1.

Discuss essential of valid contract

2. What are the kinds of contract explain them
3. Explain the essentials of valid offer
4. What are the essentials of a valid acceptance?
5. Discuss void agreement in detail
6. What are the rules and exceptions of consideration
7. What do you understand by capacity to contract? What are the effects of agreements
made by the person not competent to contract?
8. What do you mean by free consent discuss in detail
9. What are the ways in which a contract may be discharged
10. Give the remedies available to the aggrieved party in case of breach of contract
11. Discuss in detail the position of a quasi-contract when the obligations of contract are
imposed by the law
12. Differentiate between indemnity and guarantee
13. What are the features of bailment?
14. What are the rights and duties of bailer?
15. What are the rights and duties of Bailee?
16. What are the essential features of pledge?
17. What are the rights and duties of Pledger?
18. What are the right and duties of pledgee
19. Differentiate between the sale and agreement to sell
20. Rights and duties of unpaid seller
21. Discuss the rights of buyer in a contract of sale
22. Discus the rules relating to the delivery in a contract of sale

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 Contract

An agreement enforceable at law is called contract.

Agreement

Every promise or set of promises forming consideration for each other is called agreement.

Types of agreement

i. Social agreement
ii. Legal agreement

Social agreement

Agreementswhichdonotcreatelegalobligationbetweenthepartiesarecalledsocialagreements
.Insocialagreements, parties to a contract is not legally bound to perform the contract

Legal Agreements

Agreements which create legal obligation between the parties are called legal agreements.

In legal agreements, parties are legally bound to perform the contract.

Promise

When one person makes a proposal and other person accept it, it becomes promise
Or An accepted offer is called promise

Enforceable

An agreement creating legal relationship between the parties is enforceable.If a

Contract does not create legal obligation between the parties it is not enforceable
bylaw.

1. An agreement enforceable at law is contract discuss

Or

Describe the essentials/requirements of valid contract

Contract
An agreement enforceable at law is called contract.

Essentials of a valid contract

1. Offer& Acceptance

For a valid contract there must be lawful offer and lawful acceptance. Law full means that
the offer and acceptance must fulfill the requirement of law

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2. Legal Obligation

There must be legal obligation / relation between the parties to make a contract valid
If parties do not intend to create legal relationship, contract is not enforceable at law.

3. Lawful consideration
Consideration is the price paid by the one party for the promise of other party. Thus
for a valid contract consideration must be lawful

4. Competent to contract
For a valid contract parties must be of sound mind, must attain the age of majority and are
not disqualified from contracting by law

5. Free consent
For a valid contract the consent of parties must be free. Consent is free when it is not
obtained by coercion, undue influence misrepresentation and fraud

6. Lawful Object
The object of agreement must not be illegal, immoral opposed to public policy or to imply
injury to any person

7. Writing & registration

A contract may be oral in or writing but it is preferable that the contract must be in writing
because it is easy to prove in court. If required by law certain agreements must be in
writing signed and attested by witness and registered

8. Certainty of terms
For a valid contract it is essential that the terms and conditions of contract must be definite
and clear. Agreements the meaning of which is not clear are void

9. Possibility of performance
An agreement to do an impossible act is void. If the act is legally or physically impossible
to perform the agreement is not enforceable by law

2. What are the kinds of contract? Explain

The contract can be classified into following four categories

1. According to enforceability
2. According to formation
3. According to performance
4. According to parties

A contract is void when it is not enforceable by law

Obligation of parties
In avoid contract both the parties are not legally bound to perform the obligations
ofcontract.Ifanypartyhasreceivedbenefitfromvoidcontractislegallyboundtoreturnittootherpar
ty.

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 iii. Void agreement
Anagreementwhichdoesnotcreatelegalobligationbetweenthepartiesisvoid.Anagreement with
minor and agreement without consideration is void.

Obligation of parties
In avoid contract both the parties are not legally bound to perform the obligations of
contract. If any party has received benefit from void contract is legally bound to return it to
other party.

iv. Voidable contract

A contract which is enforceable at the option of one party but not at the option of other party
A contract is voidable when consent of one party is not free. Voidable contract can be
avoided by the party whose consent is not free.

v. Un enforceable contract
A contract is unenforceable which cannot be forced in court of law. Because of some
technical defects, Such as absence of writing and registration

2. According to formation

According to formation a contract has following three types.

a. Express contract
b. Implied contract
c. Quasi contract

a. Express contract
When a contract is formed by the words spoken or written it is called express contract

b. Implied contract
An implied contract arises from the acts, course of dealing or circumstances. It arises when
one person without asking to do so, render services under circumstances indicating that he
expect to be paid for the services and other person accept the benefit of those services.

c. Quasi contract
Quasi contracts are based on the principle of equity and justice. That a persons hall not be
allowed for the benefit at the cost of other
3. According to performance

Following are the types according to performance

i. Executed contract
ii. Executory contract

i. Executed contract
When all the parties to a contract have performed their obligations the contract is said to be
executed.

ii. Executory contract

When one of the parties has yet to perform his obligations, such contract is called executor
contract.

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 4. According to parties

According to parties the contract has following two types

a. Unilateral contract
b. Bilateral contract

3. Define the offer/proposal. Explain the essentials of a valid offer

Offer/proposal
When one person shows his willingness to do or not to do something to obtain the consent
of other, it is known as offer

Offeror/Promisor
An offer may be made by words or conduct .An offer which is made by words spoken or
written is called express offer.

An implied offer appears from the actions of parties, course of dealing or circumstances of
case.
2) Legal relation
For a valid contract the offer must be made to create legal relation. If an offer does not
create legal relation it is not a valid offer.

3) Definite & clear

Terms and conditions of offer must be clear and definite. If the terms and conditions are
not clear, it cannot be called valid offer.

4) Specific or general
When an offer is made to a specific person it is called specific offer. Such an offer can be
accepted only by the person to whom it is made.

When an offer is made to general publicities called general offer. Such an offer can be
accepted by any person who fulfils the conditions of offer

5) Communication with Offeree

An offer is valid only when it is communicated to the Offeree .If is not communicated to
Offeree it is not a valid offer

6) Negative conditions
An offer must not include negative conditions. Such as an Offeror cannot say that if the
acceptance is not communicated with in a specific period of time the offer would be
treated as accepted.

