Corporate & Businsess Law Corporate And Business Law

Assignment # 1

Resource Person

SIR Amir FAHEEM

Submitted By:

Muhammad Aqib ID # 110845-034 Program: M.COM (Batch # 8)

Date: 09th Oct, 2011

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Contract
A contract is an agreement that can be enforceable by law. An agreement is an offer and its acceptance. An agreement which can be enforceable by law must have some essential elements. According to Section 10 "All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void" As per the above section, a contract must have the following elements.

Essential of a valid contract:The general law in pakistan is contain in the contract act 1872. The essential of a

valid contract are as fallows. Proposal and acceptance Lawful consideration Competent parties. Free cosent Writing and registration if so required by law. Legal relationship Possibility of performance

Explanation :Proposal and acceptance :When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence he is said to make a proposal. When the person to whom the proposal is made signifies his assent thereof the proposal is said to be accepted. A proposal when accepted becomes a promise.

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Lawful consideration:It is the most essential element of the contract. As a general rule, agreement without consideration is void. The promise for a promise in return is consideration. Example:A agrees to sell his house to B for Rs 10,000. Here As promise to sell his house is for Bs consideration to pay Rs 10,000. Similarly Bs promise to pay Rs 10,000 is for As consideration to sell his house to B.

Competent parties:Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contacting by any law to which he is subject.

Free consent:Parties to a contract must give their consent. Two or more persons are said to consent when they agree upon the same thing in the same sense. Mere consent is not enough. Consent of parties must be free.

Writing and registration if so required by law:The contract must be in writing and registered, if so required by any law. No particular form of writing is required to constitute a contract. Intentions of the parties to enter into a particular contract and to give effect to it must be manifest in it, in order to constitute a valid contract.

Legal relationship:
Agreements which create legal relations or are capable of creating legal relations are contracts, for example, an invitation to a dinner does not create any legal relation and therefore is not a contract.

Possibility of performance:
Contracts based on impossibility of performance are not valid. The contracts must be capable of being performed.

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Corporate And Business Law Types of contract:There are many types of contract in bussiness law depending upon various legal transactions like transfer of property sale of goods etc.types of contract are as fallows.

Valid contract: A contract which meets all the legal requirements to be enforceable. An enforceable promise or agreement because it meets all the legal requirements.

A contract is valid if it meets the requirements to be legally enforceable

Examples:-

X offers to marry y. Y accepts X offer. This is a valid contract.

Void contract:

A contract that has no legal force or binding effect.

A contract which is legally no good. A contract which involves fraud in the execution.

Example:-

X offers to marry Y, Y accepts X offer. Later on Y dies this contract was valid at the time of its formation but became void at the death of Y.

Voidable contract:

A contract which is capable of being made void. A contract which may be voided by one of the parties which would otherwise be harmed. A contract to which one party has the option of making it void because they would otherwise be hurt by having to perform.

Example:-

X threatens to kill Y, if the does not sell his house for Rs. 1 lakh to X. Y sells his house to X and receives payment. Here, Y consent has been obtained by coercion and hence this

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contract is void able at the option of Y the aggrieved party. If Y decides to avoid the contract he will have to return Rs. 1 lakh which he had received from X. If Y does not exercise his option to repudiate the contract within a reasonable time and in the meantime Z purchases that house from X for 1 lakh in good faith. Y can not repudiate the contract

Contingent contract:According to section 31, Any contract/performace/agreement /promise performance of which depends on the happening or non happening of a future uncertain event is called contingent contract.
Example:-

A contract to pay B Rs. 1000 if B married C. this is a contingent contract. A promises to give a loan of Rs. 1000 to B, if he is elected the president of a particular association.

Quasi contracts:A quasi contract is a contract that exists by order of a court, not by agreement of the parties. Courts create quasi contracts to avoid the unjust enrichment of a party in a dispute over payment for a good or service. In some cases a party who has suffered a loss in a business relationship may not be able to recover for the loss without evidence of a contract or some legally recognized agreement. To avoid this unjust result, courts create a fictitious agreement where no legally enforceable agreement exists.

