Directorate of Distance Learning Education

G.C University Faisalabad

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Name of student: Muhammad Afaq Name of Tutor: Mam Hira Habib
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Semester: 4th
Year: 2019
Address: Muhammadia Garden Jaranwala
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Name of course: Business Law Assignment No.01 Code No.________

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Date of submission of Assignment:15-05-2019
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QUESTION No 1:

Define the term contact. What are the essential of a valid contract?

Answer:
Sometimes contract and agreement, both are used in the same sense but according to the law
there is a great difference between them.

AGREEMENT:-

Agreement is defined in the following words:

" Every promise or every set of promises forming the consideration for each other" Contract act
and its kind is an agreement.

There are two conditions for agreement:

1. Promise.

2. Consideration of both the parties.

In other words we can say that proposal which is offered by one party, it becomes an agreement.

Agreement = proposal + acceptance.

Example: - Mr. Sam invites Miss Sarah to a marriage party at his house. Miss Sarah does not go
to the party; Mr. Sam cannot claim any compensation because this agreement is not enforceable
at law.

CONTRACT:-

It is defined in the following words "A contract is an agreement enforceable by law".

Salmon defines the contract in the following words "An agreement creating and defining
obligations between the parties". So there are two conditions for the contract.

1. An Agreement.

2. Enforceable by law.

Any agreement which enables a man to compel another to do something or not do something, it
is called contract. Agreement becomes a contract when it is enforceable by law.
Example: - Suppose there is an agreement between Mr. Khan and Miss. Lucy that Mr. Khan will
bring the car from Washington for Miss. Lucy and Miss Lucy will pay Rs. 10 lac to Mr. Khan.
Now this agreement is a contract because it enables Mr. Khan to compel Miss. Lucy for purchase
of car. It also compels to Mr. Khan for the sale of car. So agreement is a contract because it is at
law.

2. Acceptance:-

When the promise signifies the assent then proposal is said to be accepted. Acceptance must be
according the contract act rules.

3. Agreement:-

After the acceptance of proposal it will be only promise. For the valid contract there must be an
agreement enforceable by law.

4. Agreement must be in Writing:-

For the validity of the contract it is necessary that it must be in writing and registered with the
registrar if it is required by the law.

Example: - "A" verbally promises to sell his college to "B". It is not a valid contract because the
contract of movable property must be in writing.

5. Lawful Agreement:-

Lawful agreement is essential for the valid contract. Because unlawful agreement cannot be
enforceable at law.

6. Lawful Object:-

If the object of the contract is not lawful then it is invalid contract. Illegal and immoral object
makes the contract invalid.

Example: - Mr. Arum promises to pay one lac to Mr. Adit. If he kills Mr. Shan. The agreement is
illegal because the object is not lawful.

7. Competency of the Parties:-

Only competent parties can enter to the contract. According to contract act following persons are
competent.

1. Anyone who attained the age of majority.

2. Who are of sound mind?

3. Who are not disqualified to enter into any contract?

8. Consideration:-

It is also essential for a valid contract. When at the wish of the promisor the promise does or
abstains from doing such act or promise is called consideration for the promise. It may be past or
present.

9. Certain and definite:-

Contract meaning should be clear. It should be also certain and definite. If the performance of the
contract is not possible then it cannot be called a valid contract.

Example: - "A" promised to sell a car to "B" it is not clear. So the agreement is void.

QUESTION No 2:-

Discuss the various type of contact.

Answer:
Under Section 10 of the Contract Act, a contract is made when two or more parties have the
same thinking and agree upon to same thing. Under Section 10 all contracts must be, made with
free consent.

Free Consent:

Free consent was a consent which is given in the absence of the, followings:

1. Coercion.

2. Undue-Influence.

3. Fraud.

4. Misrepresentation.

Example

“A” under threat of “B” compels “'C” to enter into a sale agreement. Held, it is made without
free consent.