7) Conditions in offer
Anoffermayincludesomecomedians.Foravalidcontractalltheconditionsmustbeaccepted.IftheOf
ferorprescribeaspecificmode,it must be accepted in the same manner.

8) Cross offer
When both parties makes similar offer without having knowledge of other’s offer.Itis
Called valid offer. Acceptance of such offer does not result incomplete Agreement.

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 4. Define the acceptance. Explain the essentials of a valid acceptance

Acceptance

Acceptance is the ac of giving consent to the offer.

2) Definite and unconditional

For a valid contract the acceptance must be definite and unconditional. If accept or attach
any condition with his acceptance, it is not acceptance but a counter offer

3) Reasonable manner

Acceptance must be given in a particular manner as prescribed in offer. If no particular

manner is prescribed than it must be accepted in a reasonable manner.

4) Communication with Offeror

An acceptance is valid only when it is communicated to the Offeror. If it is not

communicated to Offer or it is not a valid Acceptance

5) Express or implied
Acceptance given by the word spoken or written is called express acceptance. When
acceptance is given by the action or conduct it is called implied acceptance.

6) Acceptance after offer

Acceptance must be given after receiving the offer. If acceptance is given without having
knowledge of offer; there is no contract because acceptance cannot be given without offer

7) Reasonable time
Offer must be accepted with in a prescribed time. If time of acceptance is not mentioned
than it should be accepted within a reasonable time

5. What agreements have been declared void by law?

Void agreement

An agreement not enforceable by law is called void agreement following are the
agreements that are declared void

1. Agreement in restraint of marriage

2. Agreement in restraint of trade
3. Agreement in restraint of legal proceedings
4. Uncertain agreements
5. Agreement by way of wager
6. Agreement against the public policy
7. Agreement to do an impossible act
8. Agreement under mistake
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 9. Agreement without consideration

Agreement in restraint of marriage

Every agreement which prevents a person other than minor from marrying is void. A
contract which interfere with the freedom of choice in marriage is also called void

Agreement in restraint of trade

Every person has a right to carry on a lawful business, profession, or trade. Thus, every
agreement which prevent a person from doing a lawful business, profession or trade is
void

Agreement in restraint of legal proceedings

An agreement which restrict a person from enforcing his right in court of law is void.
An agreement which limits the time within which he can enforce his right is void

Uncertain agreements

If the meaning of an agreement is not certain or it cannot be made certain, the agreement is
void

Agreement by Way of Wager

Wager mean be t, a wager is an agreement to pay on the happening or non-happening of

future event, each party has equal chance to win or lose the bet and the parties are only
interested in betting amount.

Agreement against the public policy

Every agreements which is against the public policy or involve injury to person is called
void
Agreement to do an impossible act

An agreement to do an impossible act is called void.

Agreement under Mistake

Every agreement where both the parties are under the mistake and they don’t have

5. what are the essentials of consideration? Or what are the rules of

consideration? Consideration

Consideration is the price paid by one party for the promise of other.

Essentials of a consideration

1. Desire of promisor
For a valid consideration the act must be done at the desire of promisor. Any act done
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without the desire of promisor cannot form a valid consideration.
2. Act
A consideration may be an act or doing of something

3. Abstinence
Abstinence means promising not to do something. Consideration may be decided for
promising not to do something.

4. Promise
For a valid contract there must be promise from both the parties.

5. Real and certain

For a valid consideration it must be real and certain. If the payment of consideration is
physically impossible it would not real. On the other hand if the payment of consideration
is uncertain it would be void.

6. Legally impossible
A promise to do something illegal is also void and do not form a valid consideration.

7. Need to be adequate
It is not necessary that the consideration must be adequate. Only Presence of consideration
is necessary.

8. Lawful

The consideration and must be lawful and should not against the public policy.

Consideration is unlawful:

If it is forbidden by

law It is fraudulent

It involve property of other

It is opposed to the public policy

9. Past consideration
When the act have been done before a contract is made it is called past consideration

10. Present consideration

If the consideration is decided at the time when contract is made it is called present
consideration.

11. Future consideration

When both the parties promise to do something in future it is called consideration.

6. What are the exceptions of consideration?

According to law agreement without consideration is void. Following are the agreements
that are valid even without consideration.

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 1. Natural love and affection
The agreement which is expressed in writing and is made on account of natural love is
valid even If there is no consideration.

2. Voluntary compensation
A promise to compensate a person wholly or partly a person who has already voluntarily
do something for the promisor is enforceable even if there is no consideration.

3. Gift
Gift does not need any consideration. Any gift given or received is valid even if without
consideration. Donor cannot take back the goods which are delivered as a gift.

4. Contract of agency
Consideration is not paid to the agent on his appointment. Normally an agent is paid
commission against his services.

5. Discount/remission
If a credit or agrees to receive less than what is due, it is known as remission or discount.
There is no need of consideration for the remitted amount.

6. To extend the time for performance

Agreement to extend the time for the performance of contract needs no consideration.

Q.7 What do you understand by the capacity of parties? State the positions of a minor under
contract act. Or
What do you understand by the capacity of parties? What is the effect of agreement
made by the person not competent to contract?

Void Agreement
Minor is a person who has not attained the age of majority (18years).Agreement with minor
is void from beginning because minor has no legal capacity to enter into an agreement. He
is not liable to perform any act or promise under the agreement.

1) Minor as a partner
A minor cannot become a partner in profit and losses of a firm. However a minor can be
admitted to the benefits of the firm only.

2) Minor as a beneficiary
If an agreement is made for the benefit of minor then the minor can take the benefit of that
agreement. A minor can enter into any agreement which do not required to bear any
obligation. A minor can enforce a promissory note which is prepared in his favor but he is
not liable.

3) Minor as Agent
A minor can act as an agent. But a minor is not responsible for any negligence. If a minor
breaches any duty, he cannot be held responsible. Therefore the whole the risk goes to the
principal.

