Sources of Business Law

• Law comprises official rules and regulations established by an authority to govern society.
• The state enforces laws to maintain order, resolve disputes, protect rights, and ensure justice.
• Laws define enforceable rights and obligations and promote the general welfare.

Business Law

• Business law governs and regulates business activities.
• It deals with the enforcement of rights and obligations arising from commercial transactions.

Sources of Business Law

• British Business Law:
  • Pakistan inherited its legal system from British rule.
  • Pre-independence laws and decisions are still followed.
  • Pakistan adopted the Contract Act, 1872, Sale of Goods Act, 1930, Partnership Act, 1932, and Negotiable Instruments Act, 1881.
  • Some laws were amended to adapt to changes in the business environment.
• Pakistani Law:
  • New laws were passed to meet changing business needs, like the Companies Act, 2017, Limited Liability Partnership Act, 2017, and various labor laws.
• Judicial Decisions:
  • Decisions from British, Indian, and Pakistani courts are a source of law.
  • Courts follow past decisions in similar cases and use principles of equity and justice when the law is silent.
• Customs and Usages:
  • Trade customs are a source of business law governing members' dealings.
  • The Contract Act, 1872, states that trade usages or customs remain unaffected if consistent with the Act.

Law of Contract

• Contract law in Pakistan is contained in the Contract Act, 1872, effective from September 1, 1872.
  • It applies to all of Pakistan.
  • It covers general principles for all types of contracts (Sections 1-75).
  • It covers contracts of indemnity, guarantee, bailment, pledge, and agency (Sections 124-238).
  • Initially, Sections 76-123 (sale of goods) and Sections 239-266 (partnership) were part of the 1872 Act, but later became the Sale of Goods Act, 1930, and Partnership Act, 1932.

Definition of Contract

• Pollack: "Any agreement or promise enforceable at law is a contract."
• Salmond: "A contract is an agreement creating and defining obligations between the parties."
• Section 2(h): "An agreement enforceable by law is a contract."
  • A contract requires an agreement between parties that is enforceable by law.

Agreement

• Section 2(e) defines an agreement as "Every promise and every set of promises, forming the consideration for each other, is an agreement."
• A proposal accepted by another party becomes a promise.
• A promise providing consideration to parties is an agreement; consideration is the benefit each party gains from the agreement.

Proposal

• Section 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."
• A proposal involves expressing willingness to do or not do something to gain another person's consent.
• A proposal is also called an offer.

Promise

• Section 2(b) defines a 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."
• A proposal becomes a promise when the other person accepts it.

Enforceable by Law

• An agreement is enforceable by law.
• All contracts are agreements, but not all agreements are contracts.
• An agreement is wider than a contract.

Social Agreement

• It is not enforceable by law because it does not create legal obligations or intend to create legal relations.

Legal Agreement

• Enforceable by law because it creates legal obligations and the parties want to create legal relations.
• It is assumed that parties want to create legal obligations in business agreements.

Essentials of a Valid Contract

• A valid contract is enforceable by law, and all parties are legally bound to perform.
• Enforceability requires possessing the essentials of a valid contract as outlined in Section 10.

Section 10 requirements for valid contracts

• Made by free consent of parties.
• Parties are competent to contract.
• Lawful consideration.
• Lawful object.
• Not expressly declared void.
• Must satisfy legal requirements for writing, attestation, or registration where necessary.

Offer and Acceptance

• Offer is the starting point of a contract.
• Contract formation requires an offer by one party and acceptance by another.

Legal Obligations

• Parties must create legal obligations; failure to fulfill a promise results in liability for breach of contract.
• Business contracts presume that parties want to create legal obligations

Lawful Consideration

• Consideration means something in return; a contract requires lawful consideration on both sides.
• Enforceable when both parties give and receive something, known as the consideration.

Capacity of Parties

• A contract is enforceable if made by competent parties.
• Competent parties must be of the age of majority, of sound mind, and not disqualified by law.
• Contracts with incompetent persons are not valid.

Free Consent

• Section 13 states that "Two or more persons are said to consent when they agree upon the same thing in the same sense."
• Free consent, unobtained by coercion, undue influence, fraud, misrepresentation, or mistake (Sec. 14), is essential for a valid contract.

Lawful Object

• An agreement must have a lawful object.
• An agreement with a fraudulent, illegal, immoral object, or one that opposes public policy or involves injury is void. (Sec. 23)

Writing and Registration

• Contracts can be oral or written.
• Written contracts are easier to prove in court.
• Certain contracts must be written, signed, stamped, attested, and registered to fulfill all requirements for validity.

Certainty of Terms

• Section 29 states, "Agreements, the meaning of which is not certain or capable of being made certain, are void."
• Terms must be clear, complete, and certain; uncertainty leads to void agreements.

