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What is Law?
Law is a rule of conduct developed by government or society over a certain territory. Law
follows certain practices and customs in order to deal with crime, business, social
relationships, property, finance, etc. The Law is controlled and enforced by the controlling
authority.
Business Law is the part of civil law which deals with the rights and obligations of persons
dealing with each other. It includes laws relating to contracts, partnership, sales of goods,
negotiable instruments etc.
1. Common Law: The first source of the law is the customary conduct of community life. Customs
are created when people live together and these customs are widely accepted and respected by
the every member of the society and become formally expressed in judicial decisions and then
Law is made. Thus, the Common Law consists of principles based on immemorial custom and
enforced by the courts.
2. Equity: The law of equity is a set of rules created by the courts of Chancery in order to mitigate
the harshness that the common law system provided to the country. The common law availed
only monetary remedies when addressing grievances brought forward by the parties of a case
in order to determine which party can claim victory of a case. This limited the ability of the
courts of law to address other issues that fell outside the scope of monetary compensation. The
Courts of Chancery introduced the law of equity in order to fill in the gaps of law that common
law failed to address. In addition, equity sought to avail a kind of flexibility in the law because
the common law presented a rigid system where writs governed the system of judgment.
3. The Law of Merchant: The law Merchant was based on customs and usages prevalent among
merchants and traders. In the beginning, Law Merchant was administered by tribunals
consisting, mainly, of the merchants. Gradually, it came to be recognized by the Common Law
Courts also.
4. The Statute Law: It is the law passed by the Parliament. These laws are superior to Common
Law and Equity as Parliament is supreme. The authority of the Parliament is supreme, and
subject to natural limitations and those laid down by the Constitution, it can pass any law it
pleases.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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SOURCES OF LAW IN PAKISTAN
The legal system is derived from English common law (Equity) and is based on the
constitution of Pakistan 1973 as well as Islamic law (Sharia). Thus we can say that in
Pakistan the main sources of law are following:
1. Legislation
2. Precedent
3. Custom
4. Agreement
CLASSIFICATION OF CONTRACT
a) As per Formation
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Express Contract- An Express contract is one in which the parties have made an
oral or written declaration of their intentions and of the terms of the transaction.
Implied/ Tacit Contract- An Implied contract is that the terms of which are
inferred from the conduct of parties, or from the circumstances of the case or
course of dealings between them.
Quasi Contract- Under certain conditions, the law creates and enforces legal rights
and obligations, when no real contract, express or implied, exists. These
obligations are known as Quasi Contracts. A Quasi or Constructive contract rests
upon the equitable principle that a person shall not be allowed to enrich himself
unjustly at the expense of other.
b) As per Enforceability
Valid Contract- An agreement which is binding and enforceable by law. It has all
the essential elements.
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c) As per Performance
One of the first steps in the formation of a contract lies in arriving at an agreement
between the contracting parties by means of offer and acceptance. Thus Proposal is
defined as under:
i) Contractual Intension:
To constitute an offer, the offeror must intend to create a legal obligation.
Following are the examples of a lack of contractual intention of the part of the
offeror.
a) Social Invitations:
Ordinary invitations to social affairs are not offers in the eyes of law, because
the idea of bargain is absent in such cases and there is no such intention to
create a legal relationship.
ii) Definiteness:
An offer must be definite and certain. If it indefinite, loose or vague of if an
essential provision is lacking it cannot be accepted.
b) General Offer (Public at Large): If an offer is made to the world or public than it is
said to be general offer. Such offer can be accepted by any person. The contract is
made with person who having the knowledge of the offer comes forward and acts
according to the conditions of the offer.
c) Cross Offer: If two parties ignorant of each other’s offer made similar offers to each
other they are called cross offers. Cross offers are not equal to acceptance.
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Lapse/ Expiry/ Termination/ Duration/ End of Offer
b) By Time: An offer will come to an end if it is not accepted within the time specified
or within a reasonable time where no time is specified. What is the reasonable time
is a question of fact depending upon the subject matter and circumstances.
c) By Death/ Insanity: An offer comes to an end by the death or insanity of the offeror
if the fact of his death or insanity comes to the knowledge of the acceptor before
acceptance.
h) By Counter Offer: An offer lapses by the counter offer from offeree. Counter offer is
in fact a rejection of the original offer and a new offer from the offeree who now
become offeror.
