Business Law

Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

A.1 (i) (d) (ii) (a) (iii) (c)

(iv) (b) (v) (a) (vi) (b)
(vii) (d) (viii) (c) (ix) (d)
(x) (b) (xi) (c) (xii) (c)

A.2 Delegated legislation

In delegated legislation, power is given to an executive (a minister or public body) to make
subordinate or delegated legislation for specified purposes only. For example, local
authorities are given statutory powers to make bye-laws, which apply within a specific
locality.

Advantages of delegated legislation

 As Parliament does not have time to examine matters in detail, delegated legislation
helps to make the process faster.
 Much of the content of delegated legislation is technical and is better worked out in
consultation with professional, commercial, or industrial groups outside Parliament.
 Delegated legislation is more flexible than an Act of Parliament. It is easy to amend a
piece of delegated legislation than to amend an Act of Parliament.

Disadvantages of delegated legislation

 Delegated legislation takes law-making away from the democratically elected
members. Power to make law is given to unelected civil servants and experts working
under the supervision of a government minister.
 Because delegated legislation can be produced in large amounts, the volume of such
law-making becomes unmanageable and it is impossible to keep up-to-date.

Control over delegated legislation

 Parliament has some control over delegated legislation by restriction and defining the
power to make rules.
 Rules made under delegated power to move legislation may be challenged in the Courts
on the grounds that it is ultra vires i.e., it exceeds the prescribed limits or has been made
without due compliance. If the objection is valid, the Court declares it void.

A.3 (a) The State Bank of Pakistan (SBP) may revoke the designation of a designated payment
system (DPS) if it is satisfied that:
 the DPS has ceased to operate effectively as a payment system;
 the operator of the designated system has knowingly furnished information or
documents to the SBP in connection with the designation of the payment system
which is or are false or misleading in any material particular;
 the operator or settlement institution of the DPS is in the course of being wound
up or otherwise dissolved, whether in Pakistan or elsewhere;
 any of the terms and conditions of the designation or requirements of the Act has
been contravened; or
 the SBP considers that it is in the public interest to revoke the designation.

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 Business Law
Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

(b) A person may be considered an offender by virtue of which such person may be
punished under the Prevention of Electronic Crimes Act, 2016, if he with dishonest
intention:
(i) gains unauthorized access to any information system/data or any critical
infrastructure information system/data;
(ii) without authorization copies or otherwise transmits or causes to be transmitted
any data or any critical infrastructure data;
(iii) interferes with or damages or causes to be interfered with or damages any part
or whole of an information system/data or a critical information system/data.

Furthermore, whoever prepares or disseminates information, through any information

system or device, with the intent to glorify an offence relating to terrorism, or any
person convicted of a crime relating to terrorism, or activities of proscribed
organizations or individuals or groups.

A.4 (a) Rights of transferee of a partner’s interest

 A transferee of a partner’s interest is entitled only to receive the share of profits of
the transferring partner, and the transferee shall accept the account of profits
agreed to by the partners.
 If the partnership firm is dissolved or if the transferring partner ceases to be a
partner, the transferee of a partner’s interest is entitled as against the remaining
partners to receive the share of the assets of the firm to which the transferring
partner is entitled, and, for the purpose of ascertaining that share, to an account
as from the date of the dissolution.

Limitations of transferee of a partner’s interest

Transferee of a partner’s interest is not entitled, during the continuance of the firm, to
interfere in the conduct of the business, or to require accounts, or to inspect the books
of the firm. Further, such a transferee would not become a partner of the firm and
would not be entitled to challenge the accounts of profits agreed to by the partners, nor
he can sue for dissolution of the firm.

(b) Following are the different types of crossing of cheques:

(i) General crossing of a cheque and its effect:
A cheque is said to be crossed generally where it bears across its face an addition
of the words “and company” or any abbreviation of it between two parallel
transverse lines, or of two parallel transverse lines simply.

Effect: When a cheque is crossed generally the banker on whom it is drawn shall
not pay it otherwise than to a banker.

(ii) Special crossing of a cheque and its effect:

A cheque is said to be crossed especially where it bears across its face an addition
of the name of the banker (drawing of parallel lines is not necessary).

Effect: When a cheque is crossed specifically the banker on whom it is drawn

shall not pay it otherwise than to a banker to whom it is crossed or his collection
agent.

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 Business Law
Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

(iii) Restrictive crossing of a cheque and its effect:

Restrictive crossing may be added with general crossing by adding the words
“A/c Payee” or “A/c Payee only”.

