Business Law

Instructor: Arbab Shujja

Notes by: Munir Ahmed

BUSINESS is an activity in which economic resources are used to fulfill needs of individuals
through goods and services.
Our constitution consists of 27 chapters and 280 articles. In constitution different articles are
there and there are also sub section.
 Legislation (parliament) brings changes in constitution, in order to bring changes it
needs two third representation in parliament. This process is called legislation.
 Amendment – if bills are accepted/approved then it becomes part of law or
constitution, and it is known as amendment.
 We have 22 amendment in our 1973 constitution
 Ordinance – when chief executive of state implement any law without legislation. It is
called ordinance and it is only valid for 90 days.
Types of Codes
 Pakistan Panel Code
 Civil Panel Code
 Criminal Panel Code
Types of Coats
 Kachehri (coat), session coat, judges, kazi, magistrate, high coat, supreme coat, chief justice.
Pillars of State
 Legislation, legislatures, Judiciary & Chief Executive of govt.

Contract
Contract act 1872, section 2(4). It is an agreement enforceable by law.
 Agreement is every promise and every set of promises forming the consideration for
each other is an agreement
 Promise comes into existence when one party makes a proposal and that other party
gives consent therefore a contract is an agreement and agreement is promise and
promise is accepted proposal.
Note: All contracts are agreement buy all agreements are not contract.
There are two types of agreement
1. Legal – it is type of contract in which business motives are involved
2. Social – it is type of agreement in which personal emotion are involved and it cannot
be challenged.
Essentials of Contract
1. Offer and Acceptance
There must be an offer and an acceptance. Both offer and acceptance should be lawful.
2. Legal obligations
It mentions duties, responsibilities and which can be physically performed.
3. Lawful consideration
A contract is basically a bargain between two parties, each receiving 'something' of
value or benefit. This 'something' is described in law as 'consideration'. Consideration is
an essential element of a valid contract. It is the price for which the promise of the other
is bought. A contract without consideration is void. And consideration should be lawful.
For instance, Israeli currency is not acceptable in Pakistan, one cannot trade on this
currency.
4. Capacity of parties
Eligibilities of parties;
 Age of maturity
 Mentally sound
 Not liquidated and bankrupt
5. Free consent
The contracting parties must give their consent freely. 'Consent' means that the parties
must agree about the subject matter of the agreement in the same sense and at the
same time. Consent is said to be free if it is not induced by coercion, undue influence
and fraud. The absence of free consent would affect the legal enforceability of a
contract.
6. Lawful object
The object of the agreement must be lawful. An agreement is unlawful, if it is illegal,
immoral or opposed to public policy.
7. Writing and Registration
Contract must be in written form and should be registered by rotary public, without his
registration it doesn’t have any worth.
8. Certainty in terms
Terms and conditions should be positive. The terms of a contract must not be vague or
uncertain. If an agreement is vague, it cannot be enforced
9. Possibility of performance
A contract must be such as are capable of performance. An agreement to do an
impossible act is void and is not enforceable by law. Ex: A promises B to put life in B’s
dead brother.
 10. Not expressly declared void - An agreement expressly declared to be void under the
Contract Act or under any other law, is not enforceable and is, not a contract. The
Contract Act declares void in certain types of agreements such as trade of drugs,
smuggling etc.

Four kinds of deals

 Valid: True sense, true work and it is enforceable by law.
 Void – false sense, false work and it is not enforceable in court of law.
 Voidable – contract in which person is not sure deal is false or true. It means a contract
which is made under certain pressure either physical or mental. It becomes valid or void
in future.
 Void eb nations – When deal starts from false sense from beginning.

Kinds of Contract
1. According to Enforceability
 Valid - It is enforceable by law
 Void – Subsequent impossibility/illegality

Subsequent impossibility – In this situation person is willing to work but it cannot be performed
due to any reason such as rain, earthquake, flood etc.

Subsequent illegality - In this situation business activities cannot be carried on due to change in
law, so legal action cannot be taken.

 Unenforceable contract

Those contract in which there is technical default, if there is fault then legal action cannot be
taken against any party. Fault such as Name, CNIC, Signature are missing or incorrect.

2. According to Formation
 Express

Through direct speech, words and communication, it is formed by written or oral language. Ex:
A goes to buy Car and deals with dealer.

 Implied

No direct speech, words and communication, maybe newspaper etc. when the proposal or
acceptance of any promise is made otherwise then words. Ex: A asks C to buy a car from him
and deals with C.

3. According to performance
  Executed

Where both parties have fulfilled their duties, responsibilities and obligations and performance
has been completed.

 Executory

In which one party has fulfilled its duties, responsibilities and completed contract demands
while second party hasn’t completed it yet or still working on it or obligations are to be
performed in future. Ex: A sold his car to B in 1 million, B has the possession of car but he hasn’t
paid yet.

4. According to Parties
 Unilateral

Responsibility on one party or obligations are followed by one party.

 Bilateral

When responsibilities on both parties and obligations are followed by both parties.

Consensus-ad-idem: It refers to the situation where there is a common

understanding in the formation of the contract. Or to agree upon something is
same sense.

