BUSINESS LAW (CAF-4)

Past years Q & A – Spring 2024

On the insistence of my students, I have endeavored to produce chapter-wise past years

exam questions and their solutions of "Business Law - CAF04” paper of ICAP. I hope
this will help my students.

I request for the comments of the students on this text so that it remains on the path of
continuous improvement and up-gradation.

Muhammad Naeem Baig

Director/Faculty of Law

College of Accountancy & Professional Studies

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CHAPTER NO. 1 INTRODUCTION TO THE LEGAL SYSTEM------------------------2
CHAPTER NO. 2 OFFER ACCEPTANCE AND REVOCATION------------------------8
CHAPTER NO. 3 VALIDITY OF CONTRACTS AND AGREEMENTS---------------12
CHAPTER NO. 4 FREE CONSENT AND VOID AGREEMENTS---------------------16
CHAPTER NO. 5 CONTINGENT CONTRACTS----------------------------------------26
CHAPTER NO. 6 & 7 PERFROMANCE OF CONTRACTS – I,
PERFORMANCE OF CONTRACTS- II---------------------------------------------------30
CHAPTER NO. 8 CERTAIN RELATIONS RESEMBLING THOSE
CREATED BY CONTRACT----------------------------------------------------------------48
CHAPTER NO. 9 CONSEQUENCES FOR BREACH OF CONTRACT---------------52
CHAPTER NO. 10 APPOINTMENT AND AUTHORITY OF AGENTS-------------56
CHAPTER NO. 11, 12, 13 THE NATURE OF PARTNERSHIP,
RELATIONS OF PARTNERS TO ONE ANOTHER, RELATIONS OF
PARTNERS TO THIRD PARTIES---------------------------------------------------------60
CHAPTER NO. 14, 15 NEGOTIABLEINSTRUMENTS, PROVISIONS
RELATING TO CHEQUES----------------------------------------------------------------84
CHAPTER NO. 16 ANTI-MONEY LAUNDERING AND ELECTRONIC
PAYMENTS--------------------------------------------------------------------------------- 97
CHAPTER NO. 17 DATA PROTECTION AND ELECTRONIC CRIMES---------100
CHAPTER NO. 18 COMPETITION ACT AND ARBITRATION ACT--------------101

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CHAPTER NO. 1
INTRODUCTION TO THE LEGAL SYSTEM
March 2015: Q 1
What do you understand by delegated legislation? Give two advantages and disadvantages of
such legislation.

March 2020: Q 1
(b) What is a delegated legislation? State one disadvantage of a delegated legislation.

Answer
Delegated Legislation:

In Delegated Legislation, power is given to an Executive (a minister or public body to make

subordinate or delegated legislation for specified purposes only.

Advantages of delegated legislation:

● Time:
Parliament does not have time to examine matters in detail.
● Expert opinion:
Much of the content of delegated legislation is technical and is better worked out in
consultation with professional, commercial or industrial groups outside Parliament.
● Flexible:
Delegated legislation is more flexible than an Act of Parliament. It is far simpler to amend a
piece of delegated legislation than to amend an Act of Parliament.
Disadvantages of delegated legislation:
● The main criticism of delegated legislation is that it takes law making away from the
democratically elected members. Power to make law is given to unelected civil servants and
experts working under the supervision of a government minister.
● Because delegated legislation can be produced in large amounts, the volume of such law
making becomes unmanageable and it is impossible to keep up-to-date.

March 2016: Q 1
Identify the basis of legal system and explain the main sources of law in Pakistan.

Answer
Basis of legal system in Pakistan:
The legal system in Pakistan is based on the Constitution of Pakistan 1973 as well as Islamic law
(Sharia).
Main sources of law in Pakistan:
Following are the main sources of law in Pakistan:

i. Legislation:

It is the law created by the Parliament of the country and other bodies to whom it has
delegated authority.
.

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ii. Precedent:

Precedent is a judgment or decision of a superior Court which are binding on the

subordinate Courts.

iii. Custom:

Certain customs, practices and beliefs are so vital and intrinsic part of a social and
economic system that they are treated as if they were laws.

iv. Agreement:

Parties in their agreement stipulate terms for themselves which constitute law for the
contracting parties.

September 2016: Q1
Briefly describe the process of legislation in case of a money bill when: (05)

(a) National assembly is in session

(b) National assembly is not in session

Answer
(a) Legislation in case of a money bill when National Assembly is in session:

A money bill shall originate in the National Assembly and after it has been passed by the
Assembly it shall, without being transmitted to the Senate, be presented to the President for
assent.

(b) Legislation in case of a money bill when National assembly is not in session:

● When National Assembly is not in session and President deems necessary to take immediate
action, he has the power to issue an Act.

● Such Act promulgated thus, shall have the same force and effect as an Act of the parliament.

● However, the Act shall stand repealed after 120 days if it is not presented or passed by the
National assembly.

March 2018: Q1
(a) Briefly describe how delegated legislation takes place and also describe how control is
exercised over delegated legislation. (04)

(b) What is the process of legislation in case of a money bill when National Assembly is in
session?
(02)

Answer
(a) Delegated legislation

In delegated legislation power is given to an executive (a minister or public body to make

subordinate or delegated legislation) for specified purpose only. For example, local authorities are
given statutory powers to make bye-laws which apply within a specific locality. Control over
delegated legislation is exercised in following ways:

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i. Parliament exercises control over delegated legislation by restricting or defining power to
make rules

ii. Rules made under delegated power to move legislation may be challenged in the courts on
the grounds of being ultra vires.

(b) Legislation in case of a money bill when National assembly is in session

A money bill shall originate in the National Assembly and after it has been passed by the
Assembly it shall, without being transmitted to the Senate, be presented to the President for
assent.

September 2018: Q1
Specify Pakistan’s system of government and identify Senate’s role in the legislation process.
(05)

Answer
System of government:

Pakistan has a Federal Parliamentary System of government, with the President as the Head of
State and Prime Minister as Head of Government. The Federal Legislature is a bicameral Majlis-
e-Shoora (Parliament), composed of the President, National Assembly (Lower House) and
Senate (Upper House).

Role of Senate:

The role of the Senate is to approve all statutes passed by the National Assembly with the
exception of money bills.

September 2020: Q2

Briefly describe how an Ordinance is promulgated in Pakistan and what is the effect of such
Ordinance. (04)

Answer

Promulgation of an Ordinance in Pakistan:

In terms of the constitution, the President has power to promulgate Ordinances only if the Senate
or National Assembly is not in session and the President is satisfied that circumstances exist
which render it necessary to take immediate action.

The Ordinance as promulgated by the President has the same force and effect as an Act of the
Parliament. However, within 120 days of its issuance, such Ordinance is required to be presented
or passed by the National Assembly in case of money bill and by both the houses in case of all
other bills, otherwise the Ordinance stands repealed.

March 2021: Q2
List down the main topics/areas covered under the following parts of the Constitution of the
Islamic Republic of Pakistan 1973:

(a) Part III - The Federation of Pakistan (02)

(b) Part VI - Finance, Property, Contracts and Suits (02)

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Answer
(a) Part III - The Federation of Pakistan include provisions related to:
● eligibility, term of office, powers, removal of President of Pakistan;
● the President of Pakistan’s job responsibilities and limitations such as exercising
● functions in accordance with the advice of the Cabinet or Prime Minister;
● composition, duration and meetings of the Parliament and Senate;
● qualifications and disqualifications for membership of the Parliament;
● introduction and passing of bills.

(b) Part VI - Finance, Property, Contracts and Suits include provisions of:
● distribution of revenues between the federation and the provinces;
● financial provisions such as exemption and imposition of certain taxes;
● borrowing by Federal and Provincial government;
● appointment, powers and functions of Auditor General of Pakistan;
● property, contracts, liabilities and suits.

September 2021: Q2
Briefly describe the process of legislation in case of a bill which has been passed by the National
Assembly but rejected by the Senate. (04)

Answer
Where a bill is rejected by the Senate, then such bill will not be effective unless it is, at the
request of National Assembly, (i.e. the house in which it originated) is considered in joint sitting of
both the houses (i.e. National Assembly and Senate both). If in the joint sitting, such bill is passed
by the votes of the majority of the members present and voting in the joint sitting, it shall be
presented to the President for assent. The President shall within 10 days assent to the bill or
return it to the Parliament for reconsideration of any provision or any amendment therein.

March 2022: Q2
Explain any four differences between civil and criminal laws. Also identify any two criminal laws
which are presently enforced in Pakistan. (05)

Answer
Differences between civil and criminal laws are as follows:

S.no. Civil Law Criminal Law

Civil law sets out the rights and duties of Criminal law is concerned with the
(i) persons as between themselves, any conduct that is considered so
violation of which is a tort/wrongdoing. undesirable that the State punishes
persons who transgress as violation of
the criminal law is a crime.
Purpose of civil law is to provide a Purpose of criminal law is to regulate the
(ii) means whereby an injured party can society by the threat of punishment.
obtain compensation.
The person whose rights (private Legal action may be brought by the State
(iii) individuals) have been affected can against individuals who are accused of
claim a remedy from the wrongdoer. being in breach of the criminal law. It is
the responsibility of the State to bring
these legal actions, in criminal trials.
The claimant sues the defendant for The State (Government) prosecutes the
(iv) harm caused. accused (the defendant) whether or not
the harm was caused.

The criminal laws in force in Pakistan include Pakistan Penal Code, Anti-Money Laundering Act
etc.

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September 2022: Q2

Briefly discuss delegated legislation and state any two advantages and two disadvantages of
delegated legislation. Also describe how control is exercised over delegated legislation.

Answer
Delegated legislation

In delegated legislation, power is given to an executive (a minister or public body to make

subordinate or delegated legislation) for specified purposes only. For example, local authorities
are given statutory powers to make bye-laws which apply within a specific locality.

Advantages of delegated legislation

● As Parliament does not have time to examine matters in detail, delegated legislation
helps to make the process faster.
● Much of the content of delegated legislation is technical and is better worked out in
consultation with professional, commercial or industrial groups outside Parliament.

Disadvantages of delegated legislation

● Delegated legislation takes law making away from the democratically elected members.
Power to make law is given to unelected civil servants and experts working under the
supervision of a government minister.
● Because delegated legislation can be produced in large amounts, the volume of such law
making becomes unmanageable and it is impossible to keep up-to-date.

Control over delegated legislation

● Parliament has some control over delegated legislation by restricting or defining the
power to make rules.
● Rules made under delegated power to move legislation may be challenged in the Courts
on the grounds that it is ultra vires i.e. it exceeds the prescribed limits or has been made
without due compliance. If the objection is valid, the Court declares it void.

March 2023: Q3

Describe how an Ordinance is promulgated in Pakistan and explain the effect of such Ordinance.
(05)

Answer
Promulgation of an Ordinance in Pakistan and its effect The President, if deems necessary to
take immediate action, has power to make an Ordinance when the Senate or the National
Assembly are not in session. Such Ordinance promulgated thus, shall have the same force and
effect as an Act of the Parliament. The Ordinance shall stand repealed after 120 days if it is not
presented or passed:

 by the National Assembly, in case of Money Bill; and

 by both the Houses, if it is other than Money Bill.

However, National Assembly may extend any Ordinance for another period of 120 days by
passing a resolution. If National Assembly, before expiration of above 120 days, passes a
resolution disapproving an Ordinance, it shall expire on the day of passing of such resolution.

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September 2023: Q.2
Identify the basis of legal system and explain the main sources of law in Pakistan.

Answer
Basis of legal system in Pakistan:
The legal system in Pakistan is based on the Constitution of the Islamic Republic of Pakistan
1973 as well as Islamic law (Sharia).
Main sources of law in Pakistan:
The following are the main sources of law in Pakistan:

(i) Legislation:
It is the law created by the Parliament and other bodies to whom it has delegated
authority. It includes the Act of Parliament, the Ordinance promulgated by the President
of Pakistan and the delegated legislation.

(ii) Precedent (case law):

Precedents are judgements or decisions of a superior court that are binding on the
subordinate courts.

(iii) Custom:
Certain customs practices and belief are so vital and intrinsic parts of a social and
economic system that they are treated as if they were laws e.g., Sharia laws.

(iv) Agreement:
Parties in their agreement stipulate terms for themselves which constitute law for the
contracting parties.

March 2024: Q4
Briefly describe the legislative process for a bill passed by the National Assembly but rejected by
the Senate.

Answer
Where a bill is rejected by the Senate, then such bill will not be effective unless it is, at the
request of National Assembly, considered in the joint sitting of both the Houses (i.e., National
Assembly and Senate).

If in the joint sitting, such bill is passed by the votes of the majority of the members present and
voting in the joint sitting, it shall be presented to the President for assent.

The President shall within 10 days assent to the bill or return it to the Parliament for
reconsideration of any provision or any amendment therein.

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CHAPTER NO. 2
OFFER ACCEPTANCE AND REVOCATION

September 2015: Q 3
(b) Murad offered his car to Sanum for Rs. 400,000. Sanum accepted the offer and enclosed a
pay order of Rs. 150,000 with a promise to pay the balance in monthly instalments of Rs. 62,500
each.

Under the provisions of the Contract Act, 1872 explain whether it is a valid contract.

Answer
(b) Acceptance must be absolute:

An acceptance should be unconditional assent by the offeree to all the terms of the offer. In this
case, since the offer has been accepted with a variation it would be regarded as a qualified
acceptance. Therefore, a contract between Murad and Sanum has not been formed. However, if
Murad accepts the counter offer made by Sanum then it would be a binding contract.

March 2016: Q 3
(b) Bader, who is the owner of Mashoor Associates, sent one of his employees Aftab in search of
his pet horse which had been missing for 5 days. Bader advertised a reward of Rs. 20,000 in a
newspaper for anyone who finds his missing horse. Aftab, unaware of the newspaper
advertisement, traced the horse. Subsequently, on knowing about the reward Aftab claimed it
from Bader.

Under the provisions of the Contract Act, 1872 identify the type of offer which was made by
Bader. Also, state whether Aftab would be able to claim the amount of reward under the
circumstances.

Answer
Offer and acceptance:

It is the case of a general offer as it was made to the public. A contract is made with the person
who having the knowledge of the offer comes forward and acts according to the conditions of the
offer.

However, under the given circumstances, Aftab cannot claim the amount of reward from Bader as
there was lack of communication of the offer and Aftab did not know about the reward when he
found the missing horse. Aftab could have accepted the offer only when he knew about it
because an offer accepted without its knowledge does not confer any legal rights on the acceptor.

September 2017: Q 3
(b) Under the provisions of the Contract Act, 1872:

(i) list the essentials of a valid acceptance. (04)

September 2020: Q 4 (a)

Under the provisions of the Contract Act, 1872 list the essentials of a valid acceptance. (04)

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Answer
Under the Contract Act, 1872 essentials of a valid acceptance are as follows:

● acceptance must be absolute and unqualified;

● it must be communicated either in writing or by word of mouth or by performance of some act;
● acceptance must be in the prescribed mode/reasonable mode;
● the acceptance must be given within the time specified or within a reasonable time when no
time is specified;
● mere silence is not acceptance. It cannot be in the form of a negative confirmation. The
acceptor should expressly accept the offer;
● acceptance must be given only by that person to whom the offer has been made;
● the acceptor must be aware of the proposal at the time of acceptance of the proposal;
● the acceptance must be given before the offer lapses or is withdrawn.

September 2018: Q 4
(b) On 3 September 2018 Saleem offered, by a letter, to sell his laptop to Ghazi for Rs. 50,000.
Ghazi received the letter on 5 September 2018. On 6 September 2018 Ghazi posted the letter of
acceptance to Saleem. The letter reached Saleem on 8 September 2018. Saleem wrote a letter
of revocation of his offer and posted it to Ghazi on 5 September 2018. The letter reached Ghazi
on 7 September 2018.

Required:

Under the provisions of the Contract Act, 1872 briefly describe:

(i) When the communication of the offer and acceptance and the revocation of the offer was
completed as against Saleem and Ghazi under the above circumstances. (2.5)

(ii) Whether a binding contract was created between Saleem and Ghazi (2.5)

Answer
(b) Communication of offer, acceptance and revocation

(i) Communication of offer was completed on 5 September 2018 i.e. when it came to the
knowledge of Ghazi.

Communication of acceptance was completed as against Saleem when the letter was posted i.e.
on 6 September 2018 and as against Ghazi it was completed when the letter of acceptance
reached Saleem i.e. on 8 September 2018.

The communication of revocation of offer was completed as against Saleem on 5 September

2018 i.e. when the letter of revocation was posted, and as against Ghazi on 7 September 2018,
when the letter of revocation was received by him.

(ii) Since Ghazi had posted his letter of acceptance on 6 September 2018 and revocation of offer
was communicated to him on 7 September 2018, his acceptance was valid Saleem cannot
revoke his offer after 6 September 2018, when the communication of acceptance was completed
as against him. Therefore, a binding contract had been created between Saleem and Ghazi.

March 2019: Q 1
(b) Respond to the following scenarios, under the provisions of Contract Act, 1872:

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(ii) Ahmed being interested in purchasing Adil’s DHA property sent him this letter on 01 March
2019, “I have heard that you are selling your DHA property. I am very much interested in
purchasing it. Will you please consider selling the same to me? What is the highest price you
have been offered so far?” Adil replied, “The highest quote for the property till now is Rs. 35
million.” Ahmed replied, “I agree to buy your DHA property for Rs. 36 million.” Subsequently, Adil
received an offer from Hamid quoting Rs. 38 million for the said property. What will be Adil’s
liability towards Ahmed if he wishes to make the sale to Hamid?
(02)

Answer
(ii) The first letter from Ahmed and Adil’s response on it were merely ‘asking for information’ and
‘providing information’ respectively and not offer and acceptance.

The second letter from Ahmed sent as a reply to Adil was itself an offer and not the acceptance of
an offer. Since this offer had not been accepted by Adil, there is no binding contract between the
parties. Accordingly, there is no liability if Adil sells his bungalow to Hamid.

March 2020: Q 3

(c) Batool offered to sell her flat to Saqib for Rs. 4,200,000. Saqib accepted the offer and sent a
cheque of Rs. 1,500,000 with a stipulation to pay the balance in 24 equal monthly instalments of
Rs. 112,500 each. Explain whether it is a valid contract. (03)

Answer
(c) Acceptance must be absolute:

An acceptance should be unconditional assent by the offeree to all the terms of the offer. In this
case, since the offer has been accepted with a variation it would be regarded as a qualified
(conditional) acceptance. Therefore, a contract between Batool and Saqib has not been formed.
However, if Batool accepts the counter offer made by Saqib then it would be a binding contract.

September 2022: Q10

(a) Under the provisions of the Contract Act, 1872:

(i) identify how and on what grounds a proposal stands revoked. Also describe the time frame
after which a proposal cannot be revoked.

Answer

A proposal is revoked by:

 the communication of notice of revocation by the proposer to the other party;

 the lapse of the time prescribed in such proposal for its acceptance, or if no time is so
prescribed, by the lapse of a reasonable time, without communication of the acceptance;

 the failure of the acceptor to fulfil a condition precedent to acceptance; or

 the death or insanity of the proposer, if the fact of the death or insanity comes to the
knowledge of the acceptor before acceptance;
 non-acceptance or rejection by offeree;
 a counter offer made by the offeree in response to the original offer.
Time frame after which a proposal cannot be revoked:

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A proposal cannot be revoked after the communication of its acceptance is complete as
against the proposer i.e. when the acceptance is put in a course of transmission to the
proposer so as to be out of the power of the acceptor.

September 2023: Q.5

(b) Lime Cement (LC) operates as a medium-scale cement manufacturer and distributor. LC
received an offer to export 50,000 bags of cement to Europe. According to the offer
document, LC is required to send two sample cement bags to the customer.

LC’s production team is carrying out a detailed feasibility check while its head of sales is
aggressively pushing for the offer acceptance to be sent immediately.

Under the Contract Act, 1872, identify the possible situations in which the offer would be
revoked.

Answer
(b) The offer can be revoked before its acceptance is completed with respect to the customer
under the following circumstances:
(i) The customer communicates a notice of revocation to LC or LC itself rejects the
customer’s offer.
(ii) The time period specified for accepting the offer has elapsed, or, if no time period is
specified, a reasonable amount of time has passed without LC communicating
acceptance.
(iii) LC fails to fulfill a condition precedent to acceptance, such as sending two sample
bags as required by the customer.
(iv) The customer dies or becomes insane (if the customer is a natural person),
provided that LC becomes aware of the death or insanity before acceptance.
(v) LC sends a counter offer to the customer.

March 2024: Q8 (a)

Rectangle Pharmaceuticals (RP) offered to sell 1,000 cartons of a life-saving drug at a discounted
price to Cube Medicos (CM) and requested a confirmed purchase order by 7 March 2024. RP
received CM’s response letter on 5 March 2024 confirming an order for 500 cartons at the offered
price, mentioning that the purchase order would be dispatched within a week. The letter was
accompanied with a cheque for advance payment.

Under the provisions of the Contract Act, 1872, evaluate CM’s response to RP’s offer.

Answer

CM’s response contain the following deficiencies:

 CM’s acceptance is not absolute: CM has actually extended a counter offer proposing to
purchase 500 cartons at the discounted offer price to which RP’s acceptance would be
required in order for a contract to be formed.
 Acceptance is not given in prescribed mode: CM has not sent confirmed purchase order
rather has mentioned that it would be sent after prescribed time. RP may, within a reasonable
time, insist that the offer should be accepted in prescribed manner but if RP fails to make
such demand, then it would be implied that CM’s mode of acceptance has been accepted by
it.

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Moreover, CM has sent an advance cheque, therefore, RP’s act/response would be critical in
determining the status of the deal. Acceptance of the advance cheque as consideration would
imply RP’s acceptance of CM’s counter offer.

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CHAPTER NO. 3
VALIDITY OF CONTRACTS AND AGREEMENTS

September 2016: Q 3
(b) Mrs. Ikram was searching for a house for her family in city's posh locality. Her grandfather
Nadeem had promised to pay her Rs. 1.0 million by way of a gift for the purchase of the house.
After finalizing the deal with one of the estate brokers, Mrs. Ikram asked Nadeem to pay her Rs.
1.0 million as promised. Nadeem, however, refused to pay the amount. Mrs. Ikram filed a suit
against her grandfather Nadeem for the enforcement of the promise made by him.
Under the provisions of the Contract Act, 1872 advise under what circumstances Mrs. Ikram
would be able to recover the amount from Nadeem.
Answer
(b) Completed gift/love and affection:
An agreement made without consideration is void. However, Mrs. Ikram may claim the amount of
Rs. 1.0 million from her grandfather Nadeem, by proving either of the following two conditions.
i. Gift
ii. love and affection
Completed gift:
In case of a gift, it needs to be completed. The rule 'No consideration no contract' does not apply
to completed gifts.
Love and affection:
An agreement made on account of natural love and affection without consideration will be valid if
it is:
● expressed in writing,
● registered under the law,
● made on account of natural love and affection, and
● between parties standing in a near relation to each other.
However, in the given scenario, Nadeem only made a promise to pay Rs. 1.0 million by way of a
gift and did not actually pay the amount. Similarly, the promise was not made in writing and was
not registered, therefore, the promise cannot be enforced in both of the above circumstances and
Mrs. Ikram cannot recover anything from her grandfather Nadeem.
a.

March 2017: Q 2
(a) Under the provisions of the 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.'
Describe the circumstances in which a person may not be able to enter into a contract, despite
meeting the above conditions. (04)
Answer
(a) Disqualified persons:
Following persons are disqualified from entering into the contract though they are major and of
sound mind:
i. Alien enemies
If a war is declared with the enemy country, then alien enemy of Pakistan can neither enter
into a contract or be sued during the period of war.
ii. Foreign sovereigns and ambassadors
As such persons have immunity. They have a right to enter into a contract but can claim the
privilege of not being sued.

13
iii. Convicts
A convict while under imprisonment is incapable of contracting.
iv. Insolvent
A person declared as insolvent cannot enter into contract as his property is dealt with by
official assignee or official receiver.
v. Companies
A company is an artificial person and a contract entered into by a company is invalid if it is not
within the powers granted by the Memorandum of Association.

September 2019: Q 3
Respond to the following scenarios, under the provisions of the Contract Act, 1872:

(a) Shoaib, aged 15, is the son of a billionaire businessman, Ijaz Munsif. Last month Shoaib
drove his father’s 2018 Model BMW to a vintage car exhibition arranged by Volkswagon Club of
Pakistan. At the exhibition he saw a vintage Mercedes-Benz and entered into a contract with the
seller for the purchase of the car.

The seller, knowing Ijaz Munsif’s status, delivered the car to Shoaib at his house. The seller
requested for payment for the car but Shoaib refused to pay. The seller is now requesting for full
payment by Ijaz Munsif. Discuss whether the seller would succeed in recovering the payment
from Shoaib or Ijaz Munsif.
(05)
Answer
(a) Position of agreement by a minor
Shoaib, being a minor, lacks the capacity to enter into a legally binding contract with the seller.
Therefore, Shoaib is not bound by the contract and the contract is void ab-initio.

A minor can only be bound by a contract, if he has been supplied with necessaries suited to his
condition in life. His liability in such a case would be limited to the extent of his property, if any.

In this case, the vintage car cannot be regarded as a necessary good. Therefore, the seller
cannot enforce payment for the vintage car against Shoaib.

The seller can only claim for the return of his car through an order of restitution.

Similarly, Ijaz Munsif cannot be held liable for the price of the car which his son Shoaib bought.
He would have been held liable if his son had either entered into a contract jointly with him or the
contract was for the supply of necessaries to Shoaib.
March 2020: Q 3
(b) Muneer wanted to complete his bachelor’s degree from Europe. His paternal uncle Furqan
Butt had promised him to pay Rs. 2 million by way of a gift, at the time of his admission to a
college in Europe. After getting admission to one of the renowned colleges in Europe, Muneer
asked Furqan Butt to pay him Rs. 2 million as promised. However, Furqan Butt refused to pay the
amount and Muneer filed a suit against Furqan Butt for the enforcement of his promise. Discuss
the circumstances in which Muneer may be able to recover the amount from Furqan Butt.

Answer
(b) Completed gift/love and affection:
An agreement made without consideration is void. However, Muneer may claim the amount of
Rs. 2.0 million from his parental uncle Furqan Butt, by proving either of the following two
conditions.
i. Gift

14
ii. Love and affection

Completed gift:

In case of a gift, it needs to be completed. The rule 'No consideration no contract' does not apply
to completed gifts.

Love and affection:

An agreement made on account of natural love and affection without consideration will be valid if
it is:

● expressed in writing,
● registered under the law,
● made on account of natural love and affection, and
● between parties standing in a near relation to each other.

However, in the given scenario, Furqan Butt only made a promise to pay Rs. 2.0 million by way of
a gift and did not actually pay the amount. Similarly, the promise was not made in writing and was
not registered, therefore, the promise cannot be enforced in both of the above circumstances and
Muneer cannot recover anything from his parental uncle Furqan Butt.

March 2022: Q10

(b) Under the provisions of the Contract Act, 1872 explain the circumstances in which an
agreement without consideration is considered to be a valid contract.
(05)

Answer

(b) An agreement without consideration is considered to be a valid contract:

(i) if it is expressed in writing and registered under the law for the time being in force for the
registration of documents, and is made on account of natural love and affection between
parties standing in a near relation to each other; or
(ii) if it is a promise to compensate, wholly or in part, a person who has already voluntarily
done something for the promisor, or something which the promisor was legally compellable
to do; or
(iii) if it is a promise, made in writing and signed by the person to be charged therewith, or by
his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of
which the creditor might have enforced payment but for the law for the limitation of suits; or
(iv) if it is a gift already made by the donor to the done.

