Assignment 1

BUSINESS LAW
NAME : Saad Hasan Niazi
SECTION : BBA-5(C)
REGISTRATION : 22667
ASSIGNMENT : 01
SUBMISSION DATE : 30 OCTOBER, 2012

Question #1 ‘A contract is enforceable at law’. Discuss the statement & state the
essentials of a valid contract.
Answer: An agreement is enforceable if it is recognized by court. In order to be enforceable by
law, the agreement must create legal obligations between the parties. Thus the term
agreement is wider than a contract.
ESSENTIALS OF A VALID CONTRACT:
According to Section 10, “All agreements are contracts if they are made by the free consent of
the parties competent to contract, for a lawful consideration and with a lawful object and are
not hereby expressly declared to be void.”
The analysis of the provisions of Section 10 shows that a valid contract must have the following
essential elements:
1. Proper Offer and Acceptance: There must be at least two parties- one making the offer
and the other accepting it. Such offer any acceptance must be valid. An offer to be valid must
fulfill certain conditions, such as it must intend to create legal relations, its term, must be
certain and unambiguous, it must be communicated to the person to whom it is made, etc. An
acceptance to be valid must folds certain conditions, such as it must be absolute and
unqualified, it must be made in the prescribed manner, and it must be communicated by an
authorized person before the offer lapses.
2. Intention to Create Legal Relationship: There must be an intention among the parties to
create a legal relationship. In case of social or domestic agreements, the usual presumption is
that the parties do not intend to create legal relationship but in commercial or business
agreements, the usual presumption is that the parties intend to create legal relationship unless
otherwise agreed upon.
Example: X invited Y to a dinner Y accepted the invitation. It is a social agreement. If X fails to
serve dinner to Y, Y cannot go to the courts of law for enforcing the agreement. Similarly, if Y
fails to attend the dinner, X cannot go to the courts of law for enforcing the agreement.
But even a business agreement may not be enforceable by law where the agreement so
provides e.g. in Rose & Frank Co. v. Crompton Bros. (1925) A.C. 445, the agreement entered
into stated that it will not be subject to legal jurisdiction in the law courts, the agreement was
not enforceable by law as the parties never agreed to create legal obligations despite being a
business agreement.

3. Capacity of Parties: The parties to an agreement must be competent to contract. In other
words, they must be capable of entering into a contract. According to Section 11 of Indian
Contract Act, 1872. “Every person is competent to contract who is of the age of majority
according to the law to which he is subject and who is of sound mind and is not disqualified
from contracting by any law to which he is subject.”
In other words, the person must be major, must be of sound mind and must not be declared
disqualified from contracting by any law to which he is subject. If the parties to agreement are
not competent to contract, then no valid contract comes into existence.
Example: X a minor borrowed Rs. 8,000 from Y and executed mortgage of his property in favor
of the lender. This was not a valid contract because X is not competent to contract. Therefore,
the mortgage was not valid and the money advanced to minor could not be recovered.
4. Lawful Consideration: An agreement must be supported by lawful consideration.
Consideration means something in return. According to Section 23 of the Indian Contract Act,
1872, “the consideration is considered lawful unless it is forbidden by law or is fraudulent or
involves or implies injury to the person or property of another or is immoral or is opposed to
public policy.”
Example: X agrees to sell his car to Y for Rs. 1, 00,000. Here Y’s promise to pay Rs. 1, 00,000 is
the consideration for X’s promise to sell the car and X’s promise to sell the car is the
consideration for Y’s promise to pay 1, 00,000.
5. Free Consent: There must be free consent of the parties to the contact. According to
Section 14, “Consent is said to be free when it is not caused by (i) coercion, (ii) undue influence,
(iii) fraud, (iv) misrepresentation, or (v) mistake”. If the consent of the parties is not free, then
no valid contract comes into existence.
Example: X threatens to kill Y if he does not sell his house to X. Y agrees to sell his house to X.
In this case, Y’s consent has been obtained by coercion and therefore, it cannot be regarded as
free.
6. Lawful Object: The object of an agreement must be lawful. According to Section 23 of the
Indian Contract Act, 1872, “the object is considered lawful unless it is forbidden by law or is
fraudulent or involves or implies injury to the person or property of another or is immoral or is
opposed to public policy.”