Offer: When one person signifies to another his willingness to do or obtain from doing
anything, with a view to obtain assent (approval) of that other to such act is known as offer or
proposal.

 Offeror: Makes the offer first

 Offeree: to whom offer is made

Essentials of offer
1. Express/Implied
Offer should be express, when proposal is expressed words & writing it is called express
proposal. e.g: A says to N that he will sell his house to him for Rs 2Lac. It is an express
proposal. And when proposal is conveyed by the contract of the offered it is called
 implied proposal.

2. Legal relationship:
It is essential valid offer that it must be made with the intention of creation relationship
otherwise it will be only invitation. A social invitation may not create legal relationship.
e.g: MR Mohsin offered to sell his house to MR Kashif for Rs 5 Lac. & he agrees. It’s a
contract which create legal relationship.

3. Definite and Clear

Proposal should be cleared understand & simple. It may not create confusion in a mind
of proposee it must be cleared & definite.

4. General & Specific offer:

When proposal is opened to general public it is called general proposal. On the other
hand when it is made to specific person. It is called specific offer In case of general
proposal contract is made with person to accept the offer. e.g; A announces in a TV a
reward of Rs 5000 for any who will return his lost radio, it is a general offer .and
example for specific offer is - D makes an offer to N to sell his bike for Rs 50000 it is a
specific offer. In this case only N can accept.

5. Communication with the offeree

Use direct and better communication channel and general proposal are made orally or
written.

6. Cross profit
Both parties shouldn’t offer something at same time, one party should covey its
message first then other party should response.

Acceptance: When the person to whom the proposal is made signifies his assent (approval)
there to, the proposal is known to be accepted and becomes promise.

Essentials of Acceptance
1. Offeree
Offeree must accept the proposal, if the offeree is not present, he can send his legal
representative, agent or power of attorney.

2. Absolute and unconditioned

 Offeree cannot add a condition from his side, terms and conditions are only applied by
offeror, not offeree. Moreover if there is any variation, even on an unimportant point,
between the terms of the offer and the terms of the acceptance, there is no contract.

3. Prescribed manner
Acceptance has to be made in the manner prescribed, offeree should follow prescribed
manner and channel defined by offeror. Failure on the part of the offeror to do so, will
imply that he has accepted the acceptance although it is not in the desired manner.

4. Reasonable time
Acceptance to be valid must be made within the time allowed by the offeror and if no
time is specified, it must be made within a reasonable time (which is 7 working days and
in working hours).

Limitation Act 1908: Person can claim in reasonable time, after that he cannot
claim. The Limitation Act has prescribed the different periods for different
contracts, e.g. period of limitation for exercising right to recover a debt is 3
years, and to recover an immovable property is 12 years. The contractual
parties cannot exercise their rights after the expiry of period of limitation.

Consideration: (give something in return). It is the price for which the promise of other is
bought and the promise thus given for value is enforceable.

Essentials of Consideration
1. Desire of promisor
Consideration must move at desire of the promiser. An act or abstinence must have
been done at the desire of the promisor only. Any act performed at the desire of the
third party cannot be valid consideration.

2. Consideration may be Past, Present or Future

 Past - activity was done in past, payment is given now.
 Present – work is done today and pay value.
 Future – work today and pay value in future or vice versa.

3. Consideration need not to be adequate

 Law only requires the presence of consideration in a valid contract, it adequacy is not
required in the Act. It is not necessary to pay value according to market, but it is good to
pay value according to contract.

4. Consideration must be real

Definition of consideration clearly states "Something in return" is consideration which
must be of some value in the eyes of law.
5. Performance of Contract - Performance is necessary for promisor and promise to
complete the consideration.

Discharge by Contract
1. Discharge by Performance
A contract can be discharged by performance in any of the following ways:

 By Actual Performance - A contract is said to be discharged by actual performance

when the parties perform their promises in accordance with the terms of the contract.
 By Attempted Performance - A contract is said to be discharged by attempted
performance when activities are not performed according to contract, it would be
terminated in between.

2. Discharge by Mutual Agreement

Since a contract is created by mutual agreement, it can also be discharged by mutual
agreement. A contract can be discharged by mutual agreement in any of the following ways:

 Novation - Novation means the substitution of a new contract for the original contract.
It means bringing changes in contract, adding/subtracting components and partners of
contract. This new contract may be either between the same parties or between
different parties. The consideration for the new contract is the discharge of the original
contract.
 Alteration - means a change in the terms of a contract with mutual consent of the
parties. Alteration discharges the original contract and creates a new contract. However,
parties to the new contract must not change.
 Rescission - means cancellation of the contract by any party or all the parties to a
contract.
 Remission - means acceptance by the promisee of a’ lesser fulfillment of the promise
made. E.g contract was selling 10 cars but after purchasing 5 cars, parties terminate the
contract but one party is not agree.
 Waiver - means intentional relinquishment of a right under the con-tract. Thus, it
amounts to releasing a person of certain legal obligation under a contract. E.g Bank gave
 loan to people, and if those people are in affected area of flood, earthquake. Bank waive
their liability.