Example;A homebuilder has built a house on Alicia's property. However, the homebuilder signed a contract with Bobby, who claimed to be Alicia's agent but, in fact, was not. Although there is no binding contract between Alicia and the homebuilder, most courts would allow the homebuilder to recover the cost of the services and materials from Alicia to avoid an unjust result. A court would accomplish this by creating a fictitious agreement between the homebuilder and Alicia and holding Alicia responsible for the cost of the builder's services and materials.

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Performance of contract
Performance of contracts
It means carrying out of the respective obligations by the parties They must either perform, or offer to perform Where the promisor offers to perform, at the proper time and place, but the promisee refuses to accept the performance, it is called tender or an attempted performance For Tender or an Offer of Performance to be valid: (i) (ii) It must be unconditional It must be made at a proper time and place to verify the

(iii) Promisee must be given a reasonable time and opportunity quality and quantity of goods being delivered

The following persons can perform the Promise

1. The Promisor himself [Section 40] e.g. when his personal skill is required Thus, if he dies, the contract ends 2. The agent of the Promisor, and 3. The legal representative(s) of the Promisor

Where two or more persons make a joint promise

the promisee may ask any (one or more) of such joint promisors to perform the whole of the promise. [Section 43]

Release of one of Joint Promisors

It does not discharge the other joint promisors. [Section 44]

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Right of Contribution
1. Where one of the joint promissors performs, he can compel all other joint promissors to contribute equally with himself 2. If one or more of the joint promissors default, in making such contributions, the remaining ones will bear the resultant loss

Devolution of Joint Rights [Section 45]

1. Where a person promises to two or more persons jointly, all the joint promisees can claim the performance 2. After death of any of them, it belongs to their legal representatives, jointly with the survivor or survivors 3. Even after the death of the survivors, the representatives of all the promisees can claim performance jointly 4. Thus, as against the liability of the joint promisors being both joint and several, right of the joint promisees, is only joint, and not several

Time, Place, and Manner of Performance

[Sections 46 to 50, and 55] 1. Where time of performance of contract is specified, and promissor has agreed to perform without demand, promissor must perform on such specified day/date. But, during the usual business hours and at the specified place 2. If time is not specified, performance must be made within a reasonable time, varying from case to case 3. Where promissor has not agreed to perform without application (i.e. demand) by promisee, promisee must demand performance at a reasonable place, within usual business hours 4. If promissor has agreed to perform without demand, but no place is fixed, promisor must request the promisee to specify a reasonable place, and perform at such specified place 5. Promise may be performed in any manner, or at any time, which the promisee stipulates or specifies

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Performance of Reciprocal Promises

[Section 51 to 54, and 57] A reciprocal promise is where contract comprises promise by one party (to do or not to do something in the future), in consideration of a similar promise by the other party

Three types of Reciprocal Promises 1. Mutual and Dependent

Where the performance by one party depends upon the prior performance by the other party 2. Mutual and Independent Here, each party must perform his part, without waiting for the performance, or readiness to perform, by the other party 3.

Mutual and Concurrent

Where both parties must perform simultaneously (i.e. concurrently, at the same time) But, if promisee is not ready and willing to perform his part the promisor need not perform his part. [Section 51] Reciprocal promise to do some things, which are legal and some others which are illegal [Section 57]. Here, the first set the promise(s) constitutes a contract, but the second set of the promise(s) is void.

DISCHARGE OF CONTRACT
MEANING The contractual relationship come to an end when the rights and obligations arising out of such a relationship are extinguished. When these contractual relations comes to an end, it is called Discharge of Contract. A contract maybe discharged in a number of ways.

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WAYS OF DISCHARGE OF CONTRACT

Discharge by PERFORMANCE BY SUPERVENING (SUBSEQUENT) IMPOSSIBILITY (SECTION 56) BY MUTUAL AGREEMENT (SECTION 62) BY LAPSE OF TIME

BY PERFORMANCE
This is the desirable mode of discharge of contract. Here, the parties have fulfilled their obligations and thus the contractual relations come to an end. A contract can be discharged under this in two ways: Actual Performance Attempted Performance (tender of performance)

BY SUPERVENING (SUBSEQUENT) IMPOSSIBILITY (SECTION 56)

