Special Type of Contract

Contracts of Indemnity and Guarantee

A contract of indemnity is one whereby a person promises to save the other from
loss caused to him by the conduct of the promisor himself or of any third person.For
example,a shareholder executes an indemnity bond favouring the company thereby
agreeing to indemnify the company for any loss caused as a consequence of his
own act.The person who gives the indemnity is called the 'indemnifier' and the
person for whose protection it is given is called the 'indemnity-holder' or
'indemnified'. A contract of indemnity is restricted to cover the loss caused by the
promisor himself or by a third person.The loss must be caused by some human
agency.Loss arising from accidents like fire or perils of the sea are not covered by a
contract of indemnity.
A contract of 'guarantee' is a contract,whether oral or written,to perform the
promise,or discharge the liability,of a third person in case of his default. A contract
of guarantee involves three persons,viz. a person who gives the guarantee is called
the 'surety'; the person in respect of whose default the guarantee is given called the
'principal debtor'; and the person to whom the guarantee is given is called the
'creditor'. A contract of guarantee is a conditional promise by the surety that if the
principal debtor defaults he shall be liable to the creditor.
Difference between Indemnity and Guarantee:

In a contract of indemnity there are two parties i.e. indemnifier and

indemnified. A contract of guarantee involves three parties i.e. creditor,
principal debtor and surety.

An indemnity is for reimbursement of a loss, while a guarantee is for security

of the creditor.

In a contract of indemnity the liability of the indemnifier is primary and arises

when the contingent event occurs. In case of contract of guarantee the
liability of surety is secondary and arises when the principal debtor defaults.

The indemnifier after performing his part of the promise has no rights against
the third party and he can sue the third party only if there is an assignment in
his favour. Whereas in a contract of guarantee, the surety steps into the
shoes of the creditor on discharge of his liability, and may sue the principal
debtor.

Business Law in Pakistan

This overview of business laws of Pakistan is a very brief
description of common forms of businesses adopted by private
and public sector investors in Pakistan. An attempt has also been
made to outline general requirements and regulatory regimes for
each of these forms of businesses in Pakistan. These brief notes
are for general guidance only and should not be taken as a
substitute for thorough and professional legal advice.

What are the common forms of business in Pakistan?

Main forms of business organisations adopted by private sector in
Pakistan are as follows:

Sole proprietorship in Pakistan

Partnership in Pakistan

Limited liability company in Pakistan

Joint venture in Pakistan

Main forms of business organisations adopted by the public sector,

where the government wishes to undertake an enterprise, in
Pakistan are either a limited liability company or a statutory

corporation.

Out of these diverse forms of business set ups in Pakistan, a

limited liability company remains the most favourable form of
business organisation for medium and large-scale businesses in
Pakistan.

Relevant Laws of Pakistan

Companies Ordinance, 1984
Companies General Provisions and Forms Rules, 1985
Single Member Companies Rules, 2003
Schedule of Filing Fee

Companies remain the most favoured form of business

organisation in Pakistan especially for medium and large-scale
business enterprises. Legal regime for establishment and
regulation of companies in Pakistan is given in the Companies
Ordinance, 1984. Whereas the function of administration of these
companies is vested in the Securities and Exchange Commission
of Pakistan and the Registrar of Companies appointed by the
Securities and Exchange Commission of Pakistan for a province of
Pakistan where such company is to be registered.

Under the provisions of the Companies Ordinance, 1984 a

company is a body corporate with separate legal entity and a
perpetual succession and a company may be formed by persons
associating for any lawful purpose by subscribing their names to
the Memorandum of Association and complying with other
requirements for registration of a company under the provisions
of the Ordinance.

The Companies Ordinance, 1984 provides for three

different types of companies:

A company limited by shares

A company limited by guarantee

An unlimited liability company

Further, under the Companies Ordinance, 1984 two types of

limited liability companies are provided for, namely:

A private limited company

A public limited company (which may be listed or unlisted)

Any one or more persons associated for any lawful purpose by

subscribing their name(s) to the Memorandum of Association and
complying with other registration specific requirements of the
Companies Ordinance, 1984 may incorporate a private limited

company. Provided that where a company has only one subscriber

to the Memorandum of Association then such a company is called
a Single Member Company, however, a Single Member Company
remains a private limited company for all intents and purposes of
the Ordinance. Whereas any three or more persons so associated
Registration of a Company and Commencement of Business in
Pakistan

The first step toward incorporation of a company in Pakistan is to

file an application before the Registrar of Companies for
availability of name. If the proposed name of the company is
available and it is not in contravention to the provisions of the
Companies Ordinance, 1984 and the Rules formed there under,
then the Registrar shall issue a certificate stating that the
proposed name is available to be adopted.

The next step is to file the Memorandum of Association and

Articles of Association, which in effect is the constitution of any
company, with the Registrar of Companies in the Province where
proposed company is to be incorporated, along with other
necessary forms prescribed under the Companies Ordinance,
1984. When the company has been registered, the Registrar issues

a Certificate of Incorporation. Once such a certificate has been

issued by the Registrar a private limited company may commence
its business immediately. Nonetheless, a public limited company
cannot commence its business or exercise its borrowing powers
yet unless the Registrar has issued a Certificate for
Commencement of Business. The Registrar issues the Certificate
for Commencement of Business only if the following requirements
have been fulfilled:

Shares held subject to the payment of the whole amount

thereof in cash have been allotted to an amount not less in
the whole than the minimum subscription

Every director of the company has paid to the company the

full amount on each of the shares taken or contracted to be
taken by him and for which he is liable to pay in cash

No money is or may become liable to be repaid to

applicants for any shares or debentures which have been
offered for public subscription by reason of any failure to
apply for or to obtain permission for the shares or
debentures to be dealt in on any stock exchange

There has been filed with the Registrar of Companies a duly

verified declaration by the chief executive or one of the
directors and the secretary in the prescribed form that the
aforesaid conditions have been complied with and the
Registrar of Companies has issued a Certificate of

Commencement of Business

In the case of a company which has not issued a prospectus

inviting the public to subscribe for its shares, there has been
filed with the Registrar of Companies, a statement in lieu of
prospectus

A public limited company may either be listed or unlisted. In case

of a listed company its shares may be quoted and dealt with on
one of the three stock exchanges of Pakistan viz. Karachi Stock
Exchange, Lahore Stock Exchange and Islamabad Stock Exchange.
Whereas the shares of an unlisted public limited company may not
listed on a stock exchange. A public limited company that intends
to have its shares listed on a stock exchange must obtain
permission from the relevant stock exchange under the listing
regulations of that stock exchange.