Example: X, Y and Z enter into an agreement for the division among them of gains acquired or
to be acquired by them by fraud. The agreement is void because its object is unlawful.
Example II: X lets a flat on hire to Y a prostitute, knowing that it would be used for immoral
purposes. The agreement is void because its object is for immoral purposes.
7. Agreement not expressly declared Void: The agreement must not have been expressly
declared void under the provisions of Sections 24 to 30 of the Indian Contract Act, 1872. Under
these provisions, agreement in restraint of marriage, agreement in restraint of legal
proceedings, agreement in restraint of trade and agreement by way of wager have been
expressly declared void.
Example: X promised to marry none else except Y and in default pay her Rs 1, 00,000. X
married to Z and Y sued X for the recovery of Rs 1, 00,000. It was held that Y was not entitled to
recover anything because this agreement was in restraint of marriage and as such void.
8. Certainty of Meaning: The terms of the agreement must be certain and unambiguous.
According to Section 29 of the Indian Contract Act, 1872, “agreements the meaning of which is
not certain or capable of being made certain are void.” Example: X a dealer in different types of
oils agreed to sell 100 tons of oil to Y. This agreement is void on the ground of uncertainty
because it is not clear what kind of oil is intended to be sold. If, however, the meaning of the
agreement could be made certain from the circumstances of the case, it will be treated as a
valid contract. Example: X who is a dealer in mustard oil, agreed to sell 100 tons of oil to Y. This
agreement is valid because the meaning of the agreement could be easily ascertained from the
circumstances of the case.
9. Possibility of Performance: The terms of the agreement must be such as are capable of
performance. According to Section 56, “an agreement to do an impossible act is void.”
Example: X agrees with Y to discover treasure by magic and Y agrees to pay Rs 1,000 to X. This
agreement is void because it is an agreement to do an impossible act. Example II: X agrees with
Y to enclose some area between two parallel lines and Y agrees to pay Rs 1,000 to X. This
agreement is void because it is an agreement to do an impossible act.
10. Legal Formalities: The agreement must comply with the necessary formalities as to
writing, registration, stamping etc. if any required in order to make it enforceable by law.

Example: An oral agreement ‘for arbitration is unenforceable because the law requires that
arbitration agreement must be in writing.
Question #3 Give a brief description of various types of contracts?
Answer: The contracts can be classified into the following four categories:-
1. According to Enforceability:
a. Valid Contract: A valid contract is enforceable by law. An agreement becomes
enforceable by law when all the essentials of a valid contract are present.
Obligation of Parties: In valid contract, all parties are legally responsible for the performance
of the contract. If one of the parties breaches the contract, the other party can enforce it
through the court of law.
b. Void Contract: The word void means not binding in law. Section 2 (j) defines “A contract
which ceases to be enforceable by law becomes void, when it ceases to be enforceable”. It
means that a void contract is not void from the beginning. It is valid contract when it is made
but subsequently it becomes void due to certain reasons.
Obligation of Parties: In void contract both the parties are not legally responsible to fulfill the
contract. Under this contract the party who has received any benefit is bound to return it to the
other party.
A contract becomes void under the following circumstances:-
I Impossibility of Performance: A contract becomes void due to impossibility of
performance. A contract becomes void before performance when it becomes impossible to be
performed by any party due to any reason (Sec. 56)
II Subsequent Illegality: A contract becomes void by subsequent illegality. A contract
may become illegal before performance due to certain reasons. (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: The performance of a contingent contract
depends upon the happening or non-happening of a certain event. It becomes void when that
event does not happen. (Sec 32)
c. Void Agreement: An agreement not enforceable by law is said to be void. The void
agreement does not create legal obligations among the parties. An agreement which is void
from the beginning is void ab-initio, in void agreement; there is absence of one or more
essentials of valid contract except free consent. An agreement with minor and an agreement
without consideration is void from the beginning (Sec 2 (g)