3. By subsequent impossibility
When business activities cannot be performed due to valid reasons, so contract need to be
terminated. E.g; declaration of war, change in law, place is affected by earthquake, flood etc.
4. Discharge by Lapse of Time
A contract is discharged if it is not performed or enforced within a specified period, called
period of limitation.

5. By operation of law

Every organization makes financial statements and send it to regulatory authority and it further
send it to banking coat. Banking coats keep check and balance on every organization. If banking
coat finds out the organization is in loses and is near to liquidation. So coat orders to close
business before get liquidated. So company will terminate its contract with whom it had.

Remedies for breach of Contract

It is not fulfilling agreement

1. Suit for compensation

In this, breaching party is liable to compensate non-breaching party whether in monetary terms
or non-monetary terms.

2. Suit for damage

In which applicant ask to compensate him in financial means.

2.1 Ordinary damage

In this condition, applicant ask guilty party to return actual he invested or exact amount of lose.

Example: Company A delivered the wrong kind of furniture to Company B. After discovering the
mistake, Company B asks Company A to pick up the wrong furniture & deliver the right
furniture. Company A refused to pick up the furniture & said that it could not supply the right
furniture b/c it was not in stock. Company B successfully sued for breach of contract. Damages
would be;
  Refund of any amount Company B had prepaid for the furniture.
 Reimbursement of any expense Company B incurred in sending the furniture
back to Company A.
 Payment for any increase in the cost Company B incurred in buying the right
furniture, or its nearest equivalent, from another seller.

2.2 Special damage

In this condition, applicant ask guilty party to return actual amount invested and expected
return (profit) too. Expected return is assumptions by parties that this much will be the profit.

2.3 Exemplary

When case is charged against guilty party & applicant wants that guilty party should be given
such punishment that it must be example for business society. And in this case, he claims
actual amount invested, expected return & punishment for guilty party which become example
for others.

2.4 Liquidated

At the time of initiating contract, both parties put condition that whosoever will do breach, will
pay fine and amount is decide at time of initiating contract. Damages specified in the contract
that would be payable if there is a fraud Ex: Pak-Iran gas pipeline agreement.

3. Suit upon quantum merit

A court can award one party payment for what he deserves for any work that he has already
performed before the other party breached the contract. For instance one party started
contract with other party to construct 5 storey building. When he had completed half building,
and first party decided he didn’t want him (construct) to finish. In this situation constructor can
claim to pay all expenditure he spent in construing in completing half building.

4. Suit for specific performance

This is when the court forces the breaching party to perform the service or deliver the goods
that they promised in the contract. Same as above example but here constructor doesn’t
complete building, here first party claims to complete the contract.

5. Suit for injunction

Injunction means an order of contract which prohibits person to do particular act. When a party
to a contract does something which he promised not to do, the court may issue an order
prohibiting him from doing so. i.e: Contract with supplier, to not supply same raw material to
competitors. Or BUITEMS prevents it employees to not do job in other organizations in working
hours and days.

CONTRACTS

1. Contract of Indemnity

A contract by which by party promise to save the other from lose cost to him by the conduct of
the promisor himself or by the conduct of any other person, is called contract indemnity.
(section 124). For instance employer of fire brigade takes responsibility that if any injury
happens to employee during work, I will pay all charges of his treatment.

2. Contract of Guarantee

A contract to perform the promise or discharge the liability of third person in case of his
default. (Section 126). For instance; in prime minster loan scheme guarantee of third party was
needed, and in case of applicant’s default, third party would be responsible and liable.

3. Contract of bailment

Bailment is the delivery of goods by one person to another for some purpose. When purpose is
accomplished. Be return or otherwise disposed off. According to the directions of person
delivering to them. For instance; rent a car, taking moveable good for use (machinery etc.). In
this case person who is taking goods whether on rent or otherwise, has the right of possession
and use but do not have the right of ownership.

4. Contract of pledge

The bailment of goods as security for payment of debt or performance of a promise is called
contract of pledge. For instance; we take financial help from financial institutions (bank) and
keep something as security such as jewelry. In this case financial institution has the right of
possession, but do not have the right of ownership and usage. And if person breaches the
contract and do not return loan in given time period. Then right of usage and ownership also
goes to financial institution.

 *transfers right of uses is called lien.

. _____________________________________ .
 Chapter: Law of Partnership
Partnership is an association of two or more persons who contribute money, property, time,
skills and knowledge to carry on business for profit and to share the losses of the business.
According to partnership act (section 4, 1932): Partnership is the relation b/w persons who
have agreed to share the profits of a business carried on by all or anyone of them acting for all.