The Sale of Goods Act, 1930

Preamble
3 of 1930
(15th March, 1930)
An Act to define and amend the law relating to the sale of goods.
WHEREAS it is expedient to define and amend the law relating to the sale of goods,
it is hereby
enacted as follows: -

Chapter 1 Preliminary

1. Short title, extent and commencement.- (1) This Act may be called the Sale
of Goods Act,

1930.
2) It extends to the whole of India (except the State of Jammu and Kashmir).
(3) It shall come into force on the 1st day of July, 1930
2. Definitions .- In this Act, unless there is anything repugnant in the subject of
content(1) buyer" means a person who buys or agrees to buy goods,
(2) "delivery" means voluntary transfer of possession from one person to another
3. Applications of provisions of Act 9 of 1882.- The unrepealed provisions of
the Indian
Contract Act, 1872 save insofar as they are inconsistent with the express provisions
of this Act,
shall continue to apply to contracts for sale of goods.

Chapter 2 - Formation of the Contract

4. Sale and agreement to sell.- (1) A contract of sale of goods is a contract
whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a price. There
may be a
contract of sale between one part-owner and another.
(2) A contract of sale may be absolute or conditional
(3) Where under a contract of sale the property in the goods in transferred from the
seller to the
buyer, the contract is called a sale, but where the transfer of the property in the
goods is to take
place at a future time or subject to some condition thereafter to be fulfilled, the
contract is called
an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions
are fulfilled
subject to which the property in the goods is to be transferred.
5. Contract of Sale how made -. (1) A contract of sale is made by an offer to buy
or sell goods
for a price and the acceptance of such offer. The contract may provide for the
immediate delivery
of the goods or immediate payment of the price or both, or for the delivery or
payment by
instalments, or that the delivery or payment or both shall be postponed.
(2) Subject to the provisions of any law for the time being in force, a contract of sale
may be
made in writing or by word of mouth, or partly in writing and partly by word of
mouth or may be
implied from the conduct of the parties.
6. Existing or future goods.- (1) The goods which form the subject of a contract
of sale may be
either existing goods, owned or possessed by the seller, or future goods.
(2) There may be a contract for the sale of goods the acquisition of which by the
seller depends
upon a contingency which may or may not happen.

(3) Where by a contract of sale the seller purports to effect a present sale of future
goods, the
contract operates as an agreement to sell the goods.
7. Goods perishing before making of contract.- Where there is a contract for
the sale of
specific goods, the contract is void if the goods without the knowledge of the seller
have, at the
time when the contract was made, perished or become so damaged as no longer to
answer to
their description in the contract.
8. Goods perishing before sale but after agreement to sell.- Where there is
an agreement to
sell specific goods, and subsequently the goods without any fault on the part of the
seller or
buyer perish or become so damaged as no longer to answer to their description in
the agreement
before the risk passes to the buyer, the agreement is thereby avoided.
9. Ascertainment of price.- (1) The price in a contract of sale may be fixed by the
contract or
may be left to be fixed in manner thereby agreed or may be determined by the
course of dealing
between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions,
the buyer
shall pay the seller a reasonable price. What is a reasonable price is a question of
fact dependent
on the circumstances of each particular case.
10. Agreement to sell at valuation.- (1) Where there is an agreement to sell
goods on the terms
that the price is to be fixed by the valuation of a third party and such third party
cannot or does
not make such valuation, the agreement is thereby avoided.
Provided that, if the goods or any part thereof have been delivered to, and
appropriated by, the
buyer, he shall pay a reasonable price therefor.
(2) Where such third party is prevented from making the valuation by the fault of
the seller or
buyer, the party not in fault may maintain a suit for damages against the party in
fault.
11. Stipulations as to time.- Unless a different intention appears from the terms
of the contract,
stipulations as to time of payment are not deemed to be of the essence of a
contract of sale.
Whether any other stipulations as to time is of the essence of the contract or not
depends on the
terms of the contract.
12. Condition and warranty.- (1) A stipulation in a contract of sale with reference
to goods
which are the subject thereof may be a condition or a warranty.

(2) A condition is a stipulation essential to the main purpose of the contract, the
breach of which
gives rise to right to treat the contract as repudiated.
(3) A warranty is a stipulation collateral to the main purpose of the contract, the
breach of which
gives rise to a claim for damages but not to a right to reject the goods and treat the
contract as
repudiated.
(4) Whether a stipulation in a contract of sale is condition or a warranty depends in
each case on
the construction of the contract. A stipulation may be a condition, though called a
warranty in the
13. When condition to be treated as warranty.- (1) Where a contract of sale is
subject to any
condition to the fulfilled by the seller, the buyer may waive the condition or elect to
treat the
breach of the condition as a breach of warranty and not as a ground for relating the
contract as
repudiated.
(2) Where a contract of sale is not severable and the buyer has accepted the goods
or part thereof,
the breach of any condition to be fulfilled by the seller can only be treated as a
breach of
warranty and not as a ground for rejecting the goods and treating the contract as
repudiated,
unless there is a term of the contract, express or implied, to that effect.
(3) Nothing in this section shall affect the case of any condition or warranty
fulfilment of which
is excused by law by reason of impossibility of otherwise.
14. Implied undertaking as to tile, etc.- In a contract of sale, unless the
circumstances of the
contract are such as to show a different intention there is(a) an implied condition on the part of the seller that, in the case of a sale, he has a
right to sell
the goods and that, in the case of an agreement to sell, he will have a right to sell
the goods at the
time when the property is to pass.
(b) an implied warranty that the buyer shall have and enjoy quiet possession of the
goods.
(c) an implied warranty that the goods shall be free from any charge or
encumbrance in favour of
any third party not declared or known to the buyer before or at the time when the
contract is
made.
15. Sale by description.- Where there is a contract for the sale of goods by
description, there is
an implied condition that the goods shall correspond with the description, and, if the
sale is by
sample as well as by description, it is not sufficient that the bulk of the goods
corresponds with