September 2022: Q5

(a) Rahim Khan is a software engineer who runs his own IT firm. He engages many free lancers
as and when required to work on different projects. He also works part-time in a computer training
institute where he teaches various computer courses. Consider the following matters under the
Contract Act, 1872:

i. While teaching at the institute, Rahim met a course participant Usama with specialized
graphic designing skills. He collaborated with Usama and submitted a website designing
proposal to a prospective client, Farah. She liked the proposal and offered Rahim and
Usama to design her boutique’s website for Rs. 500,000 to which they both agreed. Rahim
and Usama lied to Farah that Usama is eighteen years old even though his eighteenth

15
 birthday was still few months away. Discuss whether Farah can enforce performance
against Rahim and Usama.
(04)

Answer
Usama was not competent to contract as he was below the age of majority i.e. eighteen years
and an agreement with minor is void ab-initio. As Usama was not competent to contract, he will
not be liable towards Farah irrespective of the fact that he fraudulently induced Farah to enter into
an agreement with him. Therefore, Farah cannot demand performance from Usama. However,
since he entered into agreement jointly with Rahim, Farah can demand performance from Rahim.
Furthermore, if it was intention of parties that contract should be performed by promisors who
submitted proposal, such promise must be performed by Rahim. Otherwise, Rahim may employ
another competent graphic designer to perform the contract.

September 2023: Q5
(a) Under the Contract Act, 1872, identify the following:

(ii) Circumstances in which an agreement without consideration is considered to be a valid

contract.

Answer
(ii) An agreement without consideration is considered to be a valid contract, if it is:
(i) expressed in writing and registered under the law for the time being in force for the
registration of documents, and is made on account of natural love and affection
between parties standing in a near relation to each other; or
(ii) a promise to compensate, wholly or in part, a person who has already voluntarily
done something for the promisor, or something which the promisor was legally
compellable to do; or
(iii) a promise, made in writing and signed by the person to be charged therewith, or by
his agent generally or specially authorized on that behalf, to pay wholly or in part a
debt of which the creditor might have enforced payment but for the law for the
limitation of suits; or
(iv) a gift already made by the donor to the donee.

March 2024: Q6 (c)

NB’s warehouse, located in a remote area, reported a significant shortfall in inventory. Upon
further inquiry, it was revealed that Moiz, the warehouse manager, was involved in the theft of
inventory. Subsequently, Moiz agreed to pay the price of stolen inventory when Haroon promised
to withdraw the suit filed against him. Advise whether Moiz can hold Haroon liable if he pays the
agreed price but the suit filed against him is not withdrawn.

Answer
The agreement between Moiz and Haroon is void because the object is unlawful as the Court
may regard such an agreement being opposed to public policy. Therefore, Moiz cannot hold
Haroon liable if the suit filed against him is not withdrawn regardless of the fact that he pays the
agreed amount as consideration.

16
CHAPTER NO. 4
FREE CONSENT AND VOID AGREEMENTS

September 2014: Q 3

(a) Two wrestlers Goga and Sheeda agreed to play a wrestling match on the condition that if any
of them would fail to appear for the match, he would have to pay Rs. 5,000 to the other party. The
winner was to receive Rs. 20,000 out of the sale proceeds of the tickets. Goga failed to appear in
the match and Sheeda sued him for Rs. 5,000. Goga however, refused to pay claiming that being
wagering in nature, the contract is not enforceable by law.

Under the provisions of the Contract Act, 1872 describe whether Sheeda can recover the amount
from Goga. (03)

Answer
(a) Wagering Agreements:

All agreements knowingly made to further or assist the entering into, effecting or carrying out, or
to secure or guarantee the performance, of any agreement void being in nature of wager, are
void.

But in this case, Goga and Sheeda were not going to win or lose in terms of money as a result of
wrestling match (i.e. uncertain event). The winning amount had not to be given out of their
pockets, but had to be paid from the gate money which was provided by the public. As for the
condition of payment for non-appearance, no uncertain event provided the equal chances of
winning or losing.

Therefore, Sheeda is entitled to recover the amount from Goga as the agreement between Goga
and Sheeda is not a wagering agreement and therefore, it is enforceable at law.

September 2014: Q 2
Under the provisions of the Contract Act, 1872 describe the following:

(a) Undue influence (06)

(b) Fraud (06)

Answer
(a) Undue Influence:

i. A contract is said to be induced by "undue influence" where the relation subsisting between
the parties is such that one of the parties is in a position to dominate the will of the other
and uses that position to obtain unfair advantage over the other.

ii. In particular, and without prejudice to the generality of the foregoing principle, a person is
deemed to be in a position to dominate the will of another.

a. Where he holds a real or apparent authority over the other or where he stands in a
fiduciary relation to the other; or

b. Where he makes a contract with a person whose mental capacity is temporarily or

permanently affected by reason of age, illness, or mental distress or bodily distress.

17
(b) Fraud:

"Fraud" means and includes any of the following acts committed by a party to a contract, or with
his connivance, or by his agent with intent to deceive another party thereto or his agent, or to
induce to enter into the contract.

i. The suggestion, as a fact of that which is not true, by one who does not believe it to be
true;

ii. The active concealment of a fact by one having knowledge or belief of the fact;

iii. A promise made without any intention of performing it;

iv. Any other act fitted to deceive;

v. Any such act or omission as the law specially declares to be fraudulent.

Explanation:

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not
fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty
of the person keeping silence to speak, or unless his silence is in itself, equivalent to speech.

March 2016: Q 2
(a) Shafiq bought Abad's motorcycle factory in Faisalabad on Abad's representation that fifty
thousand motorcycles are assembled at his factory annually. Shafiq later found that the factory
has a capacity to manufacture thirty-five thousand motorcycles only per annum. Shafiq now
wants to rescind the contract on the ground that his consent was obtained by misrepresentation.

Under the provisions of the Contract Act, 1872 list the circumstances under which Shafiq may not
be able to rescind the contract. (05)

Answer

(a) Shafiq may not be able to rescind the contract under the following circumstances:

● If Shafiq had the means of discovering the truth with ordinary diligence; or

● Abad's misrepresentation was not the basis for Shafiq's consent; or

● After becoming aware of the misrepresentation Shafiq may have taken benefit under the
contract; or

● If an innocent third party had acquired for consideration and in good faith some interest in the
property; or

● Shafiq and Abad cannot be restored to their original positions.

September 2016: Q 2
(b) Until recently Mansoor and Arif were independently engaged in the business of selling sweets
at Multan railway station. Mansoor incurred a loss due to competition. Arif, in view of his
friendship with Mansoor, agreed to move his business to the old city area. They reached an
agreement that Arif would not engage in any competing business with Mansoor. It was also

18
agreed that in case of a breach, none of them would have recourse to a court of law for the
enforcement of their rights.

Subsequently, due to economic downturn, Arif in addition to the old city area has also started to
sell sweets at Multan railway station. Mansoor, in order to restrain Arif from selling sweets has
filed a suit against him.

Under the provisions of the Contract Act, 1872 analyze the above situation and explain the
following:

i. whether Arif is justified in starting sweets business at Multan railway station. (02)

ii. what would be your answer in (i) above, if Mansoor had bought the goodwill of Arif's
business.
(03)

iii. whether Mansoor is justified in filing a suit in the court of law. (02)

iv. what would be your answer in (iii) above, if both Arif and Mansoor or had agreed to refer
their disputes to arbitration and not to the court of law.
(02)

Answer
Agreement in restraint of trade:

Yes, Arif is justified in starting a sweets business at Multan railway station. As any agreement by
which anyone is restricted from exercising a lawful profession, trade or business of any kind, is
void to that extent.

Exception:

Arif in this case would not be justified to start similar business at Multan railway station. An
agreement which restrains the seller of a goodwill from carrying on a business is valid if all the
following conditions are fulfilled:

 Such restriction must relate to a similar business.

● Such restriction must be within specified local limits.

● Such restriction must be for the time so long as the buyer or any person deriving title to the
goodwill from him carries on a like business in the specified local limits.

● Such specified local limits must be reasonable to the Court having regard to the nature of the
business.

Agreement in restraint of legal proceedings:

Yes, Mansoor is justified in filing a suit against Arif. Every agreement, by which any party is
restricted absolutely from enforcing his rights under or in respect of any contract, by the usual
legal proceedings in the ordinary tribunals, is void to that extent.

Exception:

An agreement between Arif and Mansoor to refer to arbitration any dispute which may arise
between them is not void. However, if Mansoor or Arif are not satisfied with the arbitration award,
they cannot be restricted to go to the court of law. This right cannot be excluded by the
agreement.

19
March 2017: Q2
(b) Jamal threatened Rafia to murder her son Atif if she did not sell her house to Mujahid. Rafia
did as she was told.

Under the provisions of the Contract Act, 1872 comment on the validity of the above contract.
(02)

Answer
(b) Coercion:
The contract in the above situation is voidable at the option of Rafia as her consent is not free
and has been obtained by coercion
.
September 2017: Q 3
(a) Ghaffar purchased a piece of land from Sharif who is an engineer by profession. During the
discussion prior to the purchase, Sharif had told Ghaffar that in his opinion, the land would be
able to support 2,500 mango trees. However, only 2300 trees could eventually be planted on the
land.
Under the provisions of the Contract Act, 1872 discuss whether Ghaffar can claim damages on
the grounds of fraud. (03)

Answer
(a) Fraud:
Sharif's statement that in his opinion the land could support 2,500 mango trees clearly indicated
that he was not sure about it and was just giving an opinion. Therefore, unless Ghaffar can show
that the statement was made with the intention to deceive him, he cannot claim damages on the
grounds of fraud.

September 2018: Q4

(c) On 1 July 2018 Basit agreed to buy 500 grams of silver from Taimur after two months at a
price of Rs. 65 per gram. On the due date the price of silver was Rs. 62 per gram.
Under the provisions of the Contract Act, 1872 discuss the validity of the above contract if both
Basit and Taimur had an intention to settle the transaction by paying the difference between the
contract price and the market price without making any delivery. (02)

Answer
(c) Wagering agreement
The contract being wagering in nature, is not a valid contract. As both Basit and Taimur had no
intention of giving or taking delivery of goods (subject matter) and were only interested in earning
profit by way of fluctuation in silver prices.

September 2018: Q2
(a) Mughal and Dawood are trading in rice. Dawood entered into a contract with Mughal for the
purchase of 50 tons of rice. Dawood had private information of change in prices which would
have affected Mughal’s willingness to enter into the contract. When Mughal, through his own
resources, came to know about the prices, he accused Dawood of fraud and repudiated the
contract. Under the provisions of the Contract Act, 1872 explain whether Mughal is justified in
repudiating the contract.

20
Answer

(a) Fraud:
No, Mughal is not justified in repudiating the contract. Dawood is not bound to disclose the
information to Mughal as the relationship existing between them is not that of ‘utmost good faith’
(i.e. fiduciary relationship). Mere silence as to facts likely to affect the willingness of a person to
enter into a contract is not fraud, unless there is a duty to disclose such fact or where silence is
equivalent to speech.

September 2019: Q 3
Respond to the following scenarios, under the provisions of the Contract Act, 1872:

(b) Haroon was engaged to be married to Ghazala. Haroon wanted to establish his own business
and therefore he entered into a contract with Ghazala for providing him all her jewelry and
apartment by way of a gift and in return Haroon agreed to give her a small share in business
profit. After some time, Ghazala filed a suit against Haroon, requesting for setting aside the gift
deed as it was not made with her free will. Discuss whether Ghazala would succeed in her
contention. (04)

(c) Sultan bought electronic appliances worth Rs. 700,000 from Zameer on thirty days’ credit. At
the time of purchase, Sultan knew that he was in insolvent circumstances. Discuss the validity of
the contract. (03)

Answer
(b) Undue influence

Ghazala may succeed to recover her jewelry and apartment from Haroon on the presumption of
undue influence.

A contract is said to be induced by undue influence where the relation subsisting between the
parties is such that one of the parties is in a position to dominate the will of the other and uses
that position to obtain unfair advantage over the other.

Haroon in this case is a fiancé of Ghazala and is in a position to dominate her will.

When the consent to an agreement is caused by undue influence, the agreement is voidable at
the option of the party whose consent is so caused. Therefore, the contract is voidable at the
option of Ghazala.

The Court may set aside the contract either absolutely or, in case if Ghazala has received any
benefit under the contract, upon such terms and conditions as the Court may seem just.

The burden of prove that the above contract, which on the face of it appears to be
unconscionable, was not induced by undue influence lies on Haroon, as he is the one who is in a
position to dominate Ghazala’s will.

(c) Fraud - empty promise

A promise made without any intention of performing it tantamount to fraud. Therefore, in this case
since sultan had no intention of performing the contract, he committed a fraud and the contract
voidable at the option of Zameer.

March 2020: Q 2

21
(b) Naeem was a treasury manager in Raheel Associates (RA). Naeem robbed Rs.
100,000 cash from the business. Raheel, the owner of the business, instituted legal proceedings
against Naeem. Naeem agreed to return the cash and Raheel agreed to withdraw the
proceedings against him. Naeem fulfilled his part of the promise

Under the provisions of the Contract Act, 1872 explain whether Raheel is bound to withdraw the
proceedings against Naeem. (02)

Answer
(b) The agreement between Naeem and Raheel is void as its object is unlawful. Raheel,
therefore, is not bound to fulfil his part of the promise.

September 2020: Q 3
(a) Under the provisions of the Contract Act, 1872 list any three circumstances in which a party
whose consent was obtained by misrepresentation cannot rescind the contract. (03)

Answer
Exceptions to rescind the contract under misrepresentation:

A party cannot rescind the contract where:

1. the party whose consent was caused by misrepresentation had the means of discovering the
truth with ordinary diligence.
2. the party gave the consent in ignorance of misrepresentation.
3. the party after becoming aware of the misrepresentation takes a benefit under the contract.

March 2021: Q 4
(a) On 4 March 2021, Aliya agreed to sell her ancestral jewels to Salma at a discounted price.
However, on the next day when Salma came to take the delivery, Aliya’s brother being custodian
of the jewels refused to honor the delivery on the premise that Aliya was admitted to the mental
hospital and, therefore, her earlier agreement to sell the jewels was not valid.

Under the provisions of the Contract Act, 1872 discuss whether Aliya’s brother is justified in
refusing to deliver the jewels to Salma.

(b) Salman agreed to supply cotton yarn to Rehan for the entire year, whenever requisitioned, at
prevailing wholesale prices. The contract also stipulated that in case of dispute, Salman and
Rehan would not seek settlement through the Court.

Under the provisions of the Contract Act, 1872 discuss the validity of the contract and determine
any remedy available to Rehan, in case of dispute with Salman.

Answer

(a) Aliya’s brother is justified in refusing the delivery to Salma, if at the time of making the
agreement, Aliya was:

 not capable of understanding it; and

 not capable of forming a rational judgment as to its effect upon her interests.

If Aliya is usually of unsound mind but occasionally of sound mind then she may enter into a
contract when she is of sound mind. However, if she was of unsound mind, then the agreement
would be void.

22
(b) The contract between Salman and Rehan is partly valid to the extent of supply of cotton yarn
and partly void where it restricts them absolutely from enforcing their rights by legal proceeding.

Under the Contract Act, 1872 the remedy available to Rehan is that he may approach the Court if
there is any dispute with Salman.

March 2022: Q6

(b) Under the provisions of the Contract Act, 1872 explain the circumstances in which a person
may be restricted from carrying on a business.

Answer
A person may be restricted from carrying on a business if the:

▪ person being restricted is seller of a goodwill;

▪ restriction relates to similar business;
▪ restriction is within specified local limits;
▪ restriction is for the time so long as the buyer or any person deriving title to goodwill from him,
carries on a like business in specified local limits. Provided that such limits are reasonable having
regard to the nature of the business.

March 2022: Q5
Bromine Traders (BT) is engaged in the business of import, purchase and supply of electronic
items. During the year, BT entered into the following contracts for supply of various products:

(iv) In one of BT’s showrooms, a famous actor came to return an air conditioner purchased one
month ago. He demanded for the replacement of his air conditioner with the latest model. The
actor got upset when the showroom manager refused to replace the air conditioner with the latest
model and threatened to damage the products displayed in the showroom. Considering the
situation, the manager agreed to deliver the latest model of air conditioner to actor’s house.
Discuss the status of the contract between BT and the customer.

(v) Hafnium Limited (HL), a new customer, approached BT for the purchase of 5 television sets.
BT agreed to supply the television sets on 6 March 2022 at a discount of either 10% or 15% on
retail price to be finalized at the time of delivery. Upon delivery, HL demanded a discount of 15%
on retail price which BT refused to provide. Discuss whether HL can hold BT liable for breach of
contract.

Answer

(iv) Contract between BT and the customer was established under coercion as the customer
threatened to damage BT’s property. Here, manager’s consent to deliver the latest model
of air conditioner in replacement of earlier model was not obtained freely due to which the
contract is voidable at the option of BT.

(v) HL cannot hold BT liable for breach of contract because the agreement entered into
between them was void for uncertainty as the price of the television sets is not capable of
being made certain.

September 2022: Q4

(a) Under the provisions of the Contract Act, 1872:

23
(a) identify any five differences between coercion and undue influence.
(b) identify any two differences between fraud and misrepresentation.

Answer

S. No. Coercion Undue influence

(1) Consent is obtained by giving a threat of an Consent is obtained by dominating

offence or committing an offence. the will.

(2) Coercion involves physical pressure Undue influence involves moral

pressure.

(3) Parties to a contract may or may not be Parties to a contract are related to
related to each other. each other under some sort of
relationship.

(4) The objective is to compel a person to enter The objective is to obtain an unfair
into a contract. advantage.

(5) Criminal liability is incurred; therefore, it is Criminal liability is not incurred.

illegal.

(b)
S. No. Fraud Misrepresentation

(1) Fraud implies an intention or any other act Representation is innocent without
fitted to deceive intent to deceive.

(2) Fraud is civil wrong and aggrieved party can Aggrieved party can only avoid the
claim damages in addition to cancellation of contract but damages are only
contract. payable at discretion of the Court.

September 2022: Q5

(b) On 10 September 2022, a virtual gaming tournament has been scheduled in which a gaming
expert team will participate from Pakistan. Rahim provided training to Pakistani team.
Considering the team’s skills, he proudly claimed to his friend Nadir that his team will win the
tournament. Nadir offered that if Rahim submits Rs. 100,000 to him as a security and his
team wins the tournament then Nadir will pay Rs. 200,000 to Rahim. Rahim agreed and paid
Rs. 100,000 to Nadir. Discuss whether Rahim can sue Nadir if the team wins the tournament
but Nadir refuses to pay. (03)

Answer

Rahim has entered into an agreement with Nadir by way of wager as he has made a bet such
that Rs. 200,000 shall be paid to him on the happening of an uncertain event i.e. a particular team
winning the tournament. This agreement is void and no suit can be filed to recover any sum paid
or payable in this regard.

24
Hence, Rahim cannot file suit for recovering money already paid i.e. Rs. 100,000 or for
recovering win money of another Rs. 100,000 even if the team wins the tournament as predicted
by him

March 2023: Q.6

(b) Under the provisions of the Contract Act, 1872:

(c) Discuss the enforceability of an agreement when consent is caused by mistake.

Answer

The enforceability of an agreement when consent is caused by any of the following types of
mistakes is as follows:

 Bilateral mistake Where both the parties to an agreement are under a mistake as to a matter
of fact essential to the agreement, or are under a mistake as to a law not in force in
Pakistan, the agreement is void. However, an erroneous opinion as to the value of the thing
which forms the subject matter of the agreement is not deemed to be a mistake as to a
matter of fact.
 Unilateral mistake A contract remains valid if it was caused by one of the parties to it being
under a mistake as to a matter of fact or under a mistake as to a law not in force in Pakistan.
 Mistake as to any law in force in Pakistan (Local Law) A contract is not voidable because it
was caused by a mistake as to any law in force in Pakistan. In case of such mistake, the
contract will be valid.
September 2023: Q 4
(c) Fatima, a doctor by profession, purchased a five-storey building for Rs. 50 million, owned and
constructed by Hammad. At the time of purchase, Fatima asked Hammad to inform her of
any structural issues with the building that might require repair. Hammad did not respond to
the question, allowing Fatima to believe that the building is in good condition.

Fatima opened her hospital in the building. Shortly thereafter, she came to know about
numerous structural issues in the building. An independent contractor has provided an
estimate of Rs. 5 million to fix these issues.

Under the Contract Act, 1872, discuss the remedies available to Fatima.

Answer
Fatima has the option to pursue legal action against Hammad on the grounds of fraud for the
following reasons:

 In the specific circumstances of this case, Hammad’s silence tantamount to an affirmative

statement. This effectively assured Fatima of the building’s structural soundness, even
though Hammad concealed material facts.
 Under ordinary due diligence, it was not possible for Fatima to ascertain the structural
integrity of the building on her own.

Since Fatima’s consent for the building purchase was obtained through fraud, it cannot be
considered freely given. Consequently, the sale is voidable at the option of Fatima. However, she
retains the right to consider the sale valid, on the condition that she is placed in the position she
would have occupied had the building been as represented. This could mean Hammad
compensating her for the repair costs, which amount to Rs. 5 million.

March 2024: Q10 (a)

25
Under the provisions of the Contract Act, 1872: (a) identify the agreements that are expressly
declared to be void.

Answer
An agreement not enforceable by law is said to be a void agreement. Following agreements have
been expressly declared as void agreements:

(i) Agreement in restraint of marriage of any person, other than a minor.

(ii) Agreement that restrains someone from exercising a lawful profession, trade or business
except selling a business’s goodwill, where the seller agrees to refrain from carrying on a similar
business, within the specified local limits.

(iii) Agreement, by which any party is restricted absolutely from enforcing contractual rights, by
the usual legal proceedings in ordinary courts, or limits the time within for enforcing these rights,
except where parties agree not to appeal in an upper court or select one court of law over another
when both have equal jurisdiction.

(iv) Agreements, meaning of which is not certain, or capable of being made certain.

(v) Wagering agreements; no suit shall be brought for recovering anything alleged to be won on
any wager, or entrusted to any person to abide the result of any game or other uncertain event on
which any wager is made.

(vi) Agreements knowingly made to promote or assist the conclusion, execution or performance
of, or to secure or guarantee the performance of, any wagering agreement that is void.

March 2024: Q9
Rashid, a renowned barista, held a coffee extraction demonstration session at his café. He
showcased a particular model of coffee machine, mentioning it as the most common model used
by various coffee shops in Italy. Impressed by the demonstration, Aisha purchased the machine
for Rs. 200,000. Rashid congratulated Aisha and stated that the machine would brew 5,000
coffee cups before needing maintenance.

Within a month of purchase, Aisha noticed a significant decline in the machine’s performance
after just 500 coffee cups. Upon consulting a service center, she was informed that the machine
required maintenance at an exorbitant service charge of Rs. 100,000. Aisha was deeply
disappointed by this unexpected expense believing that Rashid had misguided her.

Under the provisions of the Contract Act, 1872, discuss Rashid’s position and the remedies
available to Aisha, if any.

Answer
Rashid’s position

Rashid’s statement regarding the number of cups that could be brewed did not cause Aisha’s
consent in the first place since the statement was made after the machine was already
purchased, therefore, the contract is valid and cannot be rendered voidable at Aisha’s option.

Remedies available to Aisha

Aisha has no remedies available against Rashid because he cannot be held liable towards her
unless she can prove that any of statements made by Rashid, based on which she decided to
give her consent to purchase the coffee machine, were made with fraudulent intent or
misrepresentation.

26
CHAPTER NO. 5
CONTINGENT CONTRACTS
March 2017: Q2
(c) Vazir said to Saulat, "I will buy speed boats worth Rs. 10,000,000 from you, if you obtain the
license for me to operate the boats at Clifton beach". Saulat agreed and applied for the license
and deposited Rs. 100,000 as processing fee. However, before the issuance of license, the city
government-imposed ban on the issuance of new licenses. Saulat wants Vazir to buy the speed
boats as he had made necessary efforts to arrange for the license. However, Vazir refuses to buy
the speed boats from Saulat.

Under the Contract Act, 1872 identify the type of contract between Vazir and Saulat. Also, state
whether Vazir is now bound to purchase the speed boats from Saulat.

Answer
(c) Contingent Contract:

The contract between Vazir and Saulat is a contingent contract whose performance is based on
the happening of certain event collateral to the contract, i.e. arranging of license for Vazir. If such
event has not happened the performance of the contract does not become due. It does not matter
at all that Saulat had applied for the license and also paid processing fee of Rs. 100,000 to the
authorities. Thus, Vazir is not bound to purchase the boats from Saulat.

September 2018: Q 2

(c) Zubair agrees to construct a bungalow for Ubaid for Rs. 20 million on the condition that
payment will only be made after Muneer, an architect, certifies that the bungalow has been
constructed in accordance with the layout plan.

Under the provisions of the Contract Act, 1872 describe the nature and validity of the above
contract.

Answer
(c) Contingent contract:

It is a contingent contract as the condition i.e. certification of the construction in accordance with
the layout plan by a third party is collateral to the contract. Although it is a valid contract, the
performance can only be enforced by Zubair after happening of the collateral event. i.e.
certification by Muneer.

March 2022 : Q 6

(a) Under the provisions of the Contract Act, 1872 describe contingent contracts and identify the
circumstances in which a contingent contract cannot be enforced.

Answer

(a) Contingent contract may be described as a contract to do or not to do something, if some

event, collateral to such contract, does or does not happen.

In following circumstances, a contingent contract cannot be enforced:

27
 (i) Contingent contracts to do or not to do anything if an uncertain future event happens
cannot be enforced by law if the event does not happen or contract becomes void due to
the event becoming impossible.

(ii) Contingent contracts to do or not to do anything if a specified uncertain event happens

within a fixed time cannot be enforced if such event does not happen within fixed time or
becomes impossible before time expires.

(iii) Contingent contracts to do or not to do anything if an uncertain future event does not
happen cannot be enforced if the event happens.

(iv) Contingent contracts to do or not to do anything if a specified uncertain event does not
happen within a fixed time cannot be enforced by law when the event happens within the
fixed time.

(v) If the future event on which a contract is contingent is the way in which a person will act
at an unspecified time, then such contract cannot be enforced when such person does
anything which renders it impossible that he should so act within definite time or
otherwise than under further contingencies.

September 2023: Q 9

(b) Under the Contract Act, 1872, identify the following:

(i) Any four differences between ‘contingent contract’ and ‘wagering agreement’.

Answer

Contingent Contracts Wagering Agreements

1. Contingent contracts are valid contracts. Wagering agreements are void and illegal
contracts.

2. In a contingent contract, parties have a real Parties are not interested in the occurrence
interest in the occurrence or non- or non-occurrence of the event, except for
occurrence of the event (e.g. insurable the winning or losing the amount.
interest in the property insured).

3. The future uncertain event is merely The uncertain event is the sole determining
collateral. factor of the agreement.

4. Contingent contracts consist of reciprocal Wagering agreements may or may not

promises. consist of reciprocal promises.

5. Suit can be filed and damages can be Suit cannot be filed and damages cannot be
claimed in case of breach of contingent claimed in case of breach of wagering
contract. agreements.

March 2024: Q5 (a)

Pentagon Dealers (PD) is a partnership firm engaged in the purchase and sale of automobiles.
Saad, Mona and Zain, partners in PD, share profit in equal proportion.