Doctor threatens the patient to disclose his disease to public and gets a pronote for the payment
of Rs. 1 lack. Held, it is without free consent.
“A” by posing himself as an owner of a house and fraudulently enters into an agreement to sell
with “B” for certain price. Held, it is made free consent, e.g. of misrepresentation; by
misrepresentation

Section 2(i): An agreement which is enforceable by law at the option of one or more of the
parties thereto, but not at the option of the other or others, is a voidable contract;

Section 2(g): when a consent is caused by mistake, the agreement is void. A void agreement is
not enforceable at the option of either party.

QUESTION No 3:-

Give a brief note on offer and acceptance and essential of a valid offer and
acceptance?

Answer:
Offer and Acceptance

An offer is a promise to do or not to do something in sufficiently clear terms that may be

accepted by another. An offer should be distinguished from an invitation to treat and a mere
expression of intention to do or not to do some act. Offers do not necessarily need to be made to
one person – that may be made to the world at large or to specific groups of people. The
significance of an offer is that when it is accepted, the contract is formed. In addition to being
accepted, an offer may be rejected, a counter-offer may be made, the offer may lapse or the offer
or may withdraw the offer, such that it is no longer available to be accepted.

The acceptance of the offer’s terms must be unconditional. In many cases this may constitute a
‘yes’ or ‘no’ reply to an offer made. There are situations where such a simple exercise may not
be possible and it requires the courts to give direction as to how acceptance may be established.
An offer may be accepted by conduct; silence, however, can never constitute acceptance.

Essentials of a Valid Offer

Following are the legal rules or essentials of a valid offer:

1.It may be express or implied:

An offer may be made either by words or by conduct. An offer, which is made by words spoken
or written, is called an express offer. The offer, which is made by the conduct of a person, is
called an implied offer.
Example:

1. M says to N that he will sell his motorcycle to him for Rs.40, 000. It is an express offer.

2. A railway coolie carries the luggage of B without being asked to do so B allows him to do so.
It is an implied offer.

3. The new Khan Transport Company runs buses on different routes to carry passengers at the
scheduled fares. This is an implied offer by the company.

2. It must create legal relation:

The offer must be made in order to create legal relations otherwise, there will be no agreement. If
an offer does into give rise to legal obligations between the parties it is not a valid offer in the
eye of law.

Example:

1. A invites B to dinner B accept the invitation. It does not create any legal relations, so there is
no agreement.

2. A offers to sell his watch to B for Rs.200 and B agrees. There is an agreement because here
the parties intend to create legal relations.

3. Three friends joined to enter a newspaper competition and agreed to share any winnings. It
was held the intended to create legal relations and their agreement was therefore a contract.

3. It must be definite & clear:

An offer must be definite and clear, if the terms of an offer are not definite and clear, it cannot be
called a valid offer. If such offer is accepted it cannot create a binding contract.

Example:

A has two motorcycles. He offers B to sell one motorcycle for Rs.27, 000. It is not a valid offer
because it is not clear that which motor cycle a wanted to sell.

4. It is different from invitation to offer:

An offer is different from an invitation to offer. It is also called invitation to treat or invitation to
receive offer. An invitation to offer looks like offer but legally it is not offer.

In the case of an invitation to offer, the person sending out the invitation does not make an offer
but only invites the other party to make an offer. His object is to inform that he is willing to deal
with anybody who after getting such information is willing to open negotiations with him. Such
invitations for offers are not offers according to law and so cannot become agreement by
acceptance.

Example:

1. Quotations, Catalogues of prices, display of goods with prices issue of prospectus by

companies are examples of invitation to offer.

2. Display of goods in an auction sale is not an offer rather it is an invitation to offer. The offer
will come from the buyer in the form of bids.

5. It may be specific or general:

When an offer is made to a specified person or group of persons, it is called specific offer. Such
an offer can be accepted only by the person or persons to whom it is made. A general offer, on
the other hand, is one, which is made to public in general and it may be accepted by any person
who fulfills the conditions mentioned in it. Both specified and general offers are valid.

Example:

1. M makes an offer to N to sell his bicycle for Rs.800, it is a specific offer. In this case, only N
can accept it.

2. A announces in a newspaper a reward of Rs.1, 000 for anyone who will return his lost radio. It
is general offer.

6. It must be communicated to the offered:

An offer is effective only when it is communicated to the offered. If an offer is not

communicated to the offered it cannot be accepted. Thus an offer, which is not communicated, is
not a valid offer. It applies to both specific and general offers.