Rejection of Offer
COMMUNICATION OF REVOCATION
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(Mr. Brohi)
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revoking an offer made to a particular offeree is effective and revocation against a person
who makes it, when it is put into course of transmission (i.e. when the letter is posted) and
as against the offeree, when the revocation comes to his knowledge (i.e. when he receives
the letter)
2. ACCEPTANCE
An agreement consists of an offer by one party and its acceptance by the person or persons
to whom it is made. Acceptance is the manifestation by the offeree of his willingness to be
bound by the terms of the offer. Acceptance is defined as under:
“When the person the person to whom is offer is made signifies his assent thereto, he is
said to have accepted the offer. A proposal when accepted becomes a promise.”
1) Absolute: A valid contract arises only if the acceptance is absolute i.e. complete
1) Acceptance of General Offer: If the offer is not made to a specific person rather to
public at large, it can be accepted by any member of the public at large. In such case
no communication of acceptance is required.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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COMMUNICATION WHEN COMPLETE
1) OFFER: The communication of offer is complete when it comes to the knowledge of
the person to whom it is made. (When offeree receives letter of offer)
Example: A proposes, by a letter posted on 3rd June to sell his house to B at a certain
price. The letter reaches to B on 8th June. The communication of offer is complete on
8th June.
Example: A proposes, by a letter posted on 3rd June to sell his house to B at a certain
price. The letter reaches to B on 8th June. B accepts it on 8th June and sent letter back
to A, which reaches to A on 10th June. The communication of acceptance is complete:
a) As against A, when the letter is posted by B i.e. on 8th June.
b) As against B, when the letter is received by A i.e. 10th June.
That means:
a) Minor (b) person of unsound mind (c) person disqualified by any law to which
they are subject, are not competent to contract.
1) AGE
i) Age of Majority: A person who is attaining the age of 18 years or shall have
completed the age of 18 years and not before becomes a major person. In case of
guardianship and superintendence of his property, age of majority is 21 years,
which commences from the death of parents.
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(Mr. Brohi)
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Position of a person who is usually of unsound mind but occasionally of sound
mind.
A person who is:
usually of unsound mind but,
occasionally of sound mind,
may make a contract when he is of sound mind.
BURDEN OF PROOF
The rules regarding the burden of proof are following:
a) If a person is usually of sound mind or in drunkenness or in delirium from fever
then the burden of proof that he was of unsound mind lies on the person who
questions the validity of contract.
b) If a person is usually of unsound mind then the burden of proof that he was of
sound mind lies on the person who confirms it.
There are some disqualifications imposed on certain persons in respect of their capacity
to contract which are discussed below:
a) Alien enemies: An alien is a person who is the citizen of a foreign country. He can
enter into a contract and be sued during peace time but if a war is declared than an
alien enemy can neither enter into a contract or be sued during the period of war.
Contracts entered before the declaration of war are either suspended or terminated
during the period of war.
b) Foreign sovereigns and ambassadors: Such persons have immunity unless they
choose to submit themselves to the jurisdictions of our courts. They have a right to
enter into a contract but can claim the privilege of not being sued.
c) Convicts: A convict while under imprisonment is incapable of contracting but this
disability comes to an end after the expiry of the sentence or when he is on parole.
d) Insolvent: A person declared as insolvent cannot enter into a contract as his
property is dealt with by official assignee or official receiver.
4. CONSIDERATION (Sec: 2)
Contracts results only when one promise is made in exchange for something in
return, that something in return is consideration. Consideration is defined as under:
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“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 to abstain from doing something, such act or abstinence or promise is
called consideration for promise. ”
Example:
(a) A agrees to sell his house to B for Rs. 1,000,000/-. Here B’s promise to pay sum is
the consideration for A’s promise to sell the house.
(b) A promises to pay B Rs. 1,000/- at the end of 6 months, if C, who owes that sum
to B, fails to pay it. B promises to grant to C accordingly. Here the promise of each
party is the consideration for the promise of the other party.
The analysis of the above definition reveals that a consideration may be the value by
which promise is bought. Consideration may be following:
An act i.e. doing of something.
An abstinence or forbearance i.e. abstaining or refraining from doing
something.
A return promise.
KINDS OF CONSIDERATION
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(A promise to compensate a person who has already voluntarily done
something for the promisor is called past consideration.)
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A sells his car for Rs. 1 million and delivers the car at the time of payment. Here the
consideration is moving simultaneously with the promise and is called present
consideration.
A promises to deliver certain goods to B after 5 days and B promises to pay after 5
days from the date of delivery. Consideration in this case is future.