28
Following are some of the matters related to PD and its partners:

(a) A car racing championship is planned to be held in Karachi on 31 March 2024. On 1 January
2024, PD entered into marketing collaboration with a car racer, Sphere Ryders (SR), for Rs. 2
million. Under the collaboration, PD also promised to deliver a brand-new sports car to SR if it
wins the finale of the championship. However, on 1 March 2024, Zain cancelled the sports car
incentive on PD’s behalf when the car prices increased exponentially. Under the provisions of
the Contract Act, 1872, evaluate PD’s position and discuss the remedies available to SR, if
any. (04)

Answer
PD’s position
The marketing collaboration between PD and SR constitutes a contract that contains therein a
term which is dependent on the happening of a future uncertain event i.e., SR winning the finale
of the car racing championship.

Zain’s act of incentive cancellation is not valid as delivery promise would become void only if SR
does not win the finale scheduled on 31 March 2024 or if the act of SR winning the finale
becomes impossible on or before 31 March 2024. Furthermore, it is an absolute fact that the
performance of the promise becoming commercially unviable due to exponential increase in
prices is not an acceptable excuse of supervening impossibility.

Zain’s act of incentive cancellation is an attempt for alteration to the original terms of the contract
which requires SR’s consent. If SR agrees to substitute a new contract, the original contract need
not be performed by PD. Otherwise, PD shall continue to be held liable under the contract.

Remedies available to SR
SR can still hold PD liable for car delivery if SR manages to win the finale. However, SR as
promisee may also dispense with or remit, wholly or in part, the performance of the promise
made, or may accept instead of it any satisfaction which it thinks fit.

If SR wins the finale, it will be eligible to claim compensation from PD for any losses it sustained
due to Zain’s act that naturally arose in the usual course of things from such breach which may
be the car price on 31 March 2024. Furthermore, SR may also seek compensation for special
damages i.e., any loss or damage caused to it, which the parties knew, when contract was made,
to be likely to result from the breach.

March 2024: Q8 (b)

Square Research (SR) is in the process of developing a medical device with radio sensor
technology. In January 2024, SR entered into an agreement with Crescent Pharmaceuticals (CP)
under which CP agreed to purchase 500,000 units of that medical device from SR in June 2024, if
SR obtains regulatory approvals from the Drug Regulatory Authority of Pakistan (DRAP). CP paid
an advance of Rs. 10 million to SR.

In February 2024, SR initiated the approval process with DRAP. However, before the approval
was granted, the Ministry of Health revised its guidelines and banned the use of radio sensor
technology for medical purposes. SR incurred Rs. 12 million for obtaining the approval from
DRAP.

Under the provisions of the Contract Act, 1872, evaluate CP’s position and identify the remedies
available to it, if any.

Answer
As the supply of the medical devices with radio sensor technology is contingent upon SR
obtaining the required regulatory approval from DRAP, the performance of the contract would not

29
become due for either party until the approval is obtained within the specified timeframe i.e., by
June 2024.

The Ministry of Health’s act of revising the guidelines and banning use of radio sensor technology
for medical purposes was unforeseen and beyond SR’s control which has significantly impacted
the feasibility of fulfilling the collateral event to the contingent contract rendering the contract
performance impossible.

Considering the principles of impossibility, it is apparent that with the radio sensor technology
banned, the contract between CP and SR becomes void.

Accordingly, CP is entitled to recover the advance of Rs. 10 million paid to SR, whereas CP
would not be liable towards the cost incurred by SR i.e., Rs. 12 million.

30
CHAPTER NO. 6 & 7
PERFROMANCE OF CONTRACTS – I
PERFORMANCE OF CONTRACTS- II
March 2015: Q2
(b) In accordance with the contract entered into by Masoom and Mubarak, Masoom has offered
to
deliver 300 Rolex watches to Mubarak on 1 March 2015. Under the provisions of the Contract
Act, 1872 advise Masoom about the conditions which must be satisfied for constituting a valid
offer of performance.

Answer
(b) Condition of Valid Offer of performance - Tender

In order to constitute a valid offer, Masoom must fulfill the following conditions:

The offer must be unconditional;

It must be made at a proper time and place, and under such circumstance that Mubarak may
have a reasonable opportunity of ascertaining that Masoom is able and willing there and then to
deliver 300 Rolex watches;

Mubarak (the promisee) must have a reasonable opportunity of satisfying himself that the
watches offered are the Rolex watches and are 300 in numbers which Masoom (the promiser)
was bound by his promise to deliver.

March 2015: Q2
(a) Lalchi Traders agreed to supply cotton yarn to Farzi Textile Limited at a fixed price for one
year.
Three months after the formation of the contract the price of yarn increased sharply, making it
commercially unviable for Lalchi Traders to continue the supply at the agreed price. Therefore,
they terminated the contract on the ground of difficulty/impossibility of performance.

Under the provisions of the Contract Act, 1872 briefly describe:

(i) whether the contract would be discharged under the above circumstances.

(ii) what would be your decision if Lalchi Traders were importing yarn and Government has
imposed a ban on its import.

Answer
(a) (i) Contract to do act afterwards becoming impossible or unlawful:

A contract to do an act which, after the contract is made, becomes impossible, or, by reason of
some event which the promisor could not prevent, becomes void when the act becomes
impossible, or unlawful. However, events that make the contract extremely more difficult, costly or
less beneficial or commercially unviable or non-profitable then that agreed at the time of its
formation, but not impossible, are not accepted as an excuse for non-performance. Therefore, in
the given scenario, Lalchi Traders pleas shall not be acceptable and in the event of non-
performance they will be held liable for the breach of contract and the consequential damages.

(ii) A contract is discharged, if after its formation, a law or regulation is adopted that makes
performance impossible/ illegal. Therefore, due to the imposition of ban on the import of

31
 yarn by the Government, Lalchi Traders would be discharged from their liability to perform
the contract.

September 2015: Q3
(a) What is meant by discharge of a contract? Briefly describe the modes of discharging a
contract by mutual agreement under the provisions of the Contract Act, 1872.

Answer
(a) Discharge of a contract:
A contract is said to be discharged when contractual relations between the patties to a contract
are terminated or come to an end.
Discharge by agreement:
A contract can be discharged by mutual agreement in any of the following ways:
i. Novation:
Novation means the substitution of a new contract for an existing one. This new contract
may be between the same parties with new terms, or between new patties with old or new
terms.
ii. Rescission:
Rescission is the cancellation of a contract by mutual agreement.
iii. Alteration:
Alteration means a variation made in the language or terms of a contract with mutual
agreement. When this occurs, the original contract is discharged and a new contract is
created. The patties in alteration remain same.
iv. Promisee's refusal/neglects:
If any promisee neglects or refuses to afford the promisor reasonable facilities for the
performance of his promise, the promisor is excused by such neglect or refusal as to any
non-performance caused thereby.

March 2017: Q3
Faheem, Saleem and Jameel jointly borrowed Rs. 50 million for a business project from a
common friend Kamal. They jointly promised to repay the borrowed amount. Under the provisions
of the Contract Act, 1872 comment on the following:

(a) In the absence of express agreement, what would be the rights and liabilities of joint
promisors.
Also explain their rights and liabilities if Kamal releases Jameel from the joint liability.

(b) How the liability would devolve in case of death of one or more of the joint promisers.

Answer
(a) Any one of Joint promisors may be compelled to perform in absence of express agreement to
the contrary, Faheem, Saleem and Jameel are jointly liable to fulfil the promise.

However, Kamal, may compel anyone (Faheem/Saleem/Jameel) or more of them to perform

whole of the promise.

Each joint promisor (Faheem/Saleem/Jameel) may compel every other joint promisor to
contribute equally with himself to the performance of the promise.

32
If anyone of joint promisor (Faheem/Saleem/Jameel) or more of them makes default in such
contribution, the remaining joint promisors must bear the loss arising from such default in equal
share.

Effect of release of one joint promisor:

If Kamal releases Jameel, it will not discharge the other joint promisors Faheem and Saleem;
neither would it free Jameel from responsibility to Faheem and Saleem.

(b) Devolution of Joint Liabilities

In case of death of one or more of joint promisers, the liability would devolve as follows:

to representatives of the deceased promisor jointly with the surviving promisor(s) in case of death
of any of the joint promisors; and

to representatives of all of them jointly in case of death of all joint promisors.

September 2017: Q3
(c) Following is the statement of sums payable by Nisar to Mairaj on 4 March 2017:

Date of invoice Rs. Remarks

01/01/2016 200,000 Guaranteed by Imran.
08/06/2016 150,000
Total 350,000

Nisar sent a cheque for Rs. 100,000 on 5 March 2017. As there were no instructions from Nisar,
Mairaj adjusted the payment against the amount of Rs. 150,000. The guarantor (Imran) objected
to such appropriation and claimed that adjustment should be made in the order of the date of
invoices.

Under the provisions of the Contract Act, 1872 discuss whether the objection of Imran is justified.

Answer
(c) Application of payment:

Imran's objection is not valid. In the absence of any intimation from the debtor or circumstances
indicating to which debt payment is to be applied, the creditor is free to use his discretion and
apply it to any lawful debt actually due and payable to him from the debtor.

September 2017: Q 1
(a) Golden Foods (GF) agreed to supply 2,500 cans to Riaz Grocery Stores (RGS). According to
the agreement, the date of delivery was 31 August 2017. However, on the due date GF
refused
to supply the cans.
Under the provisions of the Contract Act, 1872 discuss the rights of RGS in the above situation
assuming that time was the essence of the contract.
(b) What would be your answer to (a) above, if GF supplied the cans on 12 September 2017 and
RGS accepted the performance; but suffered a loss on account of delayed supply?

Answer
Consequences of actual breach when time is essence of contract

33
(a) Contract would be voidable at the option of RGS (promisee). RGS may insist that Golden
Foods
(GF) should deliver the product and to claim compensation on account of the delayed supply.
RGS may decide not to accept performance beyond the stipulated time and claim
compensation
for any damages which it may have sustained due to non-fulfillment of the contract by GF.

(b) Riaz Grocery Stores (RGS) is not entitled to claim compensation for any damages which it
may
have sustained through the non-fulfillment of the contract where performance beyond the
stipulated time is accepted, unless at the time of acceptance RGS gives notice to GF of its
intention to claim damages.

September 2018: Q 2
(b) Under the provisions of the Contract Act, 1872:

(i) List any five circumstances in which the parties to the contract are not absolved from the
performance of their contractual obligations on the ground of supervening impossibility.

Answer
(b) (i) Not an excuse of supervening impossibility

Following is the list of circumstances in which the parties to the contract are not absolved from
the performance of their contractual obligations on the ground of supervening impossibility:

1. Difficulty of performance because of contract is more costly or less beneficial than that
agreed

2. Commercial impossibility because the contract becomes unviable or non-profitable

3. Default of a third party on whose work the promisor is relying

4. Strikes, lockouts and civil disturbances unless parties have specifically agreed for that

5. Partial impossibility of some of the objects of the several contract

March 2019: Q1
a) Briefly explain five rules regarding performance of reciprocal promises under the provisions of
Contract Act, 1872.

Answer
(a) Rules regarding performance of reciprocal promises under the Contract Act, 1872

(i) Simultaneous performance

When a contract consists of reciprocal promises to be simultaneously performed, the promisor

need not perform his promise unless the promisee is ready and willing to perform his reciprocal
promise.

(ii) Order of performance

Where the order in which reciprocal promises are to be performed is expressly fixed by the
contract, they must be performed in that order, and where the order is not expressly fixed by the
contract, they must be performed in that order which the nature of the transaction requires.

34
(iii) Preventing the performance

When a contract contains reciprocal promises, and one party to the contract prevents the other
from performing his promise, the contract becomes voidable at the option of the party so
prevented; and he is entitled to compensation from the other party for any loss which he may
sustain in consequence of the non-performance of the contract.
(iv) Mutual and dependent reciprocal promises

Where the performance of one party depends on the prior performance of the other party and
party who is liable to perform first, fails to perform it, then such party cannot claim the
performance from the other party and must make compensation to the other party for any loss
which the other party may sustain by non-performance of the contract.

(v) Promise to do legal & illegal things

Where persons reciprocally promise, firstly, to do certain things which are legal, and secondly,
under specified circumstances, to do certain other things which are illegal, the first set of
promises is a contract, but the second is a void agreement.

March 2019: Q1
(b) Respond to the following scenarios, under the provisions of Contract Act, 1872:

(i) On 11 February 2019, Isfandyar agreed to sell his house to Javed for Rs. 15 million. On 19
February 2019, Javed came to know that Isfandyar has finalized a deal for the same house
with
Jenny. Discuss the option(s), if any, available to Javed.
Answer
(i) Isfandyar has committed anticipatory breach of contract so Javed has following options:
● He may either treat the contract as rescinded and claim damages from Isfandyar for breach
of contract immediately without waiting until the due date of performance, or
● He may elect not to rescind but to treat the contract as still operative and wait for the time of
performance and then hold Isfandyar responsible for the consequences of non-performance.

March 2020: Q 3
(d) Imran Traders entered into a one-year contract with Minhas Oils Limited for the supply of
gravels for their extraction project in Badin at a fixed price of Rs. 30,000 per dumper. Six months
after the contract, the diesel prices increased sharply, making it non-profitable for Imran Traders
to continue the supply at the agreed price. Therefore, they terminated the contract on the ground
of impossibility of performance. Describe whether the contract is discharged in the above
situation.
(04)
Answer
(d) Contract to do act afterwards becoming impossible or unlawful:

A contract to do an act which, after the contract is made, becomes impossible, or, by reason of
some event which the promisor could not prevent, becomes void when the act becomes
impossible, or unlawful.

However, events that make the contract extremely difficult, costly or less beneficial or
commercially unviable or non-profitable then that agreed at the time of its formation, but not
impossible, are not accepted as an excuse for non-performance.

Therefore, in the given scenario, Imran Traders excuses shall not be acceptable and in the event
of non-performance they will be held liable for the breach of contract and the consequential
damages.

35
September 2020: Q3
(b) Sarya Traders (ST) agreed to supply building materials to Khwaja Contractors (KC) on 10
September 2020 for the construction of a charitable hospital in District Malir. However, on due
date, ST failed to fulfil their obligation.
Under the provisions of the Contract Act, 1872 explain the rights available to KC under the above
situation. Assume time was the essence of the contract.

Answer
Time being essence of the contract, following would be the rights of Khwaja Contractors (KC)
under the circumstances:

I. Contract would be voidable at the option of KC (promisee)

II. KC may insist that Sarya Traders (ST) should deliver building material. However,
inorder to claim compensation on account of the delayed supply, KC shall have to give
notice to ST of their intention to do so at the time of acceptance of performance at any
time other than earlier agreed.
III. KC may decide not to accept performance beyond the stipulated time and rescind the
contract and claim compensation for any damages which it may have sustained due
to non-fulfillment of the contract by ST.

September 2020: Q4
(c) Mohsin and Jaleel jointly borrowed a sum of Rs. 300,000 from Muslim and Munaf jointly. On
due date, Mohsin and Jaleel defaulted in making the payment. Munaf, without Muslim’s
knowledge, filed a suit against Mohsin and Jaleel for the recovery of the amount due.

Under the provisions of the Contract Act, 1872 briefly describe whether Munaf would succeed in
his case.

Answer
Munaf will not succeed in his case. He must be joined by Muslim as the right to claim
performance rests with all the promisees (i.e. Munaf and Muslim) jointly and a single promisee
(i.e. Munaf) cannot claim performance.

Q 3 (a) Briefly explain five rules regarding performance of reciprocal promises under the
provisions of the Contract Act, 1872.

Answer

(a) Rules regarding performance of reciprocal promises under the Contract Act, 1872:

(i) Simultaneous performance. When contract consists of reciprocal promises to be

simultaneously performed, the promisor needs not perform his promise unless the
promisee is ready and willing to perform his reciprocal promise.
(ii) Order of performance. Where the order in which reciprocal promises are to be performed
is expressly fixed by contract, they must be performed in that order as fixed by the
contract, and where the order is not expressly fixed by the contract, they must be
performed in that order which the nature of the transaction requires.
(iii) Preventing the performance. When a contract contains reciprocal promises, and one
party to the contract prevents the other from performing his promise, the contract
becomes voidable at the option of the party so prevented; and he is entitled to
compensation from the other party for any loss which he may sustain in consequence of
non-performance of the contract.

36
(iv) Mutual and dependent reciprocal promises. Where the performance of one party
depends on the prior performance of the other party and party who is liable to perform
first, fails to perform it, then such party cannot claim the performance from the other party
and must make compensation to the other party for any loss which the other party may
sustain by non-performance of the contract.
(v) Promise to do legal and illegal things. Where persons reciprocally promise, firstly, to do
certain things which are legal, and secondly, under specified circumstances, to do certain
other things which are illegal, the first set of promises is a contract, but the second is a
void agreement.

September 2021: Q 3
(b) Effective 1 July 2019, Arowana Power Limited (APL) started purchasing fuel from Sauger
Limited (SL). Up to 31 May 2021, APL did not make any payment to SL due to which late
payment surcharge was invoiced to APL. APL refused to acknowledge the surcharge and
asked for its cancellation but SL never responded. APL stopped purchasing fuel from SL
with
effect from 15 June 2021. In July 2021, APL made two bulk payments equivalent to the cost
of fuel purchased from 1 July 2019 to 15 June 2021 but did not mention the invoices against
which the payments were to be adjusted. In August 2021, APL came to know that SL had
first
adjusted the late payment surcharge and balance amount had been adjusted against cost of
fuel. APL demands that SL should adjust the payments against cost of fuel only and not
against the surcharge. Under the provisions of the Contract Act, 1872 discuss the validity of
APL’s demand and adjustment made by SL.

Answer

(b) Although APL did not send instructions for appropriation that the payments should be adjusted
against cost of fuel only, APL’s payment of two bulk amounts equivalent to the cost of fuel
purchased from 1 July 2019 to 15 June 2021 are indicative of the fact that APL intends to have
the payments applied against the cost of fuel only as intimation given by a debtor may be given
impliedly. Further, APL refused to acknowledge the surcharge and asked for its cancellation,
hence it cannot be considered as lawful debt. Considering the above, APL’s demand is valid as
SL was not justified in first adjusting the late payment surcharge and then adjusting the cost of
fuel.

March 2022: Q5
Bromine Traders (BT) is engaged in the business of import, purchase and supply of electronic
items. During the year, BT entered into the following contracts for supply of various products:

(i) BT agreed to supply 500 electric ovens to Indium Limited (IL). The ovens were to be
manufactured by Argon Brothers (AB). AB failed to supply the ovens to BT on time due to
which BT was unable to deliver the ovens to IL. Evaluate BT’s position in the given
situation

(ii) BT agreed to supply 250 rice cookers to Francium & Co. (FC) against an advance
payment of Rs. 500,000. BT specified that the rice cookers would either be imported or
smuggled from Korea. Discuss status of contract between BT and FC.

(iii) BT agreed to supply 900 automatic washing machines to Osmium Limited (OL).
Machines were to be imported from Singapore. However, the machines could not be
imported due to political unrest in Singapore. BT informed OL that imports from
Singapore is impossible, therefore, machines may instead be imported from Taiwan.
Discuss whether BT’s excuse is valid and whether OL is bound to accept the machines
imported from Taiwan.

Answer

37
(i) BT will be held liable towards IL and will have to pay the damages because default by AB
being third party to the contract, on whose work the promisor was relying does not render the
contract void on account of supervening impossibility.

However, BT can recover ordinary damages from AB which occurred due to breach of contract.
BT can also recover special damages if it was known to AB at the time of making the contract that
ovens were to be delivered onwards to IL.

Amount of damages in both cases i.e. those claimable from AB and those payable to IL would
depend as to whether or not the ovens manufactured by AB could be readily purchased from the
market.

(ii) The contract between BT and FC is partly valid because in case of alternative promises if one
branch of contract is legal i.e. imported goods and the other branch is illegal i.e. smuggled goods,
then, only legal branch can be enforced as illegal branch is void.

(iii) BT’s excuse is not valid as political unrest/civil disturbances do not render a contract void on
account of supervening impossibility. BT will be held liable to pay damages suffered by OL due to
breach of contract.

OL is not bound to accept the machines imported from Taiwan as it will result in alteration of
original contract.

March 2022: Q8

In November 2021, Farhan, Noman and Salman established a hotel in Swat. For the day-to-day
operations of the hotel, they jointly borrowed Rs. 600,000 from Danish for a period of six months.

Under the provisions of the Contract Act, 1872 discuss the following:

(a) Can Danish recover the loan only from Noman on the due date?
(b) Can Danish recover the loan if Farhan, Noman and Salman die before the due date?
(c) Can Farhan be held liable for the loan, if Danish releases him before the due date?

Answer
(a) Since Noman is one of the joint promisors, Danish can recover the loan of Rs. 600,000 from
Noman only unless there exists between them an express agreement restricting his right to do so.

(b) Since all joint promisors have died, Danish can recover the loan from the legal representatives
of Farhan, Noman and Salman jointly, who must fulfil the promise and repay the loan unless a
contrary intention appears by the contract.

(c) Release of Farhan will discharge him from his liability towards Danish and subsequently
Danish will not be able to hold Farhan liable against the loan. However, he will still remain liable
towards the other joint promisors i.e. Noman and Salman.

March 2022: Q 9

(a) On 19 January 2022, Potassium Farms (PF) agreed to supply 500 kg of strawberries to
Niobium Industries Limited (NIL) on 15 February 2022 at a discounted price to be paid in
advance. NIL agreed to the conditions and paid the amount to PF in advance on 20 January
2022. NIL had a plan to introduce strawberry flavored milk in March 2022. On 15 February 2022,
PF failed to deliver the strawberries to NIL.

Under the provisions of the Contract Act, 1872 discuss the remedies available to NIL.

38
(b) What would be your answer in (a) above, if PF offers to deliver only 300 kg of strawberries to
NIL on the due date.

Answer
(a) Under the given situation, since time was essence of the contract between PF and NIL,
where PF failed to deliver the strawberries to NIL, following remedies are available to
NIL:

 Contract becomes voidable at the option of NIL.

 NIL may insist that PF should deliver the strawberries and claim compensation on
account of the delayed supply if, at the time of acceptance, NIL gives notice to PF of its
intention to claim damages.
 NIL may decide not to accept performance beyond the stipulated time and claim
compensation for any damages which it may have sustained due to non-fulfillment of the
contract by PF.

(b) If PF offers to deliver only 300 kg of strawberries on 15 February 2022, it will not
constitute a valid offer of performance. NIL will have all the remedies available in (a)
above.

However, NIL has the right to accept part performance of the promise made to him by
PF. In that case, if NIL accepts delivery of 300 kg on 15 February 2022 then it cannot sue
PF later as it will be considered as remission of the contract.

September 2022: Q5 (c)

Organdy Limited (OL) signed a contract with Rahim’s IT firm to manage OL’s social media
accounts for one-year effective 1 July 2022 at Rs. 1,500,000 per quarter payable in arrears.
Rahim hired Zia to perform the task at a salary of Rs. 200,000 per month for the contract term.
Rahim sent several reminders for the passwords of OL’s social media accounts but did not
receive the passwords from OL.

Discuss the validity of the contract between OL and Rahim. Also identify the remedies available
to Rahim, if any. (03)

Answer
The contract between Rahim and OL comprised of reciprocal promises and OL is preventing
Rahim from performing his promise, therefore, contract is voidable at Rahim’s option i.e. Rahim
can declare the contract void or not take any step implying that he intends to continue the
contract. Furthermore, Rahim is entitled to get such damages which naturally arose in the usual
course of business from such breach or which the parties knew when they made the contract to
be likely to result from such breach. Accordingly, Rahim can claim Zia’s salary to such extent
which incurred till the date he communicates his decision to repudiate the contract.

September 2022: Q5 (d)

Assume that in (c) above, Rahim was offered a similar project by Muslin Limited. On 31 August
2022, Rahim accepted the offer and assigned the project to Zia. On the same date, Rahim sent
an e-mail to OL regretting that performance is impossible mainly due to non-availability of
resources. Discuss the validity of Rahim’s correspondence. Also discuss OL’s position in this
situation. (04)

Answer
As identified in (c) above, the contract is voidable at Rahim’s option. By refusing to perform,
Rahim has rescinded the contract. However, his comment regarding impossibility of contract

39
performance is incorrect as non-availability of resources does not make a contract void due to
supervening impossibility. OL does not have any option available and cannot insist that Rahim
should perform the contract. As discussed in (c) above, OL will have to compensate Zia’s salary
of Rs. 200,000 for two months i.e. July and August 2022 as Rahim incurred these damages due
to breach of contract.

September 2022: Q8

Sultan imports mulberry silk and receives repetitive orders from regular customers. The invoices
are generated on the dispatch date and payment becomes due on the last date of the subsequent
month.

Wajahat is a regular customer of Sultan. Following are the extracts from Wajahat’s statement of
receivables as on 30 June 2022:

Date of invoice Amount (Rs.) Due date Comments noted by Sultan

31 January 2017 60,000 28 February 2017 Time barred under local law
10 May 2021 100,000 30 June 2021 Overdue for one year
10 March 2022 90,000 30 April 2022 Overdue for two months
31 March 2022 200,000 30 April 2022 Overdue for two months
30 June 2022 50,000 31 July 2022 Not yet due
Total 500,000

Wajahat sent a cheque of Rs. 220,000 on 31 July 2022 but did not mention the invoices against
which the payment was to be adjusted. Sultan sent several reminders to Wajahat in this regard
but did not receive a response. Under the provisions of the Contract Act, 1872 discuss how the
proceeds of the cheque can now be adjusted against Wajahat’s statement of receivables. (05)

Answer

In the absence of any intimation from Wajahat regarding application of payment to debts,
following are the two possibilities to determine the settlement:

1. Sultan may apply the payment at his discretion to any lawful debt actually due and
payable to him from Wajahat, whether its recovery is or is not barred by the law in force
for the time being as to the limitation of suits.
2. If Sultan does not make an appropriation, then the payment shall be applied in discharge
of the debts in order of time, whether they are or are not barred by the law in force for the
time being as to the limitation of suits.

Further, where the debts are of equal standing, the payment shall be applied in discharge of each
outstanding debt in equal proportion.

Accordingly, invoices dated 31 January 2017 amounting Rs. 60,000 and 10 May 2021 amounting
to Rs. 100,000 will be settled first against the payment received.

Further, the invoices dated 10 March 2022 and 31 March 2022 are of equal standing i.e. both
matured on 30 April 2022, therefore, remaining payment shall be applied in discharge of these
invoices in equal proportion i.e. Rs. 18,621 against invoice dated 10 March 2022 and Rs. 41,379
against invoice dated 31 March 2022.

September 2022: Q9

(a) Kazim agreed to supply 500,000 cotton fabric rolls of a specific design to Zainab’s workshop
on 4 September 2022 between 10 am to 9 pm. Zainab informed Kazim that she requires the rolls
urgently as she has to cater her orders.

40
On 4 September 2022, Kazim brought the rolls to Zainab’s workshop at 8:30 pm and asked her to
take delivery quickly as he was in a rush to make another delivery before 9 pm in nearby locality.
Zainab wanted to check one roll from each of the 1,000 boxes to ensure that they are of the same
design which she had ordered. Kazim threatened Zainab that if she does not sign the goods
receiving note within next 10 minutes, he will not deliver the rolls to her and will take the delivery
truck away to unload next order.

Under the provisions of the Contract Act, 1872 discuss whether Kazim is justified in his
contention. Also discuss Zainab’s position if Kazim does not deliver the rolls to her. (04)

(b) Assume that in (a) above, Kazim brought the cotton fabric rolls for delivery to Zainab’s
workshop on 5 September 2022 at 10:30 am but Zainab refused to take the delivery. However,
Zainab offered to take the delivery if she is given a special discount of 20% on the invoice
amount.