4) Minor and insolvency

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 A minor cannot be considered insolvent because he is not liable to perform any obligations.
Only his property is liable. If he has no property than the payment cannot be recovered

5) Minor and Ratification

A minor cannot confirm those agreements that were formed during the age of minority. It is
necessary that a fresh agreement should be made after attaining the age of majority.

6) Contract by minor and adult

If a minor and major (adult) jointly enter into an agreement with other party, only major
will be liable but a minor will not be responsible

7) Minor as Member of company

A minor cannot directly buy shares of the company because he is not competent to contract.
I f parents of a minor are shareholders of a company, the company can transfer shares in
favor of minor after the death of his parents.

8) Surety for Minor

When an adult gives surety in a contract of guarantee, only the adult is liable under the
contract. Minor is not responsible for any obligation.

9) Minor’s parents
If an agreement is made by a minor than parents of minor are not responsible for the
payment. The parents are responsible only when minor acts as an agent of his parent.

Q.8 What is consent and free consent? What is the effect of consent on contract?
Or
What is consent? What is the effect of consent when it is not free?

Consent
When two or more parties agree upon the same thing in the same manner in the same sense, when the
both the parties agree upon the same thing in the different manner it is not a real consent.

Free consent
Consent is free when it is not obtained by;
i) Coercion
ii) Undue influence
iii) Misrepresentation
iv) Fraud
v) Mistake

Effects of consent on the validity of contract

1. Coercion

Coercion means committing or threading to commit any act which is forbidden by law. In other
words coercion means obtaining the consent of other party by threatening him.

Effects on consent
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I. Committing or threatening to commit

When a person commits or threatens to do a person a work which is forbidden by law. Is called
coercion

ii. Unlawfully detaining or threatening to detain property

When a person unlawfully detain the property of other person for the purpose of compelling him to
enter into an agreement, it is coercion
Example
A driver refuses to deliver the documents of car to his employer unless he is paid Rs 1000 it is
coercion

Effect of coercion on the validity of contract

A contract formed under the coercion, the contract is voidable at the option of that party whose
consent is not free.

2. Undue influence

Undue influence is when one party uses his position or power to dominate the will or consent of other
party and uses his power to obtain unfair advantage over the other.
It is further explained as follows:

i. Dominating position
In order to prove undue influence. The relation between the parties should be such that the one of
them should be in a dominating position.

ii. Unfair advantage

In order to prove undue influence, it is necessary to prove that the person who has dominating
position has used his powers to get unfair advantage.
Effect of undue influence on the validity of contract
Contract made under the undue influence can be avoided by the party whose consent is obtained by
undue influence.

3. Fraud
All acts committed by a party with the intention to deceive the other party.
There is fraud in the following cases:

i. False statement
When a party to contract makes false statement intentionally, he is liable for fraud

ii. Object of fraud

The object of fraud must be to deceive other party and the other party have been actually deceived by
the other party.

iii. Loss
It is also necessary that the party acting upon the misrepresentation has suffered loss

Effects of fraud on consent

The following remedies are available to the aggrieved party:
a) He can avoid the contract
b) He can sue for the damages
c) He can ask for the specific performance and restoration
4. Misrepresentation

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Misrepresentation means the giving the false statement of fact about contract to obtain the consent of
consent of other party. Misrepresentation must be made with the intention to deceive other party.
In order to prove misrepresentation the followings things are necessary:
i. It must relate to the contract
ii. It must be untrue
iii. The other party must suffer loss
iv. The other party cannot discover the truth by ordinary diligence

Effects of fraud on contract

The contract is voidable at the option of that party whose consent is affected by the
misrepresentation.
The contract may be accepted by the injured party.

Q.9 What is discharge of contract? What are the ways in which a contract may be
discharged / terminated?

Discharge of contract
When the rights and duties created by law come to an end the contract is said to be
discharged or terminated
A contract can be discharged by the following ways
1. Discharge by Performance
2. Discharge by Agreement
3. Discharge by Subsequent impossibility
4. Discharge by Laps of time
5. Discharge by Operation of law
6. Discharge by Breach of contract

Discharge by Performance
When all the parties to a contract have performed there services required by law the contract is
discharged by performance. If only one party performs his duties he is alone discharged. The
performance may be;
i. Actual performance
ii. Attempted performance (or) tender

Actual performance
When all the parties to a contract have performed their promise the contract comes to an end by
actual performance
Example
Shazia agrees to sell her bag to Maria for 500 Rs. Shazia delivers her bag and Maria makes
payment. This is an actual performance

Attempted performance (or) Tender

When one of the parties, offered to performed contract but other party does not accept it. This is
an attempt to perform
Example
Shazia agrees to sell her bag to Maria for 500 Rs. Shazia offers to deliver her bag but Maria does
not accept it. This is an attempted performance.

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Discharge by Agreement
A contract may be discharged by the agreement between the parties in any of the
following ways
i. Novation
ii. Alteration
iii. Rescission
iv. Remission
v. Waiver

Novation
Novation means the replacement of old contract by new contract. In new contract the
parties may change or remains the same, thus an old contact is discharged with the new
contract
Example
A owed ( ) to B and B to C, A’s debt to b is cancelled and C accepts A as his
Debtor. It is novation

Alteration
Alteration means the changing in the terms and conditions of contract. If alteration is
made with the consent of all the parties the contract is discharged and a new contract
takes place
Example
Ali agrees to sale goods to Riaz for Rs 1000. Later, Riaz decided to purchase high quality
Goods for Rs 2000. The old contract is altered.

Rescission
Rescission means the cancellation of contract by mutual agreement. The cancellation free
the parties from obligations of contract
Example
Majid Agrees to sale goods to Sajid for Rs 2000. Later, Sajid requested Majid to cancel
the supply of Goods. This is rescission.

