintiff to disclose in the plaint whether the plaintiff and the defendant(s) “…have been for years [or months] past carrying on business together under articles of partnership in writing [or under a deed, or under a verbal agreement].” This reinforces that oral contracts can be pleaded in Pakistan.
The recent judgments of the Supreme Court of Pakistan in Muhammad Riaz & others v. Mst. Badshah Begum & others (reported as 2021 SCMR 605) and Sadruddin v. Sultan Khan (reported as 2021 SCMR 642) have held that if a transaction has been carried out through an oral contract then the terms and conditions, which had been orally agreed upon, should be provided in the pleadings and established through evidence. In such cases, the plaintiff, besides detailing the subject matter of the oral contract, has to mention other details, including consideration, details of striking the bargain, name of the witnesses in whose presence the said oral contract had been created and other necessary details for proving the oral contract “…as if it would have been executed in writing.” Thus, it is extremely important for trial attorneys to minutely insert the details relating to oral contracts in the pleadings and it is important for judges to ensure compliance of the CPC.
Qanun-e-Shahadat Order, 1984
The second step in enforcing an oral contract is to establish its existence by proving that the terms of the oral contract are certain. In this regard, Article 17(2) of the 1984 Order provides the following:
“(2) Unless otherwise provided in any law relating to the enforcement of Hudood or any other special law:
(a) in matters pertaining to financial or future obligations, if reduced to writing, the instrument shall be attested by two men or one man and two women, so that one may remind the other, if necessary, and evidence shall be led accordingly; and
(b) in all other matters, the Court may accept, or act on the testimony of one man or one woman or such other evidence as the circumstances of the case may warrant.”
Accordingly, while written contracts must be attested by two men or one man and two women, for all other matters the court may accept or act on the testimony of one man or one woman. While oral contracts should fall in the latter category (i.e. under Article 17(2) of the 1984 Order), given the higher threshold to prove oral contracts, the parties should ideally attest the execution of oral contracts (and their performance) through a number of witnesses (i.e. more than those required for written contracts). In a recent judgment of the Islamabad High Court in Muhammad Akbar Dhareeja v. Muhammad Ramzan Khokhar (reported as 2021 CLC 1132), Justice Miangul Hassan Aurangzeb, while reinforcing the position that oral contracts are enforceable like written contracts, has held that the party claiming an oral contract ought to prove, under Article 17(2) of the 1984 Order, that a payment has been made in accordance with the oral contract.
Next, Chapter VI of the 1984 Order set outs certain thresholds in relation to oral contracts:
(i) Under Article 103 of the 1984 Order, if a contract is reduced to writing and presented, and proved, in court as per the provisions of the 1984 Order then,
“…no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives-in-interest, for the purpose of contradicting, varying, adding to or subtracting from, its terms”. This position is supplemented by illustration (b) to Article 103 which provides that “A agrees absolutely in writing to pay B, Rs. 1,000 on the first March, 1984. The fact that at the same time, an oral agreement was made that the money should not be paid till the thirty-first March cannot be proved.”
(ii) The provisos of Article 103 offer considerable room to establish oral contracts:
“Proviso (2): The existence of any separate oral agreement as to any matter on which a document is silent, and which is not inconsistent with its terms may be proved. In considering whether or not this proviso applies, the Court shall have regard to the degree of formality of the document.
Proviso (3): The existence of any separate oral agreement constituting a condition precedent to the attaching of any obligation under any such contract, grant or disposition of property may be proved.
Proviso (4): The existence of any distinct subsequent oral agreement to rescind or modify any such contract, grant, or disposition of property, may be proved, except in cases in which such contract, grant or disposition of property is by law required to be in writing, or has been registered according to the law in force for the time being as to the registration of documents.
Proviso (5): Any usage or custom by which incidents not expressly mentioned in any contract are usually annexed to contracts of that description, may be proved: Provided that the annexing of such incident would not be repugnant to, or inconsistent with the express terms of the contract.
Proviso (6): Any fact may be proved which shows in what manner the language of a document is relied to existing facts.”
(iii) Thus, the language of the provisos in Article 103 of the 1984 Order shows that if the parties have orally agreed to an additional, or separate, arrangement with respect to the subject matter, then a party may seek to establish the existence of an oral contract.
(iv) Further, illustrations (g) and (h) in Article 103 provide the following:
“(g) A sells B a horse and verbally warrants him sound. A gives B a paper in these words “Bought of a horse for Rs. 500”. B may prove the verbal warranty.