Characteristics:
1. Legal entity – registration of firm is obligatory, when it is registered it acts as artificial
person and it becomes an entity.
2. Agreement – agreement is partnership deed which defines partners, their responsibility,
ratio of profit and loss, firm’s name etc.
3. No. of partners
4. Existence of business
5. Sharing of profit and loss
6. Mutual agency – in org, many dept and activates are involved, one can’t perform all. So
everyone performs task and one who performs, he is known as agent on behalf of
others and cumulatively all are mutual agency.
7. Unlimited liability
8. Capital management
9. Utmost faith – partners should have faith and trust on each other. And should believe
on this that every partner is performing as whole.
10. Transfer of interest - transfer of interest can’t be done. Until partner is present and
alive, his interest and profit cannot be transferred to others. And if he dies, his legal
representative (wife, son) can claim the assets he invested, not profit. And if legal
representative is minor (less than 18) he can claim profit too until he reaches age of
maturity. When he reaches 18. He has two options, one to take initial investment of his
father, and afterwards he has no concern with this business or second; become partner,
so he will be counted as new partner not at his father’s place. So new partnership deed
will be made.

Firm’s Name
1. Not identific/similar – org name shouldn’t be similar to any other existing firm.
2. Government – no organization can use “govt” with its name, until it is not government
organization.
3. UNO – neither any organization use “UNO” name with its company’s name, until it is not
uno’s organization.
 4. Undesirable – don’t put such name for org which is unethical & contradictory to
society’s norm and value. And shouldn’t be curse or unacceptable word in any language
or society.

Kinds of partners
1. Active

Partner who is actively involved in all partnership and management tasks and plays role in
decision making.

2. Sleeping

Partner who is hardly involved in any task but plays role in decision making

3. Nominal

Partner who invested minimum and minimum role in decision making. He might be partner for
his goodwill, and his presence in partnership can be beneficial for business.

4. Senior

Partner who invested more in business and plays vital role and in partnership life he is the most
senior partner and plays significant role in all management tasks.

5. Junior

Partner who is junior and in partnership life he is the most fresh or junior partner but also plays
role in all management tasks and in decision making.

6. Partner in profit only

As the name states, partner who claims profit only & don’t play any role in decision making.

7. Minor

Partner is under aged (not mature) and only claims profit, he also does not play any role in
management activities or decision making.

8. Secret
Partner who participates in every management activity and in decision making too but his name
is not disclosed, either other partners do not want to reveal his name due to bad image, so it
can effect business name or he himself doesn’t want to expose his name.

Partnership Deed

1. The name of the firm

2. Partner’s name and addresses of partners who compose it.
3. Nature of business – detail about business, what kind of business it is.
4. Town and place where it will be carried on.
5. Date of commencement of partnership.
6. The amount of capital invested - the amount of capital contributed by each partner and
the methods of raising finance in future if so required.
7. The ratio of sharing profits and losses.
8. Rate of Interest charged - on partners’ capital, partners’ loan, and interest, to be
charged on drawings.
9. Amount a partner can withdraw – how much partner can withdraw for personal use.
10. Salaries, commissions etc., if any, payable to partners – if any partner also work on
salary for doing any particular job.
11. Circumstances under which a firm shall dissolve.
12. Division of task, duties and responsibility, i.e., the duties, powers and obligations of all
the partners.
13. Period of accounting year - The method of preparing accounts and arrangement for
audit and safe custody of cash etc.
14. Rules in case of expulsion, retirement, death and admission of a partner – and in order
to expel any partner, firm must define “code of ethics” at first place, so if any partner
violates that or does fraud, then he can be expelled.
15. Book keeping and accounting – it defines who will maintain financial and accounting
activates, whose signatures and authority is required to deposit or withdraw.
 16. Methods of solving duties – if any dispute arises between partners, who (name it) will
resolve the issue.

Types of Partnership
1. At Will

Partnership starts at own will and wish and there is no specific duration of partnership.

2. Particular partnership

Partnership starts for particular purpose and it is for specific time period. When purpose is
achieved, partnership is dissolved.

3. Limited partnership

In this partnership, limited liability on partners and it working only in England, no example in
Pakistan.

CONSORTIUM LOAN: when 2 to 3 institutions are involved to provide loan.

Registration of firm
1. Submission of Application
Firms should be registered from department of industry/firms. It has branches in each
provincial capital. So partners are supposed to submit form at DoI.
2. Fee/Documents
Once form is submitted, now pay registration fee and attach 3 important documents.
Which are;
 Partnership deed
 Memorandum of Association (external rules and regulations)
 Article of Association (Internal rules and regulations)

Reconstitution of firm
 Admission of new partner
 Retirement/death/expulsion and insolvency of a partner
Note: if partners make any amendments in firm or in partnership deed, they must inform
registration office (Dept of industry) through written form otherwise registration authority can
penalize in monetary or non-monetary way.

Dissolution of firm
1. By agreement
When purpose of business is completed (example of particular partnership) then partnership
dissolves.
2. By compulsory dissolution
When business cannot be continued due to change in law (example of subsequent
impossibility/illegality) then it becomes compulsory for the firm to dissolute.
3. Contingent dissolution
When any vulnerable situation arises (such as terrorism) and it has become impossible to carry
on business activates, then partnership should be dissolved.
4. Dissolution by notice
When one partner doesn’t want to continue partnership and second party agrees on it, so
partnerships dissolves with mutual consent.
5. By court
When court gives order to stop partnership or do not continue business activities. The court
may order for the dissolution of the firm on the following grounds:-

A. Insanity of Partner:- if a partner has become of an unsound mind., court may order for
the dissolution of the firm

B. Permanent Incapacity: if assets are not worthy to pay liabilities, court does not order to
dissolve partnership on first weak balance sheet, but if continues balance sheets are
week (such as 5 years) then court may order for the dissolution of the firm before it get
bankrupt or liquidated.