Under the provisions of the Contract Act, 1872 discuss Kazim’s position if he:

 refuses to give the discount and sues Zainab for breach of the contract. (03)
 agrees to give the discount and makes the delivery but later sues Zainab to pay the full
amount. (02)

Answer

(a) Kazim’s offer of performance to Zainab is not valid because it does not fulfill the following
conditions:

An offer of performance must be unconditional. Kazim’s condition that goods receiving note
should be signed within next 10 minutes invalidates his offer of performance;

Since contract is to deliver cotton fabric rolls in specific designs, Zainab must have a reasonable
opportunity of checking that rolls pertains to the specific designs she ordered. She cannot
possibly inspect 1,000 boxes in 10 minutes.

Due to the above reasons Kazim is not justified in his contention since his offer of performance is
not fulfilling all the requirements.

Zainab’s position:
Zainab’s urgency to receive the order on time was in Kazim’s knowledge which he tried to use to
his advantage threatening to leave without delivery. If Kazim does not deliver the rolls to her,
Zainab can claim compensation for breach of contract because non-delivery on the agreed date
shall render the contract voidable at Zainab’s option.

(b) Kazim already knew about Zainab’s urgent orders due to which time was the essence of
contract and non-delivery on the agreed date has made the contract voidable at Zainab’s option.
Accordingly, Kazim cannot hold Zainab responsible for breach of contract as she has the right to
declare the contract void due to any reason and hence she can refuse to take delivery.
If Kazim agrees to Zainab’s demand of 20% discount, it will be considered as accepting alteration
of contract. Consequently, he will not be able to demand full payment from Zainab afterwards.

September 2022: Q10(b)

(b) briefly describe the rules in respect of time and place for the performance of a promise where
both of them have not been specified in the contract.
(04)

Answer

41
 Where time and place for the performance of a promise have not been specified in the contract
and the promisor is to perform promise without application by the promisee in that situation
following rules shall apply:

 where no time for performance is specified, the engagement must be performed

within a reasonable time.
  where no place is fixed for the performance of it, it is the duty of the promisor to
apply to the promisee to appoint a reasonable place for the performance of the
promise, and to perform it at such place.
March 2023: Q.6
(a) Under the provisions of the Contract Act, 1872:
(a) explain any four rules regarding the performance of reciprocal promises.

Answer
(a) The rules regarding the performance of reciprocal promises are as follows:
I. Simultaneous performance When a contract consists of reciprocal promises to be
simultaneously performed, the promisor needs not perform his promise unless the
promisee is ready and willing to perform his reciprocal promise.
II. Order of performance Where the order in which reciprocal promises are to be performed
is expressly fixed by the contract, they must be performed in that order as fixed by the
contract, and where the order is not expressly fixed by the contract, they must be
performed in that order which the nature of the transaction requires.
III. Preventing the performance When a contract contains reciprocal promises, and one
party to the contract prevents the other from performing his promise, the contract
becomes voidable at the option of the party so prevented; and he is entitled to
compensation from the other party for any loss which he may sustain in consequence of
the nonperformance of the contract.
IV. Mutual and dependent reciprocal promises When a contract consists of reciprocal
promises, such that one of them cannot be performed, or that its performance cannot be
claimed till the other has been performed, and the promisor of the promise last mentioned
fails to perform it, such promisor cannot claim the performance of the reciprocal promise,
and must make compensation to the other party to the contract for any loss which such
other party may sustain by the non-performance of the contract.
V. Promise to do legal and illegal things Where persons reciprocally promise, firstly, to do
certain things which are legal, and secondly, under specified circumstances, to do certain
other things which are illegal, the first set of promises is a contract, but the second is a
void agreement.
March 2023: Q 7
(a) After graduating from Pelican College of Arts and Design (PCAD), Kamran Shah opened an
art gallery in Karachi to showcase his paintings. However, the gallery did not generate much
public interest despite his extensive efforts. Kamran discussed the matter with his professor, Adil
Adeeb, the owner of PCAD, emphasizing on his aspirations to achieve recognition for his
paintings. Kamran requested Adil to display his paintings in the PCAD’s upcoming annual
exhibition scheduled for 31 March 2023.
Adil informed Kamran that he has already invited various artists for displaying their work in the
exhibition, however, one of the artists namely Sohail Khan has still not responded. Adil proposed
to Kamran that if Sohail refuses to participate in the exhibition, then Kamran can display his
paintings on the following terms:
 Kamran will pay Rs. 50,000 to PCAD for every painting sold.
 Subsequent to the exhibition, Kamran will not sell any of his paintings in Karachi.
 In case of any dispute, the decision taken by Adil shall be final which cannot be
challenged by Kamran in any manner.

42
  Kamran must submit the details of his paintings fifteen days before the exhibition, which
is a compulsory requirement to be adhered to by all the participating artists.
Kamran agreed to the above terms and signed the contract on 5 March 2023. Adil did not receive
any response from Sohail till that date.
Under the provisions of the Contract Act, 1872, discuss the enforceability of the contract between
PCAD and Kamran.
(b) Assume that in (a) above, Kamran subsequently comes to know before the date of exhibition
that his paintings would be displayed in the exhibition without any mention of his credentials,
despite the fact that at the time of signing the contract, Adil had promised to display his paintings
under the category of ‘Emerging artists’ along with prominent credentials.
Under the provisions of the Contract Act, 1872, discuss the possible effect(s) of the information
subsequently received by Kamran, on the enforceability of the contract.

Answer
(a) Contract between PCAD and Kamran is a contingent contract which can only be enforced if
Sohail does not participate in the exhibition.
Sohail’s non-participation can be confirmed either through an express response or by his conduct
i.e. non-submission of the details of his paintings fifteen days before the exhibition which is a
compulsory requirement for all the participating artists.
Payment for every painting sold
Requirement to pay Rs. 50,000 to PCAD for every painting sold is lawful and can be enforced.
Restriction to sell paintings after exhibition
Kamran cannot be restricted from undertaking lawful business to sell paintings in any locality
including Karachi because he has not sold the goodwill of his business and is merely a participant
of the exhibition. Although Kamran has signed the agreement, it shall be void to that extent.
Restriction to enforce legal rights
Kamran cannot be absolutely restricted from enforcing his rights under or in respect of the
contract by the usual legal proceedings in the ordinary tribunals. Therefore, Adil cannot restrain
Kamran in this regard. However, although Kamran has signed the agreement, the same shall be
void to that extent.
Submission of details prior to exhibition
The requirement of submitting the details of paintings by Kamran 15 days prior to exhibition is
lawful and in case of non-submission Kamran shall not be entitled to participate in the exhibition.
(b) Kamran had made it clear that he aspired to achieve recognition for his paintings and Adil had
promised to display his painting with prominent credentials. Therefore, if Kamran’s credentials are
not displayed prominently, it means Kamran’s consent was not freely obtained due to the
following possibilities:
(1) If Adil innocently caused, Kamran to make a mistake as to the substance of the subject matter
of the contract, Kamran’s consent would be considered to have been obtained by way of
misrepresentation.
(2) If Adil made the promise without the intention of performing it or had the intention to deceive,
Kamran’s consent would be considered to have been obtained by way of fraud.
Effect on the contract
As Kamran’s consent was not freely obtained, the contract would be voidable at the option of
Kamran.
Kamran, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in
the position in which he would have been if the representations made had been true. Therefore,
Kamran may either insist that his credentials are displayed prominently or he may choose to
withdraw from the contract by refusing to participate in the exhibition and claim damages.
However, the contract shall not become voidable, if Kamran had the means of discovering the
truth with ordinary diligence.

43
Further, if it is established that Adil’s promise did not cause Kamran’s consent to the contract,
then the contract shall be considered valid and enforceable.
March 2023: Q8
a) Saiqa and Alia decided to open a tailoring shop. To manage the opening expenses, they
jointly borrowed Rs. 300,000 from Faizan on 28 February 2022. The loan was to be repaid
on 28 February 2023.

Under the provisions of the Contract Act, 1872, advise the respective positions of Faizan and
Saiqa in respect of the loan amount, in each of the following independent situations:

(i) On the due date, Saiqa approached Faizan and paid back Rs. 150,000 mentioning the she
has paid her share and now he should claim the remaining amount from Alia. Faizan met
Alia for recovery of the remaining loan amount but she refused to pay it.

(03)
(ii) On the due date, Alia approached Faizan and informed him that she cannot pay the loan as
the entire amount was utilized by Saiqa. Alia also mentioned that Saiqa has refused to give
Alia her share in the shop. Considering the situation, Faizan released Alia in respect of the
loan. (02)
b) Under the provisions of the Contract Act, 1872, list the acceptable grounds of supervening
impossibility. (03)

Answer

a)
(i) Unless agreed otherwise, all promisors are jointly and severally liable for promise.

Position of Faizan
Saiqa is liable for whole amount borrowed, and Faizan can recover remaining Rs. 150,000 from
Saiqa.

Position of Saiqa
If Saiqa pays for more than her share, she can recover excess amount from other joint promisor
i.e., Alia.

(ii) Release of one joint promisor does not release other joint promisors. Promisor so released is
still liable to other joint promisors.

Position of Faizan
After release of Alia, Faizan can claim full amount from Saiqa.

Position of Saiqa
If Alia pays full amount to Faizan, Saiqa will be liable to pay her share of liability to Alia.

b)
 Destruction of subject matter after the contract.
 Death or personal incapacity (if contract depends on personal skill or ability).
 Parties become alien enemies on declaration of war.
 Contracts become illegal due to change of law.
 Non-existence or non-occurrence of a particular state of things necessary for performance.

September 2023: Q 5

44
Lime Cement (LC) operates as a medium-scale cement manufacturer and distributor. The
following pertains to LC’s operations:

(a) Daniyal, recently appointed as a delivery supervisor at LC, has been tasked with overseeing
the following orders:
(ii) An order from Rubber Paints (RP) for 50 bags of cement, scheduled for delivery on 30
September 2023. Upon reviewing the order details, he noted the absence of specific
information regarding the time and place of delivery. Under the Contract Act, 1872,
advise Daniyal about time and place of delivery for RP’s order.
(iii) An order jointly placed by Fahim Hussain and Karim Hussain for 60 bags of cement,
for building a farm house in Faisalabad. Under the Contract Act, 1872, identify the
conditions that Daniyal must fulfil to make a valid delivery offer.

Answer
(I) The delivery date specified is 30 September 2023. Daniyal needs to verify whether LC has
committed to deliver the order as per RP’s request.

If LC’s commitment is contingent on RP’s input, then it is RP’s responsibility to request

performance at an appropriate place and during usual business hours.

If LC has committed to deliver the order without requiring RP’s input, then:
 LC must deliver the order during the usual business hours on 30 September
2023.
 LC is obligated to ask RP to designate a reasonable place for the delivery of the
order and must then arrange for delivery at that place.

(II) To ensure a valid delivery offer, Daniyal must satisfy the following conditions:

(i) The delivery offer must be unconditional.

(ii) The delivery offer must be made at an appropriate time.
(iii) The delivery offer must be made at an appropriate place.
(iv) The delivery offer must be made under circumstances that allow Fahim Hussain or Karim
Hussain, the intended recipients, to reasonably ascertain that Daniyal, on behalf of LC, is
able and willing to deliver 60 bags of cement.
(v) Fahim Hussain or Karim Hussain must have a reasonable opportunity to verify the
contents of 60 bags.
(vi) The delivery offer must be made to either Fahim Hussain or Karim Hussain, as an offer to
one of several joint promisees carries the same legal consequences as an offer made to
all of them.

September 2023: Q 7
(a) Straw Farms (SF) is famous for its organically grown peaches. In July 2022, SF decided
to build a processing facility for freezing peaches. In August 2022, SF awarded two
separate contracts to Gypsum Builders (GB) as follows:

(I) Construction of a factory building by August 2023 for processing the peaches to
be harvested in September 2023. SF informed GB that when the building is
ready, a processing plant will be installed for freezing peaches to be exported to
Europe, from which SF expects to earn a profit of Rs. 10 million.
(II) Construction of a head office building by August 2023 for administrative work. SF
informed GB that the staff will be shifted to this building in December 2023.

GB initially planned to construct both buildings by July 2023; however, due to labor
issues, construction could not be completed on either site till date. GB needs a further 30
days to finish the remaining work.

45
 Under the Contract Act, 1872, evaluate SF’s position, and discuss the remedies available
to SF.(07)

(b) Rizwan engaged Bamboo Designers (BD) to completely renovate his bungalow by 31
August 2023 for Rs. 5 million. The renovation work included civil works, painting,
plumbing and tiling. Rizwan informed BD that he would arrange imported marble tiles to
be fixed in the bungalow.

BD completed the renovation work on 31 August 2023 except for fixing of the tiles. Due to
transit issues, the cargo of tiles ordered by Rizwan reached Pakistan on 5 September
2023. Upon receiving the tiles, Rizwan asked BD to proceed with the completion of the
renovation work.

However, BD refused to deploy labor until the contract price to the extent of work
completed is paid, and Rizwan declined to make the payment as the bungalow was not
ready as per agreed specifications.

Under the Contract Act, 1872, evaluate BD’s position, and discuss the remedies available
to BD.

Answer
(a) Contract I - Construction of factory building

SF’s position
GB was contractually obligated to complete the construction of the factory building by
August 2023, given that the processing of peaches to be harvested in September 2023
was dependent on the building’s completion. Therefore, time was of the essence for this
contract.

Due to GB’s failure to meet the given timeline, the contract becomes voidable at the
discretion of SF.

Remedies available to SF
SF may choose to accept delayed performance from GB after August 2023. However, in
this scenario, SF cannot claim compensation for any losses resulting from the delay,
unless SF notifies GB of its intention to claim such compensation at the time of accepting
the delayed performance.

It is pertinent to note that if SF allows GB to continue construction activities after August

2023 without any formal notice, this will be considered implied acceptance of the delayed
performance.

Alternatively, SF can refuse to accept delayed performance. Further, SF may also seek
compensation for damages incurred due to non-fulfilment of the contract, since GB knew,
at the time of making the contract regarding the potential consequences of not
completing the construction work within stipulated time period.

Contract II - Construction of head office building

SF’s position
The head office building was not scheduled for use until December 2023; hence, time
was evidently not the essence of this contract.

SF does not have the option to render the contract voidable, so GB can proceed with the
construction work.

Remedies available to SF

46
 SF may be entitled to claim compensation from GB for any potential losses due to the
delay. However, it’s worth noting that the head office building’s usage was planned for
December 2023, and this timeline was clearly communicated to all parties involved.
Given this clearly stated intent, the likelihood of GB being required to compensate SF for
delays related to this contract is relatively low.

(b) BD’s position

The contract between Rizwan and BD includes reciprocal promises concerning the
execution of tiling works.

However, Rizwan failed to provide the tiles as agreed, thereby preventing BD’s ability to
fulfill its end of the contract within the stipulated timeline.

Remedies available to BD

Since Rizwan breached the contract, BD has the option to consider the contract voidable.

BD is entitled to claim compensation from Rizwan for any losses sustained due to
Rizwan’s failure to perform his part of the contract. This is in addition to the contract price
proportionate to the extent of work already completed by DB.

If BD agrees to proceed with the work, contingent upon Rizwan paying a partial contract
price, this implies that BD accepts completing the tiling work within the same initial
contract price.

Such an agreement would also open the door to potential modifications to the original
contract terms, provided that Rizwan consents to the proposed changes.

September 2023: Q 9
(a) Babar owns Steel Electronics (SE), a retail store of electronic equipment. He typically buys the
equipment from wholesale suppliers on credit and pays invoices by cheque within 60 days,
always attaching a letter specifying which invoice(s) the cheque covers.

When Babar fell ill, his son, Junaid, managed SE. Upon returning, Babar learned that Junaid had
sent several cheques to Farrukh, a major supplier, without specifying the relevant invoices.

Under the Contract Act, 1872, advise Babar how the cheques sent by Junaid should be applied to
Farrukh’s outstanding invoices.

Answer
When SE makes a payment to Farrukh, and the circumstances imply that the payment is
intended for a particular debt, Farrukh’s acceptance of the payment suggests that it will be
applied towards that particular debt.

In the absence of clear instructions from Junaid and with no other factors indicating which debt
the payment should be applied to, Farrukh has the discretion to apply the payment to any valid
debt owed by SE. This holds true even for debts that may be time-barred under current laws
governing the limitation of legal action for debt recovery.

If Farrukh does not allocate the payment to a specific debt, Junaid’s payments will be applied to
the debts in order of time. This is the case regardless of whether the debts are or are not time-
barred by the laws on the limitation of legal action for debt recovery.

When multiple debts are of equal standing, Junaid’s payments will be divided proportionally
among these debts to discharge them.

47
March 2024: Q6
(a) Nonagon Books (NB), owned by Haroon, is a publishing house that also deals in a wide
variety of educational books. The following matter is related to NB that need to be addressed
under the provisions of the Contract Act, 1872:

NB agreed to purchase 15,000 medical books worth Rs. 50 million from Heptagon Publishers
(HP), with the delivery scheduled for 25 February 2024. NB promised to provide a bank
guarantee as security for the payment. However, HP did not deliver the books on the agreed
delivery date because NB did not provide the bank guarantee. Subsequently, NB sued HP for
non-performance of contract, claiming that since the books were not received, the bank
guarantee was not provided. Discuss NB’s position and its liability, if any.

(b) NB placed an order with Octagon Printers (OP) for 100,000 copies of a Pakistani scientist’s
autobiography, with a delivery deadline of 2 March 2024. NB had informed OP of its intention to
sell the autobiography at an exhibition scheduled for 3 March 2024, anticipating a profit of Rs. 5
million from the sale. However, due to unforeseen delays, the order arrived on 4 March 2024, at
11 p.m., when NB’s warehouse was still open for stock count. Discuss the possible course(s) of
action that NB is entitled to take.

Answer
(a) NB’s position

The contract between NB and HP consist of reciprocal promises. It seems that the order of
performance was not fixed by the contracting parties at the time of contract formation, therefore,
reciprocal promises needed to be performed in such order which the nature of transaction
required i.e., NB first needed to provide the payment security (bank guarantee) after which HP
would deliver the books.

NB’s liability
NB is liable to compensate HP, being the aggrieved party, for loss or damage caused by NB’s
breach. This compensation should cover losses that naturally arose in the usual course of things
from the breach or were known by the parties, at the time of contract formation, to be likely results
of the breach.

(b) OP was aware of NB’s plan to sell the autobiography in the exhibition scheduled for 3 March
2024 due to which time was the essence of contract and non-delivery on agreed date has made
the contract voidable at NB’s option.

The possible courses of action that NB is entitled to take are as follows:

(i) NB has the right to accept delayed performance from OP. In such case, NB would not be able
to claim compensation for any losses resulting from the delivery delay, unless NB notifies OP of
its intention to claim such compensation at the time of accepting the delayed delivery of books.
NB also has the right to demand delivery at an appropriate time as the offer to deliver at 11 p.m.
when staff is already busy with the stock count would not be considered as valid offer of
performance unless NB itself is willing to accept performance at such time and in such manner.

(ii) NB has the right to rescind the contract and declare it void, thereby refusing to take delivery.
Being the aggrieved party, NB would be entitled to be compensated by OP for any loss or
damage caused by the breach that naturally arose in the usual course of things from such
breach, and the anticipated profit of Rs. 5 million, which both parties knew at the time of the
contract formation to be a likely result of its breach.

48
CHAPTER NO. 8
CERTAIN RELATIONS RESEMBLING THOSE CREATED BY
CONTRACT
September 2015: Q 2
(b) Under certain special conditions, obligations resembling those created by a contract are
imposed by law although the patties have never entered into a contract. In view of the provisions
of the Contract Act, 1872 describe the conditions which must be fulfilled for claiming the amount
in each of the following cases:
(i) Baqir supplied a jacket to Sultan in order to save him from cold weather. Sultan who was a
minor agreed to pay Rs. 2,000 for the jacket although its market price was Rs. 1,500.
(ii) Rohi, who paid the electricity bill of Saulat without being asked, is now demanding payment
from Saulat.
(iii) Sami, a coolie picked up the goods purchased by Nadia from the supermarket and took them
to her car. Nadia did not object to it. Sami demanded service charges from Nadia.
Answer
(i) Claim for necessaries supplied to person incapable of contracting, or on his account:

Baqir can recover the amount from Sultan if following conditions were satisfied:

i. the jacket supplied was the necessity suited to Sultan's condition in life.
ii. Baqir can recover the reasonable market value of Rs. 1,500 only from Sultan's property. He
cannot recover Rs. 2,000 which Sultan had agreed to pay to Baqir as Sultan, being an
incompetent person was not in the capacity to contract.
(ii) Reimbursement of person paying money due by another in payment of which he is
interested:

Rohi can recover the amount of electricity bill from Saulat only if the following two conditions were
satisfied:
i. Rohi who made the payment had interest in such payment.
ii. the payment must be such which Saulat was bound by law to pay.
(iii) Obligation of person enjoying benefit of non-gratuitous act:
Sami can recover the amount of service charges from Nadia if following conditions were satisfied:
i. Sami had lawfully done the service for Nadia, i.e. Nadia had the option to accept or reject the
services rendered by Sami.
Sami did not have an intention to act gratuitously and Nadia had enjoyed the benefits of the
service so provided by Sami.
b.

March 2018: Q2 b
(b) (ii) briefly describe various types of quasi-contracts.

Answer
Different types of quasi contract
i. Supply of necessaries:

If a person incapable to enter into contract or his dependent is supplied by another person
necessities suited to his conditions in life, the person supplying such necessities is entitled to
be reimbursed the price from the property of such incompetent person.

49
ii. Payment by interested person:

A person, who is interested in the payment of money which another is bound by law to pay,
and who therefore pays it, is entitled to be reimbursed by the other.

iii. Person enjoying benefit of non-gratuitous act/goods:

Where a person lawfully does anything for another person, or delivers anything to him, not
intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is
bound to make compensation to the former in respect of, or to restore, the thing so done or
delivered.

iv. Finder of goods:

A person who finds goods belonging to another, and takes them into his custody, is subject to
the same responsibility as a bailee.

v. Payment by mistake or under coercion:

A person to whom money has been paid, or anything delivered by mistake or under coercion,
must repay or return it.

March 2020: Q 2

(a) Mohsin acquired a piece of agricultural land in Moro, Sindh from a local landlord, Qasim
Soomro, on a lease term of twenty years. The revenue payable by Qasim Soomro on his land to
the Provincial Government was in arrears. As a result, the land was advertised for sale by the
Provincial Government. Mohsin, in order to prevent the sale of land, paid the sum due by Qasim
Soomro to the Provincial Government.

Under the provisions of Contract Act, 1872 explain whether Mohsin can recover such amount
from Qasim Soomro.

Answer
(a) Payment by interested person:

To constitute a quasi-contract and be entitled for reimbursement, following conditions must be

satisfied:

(i) the person who made the payment must have his own interest in the payment; and
(ii) the other person must be bound by law to pay.

In the given scenario, Qasim Soomro was legally bound to pay the land revenue to the Provincial
Government and Mohsin, being interested in such payment, as his lease would have been
annulled upon sale of land by the provincial government, is entitled to recover the amount from
Qasim Soomro.

September 2020: Q 4 (b)

Sulman’s son was missing. Mehmood, one of the bodyguards of Sulman, volunteered to find
Sulman’s son. Meanwhile, Sulman gave an advertisement in the newspaper announcing an
award of Rs. 25,000 to anyone who finds the missing boy. Mehmood found the boy and brought
him home. Sulman refused to pay the reward and Mehmood filed a suit against him.

Under the provisions of the Contract Act, 1872 briefly describe whether Mehmood is entitled to

50
the reward.

Answer

(b) In order for Mehmood to claim the reward from Sulman, it is necessary for him to prove that
he was aware of Sulman’s proposal before finding the missing boy.

As the communication of the proposal is complete when it comes to the knowledge of the
person to whom it is made.

Under the given circumstances, since Mehmood acted in ignorance of the offer, he is not
entitled to claim the reward from Sulman.

March 2022: Q 10

(a) Under the provisions of the Contract Act, 1872 describe constructive contracts and identify
the circumstances in which a constructive contract may be formed.

Answer

(a) Constructive contract may be described as a contract that should have been formed even
though in actuality it was not.

In the following circumstances, a constructive contract may be formed:

(i) Supply of necessaries: If a person, incapable of entering into a contract, or any one
whom he is legally bound to support, is supplied by another person with necessaries
suited to his condition in life, the person who has furnished such supplies is entitled to be
reimbursed from the property of such incapable person.

(ii) Reimbursement of payment by interested person: A person who is interested in the

payment of money which another is bound by law to pay, and who therefore pays it, is
entitled to be reimbursed by the other.

(iii) Person enjoying benefit of non-gratuitous act: Where a person lawfully does anything
for another person, or delivers anything to him, not intending to do so gratuitously, and
such other person enjoys the benefit thereof, the latter is bound to make compensation to
the former in respect of, or to restore, the thing so done or delivered.

(iv) Finder of goods: A person who finds goods belonging to another and takes them into his
custody, is subject to the same responsibilities as a bailee.

(v) Payment or delivery by mistake or under coercion: A person to whom money has
been paid or anything delivered by mistake or under coercion, must repay or return it.

March 2024: Q2 (a)

Under the provisions of the Contract Act, 1872, describe quasi-contracts and explain the
circumstances in which a quasi-contract may be formed.

Answer
In certain situations, the law of contract imposes obligations on a person in absence of any
agreement. These obligations resemble those as created by a contract. These are called quasi-
contracts i.e., those contracts that should have been formed even though in actuality they were
not.

51
A quasi-contract may be formed, in the following circumstances:

(i) Supply of necessaries: If a person, incapable of entering into a contract, or any one whom he
is legally bound to support, is supplied by another person with necessaries suited to his condition
in life, the person who has furnished such supplies is entitled to be reimbursed from the property
of such incapable person.

(ii) Reimbursement of payment by interested person: A person who is interested in the

payment of money which another is bound by law to pay, and who therefore, pays it, is entitled to
be reimbursed by the other.

(iii) Person enjoying benefit of non-gratuitous act: Where a person lawfully does anything for
another person, or delivers anything to him, not intending to do so gratuitously, and such other
person enjoys the benefit thereof, the latter is bound to make compensation to the former in
respect of, or to restore, the thing so done or delivered.

(iv) Finder of goods: A person who finds goods belonging to another and takes them into his
custody, is subject to the same responsibilities as a bailee.

(v) Payment or delivery by mistake or under coercion: A person to whom money has been
paid or anything has been delivered by mistake or under coercion, must repay or return it.

52
CHAPTER NO. 9
CONSEQUENCES FOR BREACH OF CONTRACT

March 2016: Q2
(b) What do you understand by the terms 'Ordinary damages', 'Special damages'? Briefly
describe the rules relating to the award of each of the above types of damages under the
Contract Act, 1872.
Answer

(b)Ordinary damages:

Ordinary damages are those which arise naturally in the usual course of things from the breach
itself.

Special damages

Special damages are due to special losses which are in the reasonable contemplation of the
parties at the time of formation of contract.

Rules relating to award of above damages:

Ordinary Damages

These damages can be awarded if the following two conditions are fulfilled:

● The aggrieved party must suffer by breach of contract, and

● The damage must be a direct consequence of the breach of contract

Special damages

Special damages can be awarded for the special loss which the parties:

● Knew about
● At the time they made the contract
● As likely to result from such breach of contract

March 2018: Q 2
(a) Saleem entered into a contract for the purchase of 5 vehicles from Phony (Pvt.) Limited (PL)
which were to be delivered in the month of February, Saleem also entered into another contract
for onward sale of these vehicles to Jabbar Limited (JL). However, PL refused to deliver the
vehicles as contracted. Saleem had to buy the vehicles from another supplier at an extra cost of
Rs. 2 million for supplying these to JL. Saleem also had to pay compensation of Rs. 0.6 million to
JL due to delay in supply.

