BUSINESS LAW

• Law of Contract
• Contract Act, 1872.
• Law of Sales of Goods
• Sale of Goods Act, 1930.
• Law of Negotiable Instruments
• The Negotiable Instruments Act, 1881
• Law of Labour
• Workmen's Compensation Act, 1923
• Industrial and Commercial Employment Ordinance, 1968
• Company Law
• Law of Carriage of Goods
• Law of Partnership
• Consumer Protection Law
WHAT IS CONTRACT?

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 CONTRACT

Law of Contract
The law relating to contracts in Pakistan is contained in the Contract
Act, 1872. It extends to the whole of Pakistan and came into force on
the 1st day of September, 1872. it deals with:

1. General principle governing all types of contracts (Sec. 1-75)

2. Contracts of Indemnity, G uarantee, Bailment, Pledge and

Agency (Sec. 124-238)

Initially, sections 76-123 and sections 239-226 relating to sale of

goods and partnership were contained in the Contract Act but where
subsequently repealed and a separate Sale of Goods Act, 1930 and a
Partnership Act. 1932 came into force.

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 CONTRACT
Definition of Contract
Pollack: “Every agreement and promise enforceable at law is a
contract”

Salmond: “A contract is an agreement creating and defining obligations

between the parties.”

Sir William Anson: “A n agreement enforceable by law made between

two or more persons, by which rights are acquired by one or more to
acts or forbearance on the part of other or others.”

Sec. 2(h) of Contract Act provides “A n agreement enforceable by law is

a contract.”

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 C O N T R A CT

1. Agreement
Section 2(e) defines agreement as, “Every promise and every set of
promises, forming the consideration for each other, is an agreement.”
Section 2(b) defines promise as, “when the person to whom the
proposal is made, accepts it, then that proposal becomes a promise.”
A promise comes into existence when one party makes a proposal
to the other party and that other party gives his consent. Therefore, a
contract is an agreement; an agreement is a promise and a promise is an
accepted proposal.
A offers to sell his phone to B for £100. B accepts it. It has become
an agreement.
Here, A is a promisor and B is a promisee

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 CONTRACT
2. Enforceability
An agreement is enforceable if it is recognized by courts. In
order to be enforceable by law, the agreement must create legal
obligations between the parties. Thus, the term agreement is a wider
than a contract. All contracts are agreements but all agreements are not
contracts.

Agreements are of two types:

(a) Social agreements

Social agreements are not enforceable because they do not create legal
obligations between the parties. In such agreements the parties do not
intend to create legal relations.

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 CONTRACT
(b) Legal agreements
Legal agreements are enforceable because they create legal obligations
between the parties. In such agreements the parties intend to create
legal relations. All business agreements are contracts as there is an
intention to create legal

Enforceability (Examples)
a) A invites B to a dinner, B accepts the invitation but does not attend.
A cannot sue B for damages. It is a social agreement.
b) A promises to sell his car to B for £1000. It is a legal
agreement because it creates legal obligations. This agreement is a
contract.

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ESSENTIALS A N D INGREDIENTS OF
THE VALID CO N T RAC T

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 CO NT RAC T
Essentials of a Valid Contract
A valid contract is binding and enforceable. In valid contact all the
parties are legally bond to perform the contract, it is a contract which
can be enforced by either of the parties. If either party refuses to perform
the contract, the other can enforce it through a court. To be enforceable,
an agreement must possess essentials of a valid contract.

According to Section 10, “All agreements are contract if they are made
by the free consent of parties, competent to contract, for a lawful
consideration and with a lawful object, and are not hereby expressly
declared to be void.”

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 CONTRACT

1. Offer and Acceptance

For an agreement, there must be a lawful offer by one party and lawful
acceptance of that offer from the other party. The term lawful means that
the offer and acceptance must satisfy the requirements of Contract Act.

Example

A offers to sell his cycle to B for £200. This is an offer. If B accepts this
offer, there is an acceptance.

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 CONTRACT
2. Legal Obligation
The parties to an agreement must create legal obligations. It means that
if one of them does not fulfill his part of promise, he shall be liable for
breach of contract. It is presumed in commercial agreements that parties
intend to create legal relations.
(Examples)
a) A offers to sell his watch to B for £200. B agrees to buy. It is a
contract as it creates legal obligation.
b) A husband promised to pay his wife an allowance of £30 every
month. Later, the parties separated and the husband refused to pay.
The wife sued. Held, that the wife was not entitled as agreement did
not create legal obligations. (Belfour vs. Belfour)

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 CONTRACT
3. Lawful consideration
Consideration may be some benefit to the other party. It is the price paid by one
party for the promise of the other party.
Section 2(d) defines consideration “When, at the desire of the promisor, the promisee or
any other person has done or abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise.”
An agreement is enforceable only when both the parties get and give something.
The something given or obtained is called consideration. Considerations must be
lawful as well.
a) A agrees to sell his house to b for £100,000. For A, £100,000 is the consideration
and for B, the house.
b) A promises B to get him a government job and B promises to pay £1000. The
agreement is void as the consideration is unlawful.