Waiver
When a party surrenders his right to contract, the other party is free from his part of
obligation. It is called waiver.
Example
Ali owes Majid Rs. 5000. Ali agrees to accept Rs. 4000 in full satisfaction of claim.
The whole debt is discharged

Discharge by Subsequent impossibility

If the performance of contract is possible at time of formation of contract but afterwards
it becomes impossible or unlawful. The contract will be discharged.
Example
a) Bilal promise to sell wheat Habib, before delivery government banned private trading
of wheat
b) Farukh and Sidra promise to marry each other, before the time fixed for marriage
Farukh dies. The contract becomes void and discharged
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Discharge by Laps of time
According to the limitation act, the contract should be performed within a specified or
reasonable time. In case of breach of contract, legal action should be taken within a
specified period of time. If no legal action is taken within specified period of time the
contract is discharged.
Example
Bashir took loan form Nazir. Last date for repayment of loan has expired but no legal
action has been taken by Nazir for 3 years. Bashir is discharged from his liability.

Discharge by operation of Law

A contract may be terminated by the operation of law in the following ways
i. Insolvency
ii. Death of any party
iii. Alteration

Insolvency
A contract is discharged when court declares a person insolvent; such person is
discharged from his liabilities incurred before insolvency.

Death of any party

If any of the party before performance dies, the contract is discharged.

Alteration
Alteration means change in rights and duties of the parties. If the terms and conditions are
changed by any party without consent of other party the contract is discharged

Discharge by Breach of contract

Breach of contract means when one or more of the parties fail to perform their
obligations. Breach of contract discharge the aggrieved party from performing his
obligation.
Breach of contract may of two types;
i. Actual breach
ii. Anticipatory breach

i) Actual Breach
When a party fails to perform his obligations when the performance is due
Example
Zeeshan agrees to sale goods to Razib on 6th November, but he does not deliver goods at
agreed time. This is actual breach.

ii) Anticipatory Breach

An anticipatory breach occurs before the time fixed for performance. It has two types
Express breach and implied breach.

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a. Express breach
When one party communicates the other party his attention not to perform the contract.
This is express breach.
Example
Mehmood agrees to sale his house to Razib. Before the date of performance
Mehmood informs Razib that he will not sale his house.

b. Implied Breach
When a party does an act which makes the contract impossible to perform. This is
called implied breach.
Example
Misbah agrees to sale her bag to Anam on 7th November but before the due date
Misbah sold her Bag to Iqra.

Q.10 What are the remedies available to an aggrieved party for breach of contract?
Or
Discuses the consequences of breach of contract
Or
State the principles on which court award for breach of contract

Breach of contract
Breach ( ) of contract means when one party fails or refuses to perform his obligation

Remedies for breach of contract

Following remedies ( ) are available to aggrieved ( ) party for breach of contract against
the guilty ( ) party
1. Suit for rescission
2. Suit for damages
3. Suit upon quantum meruit
4. Suit for specific performance
5. Suit for injunction

1) Suit for rescission

Rescission means cancellation of contract. When one party breaches the contract the
other party may rescind contract and refue to perform his part of obligation. The
aggrieved party may sue the guilty for damages
Example
A agrees to sell his car to B for 6 lac Rs. But on due date A refuses to hand over his car. B
is discharged from contract and can claim damages

2) Suit for damages

Damages are the monetary compensation allowed to aggrieved party for the lose suffered
by him as a result of breach of contract. The aggrieved party can claim the following
damages
i) General damages
ii) Specific damages
iii) Exemplary damages

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iv) Liquidated damages

i) General damages
Ordinary damages are those which naturally arise as a result of breach of contract
For example in a contract of sale of goods the difference between the contract price and
market price are the damages that can be claimed

ii) Specific damages

These are the direct loses which arise due to the breach of contract. These damages arise
under some special cases

iii) Exemplary damages

These damages are awarded not to punish the guilty party and not compensate the injured
(aggrieved) party for the loss suffered.

iv) Liquidated damages

When the parties to a contract fix the amount of damages at the time of formation of
contract such damages are called liquidated or nominal damages.

3) suit for quantum meruit

Quantum meriut means payment in proportion of work done. Sometimes one of the
parties has done a part of his obligation but the other party commits the breach of
contract. In such case the party who has performed some work has right to claim for the
value of work done and damages for the remaining work.
Example
A agrees to construct a three story house for B. when only one story was constructed, B
prevented A from doing more work. So here A is entitled to get the reasonable
compensation for the work done and the damages for remaining work

4) Suit for specific performance

When only damages are not enough to compensate then the court may order guilty to
perform specific performance
Specific performance is granted in the following ways
a) When compensation in money is not enough
b) When compensation cannot be obtained
c) Where one of the parties is a minor
d) Where the contract involves personal skills, taste and qualification

Example
Ali agrees to sale his plot of land to Majid who agrees to purchase it to erect his mill
there. Later, Ali commits breach. It was held by court to carryout contract

5) Suit for injunction

Injection is an order from the court of law prohibiting a person from doing a specific act.
It is granted where the damages are not the adequate relief
Example
Farrah a lady singer enter into an agreement with Salman to sing at salman’s theater
and nowhere else. Afterwards Farrah made a contract with Sheraz to sing at his theater
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and refused to perform her contract with Salman. It was held that, Farrah could not be
compelled to sing at salman’s theater she was prohibited by the court form singing for
Sheraz.

Q.11Discuss in detail the position of a quasi-contract when the

obligations of contract are imposed by the law
Or
What are the types of quasi contract?
Quasi / constructive / implied Contract
Quasi contracts are based on the principle of equity ( ) and Justice ( ).
It means that nobody is entitled to benefit at the cost of other. Some time law requires
that a particular person must perform some obligations such obligations are called quasi –
contract they are also called constructive or implied contract.

Kinds of contract Or Conditions under which quasi contract arise

1. Supply of necessaries
2. Payment by interested person
3. Compensation for non gratuitous acts
4. Finder of goods
5. Mistake or under coercion

1) Supply of necessaries
Where necessaries are supplied to a person who is incompetent to contract or to
someone whom he is legally bound to support, the supplier is entitled to recover the price
from the property of incompetent person.
Example
Ali supplies Hammad a minor, necessaries suitable to their conditions in life. Ali is
Entitled to reimburse ( ) form Hammad’s Property.