Under the provisions of the Contract Act, 1872 analyze the above situation and comment whether
Saleem is entitled to receive any compensation from PL.

Answer
(a) Compensation for loss or damage caused by breach of contract:

Saleem is entitled to receive from Phony (Pvt.) Limited (PL), compensation for any loss or
damage caused to him which naturally arose in the usual course of things from such breach i.e.
Rs. 2 million. However, such compensation cannot be claimed for any remote and indirect loss or
damage sustained by reason of the breach unless the parties knew about such consequences

53
when they made the contract. Hence, PL would only be liable to pay the amount of Rs. 0.6 million
claimed by JL if PL knew about this arrangement at the time of entering into the contract.

September 2020: Q3 (c)

Sarya Traders (ST) agreed to supply building materials to Khwaja Contractors (KC) on 10
September 2020 for the construction of a charitable hospital in District Malir. However, on due
date, ST failed to fulfil their obligation.
What would be your answer in above if KC had to procure building material from another supplier
at a price higher than the price agreed with ST and also had to pay a penalty of Rs. 50,000 to the
owner of the hospital for construction delay?

Answer
In this case, ST is liable to pay by way of compensation to KC, the difference between the
contract price and the price which KC had to pay for procuring building material.
However, if ST was aware about the penalty, which KC had to pay to the third party due to delay
in construction of hospital, at the time of contract with KC, ST would be liable to compensate the
amount of Rs. 50,000 to KC.

On the contrary, if ST was not aware of any such penalty at the time of contract with KC, then KC
cannot recover the amount of Rs. 50,000 from ST.

September 2021: Q 4

(b) In June 2021, Haroon Publishers (HP) entered into a contract with Salima, an upcoming and
promising author, to publish her first novel. An advance of Rs. 100,000 was paid to Salima who
agreed to share the manuscript in October. HP promised to incur promotional expenses of Rs.
300,000 in respect of the novel. In August 2021, Salima suddenly gained popularity as her social
media publications went viral. Seeing an opportunity, HP immediately launched the advertising
campaign for the promotion of Salima’s upcoming novel and secured pre-orders of 50,000 copies
of the novel. HP has estimated to earn profit of Rs. 1,700,000 from the orders. In September
2021, Salima contacted HP regretting that she will not be able to send the manuscript and sent
back the cheque of Rs. 100,000 received in advance. Under the Contract Act, 1872 discuss the
status of the contract and any possible remedies available to HP.

Answer
(b) Status of the contract:

Salima’s regret to send the manuscript and sending back the cheque of Rs. 100,000 received as
advance was anticipatory breach of contract because she has forwarded her intention of not
performing the contract before the actual date of performance.

Remedies for breach of contract available to HP are as follows:

Since anticipatory breach has taken place, HP may treat the contract as rescinded and can take
action immediately on receipt of Salima’s notification to repudiate the contract, without waiting for
the actual contractual date of performance. Alternatively, HP may treat the contract as operative
and wait until the actual date of performance, before taking action and take action against Salima
if she still fails to perform on due date. In either of the case HP can sue Salima for damages in
order to be compensated for financial loss sustained as a consequence of Salima’s breach.
However, the amount of damages awarded shall not be more than the actual loss suffered by HP.
Damages will only be awarded in respect of losses which arise naturally, or which both parties
may reasonably be supposed to have contemplated when the contract was made, as a probable
result of its breach. Therefore, HP would only be able to recover the campaign cost from Salima

54
and will not able to claim the anticipated profits of the pre-orders, as it was not contemplated by
the parties when the contract was signed in June 2021.

March 2023: Q4

On 1st December 2022, Sparrow Traders (ST) decided to install a solar energy system at its
factory in an effort to reduce operational expenditures. On 4 th December 2022, ST entered into a
contract with Parrot Electrics (PE) for the acquisition of an imported solar system at a price of Rs.
12 million. The project details agreed by both the parties are as follows:

Project milestone Due Date Payment terms

Delivery of solar panels 31 December 2022 50% of contract price
Commissioning of the systems 31 January 2023 20% of contract price
Smooth running of the system 28 February2023 30% of contract price
for one month

Under the agreement, PE agreed to pay Rs. 5,000 per day, on the failure to meet any of the
project milestone. Similarly, ST agreed to pay a penalty of 1% per month, on the failure to pay the
amount on due dates.

On the date of the agreement, there were no statutory taxes levied on the import of solar panels.
However, effective from 10 December 2022, the government imposed 16% custom duty on the
import of solar panels. On 26 December 2022, the consignment of solar panels arrived in
Pakistan. PE shared the new duty structures with ST and demanded an additional amount of Rs.
1.5 million to proceed further.

Under the provisions of the Contract Act, 1872, discuss the relative positions of ST and PE under
each of the following independent situations. Also identify the remedies, if any, available to both
ST and PE.

a) On 27th December 2022, ST refused to pay the custom duty and barred PE from accessing
the commissioning site due to the price dispute. (06)

b) PE threatened to cancel the contract if ST fails to reimburse the custom duty to PE. ST, with
no other option available, reimbursed custom duty of Rs. 1.5 million to PE after which PE
installed the solar system on agreed date. On 28 February 2023, ST informed PE that it will
make the final payment only after PE agrees to the deduction of Rs. 1.5 million as PE had
employed coercion by threatening to cancel the contract. (04)

Answer

a) Position of the parties to the contract

PE’s demand for additional payment of Rs. 1.5 million on account of custom duty
 PE’s demand for Rs. 1.5 million on account of custom duty over and above the contract was
not justified. It may be considered as conditional offer of performance which renders the
offer of performance invalid.
 PE’s demand was tantamount to an alteration of the contract by increasing the contract
price.
ST barring PE from accessing the commissioning site due to the price dispute
 Contract between ST and PE contain reciprocal promises. If PE is willing to deliver the solar
system at ST’s commissioning site despite the price dispute, then ST’s action of barring PE
from accessing the commissioning site shall be considered as preventing PE from
performing its promise. As a result, the contract is voidable at the option of PE.

55
  Further, if PE has made a valid offer of performance to ST, and the offer was not accepted,
PE shall not be responsible for the non-performance of the contract and shall have the right
to claim compensation and rescind the contract.
Remedies available to PE due to ST’s fault
PE is entitled to claim reasonable compensation from ST for any loss which it may sustain in
consequence of the non-performance of the contract. However, it cannot claim penalty from ST
since the project milestones were not achieved.
Remedies available to ST due to PE’s fault
ST is entitled to claim reasonable compensation from PE for any loss which it may sustain in
consequence of the non-performance of the contract.
b) Position of the parties to the contract
PE’s demand for additional amount to proceed further does not fall under the definition of coercion
since PE did not commit, or threaten to commit, any act forbidden by the Penal Code with the
intention of causing ST to enter into an agreement. Therefore, ST’s claim of coercion is not valid.
By reimbursing import duties, it is established that ST altered the original contract and now has to
abide by payment terms i.e. pay the remaining amount.
Remedies available to the parties to the contract
PE may obtain reasonable compensation for damages to the extent of accrued penalty @ 1% per
month for each day of delayed payment.
ST does not have any remedy against PE since it agreed to the alteration of the contract.

September 2023: Q 4 (a)

Consider the following independent situations:

a. In a contract, a specific provision dictates that in the event of a default, Rs. 10 million shall be
payable to the aggrieved party by the defaulting party.

b. A constructive contract lacks a pre-established determination of the damages to be paid in

the event of a default.

Under the Contract Act, 1872, advise how the compensation payable would be determined in
each of the above situations after a default is committed.

Answer
a. Where a contract is breached and a specific sum, i.e. Rs. 10 million, is stipulated as the
penalty for the breach, the aggrieved party is entitled to receive reasonable compensation
from the defaulting party. This compensation should not exceed Rs. 10 million, regardless of
whether actual damage or loss has been proven.

b. When a constructive contract is breached, the party adversely affected by the breach is
entitled to receive compensation from the defaulting party for any loss or damage directly
resulting from the breach. This includes losses or damages that either naturally arose in the
ordinary course of events or were known to both parties at the time the contract was made as
likely outcomes of a breach.

Compensation will not be awarded for any remote or indirect loss or damage incurred due to
the breach. When calculating the loss or damage resulting from a breach of contract, any
existing means of remedying the inconvenience caused by the contract’s non-performance
must be taken into account.

56
CHAPTER NO. 10
APPOINTMENT AND AUTHORITY OF AGENTS

September 2014: Q3
(b) Arif was running a meat shop in Islamabad. He wanted to attend the wedding of his sister in
Peshawar so he asked his friend, Moiz, to look after his shop during his absence. While
managing the shop, Moiz noticed that the deep-freezer in the shop was not working properly. In
order to save the meat from being spoilt, he sold it at a discount of 5% and had the freezer
repaired the next morning. Looking at customers' positive response, Moiz continued to offer the
meat at 5% discount. Upon his return from Peshawar, Arif, being unhappy with the situation,
immediately discontinued the discount and now wants to recover the loss from Moiz.

In view of the provisions of the Contract Act, 1872, analyze the above situation and explain the
rights and liabilities of Arif against Moiz.

Answer
(b) Law of Agency:

The relationship between Arif and Moiz, in the above situation, is that of an agency and presence
of consideration is not necessary for creation of an agency. The request by Arif to Moiz to look
after Arif's shop in his absence tantamount to an express authority which may be given by words
spoken or written.

Arif's liability against Moiz as a principal:

Since Arif asked Moiz to look after his shop during his absence, he is bound to indemnify Moiz
against all expenses incurred by Moiz on the repair of deep-freezer. The repair of deep-freezer
was a lawful act done by Moiz in exercise of the authority conferred on him. Further, Arif is also
bound to bear the discount of 5% which Moiz offered to the customers on the first day, on the
pretext that, an agent has the authority in an emergency to do all such acts as a man of ordinary
prudence would, for protecting his principal from losses under similar circumstances.

Rights of Arif;

However, Moiz's action of continuing the discount of 5% on sale of meat, following the repair of
deep-freezer, was beyond the authority bestowed upon him by Arif as Arif had simply asked him
to look after his shop in his absence.

Further, an agent is bound to conduct the business of his principal according to the directions
given by the principal, or in the absence of any such directions, according to the custom which
prevails in doing business of the same kind at the place where the agent conducts such business.
When the agent acts otherwise, if any loss is sustained he must make it good to his principal and
if any profit accrues he must account for it.

In view of above, Moiz's act of offering 5% discount after the first day cannot be justified as a
lawful act necessary for the purpose, or usually done in the course of conducting such business.

Resultantly, Arif is entitled to recover the loss incurred as a result of this 5% discount on the price
that had been originally fixed by Arif.

September 2017: Q5

57
(b) Kalim Real Estate (KRL) by misrepresenting themselves as an agent of Goofy Builders (GB),
negotiated and entered into a contract with Tameer Associates for acquisition of a piece of land
for GB.

Under the provisions of the Contract Act, 1872 explain the liability of KRL in the above situation.

Answer
(b) Since Kalim Real Estate (KRL) acquired a piece of land on behalf of Goofy Builders (GB),
without their knowledge or authority, KRL's liability would be analyzed under the following two
circumstances:

When GB elects to ratify KRL's acts:

If GB ratifies KRL's acts, the same effects will follow as if the acts had been performed by GB's
authority. Being agent, KRL is bound to conduct the business according to the custom which
prevails in doing business of the same kind at the place where the agent conducts such business.
If KRL acts otherwise, in case of any loss, KRL would be responsible to make good the loss to
GB and if any profit accrues, account for such profit to GB.
Similarly, KRL would be liable to compensate GB in respect of the direct consequences of their
negligence, want of skill or misconduct.
However, if KRL without the knowledge of GB deals in the business of agency on KRL's own
account, GB is entitled to claim any benefit which may have resulted to KRL from the transaction.

When GB disown KRL's acts:

If GB does not ratify the agency, the contract would be between KRL and Tameer Associates
(TA). If TA suffers a loss due to breach of contract, KRL would be responsible to make good the
loss.

March 2019: Q 1
(b) Respond to the following scenarios, under the provisions of Contract Act, 1872:

(iv) While attending a seminar, Khizar told a group of people on his table that he is the agent of
Lucky. Lucky smiled considering it a joke. Later, Moiz who was sitting on the table sold security
cameras and surveillance system to Khizar on credit believing him to be agent of Lucky.
Comment on whether a contract of agency is established between Khizar and Lucky.

Answer
(iv) Khizar in this situation has become agent of Lucky by estoppel. Lucky is bound by this
transaction and he is stopped from denying the existence of the agency since he gave out clear
representation to others by smiling and keeping quiet. Moiz relied on representation of existence
of agency. Thus, if he suffers a loss from the transaction, he may hold Lucky liable as principal.

March 2020: Q 3
(a) Four Wheels Limited (FWL), misrepresenting themselves to be the agents of Big Motors
(BM), persuaded Motor Manufacturers (MM) to sell them 10 luxury Jeeps customized for BM.
Discuss FWL’s liability under the above situation.

Answer
(a) Since Four Wheels Limited (FWL) acquired 10 luxury Jeeps, customized for BM, on behalf of
Big Motors (BM), without their knowledge or authority, FWL’s liability would be analyzed under
the following two circumstances:

58
 (i) When BM elects to ratify FWL’s acts:

If BM ratifies FWL’s act, the same effects will follow as if the act had been performed by BM’s
authority.

Being agent, FWL is bound to conduct the business according to the custom which prevails in
doing business of the same kind at the place where the agent conducts such business. If FWL
acts otherwise, in case of any loss, FWL would be responsible to make good the loss to BM and if
any profit accrues, account for such profit to BM.

Similarly, FWL would be liable to compensate BM in respect of the direct consequences of their
negligence, want of skill or misconduct.

However, if FWL without the knowledge of BM deals in the business of agency on FWL’s own
account, BM is entitled to claim any benefit which may have resulted to FWL from the transaction.

(ii) When BM disown FWL’s act:

If BM does not ratify the agency, the contract would be between FWL and Motor Manufacturers
(MM). If MM suffers a loss due to breach of contract, FWL would be responsible to make good
the loss.

September 2021: Q 4

(a) Akmal appointed a farmer Noman as his agent and authorized him to purchase 200 goats and
300 cows from his village and bring them to Hyderabad for sale in the cattle market. Noman
contacted Fahad, a local herdsman, for purchasing the animals. Fahad informed Noman that he
had 200 goats and 250 cows only. However, Fahad offered to sell 150 sheep at a very low price
in place of 50 cows. Noman agreed to the deal and bought 200 goats, 250 cows and 150 sheep
on the premise that due to the lower prices, Akmal would earn huge profits on sale of sheep.
Subsequently, he brought all the animals to Hyderabad as required by Akmal

Under the provisions of the Contract Act, 1872:

(i) discuss whether transaction entered into by Noman is binding on Akmal. (03)
(ii) what would be your conclusion in (i) above if Akmal sells the sheep immediately?

Answer
(a) (i) Noman, as Akmal’s agent has exceeded his authority by purchasing 150 sheep. Consideration
shall have to be given to the following:

Akmal shall not be bound for the purchase if the extent of excess authority exercised by
Noman is not separable. Therefore, if price of 150 sheep cannot be determined
separately, Akmal will not be bound for entire transaction. However, if the price of 150
sheep can be separately determined, then only the part which is within Noman’s authority
(i.e. 200 goats and 250 cows) is binding on Akmal.

(ii) The conclusion in (i) above would be changed if Akmal sells the sheep, as it shall be
treated as ratification and in such case it shall be treated as if Noman made the
transaction having full authority.

March 2023: Q2 (a)

Doves & Co. (DC) is a partnership firm engaged in the selling of various species of pet birds. The
firm’s operations are managed by two partners namely Faizan and Usama.

Following matters are under consideration of the firm:

59
(a) Haroon, a specialist bird-keeper, owns an aviary where he keeps exotic birds. In order to
source exotic birds from abroad, Faizan plans to appoint Haroon as DC’s agent in Faisalabad for
purchasing 100 birds per week and keeping them in custody until the birds are sold. Under the
provisions of the Contract Act, 1872, briefly explain Haroon’s authority in respect of DC’s
business.

Answer
(a) With respect to DC’s business, Haroon shall have the express authority to do every lawful
thing necessary to purchase the birds and act as their custodian until the birds are sold. An agent
having an authority to carry on a business has the authority to do every lawful thing necessary for
the purpose, or usually done in the course of conducting such business. Further, in case of an
emergency, Haroon shall have the authority, to take all necessary actions for the purpose of
protecting DC from any potential loss as would be done by a person of ordinary prudence, in his
own case, under similar circumstances.

March 2024: Q10 (b)

Define the term ‘agent’ and explain how the authority of an agent is determined.(05)

Answer
An ‘agent’ is a person employed to do any act for another or to represent another in dealings with
third persons.

An agent’s authority may be express or implied. An express authority is given by words spoken or
written whereas implied authority is to be inferred from the circumstances of the case; and things
spoken or written, or the ordinary course of dealing, may be accounted for circumstances of the
case.

An agent having an authority to do an act has authority to do every lawful thing which is
necessary in order to do such act, whereas an agent having an authority to carry on a business
has authority to do every lawful thing necessary for the purpose, or usually done in the course of
conducting such business.

Furthermore, an agent has authority, in an emergency, to do all such acts for the purpose of
protecting his principal from loss as would be done by a person of ordinary prudence, in his own
case, under similar circumstances.

60
CHAPTER NO. 11, 12, 13
THE NATURE OF PARTNERSHIP
RELATIONS OF PARTNERS TO ONE ANOTHER
RELATIONS OF PARTNERS TO THIRD PARTIES

September 2014: Q 4
(a) Rustum, Mahmood and Wali are partners in a firm, Wali wants to admit his sixteen-year-old
son Raghib as a new partner. Under the provisions of the Partnership Act, 1932 can Raghib be
admitted to the partnership business? State the rights, liabilities and limitations of Raghib, if he is
admitted to the partnership business.

(b) Sharing net profits usually creates a very strong inference that the patties have formed a
partnership. But in certain situations, the fact that the profits are shared or the parties have
agreed to share the profits will not by itself create a presumption that a partnership was intended.
List such situations as given in the Partnership Act, 1932.

Answer
(a) Minor's admission to the partnership:

Partnership is created by a valid contract. Since a minor is not capable of entering into a contract,
a contract by or with a minor is void ab-initio. Accordingly, a minor cannot be a partner in the firm.
However, a minor can be admitted to the benefits of partnership with the consent of all the
partners for the time being. i.e. before admission of a minor there must be an existence of
partnership.

Rights, liabilities/limitations of Raghib (minor):

The rights, liabilities and limitations of Raghib who has been admitted to the benefits of
partnership are governed by the following rules:

Rights:

●Right to share property and profits of the firm as agreed by the partners.
●Right of inspecting and taking copies of accounts of the firms ONLY.
●Right not to be adjudged insolvent.

Liabilities:

●Personally, not liable to third parties for the debts of the firm i.e. limited liability.
●His share is liable for the acts of the firm.

Limitations:

●No status of partner. The minor is not entitled to take part in the conduct of the business of the
firm.
●No suit against partners for profit and property except after disconnecting his relation with the
firm.
●Not entitled to have access to books other than accounts.

(b) Sharing profits is not conclusive evidence of a partnership:

These situations are:

● The joint owners of a property who share profits or gross returns arising from the property
are not partners,

61
 ● Where the profits are received by a creditor in payment of a debt or as interest on loan.
● Where the profits are received as wages by an employee.
● Where the profits are received as an annuity by a widow or child of a deceased partner.
● Where the profits are received as consideration for the sale of property/ goodwill or share
thereof.
● A transferee of a partner's interest.
● A minor who is admitted to the benefits of an existing partnership.

March 2015: Q 4
(a) Nomi, Sultan and Behram have decided to establish a partnership business to run a
departmental store. Under the provisions of the Partnership Act, 1932 advise them about their
mutual rights and liabilities towards each other.

(b) The above partnership business was started in January 2015. In March 2015 Behram
received an overdraft of Rs. 100,000 from the partnership's bank. He informed the bank that the
money would be used to construct a new cash counter in the departmental store. However, he
used the money to pay for his wife's Dubai trip. Advise Nomi, Sultan and Behram about their
rights and liabilities and that of the firm in relation to the above transaction

Answer
(a) Mutual rights and liabilities:

Subject to contract between the partners, following are their mutual rights and liabilities:

i. Every partner has a right to take part in the conduct of the business;

ii. Every partner is bound to attend diligently to his duties in the conduct of the business;

iii. Every partner shall have the right to express his opinion in case of difference arising as to
ordinary business matters;

iv. Every partner has a right to have access to and to inspect and copy any of the books of the
firm;

v. A partner is not entitled to receive remuneration for taking part in the conduct of the
business;

vi. The partners are entitled to share equally in the profits earned, and shall contribute equally
to the losses sustained by the firm;

vii. Where a partner is entitled to interest on the capital subscribed by him such interest shall
be payable only out of profits;

viii. A partner making, for the purposes of the business, any payment or advance beyond the
amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six
percent per annum;

ix. The firm shall indemnify a partner in respect of payments made and liabilities incurred by
him:

a. in the ordinary and proper conduct of the business, and

b. in doing such act, in an emergency, for the purpose of protecting the firm from loss, as
would be done by a person of ordinary prudence, in his own case, under similar
circumstances; and

62
x. A partner shall indemnify the firm for any loss caused to it by his willful neglect in the
conduct of the business of the firm.

(b) Behram has clearly exceeded his authority. However, Nomi and Sultan cannot repudiate
Behram's transaction with the bank. As a trading partnership, all the partners have the implied
authority to borrow money on the credit of the firm and the bank is under no obligation to find out
the purpose for which the loan has actually been used.

Further, where a partner acting within his apparent authority receives money from a third party
and misapplies it, the firm is liable to make good the loss. As a result, each of the partners is
jointly and severally liable to the bank for repayment.

However, Behram would be personally liable to the other partners for Rs. 100,000 and shall
indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of
the firm.

Further consequence of his breach of duty not to act in any way prejudicial to the partnership
business; the partnership could be wound up.

September 2015: Q 4
(a) Munaf, a sole proprietor, engaged in the business of selling cooking oil to wholesalers agreed
to admit Lari in his business on the following terms:

That Lari shall not bring any capital and shall not be liable for any losses of the firm. However, he
shall be entitled to receive Rs. 150,000 on introducing any new client to the business, share 40%
of the profits and have the right to exercise all the powers of a partner in the firm.

Analyze the above situation and advise whether a partnership is constituted between Munaf and
Lari under the provisions of the Partnership Act, 1932.

(b) Meher, Abid, Rani and Azra were partners in Abid Associates, a firm of town planners and
consultants. Bari Builders supply goods to Abid Associates on credit. Abid died on 5 January
2015. Meller, Rani and Azra decided to continue the business in the old firm's name. However,
neither the surviving partners nor the representative of Abid gave public notice to this effect.

Due to insolvency of a major client, Abid Associates was facing difficulty in making payment to
Bari Builders. When Bari Builders investigated the matter, they came to know about the death of
Abid. They have now filed suits for the recovery of outstanding balance, severally against Abid's
estate and Meher, as the credit was extended on the faith of Abid and Meher.

In view of the provisions of the Partnership Act, 1932 explain whether Bari Builders are justified in
filing the above suits and would they succeed in recovering the outstanding amount under the
above circumstances.

Answer
(a) Mode of determining existence of partnership:

In determining whether Munaf and Lari constitute a partnership, regard shall be had to the real
relation between the parties, as shown by all relevant facts taken together.

The essentials of a partnership are:

i. There should be a relationship by agreement between two or more persons;

ii. They should run a business with the intention of sharing profits; and
iii. The business should be run by all, or by any one of them acting for all.

63
The Partnership Act does not require that a partner must contribute money or capital. Similarly,
the partners may also agree that any one of them shall not be liable for losses.
Thus, in the presence of the above essentials and the fact that Lari is entitled to exercise all the
powers of a partner Munaf and Lari are said to have constituted a partnership.

(b) Liability of a partner for acts of the firm:

Where after a partner's death, the business is continued in the old firm name, the continued use
of that name or of the deceased partner's name as a part thereof shall not of itself make his legal
representative or his estate liable for any act of the firm done after his death. Bari Builders cannot
sue Abid's estate for the recovery of the outstanding amount of the credit which was extended
after Abid's death.

However, Bari Builders can recover the outstanding amount from Abid's estate only if the credit
was extended to the firm before Abid's death.

Moreover, since every partner is liable, jointly with all the other partners and also severally, for all
acts of the firm done while he is a partner, Bari Builders may file a suit against Meller for the
recovery of outstanding balance and succeed, provided Meher was a partner in the firm at the
time when credit was extended to the firm.

March 2016: Q 4
(a) Maqbool, Rufi and Sham are the partners in Zeeshan Builders (ZB), a firm engaged in the
business of constructing industrial and residential projects in Baluchistan. Sham is also the owner
of a cottage industry in Quetta. Sham has obtained a long-term loan for his cottage industry from
Dostana Bank Limited by transferring his interest in ZB to the bank by way of a mortgage.
Under the provisions of the Partnership Act, 1932 describe the rights and disabilities, if any, of
Dostana Bank Limited in the above circumstances.
(b)In the above partnership business, Rufi intends to acquire a plot of land for the firm with his
own money. However, he is not certain whether the plot would be considered as partnership
property.
Under the provisions of the Partnership Act, 1932 advise Rufi as what is considered to be
included in the partnership property and how it is to be applied.

Answer
(a) Rights of Dostana Bank Limited:

Following rights are available to the bank:

i. entitlement to receive the share of the profits of Sham {the transferring partner).

ii. on the dissolution of the firm or on retirement of Sham the bank is entitled to receive:

a. the share of the assets of the firm to which Sham is entitled.

b. an account from the date of the dissolution for the purpose of ascertaining the share.

Disabilities of Dostana Bank Limited:

The bank shall not be treated as a partner in the firm and during the continuance of the
partnership, shall not be entitled to:

● interfere in the conduct of the business of the firm.

● require accounts.
● inspect the books of the firm.
● challenge the accounts of profits agreed to by the partners.
● sue for dissolution of the firm.

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(b) Property of the firm:

Subject to contract between the partners, the property of the firm includes:

● All property originally brought into the common stock of the firm;

● All rights or interest in the property originally so brought;

● All property acquired, by purchase or otherwise, by the firm or for the firm and all rights and
interest in any property so acquired; and

● Goodwill of the business of the firm;

● Unless, any contrary intention appears any property purchased with partnership money with
or without other partners’ consent will be deemed to be partnership property.

Therefore, the plot of land which Rufi intends to acquire for the firm with his own money shall
become firm's property only if partners intend to make it so.

Application of the property of the firm:

Subject to contract between the partners, the property of the firm shall be held and used by the
partners exclusively for the purposes of the business.

September 2016: Q 4
(a) Raheel, Samina and Umair have agreed to constitute a partnership for carrying on a business
of printing study text for CA students in Peshawar. Raheel wants to specify the rights and duties
of partners in the partnership agreement so that these can be changed with mutual consent of all
the partners whereas Samina and Umair do not consider it necessary and believe that the
implied authority may be extended to bind the firm whenever required.
Under the provisions of the Partnership Act, 1932 list:

(i) the general duties of partners which cannot be modified by an agreement amongst them.

(ii) the restrictions imposed on the implied authority of a partner in the absence of any usage or
custom of trade. (04)

(b) In the above partnership business, assume Umair is a minor who has been admitted to the
benefits of the partnership with the consent of Raheel and Samina. Under the provisions of the
Partnership Act, 1932 list the rights and disabilities of Umair before attaining majority.