(h) A hires lodging of B, and gives a card on which is written “Rooms, Rs. 200 a month.” A may prove a verbal agreement that these terms were to include partial board.
A hires lodging of B for a year, and regularly stamped agreement, drawn up by an advocate, is made between them. It is silent on the subject of board. A may not prove that board was included in the terms verbally.”
Resultantly, oral contracts (together with their terms) can be proved in the circumstances set out in the provisos and illustrations of Article 103 of the 1984 Order notwithstanding that oral contracts are not substitutes of, and cannot offset the existence of, written contracts.
In practice, parties often litigate with respect to the enforceability of oral contracts. The claims of specific performance and injunction or damages under oral contracts are commonly defended by denying the existence of the oral contract. It is easy to do so because in the absence of a contract, a party cannot claim specific performance and injunction. Similarly, damages for breach of contract cannot also be claimed without first establishing a valid contract and its breach.
The above defence has been dismissed by Pakistani courts which, based on evidence, have held that contracts can be impliedly created between parties on the basis of their respective conduct. A larger bench of the Supreme Court of Pakistan in Muhammad Sattar & Others v. Tariq Javaid & Others (reported as 2017 SCMR 98) rejected the argument that a contract could be not specifically performed as it had not been created due to the absence of signatures by the promisor and the promisee. The Supreme Court held that as long as the elements constituting the formation of a contract had been present (as set out above), the requirement of the contract to be in writing, or be signed by the parties, would not affect the existence of the contract. The Supreme Court also recognized the existence of oral contracts. The Supreme Court held the following:
“7. The primary and basic law relating to the contracts is obviously the Contract Act, 1872. The essentials of a valid contract are an offer communicated, the unconditional acceptance of such offer and consideration. There is nothing in the Contract Act, 1872 which requires that such offer and acceptance must necessarily be in writing or form a single document. The law i.e. the Contract Act, 1872 envisages a valid enforceable contract, which may even be oral. A perusal of the provisions of the said enactment also reveals that both the proposal and its acceptance may be expressed or implied, as is apparent from section 9 thereof.
8. Similarly, once an offer is communicated, the performance of the conditions of the proposal or the acceptance of any consideration or part thereof offered with the proposal also constitutes an acceptance so as to bring about a valid binding contract between the parties, as is obvious from the bare reading of section 8 of the Contract Act, 1872…
10. The Courts in Pakistan, while interpreting the various provisions applicable, more particularly, sections 8 and 9 of the Contract Act, 1872, have repeatedly and consistently held that the contracts in general do not require to be reduced into writing (except where otherwise specifically provided by law) and the offer and acceptance can also be implied from the conduct of the parties in terms of sections 8 and 9 ibid and the absence of formal signatures does not effect the validity or enforceability of the Contract Act, 1872….
13. …it is now a well settled proposition of law that for a valid contract, the same can be oral or it may be through exchange of communication between the parties. Once an offer is communicated, the acceptance thereof can be expressed or implied. Such acceptance of the offer would include accepting the consideration accompanying the offer or acting upon the said bargain. There is no requirement of a formal signature of both or either of the parties. All that is required is an offer and acceptance and consideration between the parties.
14. At this juncture it may be pertinent to mention that all valid contracts are not specifically enforceable but nevertheless may give rise to rights and liabilities, and the breach thereof may entitle the offended party to seek compensation/damages in terms of sections 73 and 74 of the Contract Act, 1872.”
Similarly, in Muhammad Akbar’s case supra, the Islamabad High Court held that,
“An oral agreement is as enforceable as a written agreement, provided the same fulfills the requirement of a valid contract. Although an oral agreement is enforceable, its execution is required to be proved by adducing cogent evidence.”
In doing so, the Islamabad High Court placed reliance on the following judgments and their respective ratio decidendi:
- Maqsood Ahmad Salman Ali (reported as PLD 2003 SC 31) – a person entering into an oral agreement has to prove the oral agreement according to the definition of agreement in Section 2(h) of the Contract Act, 1872.
- Allah Ditta Liaqat Ali (reported as 2005 YLR 245) – an oral agreement is required to be proved by the beneficiary through cogent evidence of the bargain, especially after its denial by the other party.
- Adin Khan and Giloti Transport Co. Government of Pakistan (reported as 1997 CLC 369) – an oral agreement, for its proof, requires the clearest and most satisfactory evidence. Law to this effect has also been laid down in the cases of Qazi Muhammad Saqib Khan v. Ghulam Abbas (2003 MLD 131), Muhammad Farooq & Company (Pvt.) Ltd. v. Messrs Pakistan Tobacco Company Limited (1997 CLC 520), Government of Pakistan v. Kamruddin Valika (1996 CLC 1086) and Khayaban-e-Iqbal (Pvt.) Ltd. v. Mustafa Haji Muhammad (1996 CLC 1758).