Obligation of Parties: In void agreement, the party who has received any advantage is bound
to restore it to the party from which he received it. Both the parties are not responsible for the
performance of the agreement.
d. Voidable Contract: “An agreement which is enforceable by law at the option of one or
more of the parties thereto but not at the option of the other or others, is a voidable contract”.
(Sec 2 ( I) ).
A contract is voidable when consent of one of the parties is not free. It is a valid contract
until it is avoided by the party having the right to avoid it. If the party decides to confirm, it
remains valid. A contract becomes voidable under the following circumstances;
A. A contract becomes voidable when the consent of one or more of the parties to a
contract is obtained by coercion, undue influence, misrepresentation or fraud. (Sec 15 – 18 ).
B. when one party promises to do something for the other party but the other party
prevents him from performing his promise, the contract becomes voidable at his option (Sec
53 )
C. When a party to the contract promises to do a certain thing within a specified time, but
fails to do it, then the contract becomes voidable at the option of the promise, if time is
essence of the contract. ( Sec 55)
Obligation of parties:
The following are obligations of the parties:-
1. It is a valid contract for both the parties if it is not rejected by the party having
the right to reject.
2. The law gives an option to one of the parties to avoid it.
3. The party entitled to cancel the contract is not bound to cancel. If he confirms it,
the other party remains bound to perform.
4. The aggrieved party can get damages from the other party.
5. If one party has received some benefit, he must return it to the other
Burden of Proof: The burden of proof lays on plaintiff i.e. the aggrieved party. It means that
the party, who claims that his consent is unfreeze, has to prove in the court of law. If he fails to
prove, the contract remains valid.
e. Unenforceable Contract: An unenforceable contract is that contract which cannot be
enforced in a court of law because of some technical defects such as absence of writing
registration, requisite stamp etc. When these defects are removed, the contract can be
enforced.

Obligation of Parties: In an unenforceable contract, the parties may perform the contract.
But in case of breach of such contract, the aggrieved party is not entitled to legal remedies.
f. Illegal Agreement: An agreement is illegal when its performance is forbidden by any
law. Such an agreement can never become a contract. An agreement is illegal and void if it is
forbidden by law or is of such an nature that if permitted, it would defeat the provision of any
law or is fraudulent or involves injury to the person or property of another or the court regards
it as immoral or opposed to public policy (Sec 23 )
Obligation of Parties: The parties to the agreement are not responsible to perform their
promises. There is punishment for the parties according to law
2 According of Formation:
According to formation, a contract has the following three kinds.
a. Express Contract: Express contract is one which is expressed in words spoken or
written, when such a contract is formed, There is no difficulty in understanding the rights and
obligations of the parties, In express contract, the parties directly state the terms of the
contract (Sec. 9)
b. Implied Contract: An implied contract is made otherwise than by words spoken or
written. It arises from acts, conduct of parties, and course of dealing or circumstances. It arises
when one person, without being requested to do so, renders services under circumstances
indicating that he experts to be paid for them and the other person knowing such
circumstances accepts the benefit of those services. (Sec 9)
c. Quasi Contract: In a quasi-contract, the law imposes certain obligations under some
special circumstances. It is based upon the principle of equity that a person shall not be allowed
to get benefit at the cost of another. In fact, it is not a contract but creates relations similar to
contract. It is also called constructive contract.
3 According to Performance:
a. Executed Contract: A contract is said to be executed when both the parties have
completely performed their obligations. It means that nothing remains to be done by either
party under the contract.
b. Executor Contract: In an executor contract something remains to be done. In other
words a contract is said to be executor when both the parties to a contract have yet to perform
their obligations.
4. According to Parties:
a. Unilateral contract: In a unilateral contract only one party makes a commitment, In
other words, it is a contract where only one party is bound but the other party chooses to be
bound by it.