Answer
(a)
(i) General duties of partners:
Following are the mandatory duties of a partner that cannot be changed by an agreement
amongst the partners:

●Duty to be just and faithful.

●Duty to carry on business to the greatest common advantage.
●Duty to render true accounts.
●Duty to provide full information.
●Duty to indemnify for loss caused by fraud.
●Duty to be liable jointly and severally - unlimited liability.

65
●Duty to act within authority.
●Duty in case of emergency.

(ii) Restrictions on the implied authority:

In the absence of any usage or custom of trade to the contrary, the implied authority of a partner
does not empower him to:
● submit a dispute relating to the business of the firm to arbitration,
● open a bank account on behalf of the firm in his own name,
● compromise or relinquish any claim or portion of a claim by the firm,
● withdraw a suit or proceeding filed on behalf of the firm,
● admit any liability in a suit or proceeding against the firm,
● acquire immovable property on behalf of the firm,
● transfer immovable property belonging to the firm, or
● enter into partnership on behalf of the firm.
(b) Position of a minor before attaining majority:
The rights and disabilities of Umair before attaining majority are as follows:
(i) Rights:
● right to share property and profits of the firm as agreed by the partners.
● right to have access to accounts of the firm and not to the secret books of the firm.
● right not to be adjudged insolvent
(ii) Disabilities:
● he will not be considered as a partner.
● cannot file suit against partners for profit and property except after disconnecting his relation
with the firm.
● not entitled to have access to books other than accounts.

March 2017: Q 4
(a) Amjad enjoys a very good credit standing in the market. Kashif, owner of Kashif Electronics,
represents Amjad as his partner. Kalim on the faith of such representation supplied laptops to
Kashif Electronics on credit. Kashif defaulted and Kalim filed a suit for the recovery of the amount
against both Amjad and Kashif Under the provisions of the Partnership Act, 1932 analyze the
above situation and explain whether Amjad would be liable to pay the outstanding amount to
Kalim. (04)
(b) Asghar, Babar and Careem are carrying on agricultural business in partnership, they have
agreed to share the profits in the ratio of 4:3:2 respectively. Careem is not liable for the losses of
the firm. Under the provisions of the Partnership Act, 1932 analyze and comment on each of the
following independent situations:
(i) Asghar, who is responsible for procurement, has suggested to buy seeds and pesticides from
Zubair Enterprises, a supplier of crop products, as the seeds and pesticides offered by him are of
good quality and at a very reasonable price. However, Ba bar is not in agreement with Asghar.
(03)
(ii) In February 2017, the partnership incurred substantial losses due to heavy floods in the area
and the partnership assets are not sufficient to meet the firm's liabilities. A number of creditors
have filed a suit for recovery of the amount from Careem.

Answer
(a) Partner by Estoppel or Holding out:

Amjad would be regarded as partner by estoppel or holding out if:

66
he knowingly permitted himself to be represented as a partner in the firm by Kashif. Kalim on the
faith of such representation extended credit to the firm. It does not matter whether Amjad does or
does not know that the representation has reached Kalim. Therefore, in such case, Amjad would
be liable for the outstanding amount to Kalim. However, Amjad would not be considered as
holding out partner if he has denied Kashif’s representation in public holding him as a partner in
the firm or if he has no knowledge of Kashif’s representation.

(b)

(i) Decision making:

Subject to contract between the partners, a partner can bind the firm by his actions. However, in
case of differences, decision should be made by majority of the partners. Asghar cannot take
decision without consultation with other partners. Every partner has a right to express his opinion
before the matter is decided.

(ii) Liabilities of Partners towards third parties:

Every partner is liable jointly with all the other partners and also severally to third parties for all
acts of the firm done while he is a partner.

A partner may not share in the business losses, yet his liability towards outsiders shall be
unlimited.

If the partnership assets are insufficient to meet the firm's liabilities, Careem would have to repay
the amount personally. However, Careem can recover the amount which he is called upon to pay
to the creditors from Asghar and Babar.

September 2017: Q 4
(a) 'The sharing of profit is prima facie evidence but not a conclusive test of partnership'.
Under the provisions of the Partnership Act, 1932 list the circumstances in which receipt by a
person of a share of profits of a business does not of itself make him a partner with the persons
carrying on the business.

(b) On 1 July 2016 Abid, Rizwan and Salman started a partnership business and contributed Rs.
200,000 each towards the film's capital. They also agreed to share profits in equal proportion.
Abid, in addition to his capital contribution, paid Rs. 100,000 to one of the suppliers as a security
deposit. All the partners are entitled to interest at the rate of 8% on their capital. However, during
the year, the firm incurred a loss of Rs. 80,000.
Under the provisions of the Partnership Act, 1932 state the amount of interest, if any, payable to
each partner.
(c) Wasim, Ahmed and Salman are partners in a firm. Salman died in a plane crash. Wasim and
Ahmed agreed to admit Salman's minor son, Noman, to the benefits of the Partnership. Noman
attained majority on 6 June 2016. He became aware of the fact that he had been admitted to the
benefits of the Partnership on 16 July 2016. Being undecided about joining the firm as a partner,
he preferred to wait for some time.
On 10 January 2017, the firm suffered heavy losses due to a fire in one of its factories. Wasim
and Ahmed informed Noman that on account of losses, his entire capital has been wiped off and
he is required to contribute Rs. 100,000 to enable the film to settle its liabilities.
Under the provisions of the Partnership Act, 1932 analyze the above situation and advise
whether Noman would be regarded as a partner in the firm. Also state his liabilities towards the
losses, if any.

Answer

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(a) 'The sharing of profit is prima facie evidence but not a conclusive test of partnership'.

Under the following circumstances the receipt by a person of a share of profits of a business does
not of itself make him a partner with the persons carrying on the business:
where profit or payment is received:

● by a lender of money from persons engaged or about to engage in any business

● by a servant or agent as a remuneration
● by the widow or child of a deceased partner, as annuity
● by the previous owner or part owner of the business, as consideration for the sale of
goodwill or share thereof
● by a transferee of a partner's interest
● by the persons holding a joint or a common interest in any property
● by the minor who is admitted to the benefits of existing partnership
● by a sub partner from a partner in the firm.

(b) Interest to be received by each partner:

Where a partner is entitled to interest on capital such interest is required to be paid only out of
profits of the firm. During the year, since the firm has incurred a loss, all the partners are not
entitled to receive any interest on their capital.
However, any partner making any payment, for the purpose of the business, beyond the amount
of his capital contribution, is entitled to interest thereon at the rate of 6% per annum. Therefore,
Abid is entitled to receive Rs. 6,000 on the amount paid as a security deposit.

(c) Position of a minor on attaining majority

Noman would only be considered a partner in the firm when either he gives public notice of
becoming a partner, at any time within six months of the later of following dates:
-the date of his attaining majority; or
-the date of his obtaining knowledge that he had been admitted to the benefits of partnership; or
If Noman fails to give such notice he shall become a partner on the expiry of the above six
months. i.e. 15 January 2017 in the given case.
Since up to 10 January 2017, when the film suffered heavy losses, Noman's status in the firm had
not been determined, i.e. whether he is or is not a partner in the firm, Noman would not be liable
to pay additional Rs. 100,000 and would only be liable up to the extent of his share in the firm.

March 2018: Q 4
(a) Gul, Raza and Sami are partners in GRS Garments. Raza discovered that a supplier MP
offers reasonable rates for consumables stores and put forth a resolution that MP should be
included in the firm's list of suppliers. MP is owned by Gul and managed by his brother but Gul
did not disclose this fact. When Raza and Sami became aware of the fact, they asked Gul to
share with them the profits earned by MP on transactions with GRS.
Under the provisions of the Partnership Act, 1932 discuss whether Gul is bound to share the
profits as demanded by Raza and Sami.
(b) In 2014, Majid and Ebad started a business of sale and repair of vehicles under the name of
ME Motors (MEM). Majid sold one of the vehicles which came for repair to Zahid for Rs. l.0
million. Zahid on finding out that Majid did not have the legal title of the car sued MEM.
Under the provisions of the Partnership Act, 1932 discuss who would be liable for damages in the
above situation.
(c) X has been carrying on textile business for the past few years. He has recently met Y who is
an expert in textile designing. X and Y have agreed that Y would advise X on various technical
issues and use his contacts for the benefit of the business. Y would be entitled to 35% of the
profits of the business. However, Y will not be required to bring any capital and will not take part
in the day-to-day affairs of the business.

68
Under the provisions of the Partnership Act, 1932 analyze the above situation and advise
whether partnership exists between X and Y.

Answer
(a) Personal profits earned by partners

Gul has a duty to give full information to other partners, in relation to everything affecting the
partnership. Subject to contract between the partners, if Gul had derived any profit for himself
from any transactions with the firm then Gul shall account for that profit and pay it to the firm.

(b) Liability of the firm for wrongful acts of a partner

The act of a partner which is done to carry on, in the usual way, business of the kind carried on
by the firm, binds the firm. Further, in case a loss is sustained by a third party ME Motors (MEM)
would be liable even for the wrongful acts of Majid. Therefore, Zahid can recover the amount from
MEM or any of the partners. However, Majid shall indemnify MEM or Ebad for any loss caused to
them by his fraud in the conduct of the firm’s business.

(c) Mode of determining existence of partnership:

In determining whether X and Y are partners, regard shall be had to the real relationship between
the partners, as shown by all the relevant facts taken together.

A partnership exists where following conditions are complied with:

i. There is an agreement between two or more persons;

ii. They run a business with the intention of sharing profits; and
iii. The business is run by all, or by any one of them acting for all.

The Partnership Act, 1932 does not require that a partner must contribute money or capital in the
partnership. Therefore, since both X and Y have a common interest in the same business in
which they are sharing profit and have a mutual agency relationship between them, partnership
does exist in the above situation unless it can be proved that the real relationship of being
partners does not exist.

September 2018: Q 5
(a) Taqi, Saqib and Abrar are partners in a trading firm. By an agreement among themselves they
decided that no partner shall have the authority to buy or sell goods beyond the limit of Rs.
20,000 without the consent of other partners. Ignorant of this restriction, Wajid sold goods worth
Rs. 45,000 to Saqib who did not consult with the other partners. In view of the provisions of the
Partnership Act, 1932 explain whether the firm and its partners are liable to Wajid under the
above circumstances.
(b) Bader and Yaseen established a distribution agency for supplying low-cost medicines to
hospitals. Yaseen, by way of a verbal agreement, allowed the agency to use his ancestral land
for the business of the agency. Bader purchased a delivery van in his own name with partnership
money. Bader wants to repay the amount to the partnership and therefore a receivable has been
recorded in the partnership books. Under the provisions of the Partnership Act, 1932 describe
whether the above assets would be considered to be the partnership property.
(c) The sharing of profit is prima facie evidence of partnership. Under the provisions of the
Partnership Act,1932 list any four circumstances in which a non-partner could benefit from the
profits of a partnership.

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Answer
(a) Restriction of partner’s implied authority
Any act done by a partner on behalf of the firm which falls within his implied authority binds the
firm unless, the person with whom he is dealing knows about the restriction. Under the given
scenario, the firm and all the partners are jointly and severally liable to pay the entire amount to
Wajid as he was unaware of any such restriction on partners authority.

(b) Partnership property:

Land provided by Yaseen: Subject to contract between the partners, the land would not be
treated as the partnership property. It will become the partnership property only if the partners
show an intention to make it so. But since Yaseen, by way of an agreement, brought the property
only for the use of the partnership, the mere use of such land by the partnership would not make
the land part of the partnership property.

Delivery van: In this case, van does not constitute partnership property because recording of
receivable in partnership books shows that the van was not acquired for the partnership.

(c) Circumstances in which a non-partner could benefit from the profits of a partnership.

Following are the circumstances in which a non-partner could benefit from the profits of a
partnership:

(i) Lender of money to persons engaged or about to engage in any business

(ii) Servant or agent as remuneration
(iii) Widow or child of a deceased partner as annuity
(iv) Transferee of a partner’s interest
(v) A minor who is admitted to the benefits of partnership
(vi) Previous owner or part owner as consideration for the sale of goodwill or share thereof.

March 2019: Q 4
(a) Respond to the following scenarios, under the provisions of Partnership Act, 1932:

(i) Tehram, Rahil and Zain are partners in TRZ Associates. Zain, after obtaining mutual consent
of all the partners, transferred his share of interest to Hatim. Hatim now wants to discuss the
future business strategy of the firm with Tehram and Rahil. In this regard, he has asked the
partners to provide him the firm’s cash flow forecast so that he can determine firm’s growth
potential for the next
five years. Comment on Hatim’s entitlement to do the same.

(ii) Sahir and Sarim are lawyers who have entered into a partnership namely SS Associates.
Noreen approached SS Associates for a property dispute case. However, after seeing Sarim’s
capabilities, Noreen gave Rs. 250,000 to Sarim for investment in stocks and bonds at his
discretion on her behalf. Sarim hid the said fact from Sahir and used the money to meet his
personal needs. Subsequently, Noreen filed a suit on the firm for the recovery of Rs. 250,000.
Reason out the validity of suit filed by Noreen.

(iii) Faizan and Mehran are partners in a trading firm and have decided that no partner shall have
the right to buy or sell goods beyond the value of Rs. 100,000 without consent of the other
partner. Due to a sudden crisis in the market, prices of a product started falling sharply. Faizan
without consulting Mehran sold all the perishable stock worth Rs. 950,000 in order to restrict the
firm’s loss. Can Mehran hold Faizan responsible for misconduct? (02)

(b) Define principle of ‘holding out’ under the Partnership Act, 1932 and state its exception, if any.
(03)

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Answer
(a)
(i) A transfer by a partner of his interest in the firm does not entitle Hatim to interfere in the
conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles
Hatim only to receive the share of profits of Zain, and Hatim shall accept the account of profits
agreed to by the partners.
(ii) The firm cannot be made liable since the receiving of money by Sarim for investment
purposes is not in ordinary course of a lawyer’s business and accordingly, is beyond the scope of
his implied authority as a partner.

(iii) A partner has authority, in an emergency, to do all such acts for the purpose of protecting the
firm from loss as would be done by a person of ordinary prudence, in his own case, acting under
similar circumstances, and such acts bind the firm. Hence, Faizan cannot be held responsible for
misconduct.
(b) Holding out partner
Anyone, who by words spoken or written or by conduct represents himself, or knowingly permits
himself to be represented, to be a partner in a firm, is liable as a partner in that firm to anyone
who has on the faith of any such representation given credit to the firm, whether the person
representing himself or represented to be a partner does or does not know that the representation
has reached the person so giving credit.

Exceptions of holding out partner

After a partner’s death if the business of the firm is continued in the old firm’s name, the
continued use of that name or of the deceased partner will not itself make legal representatives of
the deceased partner liable for any act of the firm done after his death.
September 2019: Q 4
(a) Under the provisions of the Partnership Act, 1932 state the mandatory duties of partners
which cannot be modified by an agreement amongst them.

(b) Masoom, Rahul and Naila are partners in a trading firm. In 2016, they borrowed Rs. 500,000
from Ishtiaq for purchasing a shop in Multan. The loan was agreed to be repaid in two years’ time.
However, due to financial crises the loan could not be re-paid in time. For the purpose of settling
the loan, Ishtiaq has offered Naila to admit his seventeen-year-old son Muneer to the partnership
business.
Under the provisions of the Partnership Act, 1932 discuss whether Muneer can be admitted to the
partnership business. State Muneer’s rights and liabilities if he is so admitted. (04)

(c) Aftab, Rehan and Bali were partners in a law firm. The partnership deed, among other things,
provided that the profits or losses of the firm would be shared equally among the partners. The
firm continued its business for many years with Aftab receiving fifty percent share in the net profit
and Rehan and Bali each sharing twenty-five percent of the net profit. Rehan and Bali never
objected to this arrangement. Later on, partners developed some differences and Rehan and Bali
filed a suit against Aftab for the recovery of their share in profits on the basis of partnership deed.

Under the provisions of the Partnership Act, 1932 discuss whether Aftab would succeed in
defending the suit filed against him by Rehan and Bali.
Answer
(a) Mandatory duties of partners
Following are the mandatory duties of a partner that cannot be changed by an agreement
amongst the partners:
●Duty to be just and faithful.
●Duty to carry on business to the greatest common advantage.
●Duty to render true accounts.

71
●Duty to provide full information.
●Duty to indemnify for loss caused by fraud.
●Duty to be liable jointly and severally - unlimited liability.
●Duty to act within authority.
●Duty in case of emergency.

(b) Minor's admission to the benefits of partnership:

Partnership is created by a valid contract. Since a minor is not capable of entering into a contract,
a contract by or with a minor is void ab-initio. Accordingly, Muneer cannot be a partner in the firm.
However, Munir can be admitted to the benefits of partnership but with the consent of all partners
and not by Naila only.
The rights and liabilities of Munir before attaining majority are as follows:
Rights:
● right to share property and profits of the firm as agreed by the partners.
● right to have access to accounts of the firm and not to the secret books of the firm.
● right not to be adjudged insolvent

(ii) Liabilities:
● Personally, not liable i.e. limited liability.
● His share is liable for the acts of the firm.
(c) Determination of rights and duties of partners by contract between them:
The contract between the partners may be varied by consent of all the partners, and such
consent may be expressed or may be implied by a course of dealing.
In view of above, the suit filed by Rehan and Bali against Aftab is not maintainable because by
accepting profits for the past many years in a ratio different from the agreed ratio they have
impliedly consented to the variation in the contract. i.e. partnership deed.
March 2020: Q 4
(a) Respond to the following independent scenarios, under the provisions of the Partnership Act,
1932:
(i) Moiz, Adeeb and Mumtaz were partners in a firm. Adeeb died. Moiz and Mumtaz
continued the business and agreed to give 10% share of profits of business to the widow
of Adeeb as annuity. Discuss whether Adeeb’s widow would be deemed to be a partner
in the firm.
(ii) Saima, Ahsan and Bari are partners in a law firm. Bari received an advance of Rs.
150,000 from one of firm’s clients for defending a law suit. Bari, without proceeding on
client’s request and informing other partners about the receipt of the amount, utilized the
money for personal use. Discuss the rights and liabilities of partners and that of the firm
with regard to Bari’s act.
(b) Under the provisions of the Partnership Act, 1932 list down any four restrictions imposed on
the implied authority of a partner.
Answer
(a) (i) Existence of partnership:
No, Adeeb’s widow is not a partner in the firm. The receipt by a person of a share of the profits of
a business, is prima facie evidence of the existence of partnership.
However, the receipt by the widow of a deceased partner, as annuity, does not of itself make the
receiver a partner with the persons carrying on the business. In determining whether Adeeb’s
widow is a partner in the firm regard shall be had to the presence of mutual agency relationship
among Moiz, Mumtaz and Adeeb’s widow, which is conclusive evidence, of the presence of
partnership, and which in this case does not exist.

72
(ii) Mutual rights and liabilities of partners and the firm:

Bari has clearly exceeded his authority. However, Saima and Ahsan cannot repudiate Bari’s
transaction with the client. Bari’s act of receiving Rs. 150,000 from the client, for defending them
against a law suit, was done to carry on, in the usual way, business of the kind carried on by the
firm and such act binds the firm.

Further, where a partner acting within his apparent authority receives money from a third party
and misapplies it, the firm is liable to make good the loss. As a result, each of the partners is
jointly and severally liable to the client for all the acts of the firm done while they are the partners.

Similarly, where by the wrongful act or omission of Bari (not defending the client against the law
suit), a loss or injury is caused to the client or any penalty is incurred, the firm is liable to the
same extent as the partners are liable.

However, Bari would be personally liable to the other partners for Rs. 150,000 and shall
indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of
the firm.

Further consequence of his breach of duty not to act in any way prejudicial to the partnership
business; the partnership could be wound up.

b) Restrictions imposed on the implied authority of a partner:

In the absence of any usage or custom of trade to the contrary, the implied authority of a partner
does not empower him to:

(i) submit a dispute relating to the business of the firm to arbitration,

(ii) open a banking account on behalf of the firm in his own name,
(iii) compromise or relinquish any claim or portion of a claim by the firm,
(iv) withdraw a suit or proceeding filed on behalf of the firm,

September 2020: Q 5
(a) Under the provisions of the Partnership Act, 1932 what are the general duties of a partner
which cannot be altered by an agreement amongst themselves? (03)

(b) Saeed, Mona and Burhan are engaged in a partnership business. On 26 March 2019, they
admitted Laila, on her seventeenth birthday, to the benefits of partnership. Laila is Mona’s niece.
On 20 April 2020, Laila became aware of her admittance to the benefits of partnership. On
acquiring the knowledge, she immediately gave notice to Saeed, Mona and Burhan that she
intends to be their partner.

Under the provisions of the Partnership Act, 1932 discuss whether Laila would be regarded as a
partner in the firm with effect from the date of her notice. i.e. 20 April 2020. Also describe Laila’s
liability with regard to firm’s debts once she becomes a partner.

Answer
(a)
General duties of partners:
Following are the mandatory duties of a partner that cannot be changed by an agreement
amongst the partners:
(i) Duty to be just and faithful.
(ii) Duty to carry on business to the greatest common advantage.
(iii) Duty to render true accounts.
(iv) Duty to provide full information.

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(v) Duty to indemnify for loss caused by fraud.
(vi) Duty to be liable jointly and severally – unlimited liability.
(vii) Duty to act within authority.
(viii) Duty in case of emergency.

(b)
Admittance of minor as a partner:
By giving notice of her willingness to be a partner in the firm to the existing partners, Laila would
not become a partner in the firm. In order to be a partner, Laila may give a public notice that she
has elected to become a partner in the firm and such notice may be given at any time within six
months of her attaining majority i.e. up to 26 September 2020, or her obtaining knowledge that
she has been admitted to the benefits of partnership i.e. 20 October 2020, whichever date is later.
And such public notice shall determine her position as regards the firm. If Laila fails to give public
notice till 20 October 2020, she will become a partner in the firm on the expiry of the said six
months.
Laila’s liability with regard to firm’s debts:
Laila would be personally liable to third parties for all debts of the firm from the date she was
admitted to the benefits of partnership i.e. 26 March 2019.

March 2021:Q 5
(a) Malik, Asif and Sohail are partners in a firm carrying on dairy business and sharing the profit
or loss equally. Malik has recently started a poultry business in the same vicinity for which he has
applied for a loan from a bank. As a security of the loan, he offered the bank to create charge
over the book debts of the poultry business together with his interest in the dairy business.

Under the provisions of the Partnership Act, 1932 describe the bank’s rights and limitations in the
dairy business.

(b) Tahira, Farhana and Sadia are partners in a bridal boutique situated in the local market. Sadia
also owns a jewelry shop in the same market. The shop is managed by her brother, Wasi. Tahira
and Farhana were not aware of Sadia’s interest in the jewelry shop. Most of the clients from the
bridal boutique buy jewelry sets from Sadia’s shop. During the year, Sadia earned a hefty profit of
Rs. 10 million from the
jewelry business.

Upon knowing the fact of Sadia’s interest in the jewelry shop, both Tahira and Farhana
demanded Sadia to share her profits equally with them.

Under the provisions of the Partnership Act, 1932 explain whether Tahira and Farhana are
justified in their demand.

Answer
(a) Rights of the bank in the dairy business:

● The bank is entitled to receive the share of profits of Malik in the dairy business.
● In case of dissolution or if Malik ceases to be a partner, the bank will be entitled as
against the remaining partners to receive the share of the assets of the dairy business to
which Malik was entitled, and, for the purpose of ascertaining that share, to receive
partnership’s accounts as from the date of the dissolution.

Limitation of the bank in the dairy business:

74
 The bank, during the continuance of the dairy business, is not entitled to:

● interfere in the conduct of the dairy business, or

● to require its accounts, or
● to inspect the books of the dairy business.

(b) Tahira and Farhana would be justified in their demand, if they have restrained Sadia from
carrying on another business other than that of the firm as is permitted under the Partnership
Act, 1932.

In the absence of any such agreement, they are not justified in claiming profits of the jewelry shop
as the said business is not of same nature nor competes with the bridal boutique business.

Moreover, jewelry shop having same customers does not amount to misusing resources of
boutique business unless it is established that Sadia had used property or business connection of
boutique or the firm’s name to earn personal profits i.e. if she referred the boutique customers to
jewelry shop, only then she would be liable to pay such profits to Tahira and Farhana.

September 2021: Q 5
(a) Under the provisions of the Partnership Act, 1932 list the circumstances in which sharing of
profits of a partnership business does not make a person partner in the firm.
(b) Ibad, engaged in the fishing business, has a good relationship with Aslam, who is a seasoned
and well-known banker. Ibad, representing Aslam as his partner, asked Mehmood for the supply
of a fishing trawler for expansion of his fleet of vessels. Mehmood, on the representation of Ibad,
sold the trawler to Ibad on credit. Subsequently, Ibad defaulted in making payment and Mehmood
filed a suit against Aslam for the recovery of the amount. Under the provisions of the Partnership
Act, 1932 discuss whether Aslam would be liable to pay the outstanding amount to Mehmood.
(04)

Answer
(a) Following are the circumstances in which sharing of profit of a partnership business does not
make a person partner in the firm:

(i) Lender of money to persons engaged or about to engage in any business;

(ii) Servant as remuneration;
(iii) Agent as remuneration;
(iv) Widow of a deceased partner as annuity;
(v) Child of a deceased partner as annuity;
(vi) Transferee of a partner’s interest;
(vii ) A minor who is admitted to the benefits of partnership;
(viii) Previous owner as consideration for the sale of goodwill or share thereof;
(ix) Part owner as consideration for the sale of goodwill or share thereof.

(b) Aslam would be regarded as partner by estoppel or holding out if he knowingly permitted
himself to be represented as a partner in the business by Ibad; and Mehmood on the faith of such
representation delivered the trawler on credit. In above case, Aslam would be liable for paying the
outstanding amount to Mehmood. It does not matter whether Aslam does or does not know that
the representation reached Mehmood. However, Aslam would not be considered as holding out
partner and therefore would not be liable to pay the outstanding amount to Mehmood if he had
denied Ibad’s representation holding him as a partner in the business or if he had no knowledge
of Ibad’s representation.

March 2022: Q 3

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(a) Krypton Traders & Co. (KTC), a partnership firm having five partners, is engaged in the
business of manufacture and export of leather jackets. Operations of KTC are managed by two of
its partners namely Salman and Nadir, while the remaining three partners are not actively
involved in the business of the firm.

In March 2022, Salman presented two proposals to Nadir which, in his view, will improve KTC’s
profitability manifold. He requested Nadir to give his consent to any one of the following two
proposals so that it may be executed:

(i) Reduce material cost by using low-quality leather in production.

(ii) Discontinue production activities and invest KTC’s capital in real estate.
Nadir found none of the proposals in KTC’s interest and disapproved both of them. Salman then
presented the proposals to KTC’s most senior partner, Akmal and sought his consent to proceed
with the execution.
Under the provisions of the Partnership Act, 1932 discuss the possibility of execution of the above
proposals:

 if Akmal agrees with proposal no. (i) only

 if Akmal agrees with proposal no. (ii) only

(b) Zaheer has recently graduated from the Institute of Textile Designing. He has been
approached by Zara with an offer to start a designer boutique in partnership under the name
and style of ‘Zareer Bridals’. Zara proposed to purchase a shop in Karachi and to manage its
operations whereas Zaheer will be responsible for designing the dresses for the boutique.
Zara wants to sign a formal partnership contract with Zaheer. She intends to run the boutique
for five years and afterwards if the venture remains successful, she plans to open
international branches on her own without any profit sharing with Zaheer.
Under the provisions of the Partnership Act, 1932:
 discuss which type of partnership is suitable for Zara.
 discuss the statutory rights and duties of both Zara and Zaheer which can be restricted or
extended in Zara’s favor by way of a partnership contract.