Sometimes the performance of a contract may become impossible subsequent to the formation of a contract. This is called subsequent of supervening impossible. This results in discharge of contract. Under Section 56, a contract is discharged for the following reasons: Destruction of subject matter Death of incapacity of party Change of law The foundation of the contract ceases to exist Declaration of war

BY MUTUAL AGREEMENT (SECTION 62)

A contract is created by the parties to it, and hence, it can be terminated by the mutual disagreement between the parties. These are the ways by which a contract can be discharged under mutual agreement: Novation Alteration

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Recission (Section 64) Remission (Section 63) Waiver

BY LAPSE OF TIME
The Indian Limitation Act provides the time within which an aggrieved person can file a suit in the court of law for the enforcement of his legal rights arising out of contract. If the period of limitation expires according to the Indian Limitation Act, the promisee cannot enforce the promisor and the contract is discharged. A remedy is the course of action available to an aggrieved party (i.e. the party not at default) for the enforcement of a right under a contract.

Remedies for breach of contract

1. Rescission of Contract
Rescission means a right not to perform obligation . In case of breach of contract, the injured party may put an end to the contract. The injured party is discharged from all the obligations under the contract Example: X promises Y to supply 10 bags of cement on a certain day. Y agrees to pay the price after the receipt of the goods. X does not supply the goods. Y is discharged from liability to pay the price

2. Suit for Damages

Damages are monetary compensation allowed for loss suffered by the injured party due to breach of contract. The object of awarding damages is not to punish the party at fault but to make good the financial loss suffered by the aggrieved party due to breach of contract.

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Types of Damages:
1. Ordinary Damages 2. Special Damages 3. Vindictive Damages 4. Nominal Damages 5. Loss of reputation

1. Ordinary Damages:
Those which naturally arise in the usual course of things from breach. Example: Wheat

2. Special damages
It can be recovered if the special circumstances which would result in the loss in case of breach of contract are communicated to the promisor. Example: Hadley v. Baxendale

3. Vindictive Damage
Damages should not be nature of punishment Exception: Breach of promise to marry Dishonor of a cheque by banker

4. Nominal Damages
where a injured party has not infact suffered any loss by reason of breach of contract, the damages recoverable by him are nominal Example: B declined to be employed
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5.Damages for the loss of reputation:

Generally not recoverable Exception: Cheque dishonored only of tradesman

6. Damages for inconvenience and discomfort

Damages recovered for physical inconvenience & discomfort Example: Hiring of ship

3. Suit for Specific Performance

Suit for specific performance means demanding the courts direction to the defaulting party (Guilty party) to carry out the promise according to the terms of the contract. For example, you enter into a written agreement to purchase a person's house at a specific price and on exact terms. If the seller refuses to sell, regardless of the reason, you may be able to bring a lawsuit to force him or her to sell at the agreed-upon price. Specific performance will not be granted where_ Where the damages are considered as an adequate remedy Where the contract is of personal nature Where the contract is made by a company beyond its powers as laid down in its Memorandum of Association. Where the court cannot supervise the performance of the contract Where one of the parties is a minor Where the contract is inequitable to either party

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4. Suit for Injunction

Where a party is in breach of a negative term of a contract (where he is doing something which he promised not to do), the court may, by issuing an order, restrain him from doing what he promised not to do Such an order of the court is known as an injunction Example: Contract by film actress not to perform in other production house

5. Suit for Quantum Meruit

Quantum Meruit means as much as is earned. Right to Quantum Meruit means a right to claim the compensation for the work already done. It arises where a contract, partly performed by one party has become discharged by the breach of contract by the other party s Example: CE was employed as a M.D. in a company. After he rendered service for three months, it was found that the directors were not qualified to appoint him.

Indemnity and guarantee

Contracts of Indemnity
It is a contract whereby one party promises to save the other party from the loss caused to him by the conduct of the promisor himself, or by any other person [Section 124]. Losses caused by death, disability, destruction by fire, flood, cyclone, tsunami, etc., are also covered

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Essential Elements of Indemnity

(a) Some loss must be sustained by the promisee. If no loss is sustained, promissor is not liable (b)But, loss caused by the conduct of the promisee himself, is not covered

A contract of indemnity may arise: (a)By express agreement

e.g. indemnity bond to a bank, to issue duplicate draft or

(b)By operation of any law

e.g. Principal is bound by law to indemnify his agent; Transferee of shares undertakes to indemnify the transferor

Rights of Indemnity Holder [Section 125]

(a) To recover all damages sustained by him, and (b) To recover all costs of suits, paid to any third party.