Example:

A without knowing that a reward has been offered for the arrest of a particular criminal, catches
the criminal and informs the police. A cannot recover the reward as he was not aware of it.

7. It should not contain negative condition:

An offer should not contain a condition the non-compliance of which may be assumed as
acceptance. An offered cannot say that if acceptance is not communicated up to a certain date,
the offer would be presumed to have been accepted. If the offered does not reply, there is no
contract, because no obligation to reply can be imposed on him, on the ground of justice no
agreement because such condition cannot be imposed on the offered. It is only a one sided offer.

Example:
A wrote to B offering to sell his book for Rs.500 adding that if he didn’t reply within 5 days, the
offered would be presumed to have been accepted. There is no agreement b/c such condition
can’t be imposed on the offered. It is only a one sided offer.

8. It may be subject to any terms & conditions:

An offered may attach any terms and conditions to the offer he makes. He may even prescribe
the mode of acceptance. There is no contract, unless all the terms of the offer are accepted in the
mode prescribed by the offered. It must be noted that if the offered asks for sending the
acceptance by telegram and the offered sends the acceptance by letter and the offered may reject
such acceptance.

Example:

A asks B to send the reply of his offer by telegram but B sends reply by letter, A may reject such
acceptance because it is opposed to the prescribed mode of communication.

9. It must not contain cross offers:

When two parties make similar offers to each other, in ignorance of each other’s such offers are
called cross-offers. The acceptance of cross-offers does not result in complete agreement.

Example:

On 23rd December 2007, A wrote B to sell him 100 ton of iron at Rs.10, 000 per ton. On the
same day, B wrote to A to buy 100 tons of iron at Rs.10, 000 per ton. There is no contract
between A & B because the offers were similar and made in ignorance of the other and so there
is no acceptance of each other’s offer.

7. The acceptance must be communicated to the offer or himself:

A valid contract arises only if the acceptance is communicated to the offered himself. If
acceptance is communicated to the person, other than the offered, it will not create any legal
relationship. In fact, such communication is no communication at all.

8. The acceptance must be in the prescribed manner:

It is the legal rule of the acceptance that it must be accepted in the prescribed manner. If the offer
is not accepted in the prescribed manner, then the offered may reject the acceptance within
reasonable time.It may, however, be noted that, if the offered does not reject the acceptance
within a reasonable time then he becomes bound by acceptance. [Sec. 7(2)]

9. The acceptance must be given in some usual and reasonable manner:

It is another important legal rule of an acceptance that where no mode is prescribed, acceptance
must be given in some usual and reasonable manner. In such cases, the mail course is considered,
a very reasonable manner.

10. The acceptance must show an intention that acceptor is willing to fulfill the terms of the
offer:

A valid contract can arise only when the acceptance is given with the intention of fulfilling the
terms of the contract. An acceptance which is made jokingly and without any intention of
entering into a contract is invalid and does not create any legal relationship.

11. The acceptance may be express or implied:

An acceptance, which is expressed by words written or spoken, is called an express acceptance.

12. The acceptance cannot be presumed from silence:

Sometimes, the acceptor does not convey his decision to the offer or/and keeps silent. In such a
case, his silence does not amount to acceptance. Similarly, the offered does not have the legal
rights to say that if no answer is received within a certain time, the offer shall be deemed to have
been accepted.

QUESTION No 4:-

Define Consideration. Discuss the law relating to contract bye person of

unsound mind and disqualified person.

Answer:
CONSIDERATION:-

It is defined in the following words: "When at the desire of the promise the promise has done or
abstained from doing or does or abstains from doing such act is called a consideration for the
promise."

In other words "Consideration is a reward accepted or given in return for the promise. it is a fact
that without consideration agreement is not valid."

Person of Unsound Mind

As explained earlier, as per Section 11 of contract Act, for a valid contract each party to the
contract must have a sound mind. Contract made by person of unsound mind are void. The
reason is that a contract requires assents of two minds but a person of unsound mind has nothing
which the law recognizes as a mind.