C. Misconduct: - If any partner misconducts or partners do unethical business or activities

which they are doing are not acceptable then coat orders to dissolve partnership.

D. Continuous Losses: - The court may order for dissolution if the firm is continuously
suffering losses and there is no more capital available for the future growth of the firm.

E. Constant breach of agreement by partner: - The court may order for the dissolution of
the firm if the partner does breach regarding the conduct of business or the
management of the affairs of the firm and it becomes impossible to continue the
business with such partner.
.____________________________________.
 Chapter: Contract of Sale of Goods
A contract of sale is a legal contract. It is a contract for the exchange of goods, services or
property that are the subject of exchange from seller (or vendor) to buyer (or purchaser) for an
agreed upon value in money (or money equivalent) paid or the promise to pay same. It is a
specific type of legal contract. And it is for moveable goods.

According to section 4(1), Act 1930, “a contract whereby the seller transfer or agrees to
transfer the property in goods to the buyer for a price”. In contract there are 4 important
factors; buyer, seller, price and transfer of property (right of ownership, possession and usage)

Formation (Essentials)

1. General Contract
a) Contract of sale

A contract whereby the seller transfer or agrees to transfer the property in goods to the buyer
for a price. (In this all 4 factors are included buyer, seller, price and transfer of property).

b) Agreement to sell

When transfer of property in the goods is to take place at a future time or subject to some
conditions thereafter to be fulfilled is known as an agreement to sell. (In this first 3 factors are
included but transfer of property is yet to happen).

2. Subject matter (3 types of goods)

a) Existing Goods

Existing Goods may be either owned by or in possession of the seller or when contract is
developed, all 4 factors are present then it is existing contract & will be contract of sale.

b) Future Goods

Future goods include goods not yet in existence e.g. crops to be grown, industrial products to
be processed or manufactured. Future goods also include goods that physically exist but they
are not yet acquired by the seller. It will be future contract and is agreement to sell.

c) Perishable

Item that can lose its usefulness, if not used on time. Especially foodstuffs, that are subject to
decay or spoilage. It can be contract of sale or agreement to sell or both.
 3. Price
I. Ascertainment

Where there is an agreement to sell goods on the terms that the price is to be fixed by mutual
consent. Buyer and seller both negotiate and agreed on same price with mutual consent.

II. Buyer to pay reasonable price

Where there is an agreement to sell goods on the terms that the price is to be fixed by buyer,
seller gives authority to buyer to decide price, but price should be justified and according to
market.

III. Valuation

Where there is an agreement to sell goods on the terms that the price is to be fixed by the
valuation of a third party because buyer and seller ask for different price. So third party comes
to resolve the conflict and third party decides the price. Third party is also paid for decision
making role.

4. Conditions and Warrant

Condition is a stipulation (requirement or condition) essential to the main purpose of the

contract, the breach of which gives rise to a right to treat the contract as breached. Whereas
warrant is a stipulation collateral to the main purpose of the contract, the breach of which
gives rise to a claim for the damages but not a right to reject the goods and treat the contract
as breached.

Example: U develop contract with pen manufacturing company & ask to make pens for U. U
give some conditions such as; smooth nib, blue ink, flipping pen, round in shape etc. Some of
them r major conditions (blue ink) & some r minor (round shape). If major conditions r not
fulfilled, then it is breached & U can sue, but if minor conditions r not fulfilled then it is warrant
& not breached.

Doctrine of Caveat Emptor

Doctrine is philosophy, principle and caveat emptor is let the buyer be aware.

This doctrine stats that the seller must provide all the info about the product to the buyer
means if there is any hidden fault in the object or product.
And it also often places burden on buyer to reasonably examine property before purchase and
take responsibility for its condition. Especially applicable to items that are not covered under a
strict warranty.

Performance of Contract
When both parties are fulfilling their duties, obligations practically or physically, it is called
performance of contract. Performance is actually completing the deal according to the terms given in the
contract.

 Transfer of property

Transfer of property happens when you actually deliver the product.

 Delivery of goods

a. Right of ownership

b. Right of possession

c. Right of usage

1. Actual Delivery

It is called an actual delivery when a seller delivers the goods physically to the buyer or his
agent, to take the possession.

2. Symbolic Delivery

When you sell or gift something to someone but the product or object is not present at the
moment. You ask him to go and get that thing from the place where you have put it or from
where it is placed. No direct delivery.

Example: when one individual wishes to make a gift of a car to another individual, he or
she might do so by handing overthe keys and all documents indicating ownership thereo
f. Or Mr. A sells the car to Mr. B which is kept in the "Show Room". Mr. A gives the key
of car to Mr. B and ask him to take the car from showroom. It is a symbolic delivery.

3. Constructive Delivery

When you record in your financial statement that you have bought/delivered a product but in
practical or physically you have not done. It means a delivery that is assumed to have happened
even though it hasn't physically happened yet.