Possibility of Performance

• A valid contract must be capable of being performed.
• Agreements to perform impossible acts are void.
• Agreements cannot be enforced if performance is legally or physically impossible.

Expressly Declared Void

• Agreements must not be among those expressly declared void by law.
• Agreements expressly declared void include those in restraint of marriage, trade, or legal proceedings, and uncertain or wagering agreements (Sec. 26-30).

Kinds of Contract

According to Enforceability

• Valid Contract:
  • Enforceable by law when it fulfills all essentials.
  • All parties have legal responsibility for performing the contract.
  • Breach allows the other party to enforce the contract through court.
• Void Contract:
  • Initially valid but becomes unenforceable due to certain reasons.
  • Both parties are not legally responsible to fulfill it.
  • Circumstances leading to a void contract:
    • Impossibility of Performance:
      • Becomes void when performance becomes impossible through any reason.
    • Subsequent Illegality:
      • Becomes void if a new law renders implementation illegal.
    • Rejection of Voidable Contract:
      • If consent is not free, the party whose consent was not free can reject or accept the contract.
    • Impossibility of Depending Event:
      • Contingent contract performance depends on an event; the contract becomes void if the event does not occur.
• Void Agreement:
  • An agreement not enforceable by law.
  • Does not create legal obligations.
  • Void from the beginning (ab initio).
  • Lacks essential valid contract elements except free consent.
  • The receiving party must return any benefits.
  • Neither party is responsible for performing.
  • Certain agreements are expressly declared void by law, e.g., agreements in restraint of marriage, trade, wagering agreements.
• Voidable Contract:
  • Can be avoided or confirmed.
  • Enforceable by law at the option of one party, not the other.
  • Valid if not rejected by the aggrieved party within a reasonable time.
  • Circumstances making a contract voidable:
    • Consent obtained by coercion, undue influence, misrepresentation, or fraud (Sec. 15-18).
    • One party prevents the other from performing their promise.
    • Failure to perform an obligation within a specified time frame.
• Unenforceable Contract:
  • Cannot be enforced by the court due to a technical defect.
  • Defects include the absence of writing, registration, stamp, etc.
  • It becomes enforceable when the technical defect is removed.
• Illegal Agreement:
  • Forbidden by law.
  • Its object is unlawful.
  • Void from the beginning (ab initio).
  • Cannot be enforced.
  • Parties are not responsible for performing promises and may be punished.
  • Collateral agreements are also void.

According to Formation

• Express Contract:
  • Parties state terms in spoken or written words at the time of formation.
  • Easier to understand the rights and obligations of parties (Sec. 9).
• Implied Contract:
  • Made without spoken or written words.
  • Created by actions, conduct, or circumstances.
  • Arises when one person provides services without being asked but expects payment, and the other person accepts those services (Sec. 9).
• Quasi Contract:
  • Not a contract.
  • An obligation created by law in the absence of a contract.
  • Based on the principle of equity to prevent unjust enrichment.
  • Also called a constructive contract.

According to Performance

• Executed Contract:
  • Both parties completely fulfill their obligations; nothing remains to be done.
• Executory Contract:
  • Some obligations remain to be fulfilled; parties have not yet performed their obligations.

According to Parties

• Unilateral Contract:
  • One-sided contract.
  • One party makes a promise in exchange for the performance of a particular act by any party.
• Bilateral Contract:
  • Two-sided contract.
  • Both parties exchange mutual promises.

Key Differences

• Agreement vs. Contract:
  • Agreement: Requires an offer and acceptance. May or may not create legal obligations. All agreements are not contracts. An agreement may or may not be binding on parties.
  • Contract: Requires an agreement and enforceability. Necessarily creates legal obligations. All contracts are agreements. All contracts are binding on parties.
• Void Agreement vs. Void Contract:
  • Void Agreement: Unenforceable from the beginning, defects can't be removed and cannot be enforced. Parties might not have right to return benefits exchanged.
  • Void Contract: Enforceable when made, becomes unenforceable later on, can be enforced before becoming unenforceable. Parties have the right to return the benefits.
• Illegal Agreement vs. Void Agreement:
  • Illegal Agreement: Prohibited by law, parties are punishable, and nature is that it is void.
  • Void Agreement: Not prohibited by law, parties are not punishable, not illegal in nature.
• Void Agreement vs. Voidable Contract:
  • Void Agreement: Not enforceable, void from the beginning, no rights for third parties, no compensation, does not become valid with time, lacks essential elements of a valid contract.
  • Voidable Contract: Enforceable until rejected, not void from the beginning, third party can acquire rights in good faith, compensation can be claimed, may become valid if not rejected, voidable because consent is not free.