b. Bilateral contract: It is a contract where both parties are bound by it as soon as the
contract is made. In other words it is a contract in which both the parties have yet to perform
their obligations.
Question #4 what is an offer? State rules to a valid offer.
Answer:
Offer:
It is a part of contract without, it cannot made agreement.
Offer is willingness to do something or not to do something which is shown to another person
to obtain his consent (views) is called offer.
Essentials of a Valid Offer:
The following are legal rules or essentials of a valid offer:
1. Express or Implied: An offer may be made by words or conduct. An offer which is
made by words spoken or written is called an express offer. The implied offer appears from
the actions, conduct of parties, course of dealings or circumstances of the case.
2. Legal Relations: The offer must be made to create legal relations otherwise there is no
agreement. If an offer does not give rise to legal obligations between the parties, it is not a valid
offer. In business transactions it is presumed that the parties. Intend to create legal relations.
3. Definite & Clear: An offer must be definite and clear. If the terms of an offer are not
definite and clear, it cannot be called a valid offer. If such offer is accepted, it cannot create a
binding contract. An agreement to agree in future is not a contract because the terms of
agreement are not clear.
4. Different from Invitations to Offer: An offer is different from an invitation to offer.
In an invitation to offer the person making the invitation does not make an offer but only
invites the other party to make an offer. His object is to inform that he is willing to deal with
anybody who is willing to deal with him.
5. Specific or General: When an offer is made to a specific person or group of persons, it
is called specific offer. Such an offer can be accepted only by the person or person to whom it is
made. A general offer is made to public in general and it may be accepted by any person who
fulfills the conditions mentioned in it.
6. Communication with Offered: An offer is effective only when it is communicated to
the offeree. If an offer is not communicated to the offered, it cannot be accepted. An
acceptance of offer without having knowledge of such offer is not a valid acceptance and does
not create any legal obligations. Thus, an offer which is not communicated is not a valid offer.

7. Negative Condition: An offer cannot contain a condition that the offer would be
considered as accepted, if acceptance is not communicated up to a certain date. If the offeree
does not reply, there is no contract because an obligation to reply cannot be imposed on the
grounds of justice.
8. Conditions in Offer: An offeror may include any condition in his offer. There is no
contract unless all the conditions of the offer are accepted. If the offeror prescribes a specific
mode of acceptance, the offeree must adopt the same mode of acceptance. If the offeree does
not follow the prescribe mode, the offeror must inform the offeree regarding its rejection
otherwise he is considered to have accepted the acceptance.
9. Cross Offers: When two parties make similar offers to each other without having
knowledge of other’s offer, it is called cross- offers. The acceptance of cross offers does not
result in complete agreement.
Question #5 what do you understand by acceptance? What conditions must be
fulfilled to convert a proposal into a promise?
Answer: The acceptance is a state act or proposition by manner that manifests agree to the
term of an offer in a conduct required or invited by the offer so that a compulsory contract is
formed. In other words, we can say that is the operate of a someone to whom something is
offered by another. Where the offeree express through an act requested by the offer.
When a person shows his willingness to do or not to do something to obtain the consent
of other person, it is considered a proposal.
Question #6: How is an offer made, revoked & accepted? Give examples. What rules
apply when an offer is made through the post office?
Answer:
Offer:
The person making the offer is called the offeror or promisor. The person to whom the
offer is made is called the offeree. The person accepting the offer is called the promissee or
acceptor. The word ‘offer’. The person accepting the offer is called the promise or acceptor.
The word ‘offer’ in English Law is similar to the word ‘proposal’ in Pakistani law but the word
offer is usually used in our practical life.
Example: A makes an offer to sell his calculator to B for Rs. 2000.A makes an offer to B.