However, the indemnifier (indemnifying party), does not enjoy any legal rights, except those of the surety or guarantor (under Section 141), viz. to get title to all the benefits of securities, obtained by creditor from principal debtor, whether he was aware of such securities or not

Contracts of Guarantee
It is a contract to perform the promise, or to discharge liability of a third person, in case of his (third persons) default Person giving guarantee is Surety Person on whose behalf guarantee is given is Principal Debtor, and

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Person or party to whom the guarantee is given is Creditor Guarantee could be either written or verbal

Two sets of agreements:

(a) Principal contract between principal debtor and creditor, and (b) Secondary contract between the creditor and the guarantor

In a contract of guarantee there are three parties, viz. creditor, principal debtor, and guarantor Types of Guarantees

(a)Specific Guarantee
(i) It pertains to a specific debt, and once it is repaid,

the guarantee automatically ends and gets cancelled. (ii) It is irrevocable, and even after his (guarantors) death, his legal successors may have to honor the commitment to the extent of the value of inherited property.

(b)

Continuing Guarantee

(i)It pertains to a series of transactions; not just one. (ii)It may be revoked, but regarding only future transactions; not to transactions prior to the revocation. (iii)After the death of the surety, a continuing guarantee gets revoked (unless there is a contract to the contrary), but only in regard to the transactions subsequent to the death, i.e. prior transactions will be satisfied by his legal heirs, to the extent of the inherited property of the deceased surety.

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Bailment & Pledge

Bailment & Pledge: The word bailment is derived from the French word bailer which means to deliver. Bailment is the delivery of goods by one person to another from some purpose, when the purpose is accomplished, the goods is returned to or otherwise disposed off according to the direction of the person delivering them.

Delivery of Goods for Some Purpose: The delivery of goods must be for some specific performance. Return of Specific Goods: Goods are delivered to the bailee with the condition that the same goods will be returned to the bailer after the accomplishment of purpose. Movable Goods: In bailment, the goods bailed must be movable. Deposit of Money Into Bank It is Bailment: Deposit of money into bank by a customer is not a contract of bailment because the money deposited is not returned in identical coins and notes deposits.

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Classification of Bailment:

On the basis of benefit Bailor Bailee Both On the basis of Rewards:

Gratituous: Where neither the bailer nor the bailee get any remuneration, then, it
gratuitous.

Non-Gratituous: When either the bailer or bailee get remuneration, then it is known as
non-gratuitous bailment. Right of Bailer: Right of Termination: Bailer has right to terminate the contrite of bailment, if the bailee does any inconsistent act with regards to goods. Right to Demand Return of Goods: Any time in case of gratuitous bailment. The bailer can demand back goods bailed at any time even if he had lend it for a specific goods. Period or for a specified purpose.

Enforcement of Rights: The duties of bailee are the rights of bailer & bailer can
enforce those rights by filing a suit against bailee.

Duties of Bailer:
Duty to disclose known defects: A bailer is bound to disclose all the defects relating to goods of which he is known.
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Duty to Bear Extraordinary expenses: Where the bailment is gratuitous & the bailee is not to receive any remuneration, the bailer shall pay bailee all the necessary expenses. Bear Risk for Loss: Bailer is to bear risk of loss or destruction of the thing bailed if the bailee had taken prudent care of the goods.

Rights of Bailee:
Right to Interplead: If the person other than bailer claims the goods, bailee may apply to court to stop the delivery.

Right Against 3rd Party: If a 3rd person wrongfully deprive bailee to use the goods
or cause any injury, then bailee is entitled to such remedies which are available to real owner. Right of Particular Lien: When the bailee has rendered some services or skills on the good he had right of particular lien unless he is paid.