Section 12 deals with the question as to what is a sound mind for the purpose of entering into
contract. It lays down that, "A person is said to be of sound mind for the purpose of making a
contract if, at the time when he makes it he is capable of understanding it and of forming a
rational judgment as to its effects upon his interest."

Unsoundness of mind may arise from:

(a) Idiocy:

An Idiot is a person with no intervals of saneness. He is in capable. His mental powers of

understanding even ordinary matters are absent because of lack of development of brain. The
agreement with an idiot is void.

(b) Lunacy or Insanity:

It is disease of brain. A lunatic loses the use of his reason due to some mental strain or disease.
He may have Lucid Intervals of sanity. He can enter into contract during that period when he is
of sound mind.

(c) Drunkenness:

It produces temporary incapability till the man is under the effect of intoxication creating
impotence of mind. He stands on the same footing as a lunatic.

(d) Hypnotism:

It also produces temporary incapability till the person is under the impact of artificially induced
sleep.

2. Foreign sovereigns and ambassadors:

Foreign sovereigns and accredited representatives of a foreign state or ambassadors enjoy special
privilege, by which they cannot be sued in Indian courts. However, they can, if they choose,
enter into contracts and can enforce such contracts in Indian courts.

Ex-kings are not entitled to this privilege and therefore, can be sued in Indian courts just as
ordinary citizens.

In India, under Sec. 86 of the Civil Procedure Code, previous sanction of the Central
Government is to be obtained, for suing the rulers of foreign states, ambassadors and envoys.
3. Convicts:

A convict is a person, who is sentenced by a competent court to the death sentence or

imprisonment. A convict cannot enter into a valid contract while undergoing sentence, nor can
sue. His incompetency is over, when the period of his sentence is over or he is pardoned.

Thus, the competency right to make a contract or sue is only suspended during the course of his
sentence and is not lost. Whenever he is freed, he regains such rights.

4. Professional persons:

It is only in England, where the barristers cannot sue their clients for their professional fees. In
India, no such rule exists.

Every barrister, who has got himself enrolled as an advocate of High Court can sue his clients for
his fees. Under Indian Bar Councils Act, 1927, enrolment of an advocate is necessary before he
can practice.

5. Corporations:

Corporations include registered companies, local bodies and city corporations. Corporations are
legal artificial persons. Since they have legal existence, they can acquire property, transact their
business and are capable of suing and being sued. But they cannot do so without their seals.

Powers of a corporation are limited by its Memorandum of Association, beyond which it cannot
do anything.

QUESTION No 5:-

Discuss briefly expressly declared void agreements under the contact act.
Expressly Void Agreements

The Indian Contract Act 1872 defines a void agreement as “an agreement that is not enforceable
by law”. And there can be many times of void agreements, some of which we have covered in
the previous articles. But the contract states certain agreements that are expressly declared as
void agreements. Let us take a look.

1] Agreement in Restraint of Marriage

Any agreement that restrains the marriage of a major (adult) is a void agreement. This does not
apply to minors. But if an adult agrees for some consideration not to marry, such an agreement is
expressly a void agreement according to the contract act.
So A agrees that if B pays him 50,000/- he will not marry such an agreement is a void
agreement.

2] Agreement in Restraint of Trade

An agreement by which any person is restrained from plying a trade or practicing a legal
profession or exercising a business of any kind is an expressly void agreement. Such an
agreement violates the constitutional rights of a person.

Similarly, if an outgoing partner can enter into such a restraint of a trade agreement with the
partnership firm. Also, a contract between partners not to carry out any competing business
during the continuance of a partnership is also a valid contract.

3] Agreement in Restraint of Legal Proceedings

An agreement that prevents one party from enforcing his legal rights under a contract through the
legal process (of courts, arbitration, etc) then such an agreement is expressly void agreement.

However, there are exceptions like, if the agreement states that any dispute between parties will
be referred to arbitration and the amount awarded in such arbitration will be final will be a valid
contract. Also if the parties agree that any dispute between them in the present or the future will
be referred to arbitration, then such an agreement is also valid. But such a contract has to be in
writing.

4] An Agreement Whose Meaning is Uncertain

An agreement whose meaning is uncertain cannot be a valid agreement, it is a void agreement. If

the essential meaning of the contract is not assured, obviously the contract cannot go ahead. But
if such uncertainty can be removed, then the contract becomes valid.