There is no requirement for the adequacy of consideration but it should have some value.
There should be something in return and this something in return need not necessarily be
equal in value to something given.
A promises to put life into B’s dead wife and B promises to pay Rs. 1 million. This
agreement is void because consideration is impossible to perform and not real.
A engages B to work as an accountant in his office and promises to pay him Rs. 75,000 per
month. This is a real consideration for both the parties.
7. Lawfulness/ legality
The consideration must neither be unlawful nor opposed to public policy.
Example: Lawful
A promises B to pay Rs. 100,000 to beat C. B beats C and claims Rs. 100,000 from B. A
refuses to pay. B cannot recover because the agreement is void on the ground of unlawful
consideration.
A promises B to obtain an employment in the public service and B promises to pay Rs.
100,000 to A. The agreement is void on the ground of unlawful consideration.
a) Written and Registered: If it is in writing and registered under the law and is made
on account of natural love and affection between parties standing in near relation to each
other.
c) Time Barred Debt: A written and signed promise by the debtor to pay either whole
or any part of time barred debt is enforceable and valid.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 15
d) Contract of Guarantee : Consideration received by the principal debtor is
sufficient for the surety and it is not necessary to result in some benefit to the surety
himself.
The basis of this rule is that a contract is a private relationship between the parties who
make it, and no other person can acquire right or liabilities under it.
Privity of contract means a relationship between the parties who have entered into a
contractual obligation and implies a mutuality of will and understanding and creates a legal
bond between the parties to a contract.
It means the stranger to contract cannot sue, but stranger to consideration can sue.
a) In case of beneficiary of a Trust: A trust is always created for the benefit of some
person called beneficiary. The beneficiary can file a suit to enforce his right, even though he
is not a party to contract.
b) In case of family settlement: When certain arrangements are made for the
marriage or maintenance of a particular member of the family then such person for whose
benefit the provision is made may enforce contract. (Family or marriage settlement
should be in writing)
c) In case of acknowledgment of Liability: When the promisor, by his conduct,
acknowledges or himself acts as an agent of a third party, a binding obligation is thereby
incurred by him towards the third party.
Example: A receives money from B to be paid to C. A admits of this receipt to C. C can
recover this amount from A, who shall be regarded as his agent.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 16
5. CONSENT (SECTION-13)
“Two or more persons are said to consent when they agree upon the same thing in the
same sense.”
A agrees to sell his car to B for Rs. 500,000/-. A had 2 cars, Car-1 and Car-2. A was talking
about Car-1, whereas, B believed about Car-2. Here, there is no consensus between the
parties and the contract is void due to mutual mistake of fact.
i. Coercion
ii. Undue Influence
iii. Fraud
iv. Misrepresentation
v. Mistake
b) Unlawful detaining or threatening to detain any property of the other: When any
person unlawfully detains or threatens to detain any property (moveable or
immovable) to the prejudice of any person for getting consent of a party to a contract,
such an act amounts to coercion and the contract becomes voidable at the option of the
party whose consent so obtained.
Example: A, an agent refused to hand over the books of accounts to B, the principal,
unless the principal releases him from all liabilities. The principal had to give him
release deed. The release deed was given under coercion and is voidable at the option
of principal.
c) Coercion may move from any person and directed towards any person: Coercion
need not necessarily be exercised against the promisor or his spouse or children or
parent, it may be directed against any person or property. (Coercion includes fear,
physical compulsion and menace to goods)
Example: X hired Y to kidnap Z’s son in order to threaten Z to enter into contract with X.
d) It is immaterial whether the Pakistan Penal Code is in force in the place where the
coercion is employed.
Effects of coercion
The effects of coercion are given below: [Section 19, 64 and 72]
The contract becomes voidable at the option of the party whose consent was so
caused. The burden of proof lies on the party who rescinds the contract.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 18
The party rescinding a voidable contract shall, if he has received any benefit from
another party, restore such benefit i.e. restitution.
A person to whom money has been paid or anything delivered by coercion must
repay or return it.
Burden of Proof: The burden of proving that the coercion was inducing by coercion lies on
the party who wants to avoid the contract. In other words, it is for the aggrieved party to
prove that his consent was not free.
“Undue influence exists where the relation subsisting between the parties is such
that one of the parties is in a position to dominate the will of the other and uses that
position to obtain unfair advantage over the other.”