Effect: Where a cheque is crossed as account payee, it shall cease to be

negotiable and the amount collected on the cheque must be credited only to the
account of payee named in the cheque.

(iv) ‘Not negotiable’ crossing of a cheque and its effect:

Addition of the words ‘not negotiable’ does not restrict the further transferability
of the cheque but it takes away the main feature of negotiability, which is
transferability free from defects.

Effect: The effect is that since the title of the transferee of such a cheque cannot
be better than that of its transferor, therefore, a holder with a defective title
cannot give a good title to a subsequent holder. This affords protection to the
drawer/holder of the cheque against miscarriage or dishonesty in the course of
transit by making it difficult for the cheque to be cashed until it reaches its
destination.

A.5 (a) SM has the right to seek remedies against KT because Farhan acted within his apparent
authority as a partner of KT’s firm. Since the vending machine is a movable property,
the sale of such a machine generally falls within the implied authority of Farhan being
KT’s partner. Although the partnership agreement restricted Farhan’s implied
authority to sell KT’s assets, SM was unaware of this restriction when the contract was
made. As a result, KT is bound by Farhan’s actions concerning the sale of the vending
machine.

Since Farhan, acting under his apparent authority, received an advance payment of
Rs. 100,000 from SM and misappropriated it for personal use, SM can claim
compensation from KT for the misapplied funds. KT, as the liable party, must
compensate SM for the loss caused by Farhan’s actions.

Furthermore, since every partner is liable jointly and severally with all the other
partners for the acts of the firm done while he is a partner, Haroon would also be jointly
and severally liable towards SM, therefore, SM may hold Haroon and Farhan jointly
or severally liable to recover the loss.

(b) SM would be held liable to AA and would have to pay damages because the default by
FC, a third party to the contract on whom the promisor was relying, does not render
the contract void due to supervening impossibility.

Furthermore, since a labour strike is not a valid excuse for the non-performance of the
contract, SM can recover ordinary damages from FC that occurred due to the breach
of contract. SM may also recover special damages that were known to FC at the time
of making the contract since FC knew the event date and was informed that the items
were to be delivered to AA; such information being displayed on the customised shields
and trophies.

The amount of damages in both cases i.e., those claimable from FC and those payable
to AA, would depend on the market prices of similar items.

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 Business Law
Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

(c) SM may issue the following negotiable instrument i.e., bill of exchange, in settlement
of both transactions:
Draft of the bill of exchange

Dated: 3 September 2024

Rs. 600,000/- only

Five days after the date pay to Climbing Florals or to their order the sum of Rupees Six
Hundred Thousand only, for the value received.

Accepted
Signed by Rizwan

To
Rizwan Sign: ___________
ABC Road Squash Management
Name of city XYZ Road
Name of city

(d) The contract between SM and PC contains reciprocal promises. In the given situation,
SM is ready and willing to perform the promise of arranging the decor and other tasks,
as evident by the fact that the team arrived at the venue well before the event’s
scheduled time. However, PC’s administrative mishandling is actively preventing SM
from performing its promise. As a result, the contract becomes voidable at SM’s option.

Possible courses of action for SM

(i) SM may proceed to perform the contract and where it falls short in any aspect of
performance, it would be considered an effect of PC’s neglect and apparent
failure to provide reasonable facilities to SM for the performance of the contract,
as PC failed to give adequate time for reasonable performance of the promise.

(ii) SM may rescind the contract as the contract is voidable at its option. Since time
was of the essence of the contract, it was PC’s duty to ensure adequate
arrangements. In such a case, SM would be entitled to recover ordinary damages
from PC. However, SM must ensure that the means available to remedy the
inconvenience caused by the non-performance of the contract have been taken
into account i.e., reasonable steps are taken to minimize the loss, so that it may
claim reasonable compensation from PC for breach of contract.
Moreover, SM would also be entitled to special damages that were known to the
parties at the time of making the contract. Such damages may include SM’s
contracts for arranging services from third party vendors for managing the event.
Where SM opts to rescind the contract and the contract becomes void, then it
must restore any benefits received from PC in respect of the contract that may
involve returning the advance payment of Rs. 5 million.

(iii) SM may communicate the challenges to PC and offer alteration of the contract
to cover specific areas of performance as per PC’s priority. In the given case, PC
may agree to dispense with, or remit, in part, the performance of the promise
made to it in respect of venue decor, catering, and photography, or may extend
time of performance, if possible. However, all such changes must be mutually
agreed.