Say for example A agrees to sell to B 100 kg of fruit. This is a void contract since what type of
fruit is not mentioned. But if A exclusively sells only oranges then the agreement would be valid
because the meaning would now be certain.

5] Wagering Agreement

According to the Indian Contract Act, an agreement to wager is a void agreement. The basis of a
wager is that the agreement depends on the happening or non-happening of an uncertain event.
Here each side would either win or lose money depending on the outcome of such an uncertain
event.

The essentials of a wagering agreement are as follows. If all elements are met then the agreement
will be void.

Must contain a promise to pay money or money’s worth

Is conditional on the happening or non-happening of a certain event

The event must be uncertain. Neither party can have any control over it

Must be the common intention to bet at the time of making the agreement

Parties should have no other interest other than the stake of the bet

QUESTION No 6:-

What are the various ways in which a contact may be discharged?

Discharge of a contract implies termination of contractual obligations. This is because when the
parties originally entered into the contract, the rights and duties in terms of contractual
obligations were set up. Consequently when those rights and duties are put out then the contract
is said to have been discharged. Once a contract stands discharged, parties to it are no more
liable even though the obligations under the contract remain incomplete.

A Contract is deemed to be discharged, that is, concluded and no longer binding, in the following
circumstances:

1)Discharge by performance.

2)Discharge of Contract by Substituted Agreement.

3)Discharge by lapse of time.

4)Discharge by operation of law.

5)Discharge by Impossibility of Performance.

6)Discharge by Accord and Satisfaction.

7)Discharge by breach.

Discharge of a contract means termination of the contractual relations between the parties to a
contract. A contract is said to be discharged when the rights and obligations of the parties under
the contract come to an end. Modes of discharge of contract

Discharge by Performance

A contract can be discharged by performance in any of the following ways:

(a) By Actual Performance A contract is said to be discharged by actual per-formance when the
parties to the contract perform their promises in accordance with the terms of the contract.
(b) By Attempted Performance or Tender A contract is said to be discharged by attempted
performance when the promisor has made an offer of performance to the promisee but it has not
been accepted by the promisee.

Discharge by Mutual Agreement

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

a) Novation [Section 62] Novation means the substitution of a new contract for the original
contract. Such a new contract may be either between the same parties or between different
parties. The consideration for the new contract is the discharge of the original contract.

(b) Rescission [Section 62] Rescission means cancellation of the contract by any party or all the
parties to a contract.

(c) Alteration [Section 62] Alteration means a change in the terms of a contract with mutual
consent of the parties. Alteration discharges the original contract and creates a new contract.
However, parties to the new contract must not change.

(d) Remission [Section 63] Remission means acceptance by the promisee of a’ lesser fulfillment
of the promise made. According to Section 63, “Every promisee may dispense with or remit,
wholly or in part, the performance of the promise made to him, or may extend the time for such
performance, or may accept instead of it any satisfaction which he thinks fit.”

(e) Waiver means intentional relinquishment of a right under the con-tract. Thus, it amounts to
releasing a person of certain legal obligation under a contract.

Discharge by Operation of Law

a contract may be discharged by operation of law in the following cases:

(a) By Death of the Promisor a contract involving the personal skill or ability of the promisor is
discharged on the death of the promisor.

(b) By Insolvency when a person is declared insolvent, he is discharged from his liability up to
the date of his insolvency.

(c) By Unauthorized Material Alteration If any party makes any material alteration in the terms
of the contract without the approval of the other party, the contract comes to an end.

(d) By the Identity of Promisor and Promisee When the promisor becomes the promisee, the
other parties are discharged.
Discharge by Impossibility of Performance

The effects of impossibility of the performance of a contract may be discussed under the
following two heads:

(a) Effects of Initial Impossibility

(b) Effects of Supervening Impossibility

(c) Declaration of War The pending contracts at the time of declaration of war are either
suspended or declared as void.

(d) Change of Law The contract is discharged if the performance of the contract becomes
impossible or unlawful due to change in law after the formation of the contract.