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 19
3. FRAUD/ WILLFUL MISREPRESENTATION: Fraud has been defined under section
17 as under:
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(Mr. Brohi)
Page 20
Fraud is a term used in connection with free consent. It means deceiving or cheating
someone intentionally.
“Fraud means and includes any of the following acts committed by a party to a
contract, or with his connivance, or by his agent with the intent to deceive another party
thereto or to induce him to enter into contract.”
Essentials of Fraud:
ii. Active Concealment: A party tries to conceal or hide the truth deliberately to keep
the other party in dark.
Example: Mr. Z a furniture dealer conceals the cracks in furniture sold by him by using
some packing material and polishing it in such a way that the buyer even after reasonable
examination cannot trace the defect, it would amounts to fraud through active
concealment.
iii. Empty Promise: A party makes a promise with clear intention not to perform it.
Example: Buying goods under a contract of sale with an intention of not paying the price is
fraud.
iv. Fitted Act: Any other act fitted to deceive the other party.
v. Declared Act: Any act or omission, which any law specially declares any time to be
fraudulent.
Essentials of Fraud
5. Suffered loss
Loss has been suffered by the party who acted on the representation.
Effects of fraud
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(Mr. Brohi)
Page 22
Misrepresentation includes the following:
2- Breach of Promise: A party commits a breach of his duty (i.e. not performing his promise),
which will bring some gains to him, but he innocently believes that it will not be causing loss to the
other party.
3- Innocent Mistake: A party innocently misleads the other party regarding the subject
matter of an agreement.
Effects of Misrepresentation
Essentials of Misrepresentation
a) Party to a contract
The representation must be made by a party to a contract or by anyone with his
connivance or by his agent. Thus, the representation by a stranger to the contract does not
affect the validity of the contract.
b) False representation
There must be a false representation and it must be made without the knowledge of
its falsehood i.e. the person making it must honestly believe it to be true.
c) Representation as to fact
A mere opinion does not amount to misrepresentation. A representation must relate
to a fact if it amounts to misrepresentation.
d) Object
The objective is to induce the other party to enter into contract without the
intention of deceiving the other party.
e) Actually acted
The other party must have acted on the faith of the representation.
Remedies available to aggrieved Party
Damages: Generally, the injured party cannot get damages for innocent misrepresentation, but
in the following cases he can get damages:
MISREPRESENTATION FRAUD
Nature of Statement
In misrepresentation, a party makes a In fraud, a party makes a statement saying
statement emphatically saying something as something as true, which is not true and the
true, which is not true, but party believes it party also believes it to be untrue.
to be true.
Nature of Concealment
In misrepresentation, a party never In fraud, a party tries to conceal the truth
deliberate to keep the other party in dark. deliberately to keep the other party in dark.
Intention of Parties
In Misrepresentation, party innocently In Fraud, party makes a promise without
breaches his duty. That it will not be causing intention of performing it.
loss to other party.
Claim of Damages
In Misrepresentation, aggrieved party not In Fraud, aggrieved party can always claim
always claim damages. damages.
Effect of Contract
In case of Misrepresentation, contract In case of Fraud, contract becomes voidable.
becomes voidable.
5. MISTAKE:
The term Mistake means a incorrect belief about something. It is, in fact, an erroneous
belief which leads one party to misunderstand the other.
Where both the parties to an agreement are under a mistake as to matters of facts
essential to the agreement, the agreement is void.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
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Types of mistakes
The types of mistakes are shown below:
Not voidable: It can be valid or void depends upon the performance of the contract.
1- Bilateral mistake
Where both the parties to an agreement are under a mistake as to a matter of facts
essential to the agreement, the agreement is void.
An erroneous opinion as to the value of the thing which forms the subject matter of
the agreement is not to be deemed a mistake as to a matter of facts.
Example: Bilateral mistake
A buys' a painting believing it to be worth Rs 100,000 while in fact it is worth only Rs
10,000. The contract is not void.
A agrees to sell to B a specific cargo of goods supposed to be on its way from England to
Karachi. It turns out that, before the date of the bargain, the ship conveying the cargo had been cast
away and the goods lost. Neither party was aware of facts. The agreement is void.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 25
Bilateral mistake as to the subject matter
A bilateral mistake as to the subject matter includes the following mistakes as to the:
A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of bargain
though neither party was aware of the fact. The agreement is void because there is bilateral mistake
as to the existence of subject matter.
A agrees to buy from B all his horses believing that B has two horses but B actually has three horses.