the sample if the goods do not also correspond with the description.
16. Implied condition as to quality or fitness.- Subject to the provisions of this
Act and of any
other law for the time being in force, there is no implied warranty or condition as to
the quality
or fitness for any particular purpose of goods supplied under a contract of sale,
excepts as
follows:(1) Where the buyer, expressly or by implication, makes known to the seller the
particular
purpose for which the goods are required, so as to show that the buyer relies on the
sellers skill
or judgement, and the goods are of a description which it is in the course of the
sellers business
to supply (whether he is the manufacturer or producer or not), there is an implied
condition that
the goods shall be reasonably fit for such purpose.
Provided that, in the case of a contract for the sale of a specified article under its
patent or other
trade name, there is no implied conditions to its fitness for any particular purpose.
(2) Where goods are bought by description from a seller who deals in goods of that
description
(whether he is the manufacturer or producer or not), there is an implied condition
that the goods
shall be of merchantable quality.
Provided that, if the buyer has examined the goods, there shall be no implied
conditions as
regards defects which such examination ought to have revealed.
(3) An implied warranty or condition as to quality or fitness for a particular purpose
may be
annexed by the usage of trade.
(4) An express warranty or conditions does not negative a warranty or condition
implied by this
Act unless inconsistent therewith.
17. Sale by sample.- (1) A contract of sale is a contract for sale by sample where
there is a term
in the contract, express or implied, to that effect.
(2) In the case of a contract for sale by sample there is an implied condition (a) that the bulk shall corresponded with the sample in quality.
(b) that the shall have a reasonable opportunity of comparing the bulk with the
sample.
(c) that the goods shall be free from any defect, rendering them un-merchantable,
which
would not be apparent on reasonable examination

Chapter 3 - Effects of the Contract

18. Goods must be ascertained.- Where there is a contract for the sale of
unascertained goods,

no property in the goods is transferred to the buyer unless and until the goods are
sanctioned.
19. Property passes when intended to pass.- (1) Where there is a contract for
the sale of
specific or ascertained goods the property in them is transferred to the buyer at
such time as the
parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall be had to
the terms of
the contract, the conduct of the parties and the circumstances of the case.
(3) Unless a different intention appears, the rules contained in Section 20 to 24 are
rules for
ascertaining the intention of the parties as to the time at which the property in the
goods is to
pass to the buyer.
20. Specific goods in a deliverable state.- Where there is an unconditional
contract for the sale
of specific goods in a deliverable state, the property in the goods passes to the
buyer when the
contract is made, and it is immaterial whether the time of payment of the price or
the time of
delivery of the goods, or both, is postponed.
21. Specific goods to be put into a deliverable state.- Where there is a
contract for the sale of
specific goods and the seller is bound to do something to the goods for the purpose
of putting
them into a deliverable state, the property does not pass until such thing is done
and the buyer
has notice thereof.
22. Specific goods in a deliverable state, when the seller has to do
anything thereto in order
to ascertain price.- Where there is a contract for the sale of specific goods in a
deliverable state,
but the seller is bound to weigh, measure, test or do some other act or thing with
reference to the
goods for the purpose of ascertaining the price, the property does not pass until
such act or thing
is done and the buyer has notice thereof.
23. Sale of unascertained goods and appropriation.- (1) Where there is a
contract for the sale
of unascertained or future goods by description and goods of that description and in
a deliverable
state are unconditionally appropriated to the contract, either by the seller with the
assent of the
buyer or by the buyer with the assent of the seller, the property in the goods
thereupon passes to
the buyer. Such assent may be expressed or implied, and may be given either
before or after the
appropriation is made.

(2) Delivery to carrier.- Where, in pursuance of the contract, the seller delivers the
goods
24. Goods sect on approval or on sale or return- when goods are delivered to
the buyer on
approval or on sale or return or other similar terms, the property therein passes to
the buyer(a) when he signifies his approval or acceptance to the seller to does not other act
adopting the transaction.
(b) if he does not signify his approval or acceptance to the seller but retains the
gods
without giving notice of rejection, then, if a time has been fixed for the return of the
goods, on the expiration of such time, and, if not time has been fixed, on the
expiration of
a reasonable time.
25. Reservation of right of disposal.- (1) Where there is a contract for the sale
of specific goods
or where goods are subsequently appropriated to the contract, the seller may, by
the terms of the
contract or appropriation, reserve the right of disposal of the goods until certain
conditions are
fulfilled. In such case, notwithstanding the delivery of the goods to a buyer, or to a
carrier or
other bailee for the purpose of transmission to the buyer, the property in the goods
does not pass
to the buyer until the conditions imposed by the seller are fulfilled.
(2) Where goods are shipped or delivered to a railway administration for carriage by
railway and
by the bill of landing or railway receipt, as the case may be, the goods are
deliverable to the
order of the seller or his agent, the seller is prima facie deemed to reserve the right
of disposal.
(3) Where the seller of goods draws on the buyer for the price and transmits to the
buyer the bill
of exchange together with the bill of lading or, as the may be, the railway receipt, to
secure
acceptance to payment of the bill of exchange, the buyer is bound to return the bill
of lading or
the railway receipt if he does not honour the bill of exchange, and, if he wrongfully
retains the
bill of lading or the railway receipt, the property in the goods does not pass to him.
Explanation.- In this section, the expression "Railway" and "Railway
administration" shall
have the meanings respectively assigned to them under the Indian Railways Act,
1890.
26. Risk Prima facie passes with property.- Unless otherwise agreed, the goods
remain at the
sellers risk until the property therein is transferred to the buyer, but when the
property therein is
transferred to the buyer, the goods are at the buyers risk whether delivery has
been made or not.