2) Payment by interested person

A person who is interested in the payment of money which another is bound by
law to pay and who therefore pays it; it is entitled to be reimbursed by other.
Example
a) A pays arrears of rent of B to avoid dispute between B and his landlord ( )
A cannot recover from as he has no interest in payment
b) A imported Goods and stored in B’s warehouse without paying the custom duty. The
custom duty Authorities recovered custom duty from B. B can recover from B

3) Compensation for Non- gratuitous act

When a person lawfully does anything for another person, or delivers anything to
him, not intending to give as a free gift, the other person also enjoys benefit thereof. Later
he is bound to compensate former ( ).
Example
A coolie takes the luggage of passenger at the railway station without asking. Passenger
does not object ( ) to it. Coolie can get the payment

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4) Finder of goods
A person who finds the goods belonging to other and takes them into his custody,
he is entitled to recover compensation for the trouble in finding the owner of goods. If he
fails to find the true owner he can retain the ring
Example
Ali found a ring at a party he told the other guests about it but could not find the owner.
Ali can retain the ring.

Q#12 what is the

difference between
indemnity and guarantee?
Basis

Indemnity Guarantee
Meaning A contract of indemnity is to In contract of gurantee one
comansate the loss suffered person gives the gurantee
by a person from the conduct for the performance of
of any third person contract
Parties In a contract of indemnity In a contract of guarantee
there are three parties, there are there parties, surety,
indemnifier and indemnity debtor, creditor
holder
Liability The liability of indemnifier isThe liability of surety is
primary secondary as he is liable only
when the creditor fails to pay
the debt
Number of contract In contract of indemnity there There are there contracts
is only one contract between Between surety and creditor
the indemnifier and indemnity Between creditor and
holder principal
Between surety and principal
Performance of contract In contract of indemnity In contract of gurantee the
performance depends upon performance depends upon if
the possibility of loss the creditor fails to make the
payment.
Nature This contract is made for the This contract is made for the
payment of loss payment of debt
Request The indemnifier, promises It is necessary that the surety
without the request of debtor must give the gurantee at the
request of debtor

Q.13 WHAT IS BAILEMENT? ALSO EXPLAIN THE ESSENTIAL FEATURES OF

BAILMENT.

Contract of bailment
Bailment
Bailment is a voluntary transfer of goods by the owner to another person for specific purpose under a
condition that such other person shall return the goods after the purpose is accomplished.
Example
Ali delivered a piece of cloth to Bashir to make a suit, there is a contract of bailment between Ali and
Bashir.

Bailor
The person who delivers the goods to the other person is called Bailor.
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Bailee
The person to whom goods are delivered under the contract of bailment is called Bailee

Essential features
i. Contract
ii. Specific purpose
iii. No change of ownership
iv. Return of same goods

1. Contract
There must be a contract of bailment between the parties. If the goods are delivered by mistake, there
is no bailment

2. Specific purpose
The goods must be delivered for some specific purpose. If the goods are delivered without any
purpose there is no contract of bailment.

3. No change of ownership
In contract of bailment only the possession of goods changed but the ownership remains in the same
hands. If the ownership of goods is changed it cannot be called bailment.

4. Return of same goods

When the purpose of bailment is accomplished, same goods must be returned to the bailer. The
deposit of money in a bank is not bailment because bank cannot return the same money, however
notes and other valuable goods deposited in bank are the examples of bailment.

Q.14 what are the rights and duties of Bailor?

Rights and duties of Bailor are given below

Rights of Bailor
Following are the rights of Bailor

1. Right to recover damages

Bailor can claim for the damages that arise due to bailee’s negligence. He can also claim damages
arising due to unauthorized use of goods.
Example
Ali bailed some goods to Zeeshan but due to the negligence of Zeeshan the goods were stolen. Ali
can recover the damages.

2. Right to demand return of goods

The Bailor has right to get back the goods bailed after as soon as the purpose is accomplished. If
Bailee fails to return the Bailor can claim for the compensation
Example
Sajjid give a car to majjid on hire for 5 days. Majjid fails to return on 5thd day. Sajjid can claim
damages

3. Right to claim increase

The Bailor can claim any increase or profit, which may accrued from the bailed goods.
Example
Asad bailed a cow to khurram. Cow gave birth to a calf. Asad can claim cow along with calf.

4. Right to terminate bailment

The Bailor has a right to terminate the bailment if Bailee does any act which is against the terms and
conditions of bailment.

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Example
Ali gives his car on hire to Junaid for personal use but Junaid start driving it as carriage. Ali can
terminate contract.

5. Right to sue
Bailor can sue Bailee if he fails to return goods or breaches contract.
Example
Ali gives his mobile to Zain for repairing. Zain sold it to Tania. Ali can sue zain.

6. Compensation
If the Bailee without the permission of Bailor mixes the goods of Bailor with his own goods in such a
way that it becomes impossible to separate them, the Bailor has a right to claim for the compensation
for the loss of goods.
Example
Moshsin bailed 2 bags of Basmati Rice to Hassan. Hassan mixed them with his own rice that was of
cheap quality. Moshsin can claim for the compensation

Duties of Bailor
Following are the duties of Bailor
i) Duty to disclose faults
ii) Duty to repay necessary expenses
iii) Duty to repay extra ordinary expenses
iv) Duty to indemnify for defective title
v) Duty to receive back goods

1. Duty to disclose faults

2. It is the duty of Bailor to disclose all the faults in bailed goods which are known to him. If he does
not disclose them he will be liable for the damages arising due to such faults.

Example
Ali hires a carriage of Mehmood. The carriage was unsafe and Mehmood had not disclosed that fact
to Ali. Ali is injured. Mehmood is liable for the damages.

3. Duty to repay expense

When the goods are to be kept or carried by the Bailee. It is the duty of Bailor to bear all the
expense incurred on the bailed goods.
Example
Ali delivered a car to shahid for the safe custody. One tire of the car was burst on the way. Shahid
spent Rs.4000 to replace tire. Ali is liable to pay Rs. 4000

4. Duty to repay extra ordinary expenses

If the extra ordinary expenses are incurred by the Bailee on the bailed goods then it is the
duty of Bailor to repay those expenses.
Example
Habib bailed his horse to Asif for journey. The expense for feeding horse is ordinary expense and
falls on Bailee but if horse becomes sick then it is the duty of Bailor to repay the expenses incurred
on the treatment of horse.