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 Business Law
Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

A.6 (a) The applicable rights and duties, of Mohsin and Saba, under respective options would
be as follows:

(i) Mohsin’s position as lender of money to SA

Investing money in SA in exchange for an entitlement to receive a fixed share in
profit would make Mohsin a lender to the firm. In such situation, as Mohsin
would not become a partner of the firm, therefore, he would have no specific
duty or right under the Partnership Act.

(ii) Saba’s position as a partner of SA

Subject to the contract between partners of SA, the following would be Saba’s
rights:
(1) Right to participate in the conduct of the business;
(2) Right to be consulted in case of disagreements over ordinary business
matters;
(3) Right to decide for change in the nature of SA’s business;
(4) Right to access, inspect, and copy any of SA’s books;
(5) Right to receive interest on the capital contribution, from SA’s profits;
(6) Right to be indemnified for payments made and liabilities incurred in the
ordinary and proper conduct of SA’s business;
(7) Entitled to receive an equal share of profits;
(8) Entitled to receive interest on the additional amount invested in SA @ 6%
per annum;
(9) Entitled to act in an emergency to protect SA from loss, as would be done
by a person of ordinary prudence, in his own case, under similar
circumstances.

After becoming a partner of SA, the following would be Saba’s duties:

(1) To carry on SA’s business to the greatest common advantage;
(2) To be just and faithful to the other partners of SA i.e., Shahid and Wahaj;
(3) To render true accounts and full information of all things affecting SA to
Shahid, Wahaj, or their legal representative;
(4) To indemnify SA for any loss caused by her fraudulent conduct in the
business;
(5) To be jointly liable with Shahid and Wahaj, and also severally liable, for all
acts of SA done while she is a partner;
(6) To attend diligently to her duties in the business;
(7) To contribute equally to any losses sustained by SA;
(8) To pay personal profits derived by her due to association with SA, or from
use of SA’s name, property, business connection, or from any competing
business carried on by her which is of the same nature as SA;
(9) To indemnify SA for loss caused by her willful neglect in conducting SA’s
business.

Saba’s duties in respect of (6) - (9) would be subject to the contract between
Shahid, Wahaj, and Saba, being the partners of SA.

(b) Rights of Aijaz before the issuance of the public notice

Aijaz, being a minor admitted to the benefits of SA, shall have the following rights:
 Right to receive such a share of SA’s property and profits, according to the terms
agreed upon by Shahid and Wahaj, being SA’s partners.
 Entitled to access, inspect, and make copies of SA’s accounts.

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 Business Law
Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

It is pertinent to mention that if Aijaz is admitted to the benefits of the SA while he is

a minor, he would get the right to elect to become a partner after he reaches the age of
majority. Till such time, he would not incur any personal liability in respect of SA.

Rights of Aijaz after the issuance of the public notice

Aijaz has given the public notice electing not to become a partner within the prescribed
time i.e., within six months of having attained majority on 1 August 2024, therefore
his position with regards to SA would be affected as follows:
 The rights of Aijaz shall continue to be of those of a minor up to the date of public
notice i.e., 31 August 2024, and shall cease from there onwards;
 Aijaz’s share of capital in SA shall not be liable for any debts or obligations of SA
incurred after the date of public notice i.e., 31 August 2024;
 Aijaz would become entitled to sue Shahid and Wahaj for payment of his share
of the property and profits pertaining to SA. In such case, Aijaz’s share shall be
determined by a valuation carried out under the applicable provisions of the
Partnership Act, 1932.

Further, it is pertinent to mention, that Aijaz needs to be careful not to get involved in
any such act which renders him to be considered as a partner by holding out.

A.7 (a) SD’s position

SD’s offer of performance has not been made at a proper place i.e., the agreed place of
delivery in Malam Jabba, and further, the alternate delivery option given is conditional
which makes SD’s offer of performance invalid. The challenging delivery conditions
making the performance of the promise difficult due to weather conditions is not an
acceptable excuse of non-delivery by SD.

SD promised to deliver 100 snowboards by November 2023, however, as snowboards

were not delivered till 30 November 2023, SD has committed a breach of contract,
since time was the essence of the contract considering that the snowboards are to be
used by ASR for the snow season activities in December 2023.