Example: Mr. A has bus, which he has rented out to Mr. B. It is in the custody of Mr. B.
Mr. A sells and transfers complete title to Mr. C. The bus remained in the custody of Mr.
 B. There is no change in the custodian. Here only the title of the property has changed.
Now Mr. B agrees to hold on behalf of the buyer. It is called constructive delivery.

Rights of unpaid seller

1. Feature – how seller becomes unpaid

 Cash

When seller delivers the product to buyer and seller was supposed to get payment in return,
but doesn’t get it, buyer might have refused to pay.

 Sells on credit

When the seller sells a product on credit and there is installment schedule and the seller is
supposed to get the amount in future.

 Terms of credit

When the term expires and the payment is not paid seller becomes unpaid. Suppose 2%/10 net
30. Here buyer will get 2% discount if paid in 10 days but if buyer does not pay until the entire
credit duration the seller becomes unpaid.

2. Rights

The unpaid seller has a right to claim the buyer for the prices of goods.

1) Suit for Price

If the goods have passed to the buyer and buyer refuse to pay the price, the seller can sue for
price. You get the actual loss means the actual amount set at the time of selling.

Example: "M" sells the goods to "Y" for Rs. 5 lac. "Y" refuses to pay. "M" can sue for
price.

2) Suit for Damages

If buyer refuses to accept and pay for the goods, the seller has the right to sue him for
damages. When the actual loss plus some expected return is claimed, it is called damage.

3) Special damages

The unpaid seller can recover the reasonable interest on the unpaid goods sold. The seller can
also sue the buyer for special damages where both the parties were aware of such loss at the
time of contract. Unpaid seller claims actual amount plus some expected return and interest for
the time duration being unpaid is called special damage.

._____________________.
 Chapter: Negotiable Instruments
A piece of paper in which you make a promise to someone that you will pay him in future. According to
section 13 (1) of negotiable instrument act 1881; negotiable instrument means a promissory note, bill
of exchange and cheques payable either to order or to the bearer. In other words, it is a piece of paper
which entitles a person to some of money mentioned in it and which is freely transferable from one
person to another.

Characteristics
1. Freely transferable - It can be transferred from one person to another.

2. Right of holder

Who holds the negotiable instruments, all the amount written on the negotiable instrument is the right
of holder.

3. Promise or order

You promise someone that I will pay you at certain date. Order means you tell someone to pay on your
behalf.

4. Certain amount

You have to write the amount of money you are going to pay, or debt amount. If you do not write it
other party may exceed the actual amount.

5. Presumptions

There r some rules from law like the signature of the maker, the maturity date, and name of the other
party plus some extra info if convenient. These must be written on negotiable instrument.

6. In writing

It shouldn’t be orally, everything should be in written form.

7. Unconditional

There should not be any condition written on negotiable instrument. Ex; I will pay B Rs. 500, if Pakistan
beats India in WC.

Two Broad Categories

1. Recognized by law
 Promissory note, Bill of exchange and Cheques

2. Not Recognized by law

 Hundis (Hawala)
Promissory Note
Promissory note is an instrument in writing containing an unconditional undertaking, sign by a maker
to pay on demand or at a fixed or determinable future time a certain sum of money, only to or to the
certain person or to the bearer of instrument.

Two parties are involved

 Drawer (maker, who makes the promise)

 Payee (Receiver)

Bill of exchange
BOE is an instrument in writing containing an unconditional order signed by the maker directing a
certain person to pay on demand or at a fixed or determinable future time a certain sum of money,
only to or to the order of a certain person or to the bearer of instrument.

Three parties are involved

 Drawer (maker, who makes the promise)

 Drawee (makes payment on behalf of drawer)

 Payee (Receiver)

Cheque
Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by
the person who has deposited money with the banker, requiring him to pay on demand a certain sum
of money only to or to the order of certain person or to the bearer of instrument. Or Cheque is bill of
exchange drawn on a specified banker and not expressed to be payable otherwise then on demand.

Types of bill of exchange

1. Inland and foreign

Inland bill means the bill which is drawn and payable within the same country. Thus, the bill which is
drawn in Pakistan and will also be paid in Pakistan is termed as an inland bill. And when drawer,
drawee and payee all 3 are from same domestic country. And foreign BoE is drawn in one country and
accepted and payable in another country is known as a foreign bill. And when anyone from 3 is from
foreign country.
 2. Trade and Accommodation

Trade BoE are drawn and accepted against the sale and purchase of goods on credit. These are drawn
by the seller (creditor) and accepted by the buyer (debtor). And when there is commercial relationship
b/w drawer, drawee and payee. And in Accommodation BoE, the drawee asks for mentioning his name
in the BoE to accommodate the drawer for payment to the payee, the purpose of such bill is to help
one party or both the parties financially. For instance providing loan.

3. Ambiguous

When there’s any ambiguity or technical fault. e.g: U were supposed to write Feroz, but write Faraz. Or
U wrote 25,000 in such way that it is not properly readable. & it is invalid.

4. Inchoate

If you leave instrument incomplete it will be inchoate. For instance you do not write amount or leave
that space empty, it would be inchoate and it is invalid.