5. Duty to indemnify for the defective title

Where the title of goods to Bailor is defective and Bailee suffers loss due to such title, It is
the duty of Bailor to indemnify the Bailee for such loss.
Example
Ali gives his neighbor’s scooter to Bilal for use without neighbor’s permission. The Neighbor files a
suit on Bilal and received compensation. Ali is liable to compensate Bilal.

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6. Duty to receive back goods
It is the duty of Bailor to receive back goods when the Bailee returns them after the
accomplishment of purpose
Example
Ali bailed his horse to Bilal to feed for two months. Ali does not take his horse after two months.
Bilal has to spend more to feed horse. It is the duty of Ali to compensate Bilal.

Q.15 what are the right and duties of Bailee?

Rights of Bailee

Followings are the rights of Bailee

1. Right to recover damages

A Bailee has right to recover damages suffered due to fault in bailed goods that
were known to the Bailor
Example
Ali hires a carriage of Mehmood. The carriage was unsafe and Mehmood had not
disclosed that fact to Ali. Ali is injured. Mehmood is liable to compensate for the
damages.

2. Right to recover expense

It is the right of Bailee to recover expenses that were incurred on the bailed
goods.
Example
Ali delivered a car to shahid for the safe custody. One tire of the car was burst on the
way. Shahid spent Rs.4000 to replace tire. Shahid has a right to claim for the expenses
incurred on the car.

3. Right to compensation
If Bailee suffers loss due to the defective title of goods to Bailor, The bailee has
right to claim for the compensation.
Example
Ali gives his neighbor’s scooter to Bilal for use without neighbor’s permission. The
Neighbor files a suit on Bilal and received compensation. Bilal has right to receive
compensation from Bailor.

4. Right to stop delivery

If the person other than Bailor claim bailed goods from Bailee, the Bailee may
apply to the court to stop delivery of goods to Bailor and to decide the title of goods.
Example
Sheraz bailed goods to Faraz. Hammad claimed that he is the owner of goods and
demand goods form Faraz. Faraz can stop the delivery of goods to Sheraz and request the
court to decide the ownership of goods.

5. Right to sue
If an unauthorized person forcefully uses or take the procession of bailed goods, the
bailee has right to sue that unauthorized person. Bailor can also file a suit for those goods.

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Example
Ali gives a piece of cloth to Taylor to make a coat. Sheraz an unauthorized person
forcefully take the coat form Taylor and start using it. Ali or Taylor can file a suit against
Sheraz.

6. Right of lien
Lien means the right to retain the goods until he is not paid for the services
rendered.
A bailee has a right to retain the bailed goods until he is not paid for the services
rendered.
Example
Ali gives his watch to Salman for repairing. Salman can retain the watch till he is not paid
for his services

Duties of bailee
Following are the duties of bailee

1. Duty to take reasonable care

It is the duty of bailee to take reasonable care of goods bailed. If he does not take
care of goods and the goods are damaged due to his negligence he is responsible for the
damages.
Example
Shakeel bailed his car to nazir. Nazir did not lock up the car. The car is stolen. Nazir is
liable for the damages

2. Duty not to make unauthorized use

The bailee must use the goods according to the terms and conditions. If he makes
an unauthorized use of goods, he is liable for the damages to the goods.
Example
Ali gives his car on hire to Junaid for personal use. Junaid allows Faraz to drive but he
got accident and got injured. Junaid is liable to compensate Ali.

3. Duty not to mix the goods

If the Bailee without the permission of Bailor mixes the goods of Bailor with his
own goods in such a way that it becomes impossible to separate them, it is the duty of
bailee to compensate Bailor for the loss of goods.

4. Duty to return goods

It is the duty of bailee to return the goods to bailer as soon as the purpose of
bailment is accomplished. If he fails to return goods at specified time he is responsible to
compensate bailer for the loss.
Example
Ali bailed his horse to Bilal to feed for two months but Bilal does not return the horse
after two months. The horse dies after the period of bailment without any fault of Bilal’s
part. Bilal is liable for the loss.

5. Duty to return increase

It is the duty of bailee to return any increase or profit accrued from the goods
bailed.
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Example
Asad bailed a cow to khurram. Cow gave birth to a calf. It is the duty of Khurram to
return cow along with calf.

Q.16 WHAT IS PLEDGE OR PAWN? WHAT ARE THE ESSENTIAL FEATURES OF

PLEDGE?

Pledge
The bailment of goods as security for the payment of debt or performance of promise is
called pledge. Or Bailment is the transfer of possession of moveable property by one person to
another person to get loan.
Example
Ali borrows 500 Rs. From saad and keeps his watch as security for the payment of loan. The
bailment of watch is called pledge.

Parties of pledge
i. Pleger/ pawner
ii. Plegee /Pawnee

Pledger / pawnor
The person delivering his goods as security is called pawner
Plegee / Pawnee
The person to whom the possession of goods is given is called Pawnee.

Features of pledge
1. Moveable property
A pledge is only valid when moveable property is pledged. It includes any kind of goods, documents,
valuables.

2. Transfer of possession
In pledge only the possession of goods is transferred by the pawnor to Pawnee

3. Not Transfer of ownership

In contract of pledge, ownership is not transferred from pawnor to Pawnee

4. Mere custody of goods

The person having only the custody of goods cannot pledge them. For example a servant
having the control of principal’s goods cannot make a valid pledge of them.

Q.17 EXPLAIN THE RIGHTS AND DUTIES OF PLEDGER

Rights of Pleger

1. Right to recover damages

Pledger can claim for the damages that arise due to pledgee’s negligence. He can also claim
damages arising due to unauthorized use of goods.

7. Right to demand return of goods

The Pledger has right to get back the goods Pledged after as soon as the payment of debt is
made. If Pledgee fails to return, the Pledger can claim for the compensation

8. Right to claim increase

The Pledger can claim any increase or profit, which may accrued from the Pledged goods.
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9. Right to terminate Pledge
The Pledger has a right to terminate the Pledge if Pledgee does any act which is against the
terms and conditions of Pledge.

10. Right to sue

Pledger can sue Pledgee if he fails to return goods or breaches contract.