Discharge by Lapse of Time

A contract is discharged if it is not performed or enforced within a specified period, called period
of limitation. The Limitation Act, 1963 has prescribed the different periods for different
contracts, e.g. period of limitation for exercising right to recover a debt is 3 years, and to recover
an immovable property is 12 years. The contractual parties cannot exercise their rights after the
expiry of period of limitation.

Discharge by Breach of Contract

a contract is said to be discharged by breach of contract if any party to the contract refuses or
fails to perform his part of the contract or by his act makes it impossible to perform his
obligation under the contract. A breach of contract may occur in the following two ways:

(a) Anticipatory Breach of Contract Anticipatory breach of contract occurs when party declares
his intention of not performing the contract before the performance is due.

(b) Actual Breach of Contract Actual breach of contract occurs in the following two ways:

(i) On Due Date of Performance: If any party to a contract refuses or fails to perform his part of
the contract at the time fixed for performance, it is called an actual breach of contract on due date
of performance.

QUESTION No 7:-

Define the term agent and principal. Also discuss the rights and duties of
principal and agents?
The principal-agent relationship is an arrangement in which one entity legally appoints another
to act on its behalf. In a principal-agent relationship, the agent acts on behalf of the principal and
should not have a conflict of interest in carrying out the act. The relationship between the
principal and the agent is called the "agency," and the law of agency establishes guidelines for
such a relationship.

Whether the principal-agent relationship is expressed clearly through a written contract or is

implied through actions, the principal-agent relationship creates a fiduciary relationship between
the parties involved. This means the agent acting on behalf of the principal must carry out the
assigned tasks with the principal's best interest as priority. The agent is responsible for
completing tasks given by the principal so long as the principal provides reasonable instruction.
Additionally, the agent has an obligation to perform tasks with a certain level of skill and care
and may not intentionally or negligently complete the task in an improper manner. A duty of
loyalty is also implied within the principal-agent relationship, which requires the agent to refrain
from putting himself in a position that creates or encourages a conflict between his interest and
the interest of the principal.

Duties of agent and principal

Agent's duties include: to (1) act on behalf of and be subject to the control of the principal, (2)
act within the scope of authority or power delegated by the principal, (3) discharge his or her
duties with appropriate care and diligence, (4) avoid conflict between his or her personal
interests and those of the principal, and (5) promptly hand over to the principal all monies
collected on principal's behalf. Principal's duties include: to (1) compensate the agent as agreed,
and (2) indemnify the agent against claims, liabilities and expenses incurred in discharging duties
assigned by the principal.

QUESTION No 8:-

How will you differentiate between?

I. Coercion and undue influence

II. Fraud and misrepresentation

Answer:
Coercion

Coercion is a practice of unlawfully intimidating a person or property, employed to induce a

person to enter into an agreement without his independent will. This involves physical pressure.
It is an act of compelling a person in such a manner that he doesn’t have any choice rather than
entering into an agreement with the other party.

Example: A threatens B to marry him, or else he will kill her whole family. In this situation, the
consent of B is not free i.e. coercion influences it.

Undue Influence

Undue Influence is a situation in which one person influences the free will of someone else by
using his position and authority over the other person, which forces the other person to enter into
an agreement. Mental pressure and moral force are involved in it.

Example: A teacher forces his student to sell his brand new watch, in a very nominal price, to
get good grades in the examination. In this situation, the consent of the student is affected by the
undue influence.

Comparison Chart

BASIS FOR
COERCION UNDUE INFLUENCE
COMPARISON

Meaning Coercion is an act of Undue Influence is an act of influencing

threatening which involves the the will of the other party.
use of physical force.

Sections It is governed by Section 15 of It is governed by Section 16 of the Indian

the Indian Contract Act, 1872. Contract Act, 1872.

Use of Psychological pressure or Mental pressure or Moral force

Physical force

Purpose To compel a person in such a To take unfair advantage of his position.

way that he enters into a
contract with the other party.

Criminal Nature Yes No

Relationship The relationship between The act of undue influence is done only
BASIS FOR
COERCION UNDUE INFLUENCE
COMPARISON

parties is not necessary. when the parties to the contract are in

relationship. Like teacher - student,
doctor - patient etc.