5. Documentary

When you attach all receipts with BoE, all those receipts and documents which were used in trading.
E.g; Bill of Lading, Invoice, Insurance Policy

6. Escrow

When U attach any condition in BoE. It is also invalid because it must be unconditional.

Types of Cheque
1. Open cheque

The payment of such a cheque can be obtained at the counter of the bank. The holder of an open
cheque can receive payment over the counter at the bank, deposit the cheque in his own account or
pass it to someone else by signing on the back of a cheque.

2. Crossed cheque

When a cheque is crossed, the holder cannot encash it at the counter of the bank. The payment of
such cheque is only credited to the bank account of the payee. Crossed cheque is done by drawing two
parallel lines across top left corner of the cheque, with or without writing ‘Account payee’ in the space
between the lines.
  General
When account of both parties in same bank. Without writing ‘Account payee’ in the space between the lines.

 Special
Account of both parties can be in different banks and with writing ‘Account payee’ in the space between the
lines.

Negotiation
The negotiation of an instrument is the process by which the ownership of the instrument is
transferred from one person to another. Section (14) defines negotiation as “when a promissory note,
bill of exchange or cheque is transferred from one person to another, so as to constitute that person,
the holder, the instrument known to be negotiated”

Endorsement
An endorsement is signing the negotiable instrument on the back or face there of or on a slip of paper
annexed (attach) there to for the purpose of negotiation. Or signing of a document that allow for legal
transfer for N.I. The parties involved in endorsement Payee (endorsee) and Maker (endorser).

Dishonor of Negotiable instrument

 Dishonor by non-acceptance
This concept is only in BOE. When maker make bill of exchange and give to payee. Then payee must
confirm from drawee. If drawee do not accept to pay or when drawee has either become insolvent or
dead, then this is called dishonor by non-acceptance.

 Dishonor by non-payment
If the acceptor fails to make payment when it’s due, the bill is dishonored by nonpayment. In the case
of promissory note if the maker fails to make payment on due date the note is dishonored by non-
payment.

In order to take legal action against maker, follow the following steps;

1. Notice of dishonor

If cheque has been rejected or you are not paid, you send formal or legal notice to maker that I am
initiating case because I did not get payment.

2. Noting
When you send the legal notice to maker and he replies to you, but you’re not satisfied by reply. Now
you take notice, reply from maker & dishonor instrument to notary public. Notary registers your case.

3. Protest

Once your case is registered, notary public will issue certificate of protest, which you can take to coat
and initiate case against violating party and sue him.

Types of Endorsement
1. Blank

If the endorser signs his name only and does not specify the name of the endorsee, the endorsement is
said to be in blank. Person shouldn’t use blank endorsement, if u lose the cheque or if it is stolen, the
bearer can deposit to his account or can cash the cheque.

2. Endorsement in full or special endorsement

If the endorser, in addition to his signature, also adds a direction to pay the amount mentioned in the
instrument to, or to the order of, a specified person the endorsement is said to be in full. A blank
endorsement can easily be converted into an endorsement in full

3. Partial Endorsement

A partial endorsement which transfers the rights to receive only a part payment of the amount due,
this instrument is invalid. E.g; A holds a bill for Rs 2,000 and endorses it in favor of B for Rs 1,000 and in
favor of C for the remaining Rs 1,000, the endorsement is partial and invalid.

4. Conditional

Endorser attaches one or more conditions to his or her liability on a negotiable instrument, such as "To
be paid upon the completion of the contract." Or pay B on the arrival of goods.

5. Sans Recourse

An endorsement that says that the endorser does not want to incur any liability if the document is not
honored. It is also called without recourse or at the endorsee's own risk. E.g; if cheque has been lost by
endorsee, endorser says I won’t be responsible and won’t write another cheque.

6. Facultative

When the endorser expressly gives up some of his rights under the negotiable instrument, the
endorsement is called a ‘facultative’ endorsement. For instance; if cheque has been lost by endorsee,
endorser says I would write another cheque for you.
.______________________________.
 Chapter: Company Law
Companies ordinance 1984; a company is an association of persons registered under the law
having a distinctive name recognized as separate legal identity with a common capital
contributed by its members and compromising transferable shares of a fixed denomination
carrying limited liabilities and having continuous existence and common stamp.

1. Artificial person and legal entity

Company must be registered from department of industry, when it is registered it becomes an artificial
person and is legal entity.

2. Perpetual succession

Company continues in market for prolong time, its keep operating and remain established depending
upon on its owner and stakeholders.

3. Common stamp

All documents issued from company must be stamped, company has its own stamp. If it is not stamped,
it won’t be considered legal.

4. Limited liability

Shareholders has limited liability.

5. Transferability of shares

Shares can be transferred from one person to another easily.

6. Separate ownership and management

Owners of company are different and people who are operating company are different.

7. Democratic setup

Company has democratic setup, all the major decisions of company are taken and approved by Board of
Director. BoD are selected for specific time period (5 years) and through voting.

8. Large scale

Company is called large scale because it is operating on large scale economy, it needs large
resources, machinery etc. it has overall large setup.