Right of General Lien: Banker, factors, attorney of High Court, policy broker will be
entitled to retain as a security for a general balance of account any goods bailed to then. Right to Claim Compensation in Case of faulty Goods. Right to claim necessary expenses Right to return the goods to any of the joint bailer

Duties of Bailee:
Duty of Reasonable care. Duty not to make unauthorized use of goods. Duty not to mix bailers goods with his own.
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Duty to return any profit out Particular Lien: It is available to the bailee against such goods in respect of which he has rendered some servicing involving the excise of labour or skills.

General Lien:

It entitles a person to retain the position of goods belonging to another

for general balance of account. Finder of Goods: A person who comes by an article is not obliged to pick it up, but if he does so or take charge of it becomes a bailee. Such person is called finder of goods. Finder of goods is in position of bailee & enjoys all the rights & duties of bailee.

Rights of Finder of Goods: Right of Lien.

Right of sue of reward. Exp. The finder of goods can sue to real owner for the reward, if any, has been offered by the owner of goods. Right to Sale. Exp. The finder of goods generally cannot sell the goods, he found but in following cases he can do so: When true owner of goods cannot be find after reasonable search. They where the true owner refuses to pay the lawful charges to finder of goods. When the goods are perishable in nature. Where the lawful charges exceeds 2/3rd of the value of goods.

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Duties of Finder of Goods:

To take due care of the goods. To find the true owner. Must not use the goods of his personal purpose. He should not mix the goods with his own goods. Must return the goods to the real owner if he is found.

Pledge: Bailment of goods as a security for payment of debts or performance of promise

is called pledge. The bailer is called pledger or pawner and the bailee is called Pawnee.

Essential of Pledge: Delivery of Goods:

The delivery of goods to pledgee is necessary to constitute a pledge. Delivery of goods should be by way of security. The security being for the payment of debt or the performance of a promise. Goods must be movable. An implied condition to return the goods.

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Contract of Agency
According to Section 182 an agent is a person employed to do any act for other or to represent another in the dealings with the third persons. The person for whom such act is done, or who is so represented, is called principal. The function of an agent is essentially to bring about contractual relationship between the principal and third parties.

Essentials of relationship of agency

There are two essentials of the relationship of agency: 1. Agreement: Agency depends on agreement but not necessarily on contract. It may arise out of an agreement which does not amount to a contract because one of the parties may lack contractual capacity, or there may be no consideration. As between the principal and the third persons, any person may become an agent. (Sec. 184) This leads to conclude that an agent may be a person who is not competent to the contract. The principal is liable for the acts of such an agent; the principal cannot hold the agent liable for his excess of authority. Capacity to contract is not essential to enable a person to act as an agent. Again no consideration is necessary to create an agency (Sec. 185). The fact that the principal has agreed to be represented by the agent is a sufficient detriment to the principal to support the contract of agency. 2. Intention to act on the behalf of principal. Whether a person intends to act on the behalf of another is a question of fact. Where a person does intend to act on the behalf of another, agency may arise although a contract between the parties provides that there is no such relationship. But the mere fact that a person says he is an agent does not make him an agent if he intends to act on his own behalf and not on the behalf of principal.

Creation of Agency 1. Agency by express agreement:

A contract of agency may be created by an express agreement. Normally the authority given by a principal to his agent is an express authority enabling the agent to bind the principal by acts done within the scope of his authority. A person may, in such case be appointed as an agent either by word of mouth or by writing.

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2. Agency by implied agreement

An authority is said to be implied when it is to be inferred from the circumstances of the case and the things spoken or written, or the ordinary course of dealing may be accounted circumstances of the case. Example: A owns a shop in Serampore being himself in Calcutta. He visits the shop occasionally. The shop is managed by B and he is in the habit of ordering goods from C in the name of A, for the purpose of the shop, and of paying for them out of As funds with As knowledge. B has an implied authority from A to order goods from C in the name of A for the purpose of the shop.

Agency by estoppel:
Where a person by his conduct or by statement has led another person to believe that a certain state of affairs exists that a certain person is his agent, he is estopped from denying the fact of that statement subsequently. Example: A tells T within the hearing of P that he is Ps agent. P does not object to this statement. Later on T supplies certain goods to A who pretends to be acting as an agent of P. P is liable to pay the price to T.

Agency by holding out: It is a branch of the agency by estoppel. In this case, a

prior positive act on the part of the principal is required to establish agency subsequently.