Provided that, where deliver has been delayed through the fault of either buyer or
seller, the
goods are at the risk of the party in fault as regards any loss which might not have
occurred but
for such fault.
Provides also that nothing in this section shall affect the duties or liabilities of either
seller or
buyer as a bailee of the goods of the other party.
27. Sale by person not the owner.- Subject to the provisions of this Act and of
any other law for
the time being in force, where goods are sold by a person who is not the owner
thereof and who
does not sell them under the authority or with the consent of the owner, the buyer
acquires no
better title to the goods than the seller had, unless the owner of the goods is by
conduct precluded
from denying the sellers authority to sell.
Provided that, where a mercantile agent is, with the consent of the owner, in
possession of the
goods or of a document of title to the goods, any sale made by him, when acting in
the ordinary
course of business of a mercantile agent, shall be as valid as if he were expressly
authorised by
the owner of the goods to make the same, provided that the buyer act is good faith
and has not at
the time of the contract of sale notice that the seller has not authority to sell.
28. Sale by one of joint owners.- If one of several joint owners of goods has the
sole possession
of them by permission of the co-owners, the property in the goods in transferred to
any person
how buys them of such joint owner in good faith and has not at the time of the
contract of sale
notice that the seller has not authority to sell.
29. Sale by person in possession under voidable contract.- When the seller
of gods has
obtained possession thereof under a contract voidable under Section 19 or Section
19A of the
Indian Contract Act, 1872, but the contract has not rescinded at the time of the
sale, the buyer
acquires a god title to the goods, provided he buys them in good faith and without
notice of the
sellers defect of title.
30. Seller or buyer in possession after sale.- (1) Where a person, having sold
goods, continues
or is in possession of the goods or of the documents of title to the goods, the
delivery or transfer
by that person or by a mercantile agent acting for him of the gods or documents of
title under any
sale, pledge o other disposition thereof to any person receiving the same in good
faith and

without notice of the previous sale shall have the same effect as if the person
making the delivery
to transfer were expressly authorised by the owner of the gods to make the same.
(2) Where a person, having bought or agreed to buy goods, obtains with the consent
of the seller,
possession of the goods or the documents of title to the goods, the delivery or
transfer by that
person or by a mercantile agent acting for him, of the goods or documents of tile
under any sale,
pledge or other disposition thereof to any person receiving the same in good faith
and without
notice of any lien or other right of the original seller in respect of the gods shall
have effect as if
such lien or right did not exist.

Chapter 4 - Performance of the Contract

31. Duties of seller and buyer.- It is the duty of the seller to deliver the goods
and of the buyer
to accept and pay for them, in accordance with the terms of the contract of sale.
32. Payment and delivery are concurrent conditions.- Unless otherwise
agreed, delivery of
the gods and payment of the price are concurrent conditions, that is to say, the
seller shall be
ready and willing to give possession of the goods to the buyer in exchange for the
price, and the
buyer shall be ready and willing to pay the price in exchange for possession of the
goods.
33. Delivery.- Delivery of goods sold may be made by doing anything which the
parties agree
shall be treated as delivery or which has the effect of putting the goods in the
possession of the
buyer or of any person authorised to hold them on his behalf.
34. Effect of part delivery.- A delivery of part of goods, in progress of the delivery
of the whole
has the same effect, for the purpose of passing the property in such goods, as a
delivery of the
whole, but a delivery of part of the gods, with an intention of severing it from the
whole, does
not operate as a delivery of the remainder.
35. Buyer to apply for delivery.- Apart from any express contract, the seller of
goods in not
bound to deliver them until the buyer applies for delivery.
36. Rules as to delivery.- (1) Whether it is for the buyer to take possession of the
goods or for
the seller to send them to the buyer is a question depending in each case on the
contract, express
or implied, between the parties. Apart from any such contract, goods sold are to be
delivered at

the place at which they are the time of the sale, and goods agreed to be sold are to
be delivered at
the place at which they are at the time of the agreement to sell, if not then in
existence, at the
place at which they are manufactured or produced.
(2) Where under the contract of sale the seller is bound to send the goods to the
buyer, but no
time for sending them is fixed, the seller is bound to send them within a reasonable
time.
(3) Where the goods at the time of sale are in the possession of a third person,
there is no
delivery by seller to buyer unless and until such third person acknowledges to the
buyer that he
holds the goods on his behalf.
Provided that nothing in this section shall affect the operation of the issue or
transfer of any
document of title to goods.
(4) Demand or tender of delivery may be treated as ineffectual unless made at a
reasonable hour.
What is a reasonable hour is a question of fact.
(5) Unless otherwise agreed, the expense of and incidental to putting the goods into
a deliverable
state shall be borne by the seller.
37. Delivery of wrong quantity.- (1) Where the seller delivers to the buyer a
quantity of good
less than he contracted to sell, the buyer may reject them, but if the buyer accepts
the goods so
delivered he shall pay for them at the contract rate.
(2) Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell the
buyer may accept the goods included in the contact and reject the rest, or he may
reject the
whole. If the buyer accepts the whole of the goods so delivered, he shall pay for
them at the
contract rate.
(3) Where the seller delivers to the buyer the gods he contract to sell mixed with
goods of a
different description not included in the contract., the buyer may accept the goods
which are in
accordance with the contract and reject the rest, or may reject the whole.
(4) The provisions of this section are subject to any usage of trade, special
agreement or course
of dealing between the parties.
38. Installment deliveries.- (1) Unless otherwise agreed, the buyer of goods is
not bound to
accept delivery thereof by instalments.
(2) Where there is a contract for the sale of goods to be delivered by stated
instalments which are
to be separately paid for, and the seller makes no delivery or defective delivery in
respect of one

