Business Law

Kinds of Contracts

1.       According to Enforceability

a.       Valid Contract

The contract in which all the 10 essentials of a contract are covered. It will not be a valid contract if anyone out a 10 essentials is missing.

b.      Voidable Contract

Contract which is enforceable by law but has a tendency to become due to some conditions at the discretion the one or more parties is called voidable contract.

a.       The contract is voidable in most of the cases when consent is not free which can happen due to misrepresentation, under influence of others. The party can claim as void if he/she can report the issue within 48 hours after the happening of the commencement of the contract.

b.      It also occurs when one person promises to do something for another person but he is trying to stop him from the execution of the job. Then the first person can use the voidable option.

c.       In one case, when A promises to deliver the goods to B within the specified time limit but A unable to do it. Now B has the option to make it void and claim the damage done from A or B can give further time to deliver goods at mutual consent.

c.       Void Contract

When contract is not enforceable by law is called the void contract.

In this case, the contract is not void at the beginning but becomes void due to some reasons:

a.       Impossibility of performance – artist got injured and now unable to draw the paintings.

b.      Subsequent illegality – liquor become banned by the govt.

c.       Rejection of the voidable contract – due to free consent

d.      Contingent contract when depending event becomes impossible – when happening is uncertain. Rain in agriculture areas, growth of the crops will not occur due to no rain.

d.      Unenforceable contract

A contract becomes unenforceable due to some procedural issues e.g. stamp duty, writing and registration. But it will become enforceable when the issue is resolved.

e.      Illegal agreement

When agreement is done upon the performance which is not allowed in the country or the boundaries where the contract is done will become void and illegal and has no legal standing. E.g. agreement between the two thieves.

2.       According to Formation

a.       Express Contract

When the contract is done in orally or in writing is called the express contract.

b.      Implied Contract

It happens when contract is done other than the writing and registration or orally. That means by action.

c.       Constructive contract or qausi contract

There are many examples of qausi contracts which are as follows:

·         Relationship of student and teacher

·         Guardian and orphan

·         Use of person name for doing an act without informing.

3.       According to Performance

a.       Executed contract

When the contract is completed and both the parties and completed their performance and services

b.      Executory contract

When the performance is yet to be completed. For example, payment has been made for the goods but delivery is yet to be made

4.       VOID Agreement

Agreement which is not enforceable by law.

Discharge of Contract

When the contract is ended or terminated

Discharge by performance

When the performance has been done and both the parties and performed their part. The contract will be discharged

Actual Performance

What is written or agreed and it is done as per the terms and conditions, then it is called as actual performance

Offer of performance or tender

Essentials of a valid offer of performance or tender

         i.            It has to be unconditional and incase of conditional the other party is not liable for any responsibility

       ii.            It should be done with proper time and place

      iii.            It should contain the whole quantity

     iv.            Goods should be checked at the time of delivering the goods

       v.            Person to whom contract is given should have the tendency to perform the contract

     vi.            In case of more than one promises, tender to anyone of them is valid

    vii.            Exact amount of money should be mentioned or tendered.

3. Discharge by Agreement

Novation

In this case new contract has been made. E.g merger of a new company.

Alteration

When parties remains the same and terms and conditions become changed . e.g. price change

Rescission

If the party has done the performance before the time then the contract has been terminated by the mutual consent.

Remission

In this case, following are the possibilities can happen:

Rs. 50,000 amount paid against the debt of Rs. 100,000 with mutual consent and in future there will be no liability on the other party

Time can be extended, in case of non completion of the performance in the given time

Waiver

Full amount will be waived due to some mishaps or natural disaster including floods and earthquakes.

Discharge by Subsequent Impossibility

·         The job which cannot be done from initial is called the initial impossibility

·         The job which is possible at initial but due to some reasons it gets impossible to perform e.g. artist is now unable to paint the painting.

Doctrine of frustration or subsequent impossibility

If one party is feeling difficulty in doing the job due to some reasons but there is still a possibility to perform a job then the contract is still valid.