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 CONTRACT
4. Capacity of Parties
An agreement is enforceable only if it is made by parties who are
competent to contract. To be competent to contract, the parties must be
of the age of majority, of sound mind and not disqualified from
contracting by law. A contract by a person of unsound mind is void ab-
inito (from the beginning).

Examples
a) M, a person of unsound mind agrees to sell his house to
S for
£100,000. It is not a valid contract because M is not competent to
contract.
b) A , aged 20 promises to sell his car to B for £700. It is a valid contract
because A is competent to contract.
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 CONTRACT
5. Free Consent
Consent means that the parties must agree upon the same thing in the
same sense. For a valid contract, it is necessary that the consent of
parties must be free.
Consent is free when it is not obtained by coercion, undue influence,
fraud, misrepresentation or mistake. If the consent of either of the
parties is not free, the agreement cannot become a contract. (Sec. 14)

Example
A compels B to enter into a contract at gunpoint. It is not a valid contract
as the consent of B is not free.

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 CONTRACT
6. Lawful Object
It is necessary that agreement should be made for a lawful object. The
object of agreement must not be fraudulent, illegal, immoral opposed to
public policy, imply injury to the person or property of another. Every
agreement, with unlawful object or consideration is illegal and therefore
void. (Sec. 23)
Examples
a) A promises to pay B £500 if B beats up C. The agreement is illegal as
its object is unlawful.
b) A hires a house to use for gambling. The object of the agreement is
unlawful; so the agreement is illegal and void.

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CONTRACT
7. Writing and Registration
A contract may be oral or in writing. It is preferable that the contract be
in writing because it is easy to prove in court. If required by law, a
particular contract must be in writing, signed, attested by witnesses and
registered; e.g. sale and mortgage of land.

Examples
a) X verbally promises to sell his book to Y for Rs. 200. It is a valid
contract because the law does not require it to be in writing.
b) A verbally promises to sell his house to B. It is not a valid contract
because the law requires it to be in writing.

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 CONTRACT
8. Certainty of Terms
According to section 29, “Agreements, the meaning of which is not certain or capable
of being made certain, are void.” The terms of an agreement must be clear, complete
and certain. If the terms are uncertain, the agreement is void.

Examples

a) A promises to sell 20 books to B without specifying their titles. The

agreement is void because the terms are not clear.

b) O agreed to purchase a van from S. The price was to be paid over two years.
Held, there was no contract as the terms were not certain about rate of
interest and mode of payment (Scammel vs. Ouston).

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 CONTRACT
9. Possibility of Performance
The valid contract must be capable of being performed. An agreement to
do an impossible act is void. If the act is legally or physically impossible
to be performed, the agreement cannot be enforced by law. (Sec. 56)

Examples

a) A agrees with B to discover a treasure by magic, the agreement is

not enforceable.

b) A agrees with B to put life into B’s dead brother. The agreement is
void as it is impossible to perform.

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 CONTRACT
10. Not Expressly Declared Void
For a valid contract, the agreement must not be one of those, which have been
expressly declared to be void by the law, sections 24-30 explain certain
agreements which have been expressly declared to be void, e.g. agreement in
restraint of trade and of wager etc. are expressly declared void.

Examples

a) A promises to close his business on the promise of B to pay him £5000 is a

void agreement because it is in restraint of trade.

b) A promises to pay £100 to B if Pakistan wins the world cup final. The
agreement is void being a wagering agreement.

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 KINDS OF CONTRACTS
The contracts can be classified into four categories as follows:

1. According to Enforceability

a. Valid Contract

b. Void Contract

c. Voidable Contract

d. Unenforceable Contract

2. According to Formation

a. Express Contract

b. Implied Contract

c. Quasi Contract
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 KINDS OF CONTRACTS

3. According to Performance

a. Executed Contract

b. Executory Contract

4. According to parties

c. Unilateral Contract

d. Bilateral Contract

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 KINDS OF CONTRACTS
1. ACCORDING TO ENFORCEABILITY

According enforceability, a contract can be divided as under:

(a) Valid Contract

A valid contract is enforceable by law. An agreement becomes

enforceable by law when all the essentials of a valid contract are
present.

