Chapter 1 notes business law

Meaning of law :

The law is a set of official rules and regulations used to govern a society. It is enforced by the state to
regulate businesses , protect the rights of peope and ensure justice in society.

Business law :

Business law is also known as commercial law or mercantile law. It is the branch of law that governs and
regulates trade and commerce.

Sources of business law :

1. British business law : Pakistan inherited its legal system from the british. The pre-partition laws
and legal decisions are still followed. Pakistan adopted laws such as the contract act 1872 , sales
of goods act 1930 partnership act 1932 from the british
2. Pakistani law: Pakistan passed new laws such as the companies act 2017 , limited liability
partnership act 2017 and various labour laws .
3. Judicial decisions : the judicial decisions of british , Indian and Pakistani courts are a source of
law. The past judicial decisions are still followed by the courts while deciding similar cases.
Where the law is silent , the courts decide according to the principles of equity and justice.
4. Customs and usages: the customs and usages of a particular trade are an important source of
business law. Such customs and usages govern the members in their dealings with each other.

Law of contract

The law relating to contracts in Pakistan is contained in the contract act 1872 . it applies to the whole of
Pakistan. It came into force on 1st September 1872. Is mein aatay hein:

 General principles for all types of contracts

 The contracts of indemnity , guarantee, bailment , pledge and agency …sections 124-238

Pehle section 76-123 aur section 239-266 jo partnership se related thay were part of the contract act
1872 likin phir unhe exclude ker ke aik alag sale of goods act 1930 aur partnership act 1932 bana dia

Contract:

An agreement enforceable by law is a contract.

1. Agreement : section 2€ defines an agreements as “Every promise and every set of promises
forming the consideration for each other is an agreement. “
a) Promise : sec 2(b) defines promise as “ when the person to whom the proposal is
made signifies his assent thereto , the proposal is said to be accepted. A proposal
when accepted becomes a promise.”
b) Proposal: sec 2(a) defines a proposal as “ when one person signifies to another his
willingness to do or to 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.
 2. Enforceable by law : An agreement is enforceable by law if it creates legal obligations between
the parties.
a) Social agreement: A social agreement is not enforceable by law because it does not create
legal obligations between the parties.
b) Legal agreement : a legal agreement is enforceable by law because it creates legal
obligations between the parties.

Essentials of a valid contract

1. Offer and acceptance : ‘in order to form an agreement there must be an offer by one party and
an acceptance of that offer by the other party.
2. Legal obligations : the parties to an agreement must create legal oblgations. It means that if one
party does not fulfull his promise , they shall be liable for breach of contract.
3. Lawful consideration : consideration means something in return. The consideration is the price
paid by one party for the promise of the other party.
4. Capacity of parties : an agreement is enforceable if it is made by parties who are competenet to
contract In order to e=be competent to contract the parties must be of the age of majority , of
sound mind and not disqualified form contracting by law.
5. Free consent: the consent of parties must be free in order to form a valid contract. There should
be no coercion , undue influence, fraud misrepresentation or mistake.
6. Lawful object : an agreement must be made for a lawful object. The object of an agreement is
lawful if it is not fraudulent illegal immoral opposed to public policy or involves injury to the
person or property of another. Sec 23
7. Writing and registration : a contract may be oral or in writing . however , if the contract is in
writing it is easy to prove in court.
8. Certainty of terms : section 29 states “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 .
9. Possibility of performance : a valid contract must be capable of being performed. If the act is
legally or physically impossible to perform the agreement cannot be enforced by law (sec 56).
10. Expressly declared void : an agreement must not be one of those agreements which have been
expressly declared void by the law. Sections 24-30 explain certain agreements which have been
expressly declared void. Agreements in restraint of trade . restraint of marriage , uncertain
agreements , wagering agreement.

Kinds of contracts
1) According to enforceability
a. Valid contract
b. Void contract
i. Impossiblity of performance
ii. Subsequent illegality
iii. Rejection of voidable contract
 iv. Impossibility of performance
v. Impossibility of depending event
c. Void agreement
d. Voidable contract (3 scenarios of voidable contract)
e. Unenforceable contract
f. Illegal agreement

A valid contract : an agreement enforceable by law is a valid contract. In a valid contract all parties are
legally responsible for the performance of the contract. If one party breaches the contract the other can
enforce it through the court of law.

Void contract : the term void means something without legal effect. Sec 2j states “a contract which
ceases to be enforceable by law becomes void when it ceases to be enforceable”. [ ISRI ]

i) Impossibility of performance : A contract becomes void when it becomes impossible to be

performed by any party due to any reason sec 56.
ii) Subsequent illegality : a contract becomes void be subsequent illegality if a contract is made
between two parties but before the performance of the contract a new law makes the
implementation of the contract illegal sec 56.
iii) Rejection of voidable contract : A voidable contract becomes void when the party whose
consent is not free rejects the contract sec 19
iv) Impossibility of depending event : if a contingent contract is not performed due to any
reason it consequently voids the main contract. Sec 32

Void agreement : An agreement which is not enforeceable by law is a void agreement. It does not
create legal obligations among the parties. It is void ab-initio . Agreements with a minor and
agreements without consideration are void agreements sec 2g.

Voidable contract : A voidable contract means a contract whch can be avoided or confirmed , it is not
absolutely void. “ A voidable contract is a contract which is enforceable by law at the option of one
party but not at the option of the other party”.

i) A contract becomes voidable when the consent of one of the parties to the contract is
obtained by coercion , undue influence, misrepresentation or fraud sec 15-18 .
ii) When one party promises to do something for consideration but the other party prevents
him from performing his promise the contract becomes voidable at his option.sec 53
iii) When the party to the contract promises to perform an obligation within a specified time
but fails to perform within the specified time the contract becomes voidable at the option of
the promisee. Sec 55

Unenforceable contract : an enforceable contract is a contract that cannot be enforced by the court
due to some technical defects. The technical defects may be the absence of writing/registration =.

Illegal agreement : an agreement is illegal if it is forbidden by any law. The object of an illegal
agreement is unlawful. It is void ab initio , it cannot be enforced by the court.
 2) According to Formation
a. Express contract
b. Implied contract
c. Quasi contract

Express contract : an express contract is one where the parties state the terms by words of mouth or
written at the time of formation. Sec 9

Implied contract : is a contract that is made other than by words spoken or written. (through actions)

Quasi contract : a quasi contract is not a contract , it is an obligation made by the absence of a contract .
it is based on the principal that no one will be allowed to get benefit at the cost of another.

3) According to performance
a. Executed contract
b. Executory contract

Executed contract : when both parties have completely fulfilled their obligations and nothing remains to
be done it is an executed contract.

Executory contract : when some obligations remain to be fulfilled in a contract by either parties it is an
executory contract.

4) According to parties
a. Unilateral contract
b. Bilateral contract

Unilateral contract : Unilateral contract is a one sided contract . when one party makes a promise in
exchange for the performance of any act by any party.

Bilateral contract : This is a 2 sided contract where both parties exchange mutual promises.