Specific ground of frustration

a)      Destruction of Subject Matter

e.g. horse is dead, building has been collapsed.

b)      Failure of ultimate purpose

Due to no rain, wheat crops have not been grown.

c)       Death or personal incapacity

Death of any party or incapacity of an artist

d)      Change of a law

Liquor is now banned in Pakistan

e)      Declaration of war

Pak-india trade banned suddenly due to intense relation of the countries

Discharge by Lapse of Time

Discharge by Operation of Law

                Insolvency

                Merger

                Unauthorized material alteration

Discharge by breach of contract

Actual Breach

Anticipatory breach

                Express breach

                Implied breach

Effects of an anticipatory breach

Remedies for breach of contract

Contract of Agency

In contract of agency three parties are involved.

Principal: who assign the agent to deal on behalf of him/her.

Agent: appointed by the principal for the dealing

Third Party: party to deal with or

When principal assigns the agent for the dealing in order to create the contractual commitment with the third party on behalf of the principal, contract of agency occurs.

The essential part of the contract of agency is that the agent is only a connecting link as the contract will be made between the principal and the third party.

Essentials of Agency

1.       Agreement -

2.       Contractual capacity – agent and principal should be sound mind and should not be minor

3.       Consideration not necessary – agency agreement can be done without the consideration

4.       Intention

Test of Agency

i.                     Person to be appointed as agency should be sound minded to deliver the concerns of the third party for the principal.

Purpose of agency

Principal appoints the agency for the purpose he also can do lawfully. However, agency should not be appointed for any unlawful or illegal purpose and for the acts which are not acceptable by the society and harm others.

General rules of agency

i.                     Person can appoint a agency for the work he can do by himself except for those which needs some special and unique skills like sketching, miniature and other specialized work.

ii.                   Principal will be responsible for the acts of the agent as agent will be doing it on behalf of the principal.

Kinds of contract

·         General agent

Agent appointed to represent the dealings for all acts for the business on behalf of the principal.

·         Special agent

Agent appointed for particular course of business. After that specific activity, third person should do the due diligence before working with the special agent on behalf of the principal.

·         Universal agent

Good example of universal agent is the CEO or the president of the company as he can use the authority and powers over every kind of business on behalf of the company.

·         Mercantile agent

Agent who has the authority to sell or buy goods on behalf of the principal.

·         Factor

Agent can sell on the goods on his name without disclosing to the principal as he has the authority under this type.

·         Commission agent

Agent gets the commission by providing the services for the principal.

·         Del credere agent

in this type, agent can sell the goods of the principal on credit on his behalf but he/she will be responsible for the obligations in case of default by the third party and agent will be responsible to pay to the principal. E.g. at some places in Karachi, waiters works as a Del credere agents where they are responsible for the customers served. If customers somehow leave without pay them then waiters are responsible to pay to the owners.

·         Broker

It is a kind of connecting agent. Principal and third party negotiates in the presence of the broker and broker takes fee from one or both against that. E.g. car broker, estate agent

·         Auctioneer

He has the authority to sell to the highest bidder at the time of the auction which should be done publically.

·         Indenter

He gets commission on behalf of selling or buying of the principal from abroad.

·         Wholesaler

Link between the manufacturer and the retailer as he is not manufacturing the products and on the other hand he doesn’t sell directly to the customers.

·         Retailer

The one who sells the good to the consumers in small packs and procure it from the wholesalers

Creation of agency

By express agreement – verbally, writing and registration

By implied agreement

                By estoppel – e.g  Person A who is landlord informs person B who is a occupant that rent has been reduce due to the decrease in the service charges. For that matter if occupant take the decision to stay in the house for the one year and after that landlord asked for the previous rent then landlord can be estoppel to ask for that rent.

By holding out

Principal is liable for the act of the agent unless principal declares publically that this agent is no more working for me with effective from the given date.

By necessity

In case of finder of lost goods and the guardian for an orphan a person atomically becomes the agent of a person without informing to anyone.

By Ratification

When agent has done business dealing with the third party without informing the principal. In that case principal can disagree or ratify the act of the agent. In case of ratification, principal will now become responsible for the act of an agent that he has done.