or more instalments, or the buyer neglects or refuses to take delivery of or pay for
one or more
instalments, it is a question in each cased depending on the terms of the contract
and the
circumstances of the case, whether the breach of contract is a repudiation of the
whole contract,
or whether it is a severable breach giving rise to a claim for compensation, but not a
right to treat
the whole contract as repudiated.
39. Delivery to carrier or wharfinger.- (1) Where, in pursuance of a contract of
sale, the seller
is authorised or required to send the goods to he buyer, delivery of the goods to a
carrier, whether
named by the buyer or not, for the purpose of transmission to the buyer, or delivery
of the goods
to a wharfinger for safe custody, is prima facie deemed to be a delivery of the
goods to the buyer.
(2) Unless otherwise authorised by the buyer, the seller shall makes such contract
with the carrier
or wharfinger on behalf of the buyer as may be reasonable having regard to the
nature of the
goods and the other circumstances of the case. If the seller omits so to do, and the
goods are lost
or damaged in course of transit or whilst in the custody of the wharfinger, the buyer
made
decline to treat the delivery to the carrier or wharfinger as a delivery to himself, or
may hold the
seller responsible in damages.
(3) Unless otherwise agreed, where goods are sent by the seller to the buyer by a
route involving
sea transit, in circumstances in which it is usual to insure, the seller shall give such
notice to the
buyer as may enable him to insure them during their sea transit and if the seller
fails so to do, the
goods shall be deemed to be at his risk during such sea transit.
40. Risk where goods are delivered at distant place.- Where the seller of
goods agrees to
deliver them at his own risk at place other than that where they are when sold, the
buyer shall,
nevertheless, unless otherwise agreed, take any risk of deterioration in the goods
necessarily
incident to the course of transit.
41. Buyers right of examining the goods.- (1) Where goods are delivered to
the buyer which
he has not previously examined, he is not deemed to have accepted them unless
and until he has
a reasonable opportunity of examining them for the purpose of ascertaining
whether they are in
conformity with the contract.

(2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer,
he is bound,
on request, on request, to afford the buyer a reasonable opportunity of examining
the goods for
the purpose of ascertaining whether they are in conformity with the contract,
42. Buyer not bound to return rejected goods.- Unless otherwise agreed,
where goods are
delivered to the buyer and he refuses to accept them, having the right so to do, he
is not bound to
return them to the seller, but it is sufficient it he intimates to the seller that he
refuses to accept
them.
43. Buyer not bound to return rejected goods.- Unless otherwise agreed,
where goods are
delivered to the buyer and he refuses to accept them, having the right so to do, he
is not bound to
return them to the seller, but it is he intimates to the seller that he intimates to the
seller that he
refuses to accept them.
44. Liability of buyer for neglecting or refusing delivery of goods.- When
the seller is ready
and willing to deliver the goods and requests the buyer to take delivery, and the
buyer does not
within a reasonable time after such request take delivery of the goods , he is liable
to the seller
for any loss occasioned by his neglect or refusal to take delivery and also for a
reasonable charge
for the care and custody of the goods.
Provided that nothing in this section shall affect the rights of the seller where the
neglect or
refusal of the buyer to take delivery amounts to a repudiation of the contract.

Partnership
In this Act, unless there is anything repugnant in the subject or context, (a) an "act of a firm" means any act or omission by all the partners, or by any
partner or agent of the firm which gives rise to a right enforceable by or
against the firm.
(b) "business" includes every trade, occupation and profession;
(c) "prescribed" means prescribed by rules made under this Act;
(d) "third party" used in relation to a firm or to a partner therein means any
person who is not a partner in the firm; and
(e) expressions used but not defined in this Act and defined in the Contract
Act, 1872 (IX of 1872), shall have the meanings assigned to them in that Act.

The unrepealed provisions of the Contract Act, 1872, save in so far as they
are inconsistent with the express provisions of this Act, shall continue to
apply to firms.

The Nature Of Partnership

Definition of "partnership", "partner", "firm" and "firm name".
'"Partnership" is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called
individually "partners" and collectively "a firm", and the name under which
their business is carried on is called the "firm name".
Comments
In story on Partnership, the term is defined as a voluntary contract between
two or more competent person to place their money, effects, labour and skill,
or some or all of them, in lawful commerce or business, with the
understanding that there shall be a communion of the profits thereof
between them.
Halsbury defines a partnership as "the relation which subsists between
persons carrying on a business in common with a view of profit".
Partnership is a relation between individuals who have entered into
agreement for the purpose of sharing profits of a business. (PLD-1985
Karachi-85 (90)).
'Partner', 'Firm', 'Firm's name'.- Individuals bound in relation of
partnership are individually called 'Partners' and collectively 'a firm', and the
name under which, their business is carried on is called the 'firm name'.
Proof of existence of Partnership'. Where appellant claimed to be a
partner of a partnership firm and one of the alleged partners denied any
such partnership, it was incumbent upon the appellant to have proved on
record that there was an agreement between the alleged partners for
carrying on business in partnership. Registration of firm disclosing that