Answer

(a) Following are the possibilities of execution of the proposals presented by Salman:

If Akmal agrees with proposal no. (i) only

The dispute relating to ordinary matters of the business i.e. reducing material cost by
using low-quality leather in production may be decided by a majority of the partners (i.e.
at least 3 partners) unless there is an express or implied contract to the contrary among
the partners.
If Akmal agrees to reduce material cost by using low-quality leather in production, all the
partners of KTC should be informed about the dispute and provided with opportunity to
express opinion before matter is decided.
Hence, proposal no. (i) can be executed if one more partner agrees to it besides Akmal
and Salman.

If Akmal agrees with proposal no. (ii) only

The proposal to discontinue production activities and invest KTC’s capital in real estate
will be considered as change in nature of the firm’s business which cannot be made
without the consent of all the partners unless there is an express or implied contract to
the contrary among the partners.
Since Nadir has already disagreed with the proposal no. (ii), it cannot be executed even if
Akmal agrees to the same.

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 Akmal’s agreement to proposal no. (ii) only, means that he is not in agreement with
proposal no. (i). Despite of Akmal’s and Nadir’s disagreement, proposal no. (i) can still be
executed if the other two partners of KTC agree to execute it.

(b) Zara may form a particular partnership for 5 years with Zaheer in respect of Zareer Bridals
(ZB). In this way, she will be able to take decision of extending or ending the partnership after 5
years because partnership contract can only be varied by consent of all the partners.
The statutory rights and duties of Zara and Zaheer which can be restricted or extended in Zara’s
favor by way of a partnership contract are as follows:
Restrict/extinguish following of Zaheer’s rights:
(i) To take part in the conduct of the business of ZB;
(ii) To access/inspect/copy books of ZB;
(iii) To be involved in decision making in respect of ZB’s operations;
(iv) To object to change in the nature of ZB’s business;
(v) To receive remuneration for taking part in conduct of ZB’s business;
(vi) To receive equal share of ZB’s profit;
(vii) To receive 6% interest p.a. if he makes payment beyond agreed capital;
(viii) To exercise his implied authorities in respect of ZB;
(ix) To carry out any other business besides ZB.
Extend/establish following of Zara’s own rights:
(i) To receive more than 6% interest p.a. on payments made beyond agreed capital;
(ii) To exercise her implied authorities in respect of ZB;
(iii) To use property of ZB for purposes other than ZB’s business.
Restrict/extinguish following of Zara’s own duties:
(i) To indemnify ZB or Zaheer for willful neglect on her part;
(ii) To account for personal profits derived by herself from ZB’s connections;
(iii) To contribute equally to ZB’s losses;
(iv) To account for personal profits derived by herself from competing business;
(v) To attend diligently to her duties in respect of ZB.
Zara may exclude the shop, if purchased for ZB, from being considered as ZB’s property.
September 2022: Q7
On 30 June 2021, Noman, Salim, Ahmed and Sana entered into a partnership for carrying on
business of manufacturing and export of denim fabrics under the name and style ‘Damask
Traders’ (DT).
At the time of commencement of partnership, Noman disclosed to other partners his interest in
family business of export of velvet fabrics. Due to his connections with foreign buyers, Noman
brought in many export orders for DT. Salim handled operations and ensured timely delivery of
orders to customers.
Being the consultant of DT, consider the following matters under the Partnership Act, 1932:
(a) On 5 September 2022, a meeting was held to discuss the financial performance of DT for the
year ended 30 June 2022. Following matters were discussed in the meeting:
(i) Profit for the year was determined after accruing Salim’s salary of Rs. 100,000 per month for
running DT’s operations. Noman found this unjustified and demanded an equivalent salary for his
efforts to establish DT’s business. Discuss the validity of Noman’s viewpoint.
(ii) 20% of the export orders were combined orders for denim and velvet fabrics which were jointly
fulfilled by DT and Noman’s family business. Salim argued that 50% of the velvet business’s
profits should be paid to DT. Comment on the validity of Salim’s argument.
(iii) Ahmed informed that he had paid Rs. 900,000 from his personal bank account to a supplier
on 31 January 2022 due to non-availability of cash in DT’s bank account. On 31 May 2022, the
amount was paid back to Ahmed. He demanded Rs. 27,000 as profit which he would have
earned if the funds were maintained in his bank account. Evaluate the validity of Ahmed’s
demand.

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(iv) During the meeting, Noman stated that since he had brought most of the orders for DT,
remaining partners cannot use the brand ‘Damask Traders’, if he decides to leave the
partnership.
Discuss the validity of Noman’s statement.
(03)
(b) On 15 August 2021, Sana died in a car accident and her seventeen-year-old daughter Sarah
was admitted to the benefits of DT. On 8 September 2022, Sarah is to celebrate her eighteenth
birthday. Advise Sarah regarding her rights and liabilities in respect of DT on attaining the age of
majority.
Answer
(a) (i) Noman finding remuneration accrual unjustified indicates that it was not in accordance with
the contract terms agreed between partners.
Under the Partnership Act, 1932 a partner is entitled to receive remuneration for taking part in
conduct of business, only if it is agreed by all the partners. Therefore, Salim can get salary for
handling DT’s operations subject to consent of all the partners.
Further, Noman can also get salary for establishing DT’s business, subject to consent of all the
partners.
(ii) DT is a newly established business and it is clear that instead of using DT’s name or business
connections, Noman is using his own family business goodwill to establish DT’s reputation.
Under the Partnership Act, 1932, Noman would have been liable to pay the profits derived by
himself to DT, if:
● The businesses were of same nature or competing with each other. Trading in denim
fabrics is entirely separate from dealing in velvet fabrics, it is neither of same nature nor
competes with each other.
● There exists a contract between the partners to share personal profits. Noman had
disclosed his interest in family business dealing with velvet fabrics at commencement of
partnership but there was no contract to share profits earned by him. Due to the
abovementioned reasons, Salim’s argument is invalid and Noman and his family are not
liable to share velvet business’s profits with DT.
(iii) Subject to contract between the partners a partner making, for the purposes of the business,
any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to
interest thereon at the rate of 6% per annum.
Ahmed is entitled to receive interest amount of Rs. 18,000 (900,000×6%×4÷12) only, as he made
the payment beyond the firm’s capital irrespective of the fact that the actual profit offered by the
bank would have been Rs. 27,000.
(iv) Subject to contract between the partners, the property of the firm includes the goodwill of the
business.
Since there was no earlier contract between the partners as to treatment of goodwill, Noman’s
claim on goodwill of the firm is not valid.
(b) Sarah has to decide whether or not she wants to become a partner and such decision has to
be taken by her within six months from the date of attaining majority i.e. by 7 March 2023.
If Sarah decides not to become DT’s partner:
Sarah will have to give public notice of her intention not to become DT’s partner by 7 March 2023
and in this scenario:
● her rights and liabilities shall continue to be those of a minor up to the date on which she
gives public notice;
● her share shall not be liable for any acts of DT done after the date of public notice; and
● she shall be entitled to sue DT’s partners for her share of property and profits.
If Sarah decides to become DT’s partner:

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Sarah will have to give public notice of her intention to become DT’s partner by 7 March 2023 and
in this scenario:
● her rights and liabilities as a minor continue up to the date on which she becomes a
partner;
● she becomes personally liable to third parties for all acts of DT done since she was
admitted to the benefits of partnership; and
● her share in the property and profits of DT shall be the share to which she was entitled as
a minor.
Provided that, if she fails to give public notice as above, she shall become DT’s partner on expiry
of six months from the date of attaining majority.
March 2023:Q10
Under the provisions of the Partnership Act, 1932:
(a) define the principle of ‘Holding out’ and state its exception(s).
(b) identify the assets which are included in the property of a partnership firm.

Answer
(a)Principle of holding out
A person who by words spoken or written or by conduct represents himself, or knowingly permits
himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any person
who has on the faith of any such representation given credit to the firm, whether the person
representing himself or represented to be a partner does or does not know that the representation
has reached the person giving credit. Exception to the principle of holding out The principle of
holding out shall not apply where, after a partner’s death, the business is continued in the old firm
name, the continued use of that name or of the deceased partner's name as a part thereof shall
not of itself make his legal representative or his estate liable for any act of the firm done after his
death.
(b)Subject to contract between the partners, property of the firm includes:
 all property and rights and interests in property originally brought into the stock of the
firm, or
 all property acquired, by purchase or otherwise, by or for the firm, or for the purposes
and in the course of the business of the firm,
 the goodwill of the business.
Furthermore, unless the contrary intention appears, property and rights and interests in property
acquired with money belonging to the firm are deemed to have been acquired for the firm.
March 2023:Q2
(b) Doves & Co. (DC) is a partnership firm engaged in the selling of various species of pet birds.
The firm’s operations are managed by two partners namely Faizan and Usama. Following matters
are under consideration of the Partners:
In February 2023, Usama attended an exhibition where he met Sarah, a well-known animal
enthusiast and social media influencer. Usama requested Sarah to join DC as a partner at a
monthly remuneration of PRs. 100,000. Sarah agreed and joined DC as a partner on 6 March
2023. Under the provisions of the Partnership Act, 1932, describe Sarah’s acts which would bind
DC. Also identify the restrictions on Sarah’s implied authority as a partner.
Answer
While Sarah is DC’s partner, DC shall be bound by Sarah’s acts done while:
 Carrying on, in the usual way, business of the kind carried on by DC i.e. selling of various
species of pet birds;

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 Taking actions, in an emergency, to protect DC from any potential loss as would be done by a
person of ordinary prudence, in his own case, acting under similar circumstances;
 Acting in DC’s name, or in any other manner expressing or implying an intention to bind DC;
 Acting on behalf of DC which falls within Sarah’s implied authority, unless the person with
whom she is dealing knows of the restriction or does not know or believe Sarah to be DC’s
partner.
Restrictions on Sarah’s implied authority as DC’s partner In the absence of any usage or custom
of trade to the contrary, Sarah’s implied authority as DC’s partner, would not empower her to:
 submit a dispute relating to DC’s business to arbitration
 open a banking account on behalf of DC in her own name
 compromise or relinquish any claim or portion of a claim by DC
 withdraw a suit or proceeding filed on behalf of DC
 admit any liability in a suit or proceeding against DC
 acquire immoveable property on behalf of DC
 transfer immoveable property belonging to DC
 enter into partnership on behalf of DC

September 2023: Q3
(a) Granite Tiles (GT) is engaged in the business of designing and manufacturing tiles.
Hakim was a partner at GT, and when he passed away in December 2022, his minor
son Wasim was admitted to the benefits of GT.

Under the Partnership Act, 1932, provide guidance to Wasim concerning his rights and
limitations pertaining to GT.
(b) On 1 November 2023, Wasim will attain the age of majority, and he intends to become
GT’s partner.
Under the Partnership Act, 1932, state the course of action that Wasim should take to
become GT’s partner. Also, advise Wasim about his duties, mutual rights and
liabilities, concerning GT after becoming a partner.
Answer
(a) The rights and limitations of Wasim as a minor admitted to the benefits of GT are as
follows:

Rights
 Wasim has the right to a share of GT’s property and profits, according to the
terms agreed upon by the partners.
 He is entitled to access, inspect, and make copies of GT’s accounts.
Limitations
 Wasim will not be considered as GT’s partner.
 He cannot initiate legal action against the partners for profits or property unless
he disconnects his relationship with GT.
 He is not entitled to access any of GT’s books other than the accounts.

(b) Actions to be taken by Wasim for becoming a partner in GT

In order to become a partner in GT, Wasim must issue a public notice indicating his
intention to become a partner within six months of attaining majority. The notice will
establish his status as a partner in GT. If Wasim fails to issue this notice, he will
automatically become a partner in GT six months after reaching the age of majority i.e.,
on 1 May 2024.

Wasim’s duties
After becoming a partner, Wasim is obliged to:

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  carry on GT’s business to the greatest common advantage;
 be just and faithful to the other partners in GT;
 render true accounts and full information of all things affecting GT to any partner
or their legal representative;
 indemnify GT for any loss caused by his fraudulent conduct in the business.
Wasim’s mutual rights and liabilities
Subject to the contract between the partners, the following are Wasim’s mutual rights and
liabilities:

(i) He has the right to participate in the conduct of the business;

(ii) He is obliged to attend diligently to his duties in the business;
(iii) He has the right to be consulted in case of disagreements over ordinary business
matters, and in case of change to be made in the nature of GT’s business;
(iv) He has the right to access, inspect, and copy any of GT’s books;
(v) He is not entitled to receive remuneration for participating in the business;
(vi) He is entitled to an equal share of the profits and must contribute equally to any
losses sustained by GT;
(vii) If he is entitled to interest on the capital he contributed, such interest shall be payable
only from the profits;
(viii) If he contributes more money to the business than the capital amount initially agreed
upon, he is entitled to interest on the additional amount @ 6% per annum;
(ix) GT shall indemnify him for payments made and liabilities incurred:
 In the ordinary and proper conduct of the business, and
 For act carried out in an emergency to protect the firm from loss, as would be
done by a person of ordinary prudence, in his own case, under similar
circumstances;
(x) He must indemnify GT for any loss caused by his willful neglect in conducting GT’s
business; and
(xi) He is obligated to pay personal profits derived by him due to his association with GT
or from any competing business carried on by him which is of the same nature as
GT.

September 2023: Q6
(a) Saad and Abid are close friends and avid cricket enthusiasts. Saad opened a sports
equipment store in Karachi, and Abid extended his support in setting up the business,
by introducing him to Malik, a major supplier of cricket gear.

Subsequently, Saad, representing Abid as his partner, purchased cricket gear from
Malik, promising to pay on 31 August 2023. However, he failed to pay the amount on
time.

Under the Partnership Act, 1932, discuss whether Malik can recover his dues from Abid.

(b) Under the Partnership Act, 1932, explain the circumstances under which an individual,
entitled to a share of up to 50% of the annual profits of a partnership firm, would still not be
recognized as a partner within that firm.

Answer
(a) If Abid, while introducing Saad to Malik, represents himself either through spoken or written
words, conduct, or by lending his name as a partner in Saad’s business, he would be liable as
if he were a partner. This would be the case if Malik extends credit to Saad based on the
belief that Abid is a partner whether Abid knows or does not know that the representation had
reached Malik.
In this scenario, Abid would be regarded as a ‘partner by estoppel’ (or holding out) and would
be liable for paying the outstanding amount to Malik.
However, Abid would not be considered as a ‘holding out partner’ and would therefore not be
liable for any outstanding amount to Malik if:
 he did not represent himself as being Saad’s partner; or

81
  he denied any claim by Saad that suggested him as a partner; or
 he was unaware of Saad’s representation of him as a partner in the business.

(b) An individual who is entitled to receive up to 50% of the annual profits from a partnership firm
may still not be recognized as a partner in that firm if such individual falls into one of the
following categories:
 Lender of money who has lent money to persons engaged in the business.
 An employee or agent who receives a share of the profit as remuneration.
 The widow or child of a deceased partner, receiving an annuity.
 A previous owner or co-owner of the business, who receives the share as
consideration for the sale of the goodwill or a portion thereof.
 The transferee of a partner’s interest in the firm.
 A minor who has been admitted to the benefits of the partnership firm.

March 2024: Q2 (a)

Under the provisions of the Partnership Act, 1932, list the restrictions imposed on the implied
authority of a partner. (04)

Answer
In the absence of any contrary usage or custom of trade, the following are the restrictions
imposed
on the implied authority of a partner:
(i) submit disputes relating to the firm’s business to arbitration;
(ii) open a bank account on behalf of the firm in his own name;
(iii) compromise or relinquish any claim or portion of a claim by the firm;
(iv) withdraw a suit or proceeding filed on behalf of the firm;
(v) admit any liability in a suit or proceeding against the firm;
(vi) acquire immovable property on behalf of the firm;
(vii) transfer immovable property belonging to the firm;
(viii) enter into partnership on behalf of the firm.
March 2024: Q5
Pentagon Dealers (PD) is a partnership firm engaged in the purchase and sale of automobiles.
Saad, Mona and Zain, partners in PD, share profit in equal proportion.
(b) On 1 January 2024, Saad entered into another partnership namely Triangular Tours (TT)
which arranges trips for the tourists. However, Saad did not inform Mona and Zain regarding his
new partnership venture. During the first two months, TT earned a profit of Rs. 10 million. Under
the provisions of the Partnership Act, 1932, determine Saad’s liability towards Mona and
Zain in respect of profits earned through TT’s business.
(c) Mona owns a 500 square yard plot in a commercial area on which she intends to construct a
grand car showroom in her own name. To cover the construction expenses, she obtained a
personal loan from Circle Bank Limited (CBL). As a security of the loan, CBL’s charge has been
created over Mona’s interest in PD. Under the provisions of the Partnership Act, 1932,
describe CBL’s rights and limitations in respect of PD.
Answer
(b) Saad would only be liable to distribute his share of profits with Mona and Zain in equal
proportion if:
 Saad had been restrained by Mona and Zain from carrying on any business other than that of
PD; or
 it is established that Saad used PD’s property; or PD’s business connection; or PD’s name to
earn personal profits.

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In the absence of any such agreement or the conditions mentioned above, Saad would not be
liable to pay his share of profits from TT’s business because TT’s business is not of same nature
nor does it compete with the automobile business in which PD is engaged.
(c) Rights of CBL in respect of PD’s business
CBL is entitled to receive Mona’s share of profits earned from PD’s business as determined by
the partners. However, if PD is dissolved or if Mona ceases to be PD’s partner, CBL will be
entitled as against Saad and Zain to receive the share of assets of PD’s business to which Mona
was entitled, and, for the purpose of ascertaining that share, to receive PD’s accounts as from the
date of the dissolution.
Limitations of CBL in respect of PD’s business
CBL, during the continuance of PD’s business, is not entitled to:
 interfere in the conduct of PD’s business,
 require PD’s accounts,
 inspect PD’s books,
 enjoy the status of a partner,
 challenge the accounts of profits agreed to by PD’s partners.
March 2024: Q7
(a) Four software engineers, namely Ali, Fawad, Shakir and Zia, formed a partnership firm named
Trapezoid Developers (TD) in March 2021, agreeing to operate the software development
business for a three-year term. By the start of year 2024, TD started receiving an increasing
number of contracts for software development.
Ali and Fawad now wish to continue the partnership beyond the three-year term and have
prepared a proposal to expand the business by providing one-window solution for all hardware
and software related matters. The proposal contains the following terms:
(i) Induct Nazir, a computer hardware expert, as a partner into TD, who will look after all hardware
related matters.
(ii) Acquire a computer hardware store which will arrange all necessary hardware as per the
requirements of TD’s clients.
(iii) Setup a new division to meet the growing demand for customized mobile applications.

The following responses have been received regarding the proposal:

(i) Shakir is concerned that even if all the partners accept the proposal, the business cannot
continue under TD’s name and therefore, a new partnership firm should be formed. He is also not
in favor of starting development of customized mobile applications.
(ii) Zia argued that TD should not pursue hardware business due to increasing exchange rates
and diminishing purchasing power of consumers.
Under the provisions of the Partnership Act, 1932, evaluate the responses received from TD’s
partners and assess their possible effects on the implementation of the proposal.

(b) Abid, a proposed partner in a partnership firm, has inquired you about the circumstances in
which he must indemnify the firm and the situations in which the firm would indemnify him, after
he becomes the partner.

Under the provisions of the Partnership Act, 1932, respond to Abid’s inquiry.
Answer
(a) Evaluation of Shakir’s response and its effect(s) on the proposal
 Shakir’s concern is not valid because even though TD was formed for a fixed term expiring 31
March 2024, however, under the provisions of the Partnership Act, 1932, TD may continue to
carry on its business even after expiry of the mutually agreed term, if all partners give their
consent to continue the business.
Where the partnership business is continued after expiry of the term, TD would become
‘partnership at will’ in which mutual rights and duties of TD’s partners would remain the same as

83
they were before 31 March 2024, so far as they may be consistent with the incidents of
partnership at will.
However, if Shakir remains adamant that a new partnership should be formed then it may require
determination of mutual rights and duties of partners in the new firm which may be done through
a formal partnership agreement.
 Shakir’s objection in respect of development of customized mobile applications constitutes a
dispute relating to ordinary matters of the business that may be decided by a majority of the
partners (i.e., at least 3 partners) unless there is an express or implied contract to the
contrary among the partners.
All the partners of TD should be informed about such dispute and should be provided with an
opportunity to express opinion before matter is decided. However, TD can still undertake the
application development if Zia agrees.
Evaluation of Zia’s response and its effect(s) on the proposal
The proposal to pursue hardware business is a different venture which would constitute change in
nature of TD’s business. Such business cannot be undertaken without the consent of all the
partners unless there is an express or implied contract to the contrary among the partners.
If Zia remains firm on his disagreement with regards to hardware business, then:
 TD cannot pursue hardware business;
 Induction of Nazir as a partner with hardware expertise may not be required;
 Remaining partners may dissolve TD and consider to form new partnership;
 Remaining partners may form new partnership with Nazir.
(b) Abid shall be required to indemnify TD for any loss caused to it by his act of fraud or willful
neglect (subject to contract between partners) in the conduct of TD’s business.
Subject to contract between the partners, TD shall indemnify Abid in respect of payments made
and liabilities incurred by Abid in:
 the ordinary and proper conduct of TD’s business;
 doing such act, in an emergency, for the purpose of protecting TD from loss, as would be
done by a person of ordinary prudence, in his own case, under similar circumstances.

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CHAPTERNO.14,15
NEGOTIABLEINSTRUMENTS
PROVISIONS RELATING TO CHEQUES

September 2014: Q 5
(a) What do you understand by the terms 'Holder', 'Holder in due course' and 'Payment in due
course' under the Negotiable Instruments Act, 1881?

Answer
(a) Holder

A person is called holder of a negotiable instrument if he satisfies the following two conditions:

He must be entitled to the possession of the instrument in his own name and

He must be entitled to receive / recover the amount due on the instrument from the patties liable
under the instrument

Thus, a holder is a bearer of the bearer instrument and the endorsee or payee of the order
instrument.

Explanation:

Where the note, bill or cheque is lost and not found again, or is destroyed, the person in
possession of it or the bearer thereof at the time of such loss or destruction shall be deemed to
continue to be its holder.

Holder in due course

Holder in due course means any person who for consideration becomes the possessor of a
promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee
thereof, if payable to order, before it became overdue, without notice that the title of the person
from whom he derived his own title was defective.

Explanation:

The title of a person to a promissory note, bill of exchange or cheque is defective when he is not
entitled to receive the amount due thereon.

Payment in due course

Payment in due course means payment in accordance with the apparent tenor of the instrument
in good faith and without negligence to any person in possession thereof under circumstances
which do not afford a reasonable ground for believing that he is not entitled to receive payment of
the amount therein mentioned.

March 2015: Q 5

(a) Under the provisions of the Negotiable Instruments Act, 1881 identify the person(s) who may
cross the cheque after its issue and the manner in which it may be crossed.

85
Answer
(a) Crossing after issue:

Where a cheque is uncrossed, the holder may cross it generally or specially.

Where a cheque is crossed generally, the holder may cross it specially.

Where a cheque is crossed generally or specially, the holder may add the words "not negotiable".

Where a cheque is crossed specially, the banker to whom it is crossed may again cross it
specially to another banker, his agent, for collection.

When an uncrossed cheque, or a cheque crossed generally, is sent to a banker for collection, he
may cross it specially to himself.

September 2015: Q 5

Date: September 12, 2015

Rs. 100,000/- only
Please pay on demand to Tauseef or to his order the sum of Rupees One Hundred Thousand only, value received.

To Sd/-_____________
Laila Accepted Laeeq
Busy Road Laila Saddar
Karachi Karachi

(a) Identify the type of above negotiable instrument and briefly describe its essential
characteristics under the provisions of the Negotiable Instruments Act, 1881.

Answer
(a) Bill of Exchange:

The above negotiable instrument is a bill of exchange.

Essential characteristics of a bill of exchange:

Following are the essential characteristics of a bill of exchange:

In writing: A bill of exchange is required to be in writing.

Order to pay: The drawer orders the drawee to pay money to the payee. Mere request does not
constitute an order.

Definite and unconditional: The order to pay should not depend upon a condition or upon the
happening of an uncertain event.

Signed by drawer: The instrument must be signed by the maker (drawer)and accepted by the
drawee.

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Certain parties: All the parties must be certain i.e. indicated in a bill of exchange with reasonable
certainty.

Sum payable must be legal tender: The order must be to pay money and money only.

Sum Payable must be certain: It is essential that sum of money ordered to be payable must be
certain and definite. However, it may include future interest or return in any other form or is
payable at an indicated rate of exchange, or is payable at the current rate of exchange or the sum
payable being subject to adjustment for profit or loss of the business of the maker.

Time for payment: The time for payment may be on demand or at a fixed or determinable future
time.

It must be delivered: A bill of exchange is incomplete until it is delivered to the payee

March 2016: Q 5
(a) Under the provisions of the Negotiable Instruments Act, 1881 briefly describe the terms
'Negotiation' and 'Indorsement'.

(b) Sarwar owes Rs. 500,000 to Zain. The amount is payable on 11 August 2016. Sarwar intends
to issue a negotiable instrument to Zain in satisfaction of her debt.

Under the provisions of the Negotiable Instruments Act, 1881 advise Sarwat about the type of
negotiable instrument which may be issued to Zain, assuming that Sarwat does not want to
involve a third party in making the payment. Also prepare a draft of the said instrument.
(You may make assumptions wherever you consider necessary)

(c) Under the provisions of the Negotiable Instruments Act, 1881 describe the purpose of crossing
a cheque. Also, state whether a cheque can be crossed specially more than once.

Answer
(a)

Negotiation:

When a promissory note, bill of exchange or cheque is transferred to any person, so as to

constitute that person the holder of it, the instrument is said to be negotiated.
Indorsement:

When the maker or holder of a negotiable instrument signs the same, otherwise than as maker,
for the purpose of negotiation on the back or face of it or on a slip of paper annexed thereto, or so
signs for the same purpose a stamped paper intended to be completed as a negotiable
instrument he is said to indorse the same and is called the endorser.

(b) Sarwat would issue the following promissory note to Zain.

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Draft of the promissory note

Date: March 12, 2016

Rs. 500,000/- only

Five months after date, I promise to pay Zain or to his order the sum of Rupees Five Hundred Thousand, for
value received.

To Sd/-__________
Zain Sarwat
ABC Road XYZ Road
Karachi Karachi

(c) Purpose of crossing a cheque:

The purpose of crossing a cheque is to direct the drawee (banker) to pay the amount of the
cheque only to a banker so that the party who receives the payment can easily be traced.
Can a Cheque be Crossed Specially more than Once:
Yes. It is allowed when a banker in whose favor a crossing is made, once again crosses it
specially in favor of his agent (another banker) for collection.

March 2017: Q 5
(b) Aamna has received a bearer cheque from her uncle Shoaib as a gift. Shoaib's title to the
cheque was defective and Aamna after receiving the cheque indorsed it to her landlord on
account of rent. Under the Negotiable Instruments Act, 1881 explain whether the landlord would
be able to recover the amount of the cheque.

Answer
(b) Holder in due course
If the landlord has no knowledge of the defects in title of the previous holders of the cheque, he
would be regarded as holder in due course as he has received the cheque against consideration
(rent).
Therefore, he is entitled to recover the amount of the cheque. However, if the landlord was aware
of the defective title of the holder from whom he derived his own title, then he would not be
considered as holder in due course and he would not be able to recover the amount of the
cheque.