SD’s offer asking ASR to either pick the order directly from its factory or extend the
timeline for the delivery is an attempt for alteration to the original terms of the contract
which requires ASR’s consent in order to become binding on both parties. Until such
time, SD’s offer would constitute a proposal for which there is no valid acceptance.

Since SD failed to perform its promise within the specified time, the contract for the
delivery of the snowboards has become voidable at the option of ASR and if ASR
decides to rescind the contract, SD would be liable to pay compensation for damages
sustained because of non-fulfillment of the contract.

Remedies available to ASR

ASR may choose to accept delayed performance from SD agreeing to take delivery of
the snowboards after the weather conditions improve. However, in such scenario, ASR
would not be able to claim compensation for any losses resulting from the delay, unless
ASR notifies SD of its intention to claim such compensation at the time of accepting
the delayed performance.

Alternatively, ASR can refuse to accept delayed performance and seek compensation
for damages incurred due to breach of the contract.

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 Business Law
Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

(b) Considering the Malam Jabba resort’s seasonal weather patterns, time was of the
essence in this contract. SD’s non-delivery on the agreed date constituted a material
breach, making the contract voidable at ASR’s option. Due to the breach of contract,
SD cannot compel ASR to fulfill the original contract terms including the delivery of
the remaining snowboards.
ASR’s willingness to pick 60 snowboards is indicating a willingness to accept delayed
performance at a proportionate price and is a modification of the original contract
terms.
In case SD concurs with ASR’s offer to pick partial delivery, the original contract need
not to be performed and SD would not be liable to pay any compensation for non-
performance of the original contract.
If SD rejects ASR’s offer, SD would have to bear the loss for the entire 100 snowboards
and would have to pay damages to ASR. Nevertheless, SD may choose to pay damages
for the non-delivery of snowboards and turn down ASR’s offer to accept delivery of 60
snowboards.

(c) In the absence of any intimation from ASR regarding the application of payments to
debts, the following are the two possibilities to determine the settlement:
(i) SD may apply the payment at its discretion to any of the two lawful debts actually
due and payable to it from ASR pertaining to the orders delivered in July and
September.
(ii) If SD does not make an appropriation, then the payment shall be applied in
discharge of the debts in order of time, which means that the outstanding dues in
respect of the invoice pertaining to the order delivered in July would be adjusted
in full and the remaining Rs. 0.5 million would be adjusted against the September
invoice.

A.8 (a) The offer can be revoked before its acceptance is completed with respect to the farm
owner under the following circumstances:
 Although the acceptance may be given by 30 September 2024, however, the
farm’s owner may still communicate notice of revocation to Malik any time
before the acceptance is completed as against the farm owner.
 The farm’s owner dies or becomes insane provided that Malik becomes aware of
her death or insanity before accepting the deal.
 Malik sends a counter offer to the farm’s owner i.e., by either offering to purchase
the farm for Rs. 12 million or by attaching terms of his own with the acceptance
that require the farm’s owner agreement.
 By the lapse of time prescribed in the offer of the farm owner, i.e., the acceptance
is not completed as against the farm owner by 30 September 2024.

(b) Malik’s promise to transfer a commercial vehicle to Hamid is void/not binding on him
for lack of consideration. However, since Malik and Hamid stand in a near relation to
each other, if the promise is made on account of natural love and affection, is expressed
in writing, and registered under the law for the time being in force for the registration
of documents then it may be enforced. Nevertheless, if the commercial vehicle is
transferred to Hamid by 31 December 2024, it would be considered as a completed gift
and would constitute a valid transfer.
Hamid’s promise to refrain from dealing in Karachi properties for two years is not
valid. Firstly, because there is no consideration against the promise. Secondly, no
person can be restrained from exercising lawful trade or business, unless there is a sale
of goodwill which is not the case here since Hamid intends to establish a separate
business identity of his own. Accordingly, if Hamid involves himself in dealing with
Karachi properties, Malik cannot hold him liable.
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 Business Law
Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

A.9 (a) Rules regarding the performance of joint promises

 In the absence of express agreement to the contrary, when a joint promise is made
by two or more persons, the promisee may, compel any one or more of such joint
promisors to perform the whole of the promise.
 Unless a contrary intention appears from the contract, each of the joint promisors
may compel every other joint promisor to contribute equally with himself to the
performance of the promise.
 If any one of two or more joint promisors makes default in contribution, the
remaining joint promisors must bear the loss arising from default in equal share.
 Where two or more persons have made a joint promise, a release of any of such
joint promisors by the promisee, does not discharge the other joint promisor or
joint promisors; neither does it free the joint promisors so released from
responsibility to the other joint promisor or joint promisors.