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 KINDS OF CONTRACTS
Obligation of Parties

In valid contract all the parties are legally responsible for the
performance of the contract. If one of the parties breaches the contract,
the other party can enforce it through the court of law.

(Example)

A agrees to sell a car to B. If it fulfills all the essentials of a

contract, it is a valid contract. If A fails to deliver the car, B can sue him
and if B fails to pay, A can sue him.

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 KINDS OF CONTRACTS

(b) Void Contract

The word void means not binding in law. Section 2(i) defines
“A contract which ceases to be enforceable by law becomes void, when
it ceases to be enforceable.”
It means that a void contract is not void from the beginning. It is valid
contract when it is made but subsequently it becomes void due to
certain reasons.
Obligation of Parties
In void contract both the parties are not legally responsible to
fulfill the contract. Under this contract the party who has received any
benefit is bound to return it to the other party.

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 KINDS OF CONTRACTS

i. Impossibility of Performance

A contract becomes void due to impossibility of performance. A contract

becomes void before performance, when it becomes impossible to be
performed by any party due to any reason.

Section. 56 “An agreement to do an act impossible in itself is void.”

Example

A agrees to sell his house to B after two days. The house is burnt next
day. The contract becomes void.

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 KINDS OF CONTRACTS
ii. Subsequent IIIegality

A contract becomes void by subsequent illegality. A contract may

become illegal before performance, due to certain reasons.

Example

A agrees to sell 100 bags of wheat to B. Before delivery the government

bans private trade of wheat. The contract becomes void.

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 KINDS OF CONTRACTS

iii. Rejection of a Voidable Contract

A voidable contract becomes void when the party whose consent is

not free rejects the contract.

Example

A sells a car to B for Rs.200,000 which is non-custom paid. A doesn’t

mention this at the time of contract. The contract is voidable at the
option of B. B may accept or reject it. If B rejects the contract it becomes
void.

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 KINDS OF CONTRACTS

iv. Impossibility of depending Event

A contingent contract is that, the performance of which depends upon

the happening or non-happening of a certain event. It becomes void,
when that event does not happen. (Section.56)

Example

A contracts to give £50 to B, if B gets admission in Bahria University. B

fails to get admission. The contract becomes void.

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 KINDS OF CONTRACTS

(c) Voidable Contract

Sec. 2(i) “An agreement which is enforceable by law at the option of

one or more of the parties thereto, but not at the option of the other or others, is
a voidable contract.”

A contract is voidable when the consent of one of the parties is

not free. It is a valid contract until it is avoided by the party having the
right to avoid it. When it is avoided it becomes void. If the party decides
to confirm it, it remains valid. A contract becomes voidable under the
following circumstances.

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 KINDS OF CONTRACTS

1. A contract becomes voidable when the consent of one or more of

the parties to a contract is obtained by coercion, undue influence,
misrepresentation or fraud. (Sec. 15-18).

Example

A deceives B by stating that his factory produces 90 kg of sugar daily

and induces B to buy it. The contract is voidable at the option of B.

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 KINDS OF CONTRACTS

2. When a person promises to do something for another person but

the other person prevents him from performing his promise, the contract

becomes voidable at his option. (Sec. 53)

Example

A contracts to paint B’s house. A is ready to paint but B prevents him

from doing so. This contract is voidable at the option of A .

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 KINDS OF CONTRACTS

3. When a party to the contract promises to do a certain thing

within a specified time, but fails to do it, then the contract becomes

voidable at the option of the promisee, if time is essence of the contract.

(Sec. 55)

Example

A contracts to paint B’s house within 5 days. A fails to complete it within

the specified time. The contract is voidable at the option of B.

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 KINDS OF CONTRACTS
Obligation of Parties
The following are the obligations of the parties.
1. The law gives an option to the aggrieved parties to avoid it.
2.The party entitled to cancel the contract chooses not to cancel, then
the other party remains bound to perform.
3. The aggrieved party can get damages from the other party.
4. If one party has received some benefit, he must return it to the
other.

Burden of Proof
The burden of proof lies on plaintiff, i.e. an aggrieved party. It
means that the party, who claims that his consent is unfree, has to prove
in the court of law. If he fails to prove the contract remains valid.

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 KINDS OF CONTRACTS
(d) Unenforceable Contract
An unenforceable contract is that contract which cannot be enforced in a
court of law because of some technical defects such as absence of
writing, registration, requisite stamp, etc. when these defects are
removed, the contract can be enforced.
Example
A borrows Rs. 1 billion from B and makes a pronote on a Rs. 10 stamp
paper. It is unenforceable because pronote is undervalued.
Obligation of Parties
In unenforceable contract, the parties may perform the contract. But in
breach of such contract, the aggrieved party is not entitled to the legal
remedies.