11. Compensation
If the Pledgee without the permission of Pledger mixes the goods of Pledger with his own
goods in such a way that it becomes impossible to separate them, the Pledger has a right to claim for
the compensation for the loss of goods.

Duties of Pledger
Following are the duties of Pledger

7. Duty to disclose faults

It is the duty of Pledger to disclose all the faults in Pledged goods which are known to him. If
he does not disclose them he will be liable for the damages arising due to such faults.

8. Duty to repay expense

When the goods are to be kept or carried by the Pledgee. It is the duty of Pledger to bear all
the expense incurred on the Pledged goods.

9. Duty to repay extra ordinary expenses

If the extra ordinary expenses are incurred by the Pledgee on the Pledged goods then it is the
duty of Pledger to repay those expenses.

10. Duty to indemnify for the defective title

Where the title of goods to Pledger is defective and Pledgee suffers loss due to such title, it is
the duty of Pledger to indemnify the Pledgee for such loss.

11. Duty to receive back goods

It is the duty of Pledger to receive back goods when the Pledgee returns them after the
accomplishment of purpose

Q18 EXPLAIN THE RIGHTS AND DUTIES OF PLEDGEE

Rights of Plegee

1. Right to retain
The Plegee has right to retain the goods until his dues are paid. He can retain them for
payment of debt or performance of promise and all necessary expenses incurred by him for the safety
of goods
Example
Shahid borrowed Rs. 2 lac from Irfan and pledges his diamond ring. If shahid does not return the loan
shahid can retain the ring

2. Right to retain for the other debt

If the Pledger again takes loan after the first loan, Plegee can retain the goods over the second
loan.
Example
Ali borrowed Rs 400,000 from Sheraz and pledges his car. After 3months Ali borrowed another sum
of Rs. 300,000 and pays the first debt. Sheraz can retain the car against his second loan.
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3. Right to extraordinary expenses
The Pledgee has right to recover all those expense that are incurred on the safety of goods.
But Pledgee cannot retain goods if such expenses are not paid, he can only sue Pledger for the
recovery of extra ordinary expenses.
Example
Ali pledges his horse to Bilal. Horse falls sick and Bilal spent 400 Rs for the treatment of horse. Bilal
can sue Ali for the recovery of expenses.

4. Right to sell
If the Pledger refuses to make payment or debt or performance of promise, the Plegee has
right to sell goods after giving the notice of intention of sale to Pledger.
Following points must be considered.
i. Reasonable notice is necessary.
ii. Pledgee cannot sale goods to himself
iii. If the amount recovered from sale is less than the amount of debt, he can recover the balance
amount from Pledger
Example
Ali pledges his car to shahid to obtain a loan of Rs 500,000. But on the due date Ali fails to pay the
amount of loan. Shahid can sale car after giving a notice of sale.

Duties of Pledgee
Following are the duties of Pledgee

6. Duty to take reasonable care

It is the duty of Pledgee to take reasonable care of goods pledged. If he does not take care of
goods and the goods are damaged due to his negligence he is responsible for the damages.
Example
Shakeel pledged his car to nazir. Nazir did not lock up the car. The car is stolen. Nazir is liable for
the damages

7. Duty not to make unauthorized use

The Pledgee must use the goods according to the terms and conditions. If he makes an
unauthorized use of goods, he is liable for the damages to the goods.
Example
Ali pledged his car to Junaid. Junaid start using it as carrier. Ali can sue Junaid for unauthorized use

8. Duty not to mix the goods

If the Pledgee without the permission of Pledger mixes the goods of Pledger with his own
goods in such a way that it becomes impossible to separate them, it is the duty of Pledgee to
compensate Pledger for the loss of goods.

9. Duty to return goods

It is the duty of Pledgee to return the goods to Pledger as soon as the purpose of pledge is
accomplished. If he fails to return goods at specified time he is responsible to compensate Pledger for
the loss.
Example
Ali pledged his horse to Bilal for two months but Bilal does not return the horse after two months.
The horse dies after the period of bailment without any fault of Bilal’s part. Bilal is liable for the loss.

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Q.19 what is the difference
between sale and agreement
to sell? Basis
1. Transfer of property
2. Transfer of ownership
3. Type of goods
4. Risk of loss
5. Right to re – sell
6. Nature of rights
7. Breach
8. Insolvency of seller
9. Insolvency of buyer
10. Nature of goods
Q.20 What are the rights of an unpaid seller?
Unpaid seller
An unpaid seller is a person, who has sold the goods for a price, but the price has not been paid to
him or the instrument which was given to him has dishonored.
Rights of unpaid seller
An unpaid seller has the following rights
A. Right against goods
B. Right against buyer
Sale
The property of goods passes
from the seller to the buyer
immediately.
Ownership of the goods is
transferred immediately after the
sale
A sale can only be in case of
existing and specific goods only.
In sale the if the goods are
destroyed, the entire loss is
suffered by the buyer
In a sale the seller cannot re –
sell the goods
The buyer becomes the owner of
goods. If the seller refuses to
deliver the goods the buyer can
sue for the recovery of goods
If the buyer fails to pay the price
the seller can sue for the
recovery of price
If the seller becomes insolvent,
the buyer can recover the goods
from official receivers of seller
because buyer is the owner of
goods
If the buyer becomes insolvent
and the price of goods is paid
than his legal representative can
demand the goods from the
seller. If price of goods is not
paid, the seller can claim price
proportionately
A sale is an executed contract
A sale is an executed contract
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Agreement to sell
The transfer of property of the
goods is to take place at a future
time.
Ownership of goods does no
change until the property is
transferred.
An agreement to sell is mostly in
case of future and contingent
goods.
In an agreement to sale the
whole loss is suffered by the
seller
It is merely a contract the buyer
can sue the seller for damages in
case of re – sale of goods
The buyer does not becomes the
owner of goods and he can only
sue for the damages
In an agreement to sale, if buyer
fails to pay the seller can sue for
the damages not for the recovery
of price
if buyer has paid the price of
goods and the seller becomes
insolvent, he can recover the
price of goods but he cannot
recover the ownership of goods
If the seller becomes insolvent
before the payment of goods
than the seller can refuse to sale
goods until the price is paid by
the legal representatives of the
buyer
An agreement to sale is an
An agreement to sale is an
executory contract
A. Right against goods