certain persons were its partners was not by itself the proof of execution of
any such agreement between the said alleged partners to do business in
partnership. (Muhammad Sharif Uppal V Akbar Hussain - PLD 1990 Lah 229).
Liability of Partners. The Defendant Establishment is a partnership Firm
and other Defendants being Partners of that firm were, therefore, jointly and
severally liable for the amount claimed in suit - (National Bank of Pakistan V
M/s M.M. Agencies and 5 others-1991 CLC 1763)
Essential Elements of Partnership. There are four important elements
necessary to constitute partnership.(i) There must be an association of two or more persons to carry on a
business.
(ii) There must be an agreement entered into by all the persons concerned.
(iii) The agreement must be to share the profits of a business.
(iv) The business must be carried on by all or any of the persons concerned
acting for all.
All the above elements must be present before a group of persons can be
held to be Partners. Each of these elements are discussed below in their
necessary details.
(i) There must be an association of two or more persons to carry on a
business. A group of persons with no legal relations inter se, i.e. no mutual
rights and liabilities between themselves would not be a partnership.
(ii) There must be an agreement entered into by all the persons concerned.
This requirement emphasizes the fact that partnership can only arise as a
result of an agreement, express or implied, between two or more persons
there must be an agreement entered into by all the partners. Partnership is
thus created by a contract; it does not arise by the operation of law. Joint
ownership may arise by the operation of law, but not partnership. Thus on
the death of a person, his children may inherit the family properly jointly
together with the family business and may share the profits of the business
equally; but they are not, for that reasons, partners.
Only lawful Agreement. The contract which is the foundation of
partnership, must itself be founded on good faith, and must be for a lawful
object and purpose and between competent persons. In short it is subject to
the ordinary incidents and attributes of contracts.

(iii) The Agreement must be to share the profits of a business.-The object of

the agreement or contract is to carry on a business. And the business which
the partners carry on must, of course, be legal. Where there is no
partnership. the mere fact that several persons own something in common
which produces returns and that such person divide those returns according
to their respective interests, does not make them partners.
For instance A and B are co-owners of a house let to a tenant and A and B
divide the net rent between themselves. A and B are not partners, because
receiving rent of a house let to a tenant is not a business.
(a) Term "Business". defined.- The term business has been defined (in S.
2) to include every trade, occupation and profession. This definition, which
has been adopted from the English Act, is very general and affords very little
assistance when dealing with border line cases. Under-hill has also criticized
this definition of the term as being rather vague. It is submitted that in
arriving at a conclusion as to when persons can be said to cam/on business,
each case must be decided on its own merits, and the only practical guide
seems to be dictum of James L.J. When he observed (in Smith V. Anderson)
That this word is to be understood in any sense in which any man of business
would use the word. Broadly speaking, it refers to any activity which, if
successful, would result in profit.
Business may be temporary or permanent (i.e. indefinite). But it must be in
existence. An agreement to carry on business at a future time does no result
in present partnership (R.R. Sama V Reuben, AIR 1946 Oudh. 68).
(b) Sharing of profits. The sharing of profits is an essential element of a
partnership agreement. The members of religious or charitable societies and
clubs are not partners, as the idea of sharing, or even making of profits is not
involved in these societies associations.
An agreement to share profit is essential but it should be noted that an
agreement to share the losses is not essential. Where nothing is said as to
sharing of losses it is implied in a partnership deed. It may, however be
agreed that as between the partners any one or more of them shall not be
liable for losses.
(c) Profits of business.- The term profits refers to net profits that is to say

the excess of returns over advances, or in other words, the excess of what is
obtained over the cost of obtaining it. The English Partnership Act expressly
provides that sharing gross returns will not constitute a partnership. Thus, in
one English case, the owner of a theatre allowed a travelling manager and
his company to use the building, scenery, appliances, etc., in consideration
of receiving half the money obtained from the spectators. The Court
observed that this did not make the owner answerable as a partner of the
travelling manager. (Lyon V Knowles, 1863, 3 B & S. 556).
(iv) Carrying of business.- The last element is that business must be
carried on by all or by any of the persons concerned acting for all. This shows
that the persons or the group who conduct the business do so as agents for
all the persons in the group, and are, therefore, liable to account to all. In
fact, the relation of principal and agent amongst the partners i.e. mutual
agency, is the true test of partnership. A partner is both a principal and an
agent. While the relation between partners inter se is that of principals, but
in relation to third parties for the business of the firm, they are agents of the
firm and also of one another. Thus each partner is regarded as an agent of
the other partners, and as such, a partner acting in the course of the
business of the firm, can bind his co-partners. But in order to bind his copartners, it is necessary for the partner acting on behalf of the firm to
contract in the firm name or in any other manner expressing or implying an
intention to bind his co-partners. A partner contracting in his own name can
create only a personal liability and not the collective liability of the firm. The
mere fact that money borrowed by partner in his own name on security
belonging to him personally, has been used for the purpose of the firm with
the knowledge of his partners, does not render them liable.
Illustrations:
(1) A and B buy 100 bales of cotton, which they agree to sell on their joint
account. A and B are partners in respect of such cotton.
(2) A and B buy 100 bales of cotton, agreeing to share the cotton between
them. A and B are not partners.
(3) A and B agree to work together as carpenters. A is to receive all the
profits and pay a salary to B,-A & B are not partners.
(4) A and B enter into a "partnership agreement whereby A is to have no

share in either the profits or the loss of the business - A and B are not
partners.
(5) A and B are joint owners of a ship. This, by itself does not make them
partners.
PARTNERSHIP AND CO-OWNERSHIP DISTINGUISHED.- Very much akin
to partnership is the legal conception of co-ownership. The distinction
between the two is important. Now, partners enjoy common rights over and
interest in, in firm's property; all co-owners of property are, however, not
partners, co-ownership, therefore though an incident of partnership must be
distinguished from it. Co-ownership of a property does not, in itself,
constitute a partnership between the co-owners, whether they share any
profits arising from it or not. Thus, A and B are co- owners of a house let to a
tenant A and B divide the rents between themselves. B contends that A is his
partner. Will he succeed? The answer is no. B will not succeed. A and B are
not partners but co-owners. But if A and B use that house as a hotel, they
would become partners in the business of hotel - keeping.
Similarly, co-owners of a ship are not necessarily partners. If, however, they
employ the ship in trade or adventure on their account, they would become
partners in such trade.
SUMMARY OF DIFFERENCE BETWEEN
CO-OWNERSHIP

PARTNERSHIP

1. Not always a result of agreement.

1. Always a result of agreement.

2. Does not always involve Community of

profits or losses.

2. Involves Community of profits and

losses.