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 KINDS OF CONTRACTS
2. ACCORDING TO FORMATION

According to formation, a contract has the following three kinds:

(a) Express Contract

Express contact is one which is expressed in words spoken or written.

When such a contract is formed, there is no difficulty in understanding
the rights and obligations of the parties. In express contract, the parties
directly state the terms of the contract. (Sec.9)

Example

A tells on telephone to B that he wants to sell his car and B informs. A

that he agrees to buy the car, it is an express contract.

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 KINDS OF CONTRACTS
(b Implied Contract
)
An implied contract is made otherwise than by words spoken or
written. It arises from the acts, conduct of the parties, course of dealings
or circumstances. It arises when one person, without being requested to
do so, renders services under circumstances indicating that he expects to
be paid for them, and the other person, knowing such circumstances,
accepts the benefit of those services. (Sec. 9)
Example
a) A went into a restaurant and had a cup of tea. It is an implied
contract and A will pay for the cup of tea.
b) A , a shoe shiner starts polishing the shoes of B in his presence, and B
allows him to do so. It is an implied contract.

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 KINDS OF CONTRACTS
(c) Quasi Contract
In a quasi contract the law imposes certain obligations under some
special circumstances. It is based upon the principle of equity that a
person shall not be allowed to get benefit at the cost of another. In fact it
is not a contract but creates relations similar to contract. It is also called
constructive contract.

Example
a) A finds lost goods of B. A is bound to return those goods to B.
b) A leaves his goods at B’s house by mistake, B treats them as his own
and uses them. It is a quasi contract. B is bound to pay for the goods.

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 KINDS OF CONTRACTS

3. ACCORDING TO PERFORMANCE
According to performance a contract is of the following two kinds:
(a) Executed Contract
A contract is said to be executed when both the parties have completely
performed their obligations. It means that nothing remains to be done be
either party under the contract.

Example
A buys a book from B. a delivers the books and B pays the price. It is an
executed contract.

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 KINDS OF CONTRACTS
(b) Executory Contract
In an executory contract something remains to be done. In other words
a, contract is said to be executory when both the parties to a contract
have yet to perform their obligations.

Example
M sells his car to N for £700. N has not yet paid the price and M has not
delivered the car. The contract between M and N is executory.

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 KINDS OF CONTRACTS
4. ACCORDING TO PARTIES
According to parties a contract may be of the following two kinds:
(a) Unilateral Contract
In a unilateral contract only one party makes a commitment. In other
words, it is a contract where only one party is bound but the other
party chooses to be bound by it.

Example
A promises to pay £50 to any one who finds his lost bag. B finds the bag
and returns. A. It is a unilateral contract which comes into existence
when the bag is found.

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 KINDS OF CONTRACTS
(b) Bilateral Contract

It is a contract where as soon as the contract is made, both parties are

bound by it. In other words it is a contract in which both the parties

have yet to perform their obligations.

Example

A promises to paint the picture for B and B promises to pay £70 to A .

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 DIFFERENCE BETWEEN VOID AGREEMENT & VOID
CONTRACT
Void Agreement Void Contract
1. Enforceability
• A void agreement • A void contract is enforceable
is unenforceable from the when it is made. It becomes
beginning. unenforceable later on.
• A void contract can be enforced
• A void agreement can before it becomes unenforceable
never be
enforced.
In a void contract the parties are
2. Restoration of Benefit entitled for restoration of benefits
In a void agreement the parties are which they have exchange during
not entitled for restoration of the contact
benefits which they have exchange
during the contract

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 DIFFERENCE BETWEEN VOID AGREEMENT & VOIDABLE
CONTRACT
Void Agreement Voidable Contract
1. Enforceability
A void agreement is unenforceable A voidable contract is enforceable by
by law. law till it is rejected.
2. Defects
A void agreement is void ab-initio A voidable contract is not void ab-
and its defects cannot be removed. initio and its defects can be removed.
3. Rights of Third Party
In a void agreement a third party In a voidable contract a third party
who buys goods in good faith and who buys goods in good faith and
for consideration does not acquire for consideration acquires rights
any rights. before the contract is rejected.

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 DIFFERENCE BETWEEN VOID AGREEMENT & VOIDABLE
CONTRACT
Void Agreement Voidable Contract

4. Compensation
In a void agreement the person is
not entitled to compensation for loss
arising due to non-performance of
the agreement
In a voidable contract, a person is
entitled to compensation for loss
arising due to non-performance of
the contract.

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