By operation of law

E.g. sales person are the agent of the organization as they do the business dealing on behalf of the organization. Once they leave the organization, they are not responsible for the future obligation they did on behalf of the company.

Duties of an agent

1.       Agent must have to follow the direction of the principal as for the act of the agent, principal is responsible.

2.       Every business dealing must have to carry with the expertise and the proper research

3.       To render accounts

4.       To communicate in difficulty – agent must communicate to all the parties that what are the pros and cons. It is better to disclose all the facts and figures in the beginning rather than leaving it for the disaster.

5.       Termination of agency – once the deal is over, it is better to terminate the contract of agency and disclose it publically.

6.        Agent should not deal on behalf of his own otherwise agent is responsible for that if he signs by himself

7.       All the commission and profit making should be declared either it I taken from one party or more.

8.       Agent should not assign work to other agent. In this case contract of agency will no longer valid.

Rights of an agent

1.       To maintain the contract of agency with the existing party in case of good reputation

2.       To receive the compensation against the work he/she has done

3.       to lien -  agent has the right to claim for the work done as per the contract

4.       to be indemnified – principal is indemnified and responsible for the obligation

5.       Agent should be compensated if he has injured while performing the duties assigned by the principal.

6.       Stoppage of Goods in transit.

Rights of principal

1.       To recover damages – principal has the right to claim for the damages of his own goods if they have destroyed by unfair means.

2.       To obtain secret profits – he can make secret profit as it is there goods and he has the title so no one has the authority to claim it

3.       Refuse to indemnify agent – at some points, he can refuse to cover the agent if agent has done something which is not in the information of the principal.

Termination of agency

1.       By agreement – it can be done by mutual consent

2.       Revocation by principal/agent – both agency and the principal has the right to revoke the contract of agency if he founds ambiguity

3.       Completion fo Business of agency – once the job is done, agency can be terminated and disclosed publically

4.       Expiry of  tenure – agency can automatically be terminated if the tenure is completed or expired

5.       Death of principal / agent – contract will automatically be terminated by the death of one of the party (agent/principal)

6.       Incapacity –become unsound mind subsequently

7.       Insolvency of principal - incase of insolvency the contract will be terminated.

8.       Destruction of subject matter – if the purpose is died for which the agent is appointed, then contract of agency will be terminated

Bailment and pledge

Contract of bailment

When custody of goods is given to one person to another without transferring the title of the goods and will be given after the agreed time period in the same condition is called bailment.

E.g. if person A is given his car to B as B wants to go to Peshawar for the purpose. B agrees that he will return his car in the same condition once he returns from the Peshawar.

Bailor

Who delivers the possession of the goods to the other person.

Bailee

Person who gets the goods without the ownership.

Essential features of a contract of bailment

·         Contract

There should be agreement between bailor and the bailee as bailment should have some specific purpose and goods should be return to the owner after the completion. More importantly, it should cover all the ingredients of a valid contract; otherwise there will be no bailment.

·         Specific purpose

There should be a purpose for the bailment and goods should be returned to the owner once the job is completed or the purpose is served. There will be no bailment if bailee doesn’t return the goods to the real owner.

·         Delivery of goods

Delivery of goods should be done otherwise there will be no valid bailment. There are several forms of delivery of goods either it can be actual or constructive. If goods are physically transferred then it is called as actual delivery and if person A courier goods to person B through TCS and send him invoice and advise him to collect from the designated place then it is called constructive delivery.

·         No change of ownership

Ownership will never change in case of bailment else bailment will be void and it will become sale or exchange if transfer of ownership occurs. Even in case of finding of lost goods.

·         Return of same goods

Best example for the return of the same goods is as follows:

Deposits money in bank is not an example of bailment as bank will not return the same currency notes to the depositor.

Goods should be return as same as given at the time of delivery otherwise there will be no bailment.

Kinds of bailment

According to the benefit

1.       For the benefit of Bailor – sometimes bailor doesn’t have enough money to maintain the goods at his own so incase of bailment bailee will maintain the bailor goods as he will be using it for his own purpose and bailee is responsible for the damages and claim.