3. Co--owner can transfer his interest

without consent of other co-owners.

3. A partner can not do so.

4. Co-owner is not agent of other coowners.

4. Partners are agents of one another.

5. Co-owner has no lien on thing owned by 5. A partner has such lien.

all co-owners.
6. Co-owner is entitled to partition.

6. Partner is entitled to have partnership

dissolved and take share of the proceeds.

7. Remedies which one co-owner has against the other are different from,
and less extensive than, of a partner against his co-owners.
'PARTNERSHIP' AND 'COMPANY' DISTINGUISHED. The main points of
difference between a partnership and a company are given in a tabular form
as followsPARTNERSHIP

COMPANY

1. A partnership is not a distinct legal

person, but is made of the persons
composing it.

1. A company is a distinct legal person.

2. Creation of Partnership is purely a matter

of agreement between the parties such an
agreement need not even be in writing.

2. Creation of Company involves elaborate

legal formalities.

3. In a firm partner can not transfer his

interest with the consent of the other
partners.

3. Shares in a Company (especially, in a public

Company) are generally freely transferable.

4. Each partner is prima facie the agent of

others, and can bind them by his contract
made in the course of business of the
partnership.

4. Shareholders in a Company are not the

agents of one another.

5. Each partner is liable in full for the debts

of the firm.

5. The liability of Companys shareholders is

limited by shams or by guarantee.

6. A partner can not contract with his firm.

6. A share holder in a company can contract

with the company.

7. Partners may make any private

arrangements among themselves. For
instance a partner may buy his partners
share.

7. Arrangements in regard to Companies are

regulated by law and statute for instance a
company cannot buy its member's shares, but
a partner can.

8. The Maximum number of partners can be

twenty. But in banking business it is ten.

8. There is no maximum number of share

holders laid down by the law in a public
company though the minimum is seven. In a
private Company, the minimum is two, and the
maximum is fifty.

9. The death or retirement of a partner

dissolves a firm.

9. Death or retirement of a share holder does

not dissolve the company.

10. Property may be the common property of 10. Property belongs to the company and not
partners.
to its members.
11. Restrictions contained in a partnership
deed will not affect third parties, who are not
aware of such restrictions.

11. On the other hand restrictions in the

Articles of a Company affect third parties also.

12. A firm cannot sue and be sued in its own

name.

12. A company can sue and be sued in its own

name.

13. Decree against a firm can be executed

against the partners.

13. A Decree against a company cannot be

executed against its shareholders.

14. Registration is optional.

14. Registration is compulsory.

15. A firm having no separate legal

existence, cannot be shareholder of
company.

15. A company on the other hand can be a

shareholder of another company.

PARTNERSHIP AND CLUB DISTINGUISHED.- A club is entirely different

from a partnership. Clubs are not association for gain and unlike partners,
members of a club are not liable for acts of the other members. It is to be
noted that no member of club is liable to a creditor of the club, unless he
himself has also assented to such contract. Whereas there is no limit
(generally speaking) to a partners liability, in clubs no member becomes
liable to pay any money beyond the subscription amount required to be paid
under the rules and regulations of the club. Unlike partners members of club
have no implied authority to bind other members of the club.
PARTNERSHIP AND TRADE ASSOCIATION DISTINGUISHED.- Mutual
Agency, which is the essential element of partnership, does not exist in a
trade association.
In one case, an association of cloth dealers getting quotas of cloth allotted to
it, and then distributing the quotas to its member firms, was held not to be a
partnership, this was so despite the fact that the profit made by the
Association by re-selling the cloth were divided amongst the member. There
was no mutual agency, and no partnership in the circumstances.
(Bhawamilal Lachchi Ram v Badri Dal AIR 1964 MP 153).

Working Partner.- A working partner is not necessarily a partner in the

business. He may be merely an employee under the capitalist partner
although working partner gets a share in the net profits as remuneration for
the service rendered by him.
Minor partner.- A person having capacity to contract can be a partner.
Therefore, minor can not be full fledged partner in a partnership, though the
may be admitted to the benefits of partnership.
5. Partnership not created by status:
The relation of partnership arises from contract and not from status;
and, in particular, the members of a Hindu undivided family carrying on a
family business as such, or a Burmese Buddhist husband and wife carrying
on business as such are not partners in such business.
Comments
Sec. 5, lays down that the relation of partnership arises from contract, and
not from status. It also provides that the members of a Hindu undivided
family carrying on a family business as such or a Burmese Bhuddhist
husband and wife carrying on business as such, are not partners in such
business.
"Partnership" Commencement.- Partnership deed comprising of business
of constructing a Cinema as well as winding it up. Contended that
partnership did not commence before carrying on of business of cinema
contention repelled and Held, partnership business started when payment of
first installment was given for carrying on construction of cinema. (Lt. Col.
Mahmood Khan Durrani V Syed Naushab Ali-NLR 1981 UC 342).
JOINT HINDU FAMILY FIRM AND PARTNERSHIP DISTINGUISHED.- There
are six important points of distinction between a partnership firm and a joint
Hindu family firm, these are given in tabular form as follows-PARTNERSHIP
1. A partnership firm arises as a result of
an agreement or a contract.

HINDU JOINT FAMILY FIRM

1. A joint Hindu family firm is not the result of an
agreement or contract voluntarily entered into by
persons, but one which arises by the operation of

law. The moment a child is bom into a trading

family, by the very fact of its birth it becomes a
member of the trading family.
2. The death of a partner dissolves the
partnership.

2. The death of a member does not dissolve the

family firm.

3. A new partner can be admitted only

with the consent of the other partners.

3. There are constant additions by the birth of male

members in the family.

4. Partners have authority to borrow, and

bind the other partners by their acts.

4. Only the manager has authority to borrow and

bind other member of the family firm.

5. All partners are personally liable for the

debts of the firm.

5. Only the manager is personally liable for the

debts of the family firm.

6. Partner can demand accounts of the

firm.

6. A member can not ordinarily ask for an account

of the past dealings.