Agency by necessity. In certain circumstances the law confers an authority on

the person to act as agent for another without requiring the consent of that person. Such type is called as Agency by necessity. He has the authority in an emergency to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence.(Sec. 189).However the following are the essentials: 1.The agent was not in position to communicate with the principal. 2. There was an actual and definite necessity for acting on behalf of the principal. 3. The act was done to protect the interest of the principal. 4. The agent acted as a man of ordinary prudence and the act was done bonafide.

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Agency by ratification
A person may act on the behalf of another without his authority in the following two ways: (a) Where A acts as Bs agent though he has no prior authority from B but while acting, A contemplates that he is acting for B. (b) Where A is Bs agent for doing a particular thing but at the time of making the contract with the third party he exceeds his authority which B had given to him. In both cases, B the principal, may either accept the act of the agent or reject it. If he accepts the act of the agent done without his consent later on he is said to have ratified the act of the agent. If he ratifies it, it places the parties in the same position in which they would have been if A had Bs authority at the time he made the contract.

Effects of ratification.
Ratification relates back to the date when the act was done by the agent. This means the agency comes into existence from the moment the agent acted and not from the time when the principal ratified it.

Agency by operation of law:

Sometimes an agency arises by the operation of law. For example, when a company is first formed, its promoters are its agents by operation of law. Again, according to Sec. 18 of the Indian Partnership Act, 1932, a partner is an agent of the firm for the purposes of the businesses of the firm

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Law of Partnership
The law of partnership is contained in the partnership act,1932 which came in to force on 1 October 1932. It extends to the whole of Pakistan.(Sec. 3)
st

Meaning:A partnership is an association of two or more persons, who contribute money, property, time, care or skill, to carry on, as co-owners, a lawful business for profit and to share the profit and loss of the business. Characteristics:The following are the characteristics of partnership.

Legal entity Agreement Number of Partners Existence of business Sharing of profits Mutual agency Unlimited liabilitdy Capital Utmost goods faith Management Control Transfer of interest Legal entity:The firm and partner are not seprate legal entity from each other. The rights and liabilities of the firms are considered the right and liabilities of partners.

Agreement:The partnership is the result of an agreement between persons. An agreement may be oral and written.

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Number of partners:There must be at least two persons to form a partnership. According to companies Ordinance, 1984 a pertnership consisting of maximam 20persons.

Existence of business:The business may be exist if the partnership are accure.

Sharing of profits:The profit will be distributed among the partners according their agreement .

Mutual Agency:All the partners or any of them acting for all the partners. Each partner acts as an agent of the other partners of the firm.

Unlimited liabilties:The liabilities of the partnership will be unlimited in case of firms debts.

Capital:The capital is contributed according to the agreement of the partners.

Utmost goods faith:The partnership business is based on trust of the partners. The partners must be honest to each other. They must not make any secret profits.

Management:The work is divided among the partners according to their experience and knowledge.

Control:A partnership is formed by a agreement, its control depends on the terms of the agreement.

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Transfer of interest:A partner cannot transfer his share in the partnership to anoutsider with out the consent of all other partners. The partnership share is not freely transferable.

Kinds of partners: Active partner Sleeping partner Nominal partner Senior partner Junior partner Partner in profits only Secret partner Minor partner

Active partner:A partner who takes an active part in the management of the partnership business is called active partner. He is very important for the management. He is also called working partner.

Sleeping partner:This kind of partner brings only capital in the business and these are not an active part in the management of the firm is called sleeping partner. It is also called dormant partner.

Nominal partner:He does not invest in business and he is lends his name and reputation to the firm is called nominal partner. He does not get share in profit.

Senior partner:A partner whose investment are more in the firm and receives more profit is called senior partner.

Junior partner:He is a young man who has recentlybecome a partner of the firm. He is the opposite of a senior partner.

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Partner in Profit Only:He is a partner who share profit only and not liable for the losses of the firm.

Secret partner:He is a partner of the firm and his partnership is kept secret from outsiders. He is liable for debts of the firm like other partners.

Minor partner:The partner who is not completed 18 year of the age. Minor is not competent to contract so he can not become a partner. But with the consent of the partners he is admitted to the benefits of the partnership by an agreement.

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