Revocation: Communication of Revocation. Revocation means cancellation. There may be a
revocation of offer and acceptance. The communication of a revocation is complete:
a. As against the person who makes it, when it is put in course of transmission to the
person to whom it is made, so as to be out of the power of person who makes it.
b. As against the person to whom it is made, when it comes to his knowledge. (Sec. 4)
It means that communication of revocation completes, as against the person, who makes it,
when the letter of revocation is posted. The communication of revocation completes, as against
the person, to whom it is made, when the letter of revocation comes to his knowledge.
ACCEPTANCE: “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 “.
Example: An offers to sell his house to B for Rs. 14Lac B accepts the offer.
Question #7: How and on what grounds do proposal stand revoked? Is there any
time limit after which revocation of proposals & acceptance cannot be made?
Answer: An offer may revoke in any of the following ways: (Sec 6)
1. Notice of Revocation: An offer can be revoked by sending a notice of revocation to
the other party. It means that the offeror may revoke his offer at any time before acceptance,
even though the period of acceptance of offer has not yet expired. This way the offeree cannot
create a contract by accepting the revoked offer.
2. Lapse of Time: When the offer is kept open for a specified time period, it terminates if
it is not accepted within that period. If the offer does not specify any time period, it terminates
after lapse of a reasonable time. The reasonable time depends upon the circumstance of each
case, if the commodity is perishable, the reasonable time will be relatively shorter.
3. Failure to Fulfill Condition: If an offer contains some conditions and the offeree fails
to fulfill this condition, the offer terminates.
4. Death or Insanity of offeror: An offer terminates on death or insanity of the offeror,
if the offeree comes to know about the death or insanity of offeror before his acceptance, If the
offeree does not know about the death or insanity of offeror and gives his acceptance, it is valid
acceptance. It result is a valid contract and legal representatives of the deceased offeror will
be bound by the contract.
5. Revocation of Offer by Offeree: If the offeree rejects the offer and communicates
the rejection to the offeror, the offer terminates even though the period for acceptance of offer
has not yet expired.

6. Counter Offer by Offeree: When an offer is accepted with some change in the terms
of the offer, such acceptance is called counter offer. An offer terminates when a counter offer is
made; the party making a counter offer cannot accept the original offer.
7. Death or Insanity of Offeree: An offer can be accepted only by the offeree. It cannot
be accepted by his legal representatives upon his death. If the offeree dies or becomes insane
before acceptance, the offer terminates.
8. Subsequent Illegality: An offer lapses if it becomes illegal before its acceptance. An
offer may also terminate if it becomes illegal due to change in law before its acceptance by the
offeree.
9. Destruction of Subject Matter: An offer lapses if the subject matter of the offer is
destroyed before the acceptance of offer by the offeree.
10. Prescribed Manner: If the offeror prescribes the manner of acceptance, the offer
terminates if the offeree does not accept it according to the prescribed manner. If the offeror
wants to reject the offer, he must inform the offeree with a reasonable time. If offeror does not
inform, he will be bound by such acceptance.
Lapse of Time: When the offer is kept open for a specified time period, it terminates if it is not
accepted within that period. If the offer does not specify any time period, it terminates after
lapse of a reasonable time. The reasonable time depends upon the circumstance of each case, if
the commodity is perishable, the reasonable time will be relatively shorter.
Question #8 “An acceptance to be effective must be communicated to the offeror”.
Are there any exceptions to this rule?
Answer:
Communication with Offeror:
The offeree or his agent must communicate the acceptance to the offeror in a clear
manner. Showing the intention to accept an offer is not a valid acceptance. If the offeree does
not accept the offer, no contract is formed. When offeree accepts an offer but fails to clearly
communicate, it is not considered an acceptance.

Assignment 1

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Assignment 1