2.       For the benefit of Bailee – Bailee will get the benefit by using the goods. E.g. person Rents a car for the purpose of business to go to Lahore and he has to maintain the car until he return it to the real owner after completion of the purpose..

3.       For the benefit of both – both bailor and bailee will be getting benefit from the bailment.

According to the reward

1.       Bailment without reward

2.       Bailment for reward

Duties of Bailor

1.       To disclose faults – bailor should disclose all the defects in the goods to avoid any inconvenience

2.       To repay necessary expenses – bailor should pay all the necessary expense like tax for the car

3.       To repay extra ordinary expenses (gratuitous no normal expenses) – incase of total damage the goods bailor is responsible for the charges e.g. car is damaged due to some genuine reason

4.       Indemnify to return the benefit for return of goods before time (gratuitous)

5.       To indemnify the defective title

6.       To receive back the goods – bailment is only be completed once the goods are returned back to the owner

Duties of Bailee

1.       To take reasonable care – Bailee should take care of the goods as he has to return the same to the real owner in an good condition

2.       Not to make unauthorized use – it should not be used for the robbery/theft or any unfair mean

3.       Not to mix the goods – goods should not be mixed with the other same goods, otherwise bailment will be void

4.       To return the goods – bailee should return the goods to the bailor in the good condition in order to complete the bailment

5.       To return increase – if there is any increase from the goods, it should also be returned back to the bailor. E.g. if goats are given for the feed by the bailor and incase of birth of any baby goat, bailee is responsible to return the same as well

Rights of Bailee

1.       To claim damages -

2.       To recover expenses – bailee has the right to recover the expenses incurred on the goods

3.       To claim compensation – bailee has the right to claim the compensation if any incase of loss due to the defective goods

4.       To deliver the goods – same goods should be delivered to the bailor once the purpose is served

5.       To stop delivery -

6.       To sue – right to sue for the claim for damages

7.       Right to lien – keep the goods as security in case of not compensation for the claim

Rights of bailor

1.       To claim damages

2.       To demand return of goods

3.       To claim increase

4.       To sue

Termination of bailment

1.       After Expiry of time – Bailment is terminated if the specified time is completed. Bailor can ask for the goods any time from the bailee

2.       Once the purpose is served, goods should be return to the bailor

3.       By unauthorized use – bailment is terminated if the goods are used for unfair mean

4.       By bailor’s termination – bailor has the right to claim for the goods anytime and this will end the bailment

5.       By destruction of the subject matter – bailment is terminated if the goods are destroyed completely

Finder of lost goods

The one who found the goods which is not entitled with the finder and he keep it in his custody. This will make him the bailee automatically.

Finder of lost goods has the right to sell those goods if there is a chance that it will damage by the time but he has to get the money back to the real owner upon finding. He has all the rights on the goods but still he cant claim the real ownership of the goods

Duties of finder

1.       To find out the owner – so that goods can be returned to the real owner

2.       To take reasonable care – he is now the bailee automatically, he has to now do the good care of the goods

3.       Not to use the goods – he has to keep the goods safe unless the goods are perishable

4.       Not to mix the goods – goods should not be mixed with the other similar goods as same goods to be returned to the real owner when find

Rights of finder

1.       To retain

2.       Lien – right against expenses

3.       To sue third person

4.       To sue for reward – if there is a reward on finding the goods and owner didn’t give it then finder has right to sue for the reward

5.       To sale – if the items are perishable then he has the right to sale the item but he has to return the money earned to the real owner

Pledge or pawn

If person A gives his goods to person B as security and against that security person B gives payment to person A on the condition that same goods will be returned to person A upon the completion of the payment to Person B. this process is called pledge

Essential of pledge

1.       Moveable property – it should be done only for the moveable goods/property

2.       For limited interest – it is for the time period defined before the execution

3.       Transfer or possession – possession should be given to the person who is giving the amount again the pledge

4.       No transfer of ownership – ownership should not be transferred as this is only for the security purpose in case of default

5.       Not by mere custody