The agreement is void because there is bilateral mistake as to the quantity of subject matter
A agrees to buy a particular horse from B. Both believe it to be a race horse but it turns to be a cart
horse. The agreement is void because there is bilateral mistake as to the quality of the subject
matter.
A agrees to buy a particular horse from B who mentioned in his letter the price as Rs 1,150 instead
of 5,150. The agreement is void because there is bilateral mistake as to the price of the subject
matter.
A agrees to buy from B a certain horse. B has one race horse and one cart horse. A thinks that he is
buying race horse but B thinks that he is selling cart horse. The agreement is void because there is
bilateral mistake as to the identity of subject matter.
A agrees to buy a particular horse from B. That horse is already owned by A. The agreement is void
because there is bilateral mistake as to the title of the subject matter.
Where the parties believe that an agreement is capable of performance and actually it is not
then it is said to be a bilateral mistake as to the possibility of performance due to which
agreement is void.
2- Unilateral mistake
A contract is not voidable merely because it was caused by one of the parties to it
being under a mistake as to matter of facts.
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(Mr. Brohi)
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Exceptions
Following are the exceptions where agreement is void on the basis of unilateral mistake:
1. Mistake relating to the identity of the person.
2. Mistake relating to the nature of the contract
Contract Act declares certain agreements to be void. Such agreements are listed below:
There are certain agreements which have been expressly declared as void such as:
Agreement, the consideration or object of which is partly unlawful: When an
agreement constitutes promises to do certain acts lawful as well as unlawful in
nature, then whole of the agreement would be void, if the lawful part is not
separable from unlawful part.
A promises to manage B’s farm, where there is cultivation of rice and unlawful
cultivation of opium. B promises to Rs. 50,000/- to A as per month salary. The whole
agreement is void as the legal part cannot be separated from illegal part.
“If you want success, dare to take risk, because success come with dare not fear”.
(Mr. Brohi)
Page 27
Agreement in restraint of legal proceedings: An agreement that prevents one
party from enforcing his legal rights under a contract through the legal process (of
courts, arbitration etc) then such an agreement is expressly void agreement.
However, if the agreement states that any dispute between parties will be referred to
arbitration and the amount awarded in such arbitration will be final will be a valid
contract.
Also if the parties agree that any dispute between them in the present or the future will
be referred to arbitration, then such an agreement is also valid. But such a contract has
to be in writing.
Let us take for example the case of physician A, who employs B as his assistant for three years.
For this duration of three years, B agrees not to practice medicine anywhere else. This is a valid
agreement even though it is in restraint of trade.
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(Mr. Brohi)
Page 28
But say A sells his legal practice to B along with the goodwill. And A agrees never to practice as
a lawyer anywhere in the state for the next 20 years. This is not a valid agreement since the
terms are completely unreasonable.
Uncertain agreements: An agreement whose meaning is uncertain cannot be a valid
agreement, it is a void agreement. If the essential meaning of the contract is not
assured, obviously the contract cannot go ahead. But if such uncertainty can be
removed, then the contract becomes valid.
For example: A agrees to sell to B 100 kg of fruit. This is a void contract since what
type of fruit is not mentioned. But if A exclusively sells only oranges then the
agreement would be valid because the meaning would now be certain.
The essentials of a wagering agreement are as follows. If all elements are met then the
agreement will be void.
Must contain a promise to pay money or money’s worth
Is conditional on the happening or non-happening of a certain event
The event must be uncertain. Neither party can have any control over it
Must be the common intention to bet at the time of making the agreement
Parties should have no other interest other than the stake of the bet
Prize competitions which are games of skill, e.g. picture puzzles, athletic competitions. For
example, an agreement to enter into a wrestling event in which winner was to be rewarded
by the entire sale proceeds of tickets is not a wagering contract.
An agreement to contribute to a plate or prize of the value of Rs. 500 and above to be
awarded to the winner of a horse race.
Stock market transaction in which the delivery of shares is intended to be given.
Contracts of insurance
Example: Ms. Naheed, agrees to sell “100 dictionaries”, there is nothing whatever to
show what kind of dictionaries, of which company and which edition etc. was intended.
The agreement is void for uncertainty.
8. Possibility of Performance
According section 56, “An agreement to do an act impossible in itself is void”. If the
act is impossible in itself, physically or legally, the agreement cannot be enforced by
law.
Example: Mr. X agrees to Mr. Y to make his dead father alive by magic and receives Rs.
100,000. The agreement is not enforceable.
9. Lawful object
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(Mr. Brohi)
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