Accordingly, a court in Pakistan should not hesitate in holding that an oral contract is valid and enforceable like a written contract. The courts should view such matters with a keen eye to ascertain whether the claimant has passed the procedural test set out in the CPC and established the oral contract under the 1984 Order.
The reason why most judgments in Pakistan stress on proving the existence of an oral contract is to ascertain the “certainty” of terms. Under Section 29 of the 1872 Act,
“Agreements, the meaning of which is not certain, or capable of being made certain, are void.”
Thus, if a claimant cannot prove the express terms of an oral contract which had been agreed upon by the parties, then such contract would be void for uncertainty. To avoid uncertainty, case-law stresses on the need to assert, and later prove, specific terms of the oral contract. In Muhammad Riaz’s case supra, the Supreme Court reinforced the position that the terms of an oral contract must be “certain” and the only way to ascertain the same would be by pleading them in the plaint under the CPC and establishing them under the 1984 Order, failing which the oral contract would be void for uncertainty.
In passing, it may be pointed out that Pakistani courts have always followed a pragmatic approach in establishing contracts. For example, in cases where contracts have been reduced to writing but not signed, Pakistani courts have rejected the attempt to deny the existence of a contract. In M.A Khan & Co. v. Pakistan Railways Employees Cooperative Housing Society Limited (reported as 2006 SCMR 721), the promisor, as a result of a tender, awarded the development and construction of commercial plots to the promisee but the parties did not execute a formal contract. During the course of development and construction, both parties developed differences and the promisee claimed damages against the promisor, which had been decreed by a single judge of the Sindh High Court and later by the Supreme Court of Pakistan. Similarly, in Jamal Jute Baling & Co.v. M. Sarkies & Sons (reported as PLD 1971 SC 784), the parties had reduced the contract to writing but did not sign the same. The promisee partially performed the contract and later sought its enforcement through court because the promisor had denied existence of a valid contract due to lack of signing. The Supreme Court upheld the formation of the contract.
To conclude, Pakistan is a friendly jurisdiction when it comes to the choice of parties for execution of contracts. This includes the flexibility of the parties to agree to oral contracts. Based on the author’s experience, the courts have been slow in enforcing oral contracts because the parties (or their respective lawyers) have consistently failed to adhere to the two legal steps that are required to enforce oral contracts namely: to plead in the plaint (or the claim document, as the case may be) in compliance of the CPC; and to establish/prove an oral contract (and its terms) on the basis of witnesses. If these two legal steps are complied with, then, in the author’s opinion, a Pakistani court will enforce the oral contract in favor of the party claiming relief thereunder.
 If, however, a special law requires that the contract must be in writing then any oral agreement in this regard will not qualify as a contract and will not be enforceable in Pakistan. For example, an arbitration agreement (which is a separate agreement embedded in the main contract), as per Section 2(a) of the Arbitration Act, 1940 must be in writing, failing which a Court in Pakistan is unlikely to recognize and enforce it.
 Conversely, the language of Forms 17, 47 and 48 requires a plaintiff to annex the contract with the plaint. This leads to a presumption that a written contract has been executed but if the plaintiff does not enclose the same with the plaint because the parties had executed an oral contract then, in the author’s opinion, it should not be fatal to the plaint because of the use of the phrase “as nearly as may be” in Order VI Rule 3 of the CPC.
 In Ahmad Saeed Kirmani v. Muslim Commercial Bank Limited (reported as 1993 SCMR 441), the Supreme Court, while interpreting Section 73 of the Contract Act, held that a “party claiming damages due to breach of contract, must establish the contract, the breach thereof and the extent of damages” and that the “onus would be on the person pleading breach of contract and without discharging same, he could not succeed…Only such damages could be recovered which would naturally arise in the usual course of things from such breach or the parties at the time of making the contract knew that loss or damage was likely to result from the breach”. This legal position has been consistently applied in various judgments of the Superior Courts of Pakistan while adjudicating claims of recovery of damages (for example in Muhammad Akbar v. Masood Tariq Baghpati (reported as 2019 CLD 1) and in Kamran Construction (Pvt) Limited v. Nazir Talib (reported as 2010 SCMR 829)).
The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any other organization with which he might be associated.