Muhammadan law:- In view of the position stated above it is quite clear that
a Hindu Joint family firm is not a result of an agreement or contract
voluntarily entered into by persons, but one which arises by the operation of
law, the moment a male child is born into a trading family, by the mere fact
of its birth it becomes a member of the trading firm. But, the position in
Muhammadan Law is quite different. Under Muhammadan Law, there is no
family trading partnership, such as the one which exists under Hindu Law.
Under the Muslim Law, unless it is proved that father and sons have entered
into a contract of partnership, the sons do not become partners and they can
not be sued in regard to transaction for which the father was responsible.
6. Mode of determining existence of partnership:
In determining whether a group of persons is or is not a firm, or whether a
person is or is not a partner in a firm, regard shall be had to the real relation
between the parties, as shown by all relevant facts taken together.
Explanation 1.
The sharing of profits or of gross returns arising from property by persons
holding a joint or common interest in that property does not of itself make
such persons partners.
Explanation 2.
The receipt by a person of a share of the profits of a business, or of a

payment contingent upon the earning of profits or varying with the profits
earned by business, does not of itself make him a partner with the persons
carrying on the business;
and in particular, the receipt of such share or payment (a) by a lender of money to persons engaged or about to engage in any
business,
(b) by a servant or agent as remuneration,
(c) by the widow or child of a deceased partner, as annuity, or
(d) by a previous owner or part owner of the business, as consideration for
the sale of the goodwill or share thereof, does not of itself make the receiver
a partner with the persons carrying on the business.
Comments
A, B and Co., carded on a business and incurred debts. E, a creditor of A, B
and Co., sued A,B, and two other persons C and D as being members of the
partnership C contributed labour only and used to receive one-third share in
net profits. D. had deposited a certain amount and he also got one-third
share in the profits. The remaining one third was taken by both A, and B,
Discuss the respective liabilities of C and D to E?
The Answer to above problem is that from the facts given it is obvious that C
is a servant and D is lender of money. The receipt by them of a share in the
profits does not of itself make either of them a partner in the A, B and Co.,
Hence, C and D are not liable to E.
Test of Partnership. Although the right to participate in the profits of a
business is a strong test of partnership, yet whether the relationship does or
does not exist must depend on the real
intention and contract of the parties, the real test as whether such
participation in profits constitutes the relationship of principal and agent
between the persons taking the profits and those actually carrying on the
business. (AIR 1946 Bom. 174 (DB) + AIR 1957 Mad 8 (DB) + AIR 1956 All.
136).
Existence of Partnership. Proof:- Where appellant claimed to be a
partner of a partnership firm and one of the alleged partners denied any
such partnership, it was incumbent upon the appellant to have proved on

record that there was an agreement between the alleged partners for
carrying on business in partnership Registration of firm disclosing their - in
that certain persons were its partners was not by itself the proof of execution
of any such agreement between the said alleged partners to do business in
partnership. (Muhammad Sharif Uppal V Akbar Hussain PLD-1990 Lah 229).
Reciprocal promises formed Consideration of Partnership
agreement: It is established law that for entering into a partnership
agreement there is no necessity of consideration in cash, or advance of any
amount, and that the reciprocal promises of the parties form the
consideration for an agreement of partnership Held - Courts below fell in
error of law in determining the controversy between the parties on the basis
that since no payment has been proved to have been made by the
appellants, consequently, the deed of partnership between them was invalid
or ineffective (Noor Muhammad V Sabz Ali- PLD 1976 B.J. 22).
Partner on fixed Profits. The fact that one partner is paid a fixed amount
per month in lieu of profits is not inconsistent with a partnership.- (AIR 1927
Born 187 51 Bom 342 (DB).
Persons who may share in profit without being liable as Partners.Explanation 1&2 to Sec. 6 of the Act lay down that the participation by a
person in the profits of a business either by receiving a share therein or a
payment dependent upon, or varying with the profits is not enough of itself,
to warrant the inference that such a person is a partner with those who are
engaged in carrying on the business. The receipt by a person of a share of
the profits of a business is a prima facie evidence that he is a partner but this
is not a conclusive test. Clauses (a) to (d) of explanation-2 of (seen above)
state the particular cases of persons who share in profits of a business
without being liable as partners.
6A; Act not to apply to certain, relationships:

Nothing contained in this Act shall apply to a relationship created by any

agreement between a banking company and a person or group of persons
providing for sharing of profit and losses arising from or relating to the
provision by the banking company of finance to such person or group of
persons.
Explanation.For the purposes of this section, "banking company" and "finance" shall have

the same meaning as in the Banking Tribunals Ordinance, 1984.

7. Partnership at will:
Where no provision is made by contract between the partners for the
duration of their partnership, or for the determination of their partnership,
the partnership is "partnership at will".
Comments
According to Sec. 7 the "Partnership at will" is a partnership agreement
between the partners where by neither any definite period of partnership nor
a provision. for the determination of the partnership has been provided, and
its duration is left to the discretion or will of the partners themselves.
8. Particular Partnership:
A person may become a partner with another person in particular adventures
or undertakings.
Comments
Particular partnership duration of.- Partnership Deed clearly stating
formation of Partnership, to run agency acquired by plaintiff at a particular
station from a particular company. Partnership, held formed for a single
venture and could continue only as long as agency lasted. Partners if wishing
to carry on partnership on expiry of agency for running some other business,
could do so only by a fresh agreement. (Hussain Bhai V Mohd Iqbal PLD 1976
Quetta 9).
Single transaction.- Under section 8 a partnership can be for one
transaction or one adventure only. The words adventure or undertaking in
the section do not cannot matters of very short duration, the transaction
though single may stretch over a short period the distinction between single
venture and a business is that a single venture finishes immediately after
the purchase and sale. There is no continuity or "Carrying on" of the business
in the senses that one or move partners continue to have the responsibility
and so apply their discretion in buying storing, selling and keeping charges of
moneys over a length of period