9. Capacity to sue

Company has the capacity to sue any party who breaches or violates the company’s rules.
 Company formation stages
There are 4 stages to develop a company.

1. Promotion stage
The first stage in the formation of a company is promotion. Promotion is the discovery of
business opportunity, on this stage company doesn’t not physical exist or operates in market.
 Business Plan
Owner(s) have idea in their mind to start a company and they want to implement it. Person(s)
visualizes that there are opportunities for a particular type of business & it can be a profitability
run.
 Seeking opinions
They seek opinions and suggestions from business experts or technical experts in that field, is
our idea implementable? If they are convinced that profitable avenues are available in that line
of business the idea is taken forward for more analysis.
 Collection resources
Experts also tell them what resources they need to start a company, they gather resources.
 Analysis plan
They prepare feasibility report of their idea, if it is feasible to start a company, then they go to
next stage. Technical feasibility, financial feasibility, etc.
 Filling in paper
Company make 4 important documents

 Article of association
 Memorandum of association
 Vision statement
 Mission statement

2. Incorporation stage
The second step for establishment of a company is to get the company incorporated or
registered. The promoters prepare and file number of documents to register the company.
 Name
Owner(s) choose name for company, it shouldn’t be identical or similar to existing company.
  License
Company seeks for license to operate in market, license is obtained from security exchange
commission of Pakistan.
 Documents
It submits all the required and necessary documents to security exchange commission of
Pakistan, documents such as owners name, fee, memorandum and article of association, vision
and mission stamen, etc.
 Prospectus
Company introduces itself to general public through prospectus of company. It mentions
information about company.
 Certificate
If all the above documents approved by the registrar (security exchange commission of
Pakistan) then he will issue incorporation certificate. After receiving the incorporation,
company can commence business.

3. Capital resing stage

Company physical exist and has started operation

 Contracts

It develops contract with supplier, distributor, and partners, acquire machinery on rent.
Company develops contractual relation with them.

 Secretory

Company chooses it’s secretory who convey company’s message to public.

 Bankers

Company performs its financial function through bank, such as payable and receivable.

 Internal auditor

Company appoints its auditor, who keeps eye on everything and on everyone, he keeps check
and balance of everything.

 Listing

Company in list itself to stock market/stock exchange.

 4. Commencement stage
Business has started and everything is going smoothly.

Further Requirements after incorporation

 Board of Director

 BOD appoints auditor within 60 days

 BOD appoints secretary within 15 days

 Statutory meeting within 3 to 6 months (first meeting, in which company’s charter are
developed or introduced)

 1st annual general meeting within 18 months.

. ________________________________________.
 Chapter: Security and Exchange Law (Listing)
Company in list (registered) itself in stock market, once it is registered, it is called listed
company.

Benefits of Listing

1. Company’s perspective
 Additional avenue for fund raising

Company needs fund to operate, it floats its share in market which enables to raise additional
funds through the issuance of more stock & individuals or investors purchase those shares &
company receives fund.

 Improvement in credentials(rating)

There are credentials agencies in market, which gives rating to company according to their
performance. High rating means high growth, company floats its rating in market and as a result
customers get attracted by company’s image in market and its sales increases.

 Exposure

Company gets exposure about its business and position in market, for instance if credentials are
good, company get the exposure that I can float more shares in market and also focus on
secondary business (floating shares in market). And when company’s credentials are weak and
company realizes its credentials are affecting business, it improves its services and focuses on
primary business (actual business) more.

 Awards - High credentials, company get award in financial or nonfinancial terms.

2. Economy perspective
 Revenue increases

The more companies are listed in stock market, it means economy is boosting & govt can
generate more taxes.

 Dependency on banks decreases

Company will less dependent on bank. E.g; if company needs big amount of money, instead of
taking loans from bank, it can float its share in stock market. Now company has alternatives.
  Employments opportunities increases

When financial market is better, more employment opportunities in market.

Major legal requirement for listing

1. Application

It goes through all process to get registered.

2. Issues of share

How many shares company wants to float in market.

3. Offer for sale of 10% share

Company can’t float all its hare in market at once, first it can offer 10% shares of its total share,
once those are purchased, then it can float more shares.

4. Eligibility for listing

In order to become listed company, company should have 200 million paid up capital.

5. Disclosure requirement

Company needs to disclose its existence and information to society (broker, investor, people
involved in stock).

6. Issue size and allocation

 500m paid up capital, 50% share

If company has 500 million paid up capital, then it will offer 50% shares at first place, instead on
10%.

 5% share for employees

Among 10% shares, 5% shares are for employees.

 Minimum 20% shares for overseas Pakistani

20% shares are reserved for overseas Pakistani, whether they purchase it or not, this quota is
will be reserved for them.
Methods for offering shares
1. Fixed price method

In the fixed price method, the company, or 'issuer', values the company and prices the share at
a pre-determined price.

2. Book building method

The book building method the issuer sets a price range within which the investor is allowed to
bid for shares. The range is based on where comparable companies are trading and an estimate
of the value of the company that the market will bear. The investors then bid to purchase. From
where biding starts its floor price and where it ends its strike price.

.____________________________.