March 2018: Q 5
Under the provisions of the Negotiable Instruments Act, 1881 briefly explain:
(a) the term ‘endorsement’. (03)

Answer
(a) Endorsement
When the maker or holder of a negotiable instrument signs the same, otherwise than as such
maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed

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thereto, or so signs for the same purpose a stamped paper intended to be completed as a
negotiable instrument such act is called endorsement.

September 2018: Q 3
(a) In view of the provisions of the Negotiable Instruments Act, 1881 comment on the type and
validity of each of the following instruments signed by Rahul:

i. Nauman please pay to Mahreen Rs. 100,000.

ii. Nauman, I shall be highly obliged if you make it convenient to pay Rs. 100,000 to Mehreen.

iii. I acknowledge myself to be indebted to Nauman in Rs. 100,000 to be paid on demand, for
value received.
iv. I promise to pay Mahreen or order Rs. 100,000 six days after Nauman’s death. (04)

(b) Under the provisions of the Negotiable Instruments Act, 1881 discuss the effect(s) of the
words ‘Not negotiable’ on a cheque crossed specially.
(03)

Answer
(a) Essential elements of bills of exchange and promissory note

(i) It is a valid bill of exchange as it contains and unconditional order to pay.

(ii) It is in the nature of bill of exchange but it is not a valid bill of exchange as it contains only
request to pay and not an order to pay.

(iii) It is a valid promissory note containing all the essential elements.

(iv) It is a valid promissory note. It is not considered to be conditional, for it is certain that Nauman
will die, though the exact time of his death is uncertain.

(b) Effect(s) of the words 'Not Negotiable' on a cheque crossed specially

The effect of the words 'not negotiable' on a crossed cheque is that the title of the transferee of
such a cheque cannot be better that that of transferor. The addition of the words not negotiable
does not restrict the further transferability of the cheque. It only takes away the main feature of
negotiability, which is transferability free from defects.

March 2019: Q 2
(a) Under the provisions of Negotiable Instruments Act, 1881 define ‘Holder in due course’.

Answer
a) Holder in due course - means any person who for consideration becomes the possessor
(holder) of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or
endorsee thereof, if payable to order, before it became overdue, without notice that the title of the
person from whom he derived his own title was defective.

September 2019: Q 5
(a) Respond to the following independent situations, under the provisions of the Negotiable
Instruments Act, 1881:

(ii) Samad drew a cheque which was payable to ‘Munaf or order’. Saleem after forging Munaf’s
endorsement on the cheque received payment from the banker. Discuss whether the banker

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would be liable on the cheque to Samad.
(02)

(b) Under the provisions of the Negotiable Instruments Act, 1881 briefly describe:

(ii) Payment in due course. (02)

Answer
(a) (ii) Payment in due course of crossed cheque:

The banker in this case would not be liable to Samad and can debit Samad’s account with the
amount of the cheque provided the payment was made in due course without negligence and in
accordance with the apparent tenor of the cheque. The banker is not expected to verify the
signatures of the payees and the endorsees in an order cheque. The banker would only be liable
to Samad if he can prove that payment was not made in due course.

(b) (ii) Payment in due course

Means payment in accordance with the apparent tenure of the instrument in good faith and
without negligence to any person in possession of it. Apparent tenure means the period of time as
expressed in the instrument, after which it is payable.

Payment in due course, which results in discharge of a negotiable instrument, must fulfill the
following conditions.

The payment must be in accordance with the apparent tenure of the instrument.
The payment must be made in good faith and without negligence.
The payment must be made to a person in possession of the instrument
The payment must be made in money only

March 2020: Q 5
(c) Sultan drew a bill of exchange on Amjad and made it payable to Bukhari or order. On maturity
another person of the same name wrongfully acquired possession of the bill and presented it to
Amjad for payment. Amjad after making due inquires and being satisfied that the presenter is
Bukhari, made payment on the bill.

Under the provisions of the Negotiable Instruments Act, 1881 discuss whether Amjad is
discharged from his liability.
(02)

Answer

(c) Payment in due course:

Yes, Amjad is discharged from his liability on the bill.

Amjad made payment to the presenter, who was in possession of the bill, according to the
apparent tenor of the instrument, in good faith and without negligence, after making due inquiry
as to his identity.

It is therefore, a payment in due course and the acceptor is discharged.

September 2020: Q 6
(a) Under the provisions of the Negotiable Instruments Act, 1881 what would be the effect(s) of
the words ‘Not negotiable’ on a cheque crossed generally?

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(b) Mujahid bought readymade garments worth Rs. 600,000 from Shoaib on credit. The amount
is payable on 25 December 2020. Mujahid wants to issue a negotiable instrument in satisfaction
of his debt to Shoaib without involving a third party for the payment.
Under the provisions of the Negotiable Instruments Act, 1881 identify the type of negotiable
instrument which Mujahid may issue to Shoaib in satisfaction of his debt. Also prepare a draft of
the said instrument.
(You may assume necessary details for the preparation of the negotiable instrument)
Answer
(a Effect(s) of the words ‘Not negotiable’ on a cheque crossed generally
)
The effect of the words “not negotiable” on a crossed cheque is that the title of the
transferee of such a cheque cannot be better than that of its transferor. The addition of the
words not negotiable does not restrict the further transferability of the cheque. It only
takes away the main feature of negotiability, which is transferability, free from defects.
(b Mujahid would issue a promissory note as time instrument to Shoaib in satisfaction of his
) debt.

Draft of the promissory note

Date: September 26, 2020
Rs. 600,000/- only

Three months after date I promise to pay Shoaib or to his order the sum of
Rupees Six Hundred Thousand, for value received.

T Sd/-
o
Shoaib Mujahid
XYZ Street Down Town
Karachi Karachi
March 2021 Q 6
(a) Under the provisions of the Negotiable Instruments Act, 1881 explain different types of
crossing of cheque along with their respective effects.

(b) Under the provisions of the Negotiable Instruments Act, 1881 identify the type of each of the
following instruments and give reason(s) as to validity of each instrument.

(i) I promise to pay Zahid Rs. 350,000 and all the applicable interest amounts.
(ii) Pay Rs. 350,000 to Jafer along with interest of Rs. 3,500.
(iii) I hereby acknowledge that I have taken Rs. 350,000 from Abid and shall pay the interest to
him on the amount at agreed interest rate.
Answer
(a) Following are the types of crossing of a cheque:

(i) General crossing:

A cheque is said to be crossed generally where it bears across its face an addition of the words
“and company” or any abbreviation of it between two parallel transverse lines.
Effect of crossing:

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The banker on whom cheque is drawn shall not pay it otherwise than to a banker.
(ii) Special crossing:
A cheque is said to be crossed especially where it bears across its face an addition of the name
of the banker, either with or without the words “not negotiable”, that addition shall be deemed a
crossing, and the cheque shall be deemed to be crossed specially. Parallel lines are not
necessary.
Effect of crossing:
The banker on whom cheque is drawn shall not pay it otherwise than to a banker to whom it is
crossed or his agent for collection.

(iii) Restrictive crossing:

Restrictive crossing may be added with general crossing by adding the words “A/c Payee” or “A/c
Payee only”.

Effect of crossing:

The cheque shall cease to be negotiable. The amount collected by the banker on the cheque
must be credited only to the account of payee named in the cheque.
(iv) Not Negotiable crossing:
The addition of the words ‘not negotiable’ does not restrict the further transferability of the
cheque. It only takes away the main feature of negotiability, which is transferability free from
defects.

Effect of crossing:

The effect of the words ‘not negotiable’ on a crossed cheque is that the title of the transferee of
such a cheque cannot be better than that of its transferor.

(b)

(i) This instrument is a promissory note. It should not be accepted as it is invalid since the amount
payable under it is not certain.

(ii) This instrument is a bill of exchange. It will be considered valid if signed by drawer and drawee
as it meets rest of the conditions of bill of exchange hence should be accepted.

(iii) This instrument is a promissory note. It should not be accepted payment of principal amount
has not been promised.as it is invalid since
September 2021: Q 6
Bilal owes Rs. 900,000 towards Saad and undertakes to endorse a promissory note in his favor in
order to settle the debt.
Under the Negotiable Instruments Act, 1881 explain to Saad the essentials of a valid
endorsement as he wants to ensure that promissory note is properly endorsed.
Answer
The following are essentials of valid indorsement:
● It must be on instrument itself, if no space is left on the back of the indorsement, further
indorsements are signed on a slip of paper attached to the instrument called ‘allonge’.
● It must be signed by the endorser for the purpose of negotiation. Signature of the endorser on
the instrument without any additional words is sufficient.
● No particular form of words is necessary for an indorsement

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● It must be completed by the delivery of the instrument with the intention of passing the
property in it.
● Negotiation by indorsement must be of the entire instrument. Indorsement for part of the
amount is invalid.
March 2022: Q 4
(a) Amir drew a cheque in favor of Ghalib Mehmood on Xenon Bank Limited (XBL). He crossed
the cheque specially to be paid into Rhenium Bank Limited (RNBL).
The cheque was stolen from Ghalib’s wallet and before theft was revealed, cheque was
deposited in favor of another person having the same account title ‘Ghalib Mehmood’ into his
account maintained with Rhodium Bank Limited (RDBL).
Under the Negotiable Instruments Act, 1881 discuss whether XBL would be liable to the true
owner if the cheque was cleared and funds were transferred to RDBL.
(b) Assume that in (a) above, the stolen cheque was deposited in favor of another person having
the same account title ‘Ghalib Mehmood’ into his account maintained with Rhenium Bank
Limited (RNBL).
Under the Negotiable Instruments Act, 1881 discuss the implications on RNBL, if the cheque
is cleared and funds are received in RNBL.

(c) Explain the circumstances in which a banker must refuse payment of a cheque.

Answer

(a) If XBL cleared the cheque and funds were transferred to RDBL i.e. otherwise than to the
banker to whom it was specially crossed (RNBL), in that case, XBL shall be liable to Ghalib
Mehmood i.e. true owner of the cheque, for any loss he may sustain owing to the wrong
clearance of cheque because it will be considered to have been paid out of due course.

However, XBL will not be liable to Ghalib Mehmood, if the cheque presented for payment:

(i) did not at the time of presentment appear to be crossed; or

(ii) had a crossing which was altered otherwise than as authorized by the Negotiable
Instruments Act, 1881;
and XBL cleared the cheque and transferred the funds in good faith and without
negligence.

(b) If RNBL received funds from XBL against the crossed cheque in good faith and without
negligence, then RNBL shall not incur any liability by reason only of having received such
payment even if the customer had no title or defective title thereto.

(c) Following are the circumstances in which a banker must refuse payment of a cheque:
(i) where bank has received countermand of payment;
(ii) where bank has received notice of customer’s death;
(iii) where bank has received notice of adjudication of the customer as insolvent;
(iv) where cheque presented for payment has been crossed specially more than once.
transactions:

September 2022:Q3
On 5 September 2022, Aftab bought goods from Kamran for Rs. 950,000 on credit of two months
and immediately sold them to Abdullah for Rs. 960,000. Aftab received Rs. 10,000 in cash from
Abdullah and the remaining amount was agreed to be received after two months. Aftab intends to
settle both the transactions through a negotiable instrument.

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Under the provisions of the Negotiable Instruments Act, 1881 prepare a draft of the negotiable
instrument that Aftab may issue in settlement of both the transactions. (Assume necessary
details for the preparation of the negotiable instrument).

Answer
Aftab may issue following negotiable instrument i.e. bill of exchange in settlement of both the
debts:

Draft of the bill of exchange

Rs.950,000/-only Dated: 5 September 2022

Two months after date pay to Kamran or to his order the sum of Rupees Nine Hundred and
Fifty Thousand only, for value received.

Accepted
Signed by Abdullah

To
Abdullah Sign:_________
ABC Road Aftab
Name of city XYZ Road
Name of city

March 2023:Q2
(c) On 1 March 2023, DC supplied 50 finch birds to Raven Parks (RP) for Rs. 200,000. Rizwan,
RP’s owner, holds a bill of exchange originally issued to him for Rs. 200,000 which is due to
mature on 31 March 2023. He has offered to endorse the aforesaid bill of exchange in DC’s favor.
Under the provisions of the Negotiable Instruments Act, 1881, discuss the essentials which must
be ensured by DC before accepting the bill of exchange.

(d) Assume that in (c) above, Rizwan is a holder in due course in respect of the bill of exchange
which has been offered to be endorsed in DC’s favor. Under the provisions of the Negotiable
Instruments Act, 1881, discuss the conditions to be fulfilled by a person to become a holder in
due course.

Answer

DC must ensure that the bill of exchange (B/E) which was issued to Rizwan and is going to be
endorsed in DC’s favor is valid i.e. it fulfills all of the following essentials of a negotiable
instrument and endorsement:

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  B/E contains an unconditional order to pay;
 Drawer name is appearing on B/E and B/E is properly stamped;
 B/E is signed by the drawer and the drawee;  All the parties mentioned on the B/E are
certain;
 If B/E contains any material alteration, the same is confirmed by the appropriate party
through signature;
 Rizwan is entitled to the possession of B/E in his name;
 The sum payable under B/E must be certain and contain legal tender only;
 Rizwan is entitled to receive/recover Rs. 200,000 from the parties liable under the B/E;
 Rizwan has endorsed B/E in DC’s favor on the instrument itself for the purpose of
negotiation;
 B/E is delivered to DC with the intention of passing the property in it.

(d) Following conditions are required to be fulfilled by Rizwan in order to become a holder
in due course:

 He must fulfill all essentials of a holder and must be a holder for valuable consideration;
 He should receive the B/E before its maturity; and
 He should take the B/E without any negligence on his part and in good faith without
having any reason to believe that any defect existed in the title of the transferor. If there is
any suspicion and he takes the B/E without making proper inquiries, he cannot be said to
be acting in good faith.

September 2023: Q10

(a) Zareen has signed the following instruments:

(iv) I promise to pay Rs. 5 million to Maria and further undertake to deliver her my car
with registration number FNT-23 on 30 September 2023, for value received.

(v) Zainab, pay Rs. 20 million to Saeed as early as possible.

(vi) I acknowledge that I am indebted to Mehreen for USD 200,000 to be paid on
demand, for value received.

Under the Negotiable Instruments Act, 1881, comment on the type and validity of
each
of the above instruments.

(b) Rustom issued a cheque payable to 'Laiba or order'. Rizwan, by falsifying Laiba's
endorsement on the cheque, managed to receive payment from the bank.

Under the Negotiable Instruments Act, 1881, discuss whether the bank would be liable
towards Rustom for making the payment to Rizwan.

(c) Under the Negotiable Instruments Act, 1881, identify four differences between
promissory note and bill of exchange.
(04)

Answer

(a) (i) It is a not a valid promissory note because it includes Zareen’s undertaking to deliver her
car. A promissory note is an instrument in writing that contains an unconditional undertaking
to pay a certain sum of money only.
(ii) It is not a valid bill of exchange on account of uncertainty.
(iii) It is not a valid promissory note because the promise to pay must not be for foreign
currency.

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(b) The banker in this case would not be liable to Rustom and can debit Rustom’s account with
the
amount of the cheque provided the payment was made in due course without negligence and
in accordance with the apparent tenor of the cheque. The banker is not expected to verify the
signatures of the payees and the endorsees in an order cheque. The banker would only be
liable to
Rustom Promissory note Bill of exchange
if he can 1. There are two parties i.e. the maker and There are three parties i.e. the drawer,
prove the payee. the drawee and the payee.
that
payment
was not 2. The maker of a promissory note cannot The drawer and the payee may be the
made in be the payee because the same person same person where a bill of exchange is
due cannot be both the promisor and the drawn as “Pay to me or my order”.
course. promise.
(c)
3. There is a promise to make the There is an order for making the
payment. payment.

4. It requires no acceptance as it is signed It needs acceptance by the drawee

by the person who is liable to pay. before it is presented for payment.

5. The liability of the maker is primary and The liability of the drawer is secondary
absolute. and conditional. It is only when the
acceptor does not honor the bill of
exchange that the liability of drawer
arises as a surety.

6. The maker stands in immediate relation The drawer of an accepted bill stands in
with the payee. immediate relation with the acceptor and
not the payee.

7. It cannot be drawn “payable to bearer”. It can be drawn “payable to bearer”

provided that it is not drawn “payable to
bearer on demand”.

8. In case of dishonor, no notice of In case of dishonor, notice of dishonor

dishonor is required to be given to the must be given by the “holder” to all prior
maker. parties who are liable to pay (including
the drawer and endorser).

March 2024: Q5 (d)

Pentagon Dealers (PD) is a partnership firm engaged in the purchase and sale of automobiles.
Saad, Mona and Zain, partners in PD, share profit in equal proportion.

96
PD sold a Mercedes-Benz, and in exchange, the customer issued a cheque crossed generally for
Rs. 50 million in favor of ‘Pentagon Dealers’. Zain was concerned for the safety of the cheque, so
he added the words ‘not negotiable’ between the two parallel transverse lines in his own
handwriting. Under the provisions of the Negotiable Instruments Act, 1881, explain what
would be the effect(s) of Zain’s action on the cheque.

Answer
The cheque would remain valid as Zain, being holder of the cheque, has the authority to add the
words ‘not negotiable’ and such addition to the general crossing is authorized under the
provisions of the Negotiable Instruments Act, 1881.

The addition by Zain of the words ‘not negotiable’ does not restrict the further transferability of the
cheque. However, it takes away the main feature of negotiability, which is transferability free from
defects.

The effect of the words ‘not negotiable’ on a crossed cheque is that the title of the transferee of
such a cheque cannot be better than the title of its transferor. Therefore, a holder with a defective
title cannot give a good title to a subsequent holder.

The objective of adding the words ‘not negotiable’ is to afford protection to PD (i.e., holder of the
cheque) against miscarriage or dishonesty in the course of transit by making it difficult for the
cheque so crossed cashed, until it reaches its destination.

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CHAPTER NO. 16
ANTI-MONEY LAUNDERING AND ELECTRONIC PAYMENTS

March 2022 Q 7
(a) Under the provisions of the Anti-Money Laundering Act, 2010 explain when a person may
be held accountable for a money laundering offence. Also discuss the possible
consequences, if he is proven guilty.
Answer
(a) In following situations, a person may be held accountable for a money laundering offence if
he:
(i) acquires, converts, possesses, uses or transfers property, knowing or having reason to
believe that such property is proceeds of crime;
(ii) conceals or disguises true nature, origin, location, disposition, movement or ownership
of property, knowing or having reason to believe that such property is proceeds of
crime;
(iii) holds or possesses on behalf of any other person any property knowing or having
reason to believe that such property is proceeds of crime;
v) participates in, associates, conspires to commit, attempts to commit, aids, abets,
facilitates, or counsels the commission of the acts specified above.
Possible consequences of a money laundering offence
If a person is proven guilty for money laundering offence, he shall be punished with rigorous
imprisonment for a term of one to ten years, liable to fine up to Rs. 25 million and also liable
to forfeiture of property involved in money laundering or property of corresponding value.

September 2022: Q6

(a) Under the Payment Systems and Electronic Fund Transfers Act, 2007 identify the operational
arrangements required to be established by the operators of a designated payment system.

Answer
Under the Payment Systems and Electronic Fund Transfers Act, 2007 the operational
arrangements required to be made by the operators of a Designated Payment System (DPS)
are as follows:
(i) rules and procedures setting out the rights and liabilities of the operator and the participant
and the financial risks the participants may incur;
(ii) procedures, controls and measures for the management of credit, liquidity and settlement
risk, including rules determining the time when a payment instruction and a settlement is final;
(iii) criteria for participation in the DPS; and
(iv) measures to ensure the safety, security and operational reliability of the DPS including
contingency arrangements.

March 2023: Q9
(a) List any four circumstances under which the State Bank of Pakistan may revoke the
designation of a designated payment system under the provisions of the Payment Systems and
Electronic Fund Transfers Act, 2007.

Solution
(a) The State Bank of Pakistan (SBP) may revoke the designation of a designated payment
system (DPS) if it is satisfied that:
 the DPS has ceased to operate effectively as a payment system;

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  the operator of the designated system has knowingly furnished information or documents
to the SBP in connection with the designation of the payment system which is or are false
or misleading in any material particular;
 the operator or settlement institution of the DPS is in the course of being wound up or
otherwise dissolved, whether in Pakistan or elsewhere;
 any of the terms and conditions of the designation or requirements of the Payment
Systems and Electronic Fund Transfers Act, 2007 has been contravened; or
 the SBP considers that it is in the public interest to revoke the designation.

September 2023: Q8(a)

Define the term ‘financial institution’ under the Anti-Money Laundering Act, 2010.

Answer
(a) A person involved in carrying following activities, would fall within the ambit of a ‘financial
institution’
as envisaged in the Anti-Money Laundering Act, 2010:
(i) acceptance of deposits and other repayable funds from the public;
(ii) lending in whatsoever form;
(iii) financial leasing;
(iv) money or value transfer;
(v) issuing and managing means of payments including but not limited to credit and debit
cards, cheques, traveler’s cheques, money orders, bank drafts and electronic money;
(vi) financial guarantees and commitments; and
(vii) trading in:
 money market instruments;
 foreign exchange;
 exchange, interest rate, and index instruments;
 transferable securities;
 commodity futures trading;
 participation in shares issues and the provision of services related to such issues;
 individual and collective portfolio management;
 safekeeping and administration of cash or liquid securities on behalf of other persons;
 investing, administering, or managing funds or money on behalf of other persons;
 insurance business transactions;
 money and currency changing; and
 carrying out business as an intermediary.

March 2024: Q3 (a)

Define the term ‘Electronic fund’ under the provisions of the Payment Systems and Electronic
Fund Transfers Act, 2007.
(04)

Answer

Under the Payment Systems and Electronic Fund Transfers Act, 2007, Electronic Fund means
money transferred through:

 an Electronic Terminal,
 ATM,
 telephone instrument,
 computer,
 magnetic medium, or

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 any other electronic device,
so as to order, instruct, or authorize:
 a banking company,
 a Financial Institution, or
 any other company or person,
to debit or credit an account; and includes:
 monetary value as represented by a claim on the issuer which is stored in an electronic
device or Payment Instrument, issued on receipt of funds of an amount not less in value than
the monetary value issued, accepted as means of payment by undertakings other than the
issuer, and
 electronic store of monetary value on an electronic device that may be used for making
payments, or as may be prescribed by the State Bank of Pakistan.

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CHAPTER 17
DATA PROTECTION AND ELECTRONIC CRIMES

March 2022 Q 7

(b) Explain the term “Critical infrastructure” as defined under the provisions of the Prevention of
Electronic Crimes Act, 2016.

Answer

(b) "Critical infrastructure" means critical elements of infrastructure namely assets, facilities,
systems, networks or processes the loss or compromise of which could result in:

(i) major detrimental impact on the availability, integrity or delivery of essential services
including those services, whose integrity, if compromised, could result in significant loss
of life or casualties, taking into account significant economic or social impacts; or

(ii) significant impact on national security, national defense, or the functioning of the state.

The Government may also designate any private or Government infrastructure in accordance
with the above objectives, as critical infrastructure.

September 2022: Q6
(b) Briefly explain when a person may be considered as an offender by virtue of which such
person may be punished under the provisions of the Prevention of Electronic Crimes Act, 2016.
(05)
Answer

A person may be considered as an offender by virtue of which such person may be punished
under the Prevention of Electronic Crimes Act, 2016 if he with dishonest intention:

(i) gains unauthorized access to any information system/data or any critical infrastructure
information system/data;
(ii) without authorization copies or otherwise transmits or causes to be transmitted any data or
any critical infrastructure data;
(iii) interferes with or damages or causes to be interfered with or damages any part or whole of an
information system/data or a critical information system/data.

Furthermore, whoever prepares or disseminates information, through any information system or

device, with the intent to glorify an offence relating to terrorism, or any person convicted of a
crime relating to terrorism, or activities of proscribed organizations or individuals or groups may
also be considered as an offender.

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CHAPTER 18
COMPETITION ACT AND ARBITRATION ACT

March 2022: Q7
(c) Under the provisions of the Competition Act, 2010 list any five practices that prevent, restrict,
reduce or distort competition in a particular market through abuse of dominant position.

Answer

(c) Following are the practices that prevent, restrict, reduce, or distort competition in the
relevant market through abuse of dominant position:

(i) Unfair trading conditions: i.e. limiting production, sales and unreasonable increases in
price etc.;

(ii) Price discrimination: by charging different prices for same goods or services from
different customers in the absence of objective justifications that may justify different prices;

(iii) Tie-ins: where the sale of goods or service is made conditional on the purchase of other
goods or services;

(iv) Making conclusion of contracts subject to acceptance by the other parties of

supplementary obligations which by their nature or according to commercial usage, have
no connection with the subject of the contracts;

(v) Applying dissimilar conditions to equivalent transactions on other parties, placing

them at a competitive disadvantage;

(vi) Predatory pricing: driving competitors out of a market, prevent new entry, and monopolize
the market;

(vii) Boycotting or excluding any other undertaking from the production, distribution or sale of
any goods or the provision of any service; or

(viii) Refusing to deal.

September 2022: Q6(c)

September 2023: Q8(b)

Under the provisions of the Arbitration Act, 1940 state any four powers of arbitrator. (04)

Answer
The arbitrators shall, unless a different intention is expressed in the agreement, have power to:

1. administer oath to the parties and witnesses appearing;

2. state a special case for the opinion of the Court on any question of law involved, or state
the award, wholly or in part, in the form of a special case of such question for the
opinion of the Court;
3. make the award conditional or in the alternative;
4. correct in an award any clerical mistake or error arising from any accidental slip or
omission;

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March 2023: Q9 (b)

Under the provisions of the Competition Act, 2010:

(i) explain ‘Product market’ and ‘Geographic market’. (04)

(ii) identify the practices that are considered as deceptive marketing practices. (04)

Solution
(i) Product market comprises of all those products or services which are regarded as
interchangeable or substitutable by the consumers by reason of the products’ characteristics,
prices and intended uses. Geographic market comprises the area in which the undertakings
concerned are involved in the supply of products or services and in which the conditions of
competition are sufficiently homogeneous. This area can be distinguished from neighboring
geographic areas because, in particular, the conditions of competition are appreciably different in
those areas.

Deceptive marketing practices shall be deemed to have been resorted if an undertaking resorts
to:
 the distribution of false or misleading information that is capable of harming the business
interests of another undertaking;
 the distribution of false or misleading information to consumers, including the distribution
of information lacking a reasonable basis, related to the price, character, method or place
of production, properties, suitability for use, or quality of goods;
 false or misleading comparison of goods in the process of advertising;
 fraudulent use of another's trademark, firm name, or product labelling or packaging.

March 2024: Q3 (a)

Under the provisions of the Competition Act, 2010, identify the agreements that are specifically
void, unless exempted otherwise. (06)

Answer
An agreement in respect of the production, supply, distribution, acquisition or control of goods or
the provision of services which has the object or effect of preventing, restricting, or reducing
competition within the relevant market would be prohibited and hence void. Such agreements
include but are not limited to:

(i) fixing the purchase or selling price or imposing any other restrictive trading conditions with
regard to the sale or distribution of any goods or the provision of any service;
(ii) dividing or sharing of markets for the goods or services, whether by territories, by volume of
sales or purchases, by type of goods or services sold or by any other means;
(iii) fixing or setting the quantity of production, distribution or sale with regard to any goods or the
manner or means of providing any services;
(iv) limiting technical development or investment with regard to the production, distribution or sale
of any goods or the provision of any service;
(v) collusive tendering or bidding for sale, purchase or procurement of any goods or service;
(vi) applying dissimilar conditions to equivalent transactions with other trading parties, thereby
placing them at a disadvantage;
(vii) making the conclusion of contracts subject to acceptance by the other parties of
supplementary obligations which, by their nature or according to commercial usage, have no
connection with the subject of such contracts.

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