1. Right of lien

An unpaid seller has the right to stop the delivery of goods and to keep the goods in his
procession until the price is paid. If he has delivered a part of goods, he can stop the delivery of
remaining goods.
Seller can exercise the right of lien in the following cases;
i. When the goods are sold on cash
ii. When the goods are sold on credit and period of credit has been expired
iii. When the buyer becomes insolvent

Rules regarding lien

Following are the rules regarding the lien of goods.
i. When the goods are in the procession of seller
ii. The seller can use the right only for the price, not for the other charges
iii. If the seller has delivered a part of goods, he can retain the reminder

Example
a. A sells his car to b for Rs. 100,000 to be paid in cash. B fails to make the payment. A can retain the
procession.
b. A sold a machine to B for Rs. 2000, it was not working properly so B delivered it back to A for
repairs, it was held that A could not stop the delivery.

2. Right of stoppage of goods in transit

When the buyer funds that the buyer became insolvent then he has the right of stopping the
goods in transit.
The seller can use this right in the following cases
a. When the goods are still in transit
b. When the property has not passed to the buyer
c. When the buyer becomes insolvent
d. When the seller has right of topping of goods in transit

3. Right of resale

A seller has the right to resale the goods if the buyer does not pay the price of goods. Seller
can use this right in following cases
a. When the goods are of perishable nature and the buyer fails to pay the rice within reasonable time
b. When the seller has given the notice of his intention to resale
c. When he right to resale is expressed in contract between the parties.

B. Right against buyer

1. Price

If the seller has delivered goods and buyer fails to pay the price of goods. The seller has right
to sue for the price of goods.
Example
A Sold goods to B, B fails to pay the price. A can sue B for the recovery of price

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2. Damages for non acceptance

When the seller has delivered the goods and the buyer refuses to accept them. The seller has
right to sue for the recovery of damages.
Example
A sold and delivered goods to B, but B refuses to accept the goods and pay the price. The seller has
right to sue for the recovery of damages
3. Special damages and interest

If the buyer fails to make the payment at agreed time but he will pay late. The seller has right
to sue for the recovery of interest at reasonable rate.
Example
A Sold goods to B, B fails to make payment and promised to pay later. A has right to sue for the
recovery of interest

Q.21 What are the rights of buyer in a contract of sale?

Buyer’s right
The buyer has the following rights against the seller, if the seller breaches the contract.

1. Damages for non delivery

The buyer has right to sue the seller for damages in case the seller refuses to deliver the
goods.
Example
A sales Rice to B but does not deliver them to the buyer at agreed time, the buyer has right to sue for
the damages.

2. Damages for the breach of warranty

When the seller breaches the contract of warranty, the buyer can sue for the damages if he
has paid the price. But if he has not yet paid the price, then he can claim for the reduction in price.
Example
A promises to sell and deliver the tables to B on 15 November, but he delivered the goods on 25
November, the buyer can recover damages from seller.

3. Breach of condition
When the seller breaches the condition of contract, the buyer can terminate contract and
claim damages.
Example
A promises to sell Nokia phone to B, but he delivered Q Mobile. The buyer can avoid contract.

4. Recovery of price with interest

If the buyer has paid the price but seller fails to deliver the goods, the buyer has right to
recover the price with interest at reasonable rate.
Example
A promised to buy wheat from B and make the payment in advance, but B fails to deliver the wheat;
the buyer can claim price plus interest.

Q.22 what are the rules regarding the delivery of goods? Or what are the kinds of delivery?
Delivery
Delivery means voluntary transfer of procession of goods by one person to another person.

Modes / kinds of delivery

Followings are the kinds of delivery
1. Actual delivery
When the procession of goods is transferred from buyer to seller, it is called actual delivery.
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Example
A sold his car to B. A handed over the car to B, it is actual delivery.

2. Symbolic delivery
When the goods are sold in bulk and the actual delivery is not possible, in such a case the control
over goods is transferred to the buyer, it is called symbolic delivery.
Example
A sold goods in bulk to B which are locked in godown. A handed over the key of Godown to B, it
called symbolic delivery.

3. Constructive delivery
When procession of goods changed without any change in the actual custody of the goods, it is called
constructive delivery
Example
A Sold rice to B lying in C’s godown. A orders C to transfer rice to B. C transfers the rice in his
books to B.

Rules of the delivery of goods

1. Duty of seller and buyer

It is the duty of the seller to sell the goods and buyer to accept goods and pay the price.
Example
A sold goods to B for RS 300. It is the duty of A to deliver the goods and B is responsible to pay Rs
400 to A.

2. Place of delivery
The goods must be delivered at a place which is stated in contract.

3. Time of delivery
It is the duty of seller to deliver the goods within the fixed time. If time is not fixed, than delivery
should be made within reasonable time.

4. Expenses of delivery
Expenses of delivery of goods must be bear by the seller or according to the agreement.
5. Installment delivery
The buyer is not bound to take the delivery of goods in installment unless it was agreed

6. Wrong delivery
When the goods delivered to the buyer are not in accordance with goods specified in contract, the
buyer can reject the goods.

7. Delivery to carrier
If the goods are delivered to carrier for transfer to buyer, it is deemed the delivery to the buyer.

8. Procession of goods by third person

If at the time of sale the goods are in procession of third person. There is no contract until that third
person acknowledges the buyer that he holds the goods on his behalf.

9. Demand of delivery
Buyer should demand for the delivery of goods, otherwise he cannot blame seller for the delivery of
goods.

10. Effects of part delivery

When a part of goods is transferred to buyer with the intention to deliver the rest of goods also, the
ownership in the whole of the goods is deemed to pass to the buyer.

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11. Mode of delivery
The delivery of goods can be made by any of the ways on which the parties agree.

12. Liability in case of refusing to take delivery of goods

If seller delivers the goods to buyer and buyer refuses to take the delivery of goods without any
reason. The buyer is liable for the damages.

13. Examining the goods

When the goods are delivered to the buyer, the buyer should be given a reasonable time for the
examination of goods.

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