Devolution of joint rights

Unless a contrary intention appears from the contract, in case of several promisees, the
following persons may claim performance of the joint promise:
 all the promisees jointly in case all of them are alive;
 representatives of the deceased promisee jointly with the surviving promisee(s) in
case of death of any of the joint promisees;
 representatives of all promisees jointly; in case of death of all joint promisees.

(b) A contingent contract may be described as a contract to do or not to do something, if

some event, collateral to such contract, does or does not happen.

In the following circumstances, a contingent contract can be enforced:

(i) Contingent contracts to do or not to do anything if an uncertain future event
happens can be enforced only when the event has happened.
(ii) Contingent contracts to do or not to do anything if a specified uncertain event
happens within a fixed time can be enforced only when the event has happened
within such a fixed time.
(iii) Contingent contracts to do or not to do anything if an uncertain future event
does not happen can be enforced only after the happening of that event becomes
impossible.
(iv) Contingent contracts to do or not to do anything if a specified uncertain event
does not happen within a fixed time can be enforced by law when the time fixed
has expired and such event has not happened, or before the time fixed has
expired, it becomes certain that such event will not happen.
(v) If the future event on which a contract is contingent is the way in which a person
will act at an unspecified time, then such contract can be enforced when such
person so acts / conducts himself in desired manner.

(c) ‘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 intent to deceive another party
thereto or his agent, or to induce another party or his agent, to enter into the contract:
(i) the suggestion, as a fact, of that which is not true, by one who does not believe it
to be true;
(ii) the active concealment of a fact by one having knowledge or belief of the fact;
(iii) a promise made without any intention of performing it;
(iv) any other act fitted to deceive;
(v) any such act or omission as the law specially declares to be fraudulent.

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 Business Law
Suggested Answer
Certificate in Accounting and Finance – Autumn 2024

Mere silence as to facts likely to affect the willingness of a person to enter into a contract
is not fraud unless circumstances of the case are such that, regard being had to them, it
is the duty of the person keeping silence to speak, or unless his silence is in itself,
equivalent to speech.

Enforceability of an agreement when consent is caused by fraud

When consent to an agreement is caused by fraud, the agreement is a contract voidable
at the option of the party whose consent was so caused unless such fraud did not cause
the consent of the party on whom such fraud was practiced or where the contract was
caused by fraudulent silence and party to the contract whose consent was caused by
such fraudulent silence had the means of discovering the truth with ordinary diligence.

However, a party to a contract, whose consent was caused by fraud, may, if he thinks
fit, insist that the contract shall be performed and that he shall be put in the position in
which he would have been if the representations made had been true.

A.10 Maaz’s position

Furqan’s consent to purchase the cricket bat was obtained through misrepresentation by
Maaz who had innocently caused Furqan to make a mistake that the cricket bat contained
the autograph of Wasim Ahmed, a rising cricket star. Such information was essential to the
contract being the subject matter of the agreement and Maaz’s statement in this regard was
not true, though he believed it to be true.

Accordingly, when the contract was entered between Maaz and Furqan; Maaz being the
promisor made a unilateral mistake about subject matter due to which Furqan’s consent to
the contract was caused by misrepresentation.

While there is no effect of Maaz’s unilateral mistake on the validity of the contract, however
due to the misrepresentation, the contract becomes voidable at Furqan’s option and therefore
it cannot be rescinded by Maaz on his own. Maaz’s act of sending an apology letter thereby
refusing to sell the cricket bat does not invalidate the contract and, therefore, if he does not
deliver the bat by 30 September 2024, it would constitute breach of contract.

Remedies available to Furqan

Furqan after becoming aware of the facts, may choose to rescind the contract and accept the
payment returned by Maaz signifying his agreement to terminate the contract. In such case,
the contract will be considered terminated by mutual consent as the acceptance of refund
releases both parties from their contractual obligations. This acceptance indicates that
Furqan has decided not to enforce the contract or seek further remedies.

Also, Furqan may insist on a specific performance asserting that the cricket bat must be
delivered to him or he may claim damages for the breach of contract. It is pertinent to
mention that Furqan may decide to void the contract now and claim remedies or he may
wait for the actual delivery date i.e., 30 September 2024 to take the final decision whether to
ask for performance or cancel the contract.

(THE END)

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