Law

DEFINITION OF LAW
Different authorities have defined the words ‘law’ differently.

For example:
a) “Law is a body of acts, Orders Ordinances, Regulations,

Conventions, Customs and Practice which have the
sanction of an authority capable of establishing law and
order and which is thus enforced or recognized by court
and other law enforcing machinery”. [PLD (1963), Dac
422].
b) “Law is a body of principles recognized and applied by the

government in the administration of justice”. (Law
Dictionary by Osborn).
DEFINITION OF LAW
c) “Law is a set of rules imposed and enforced by a
society with regards to the attribution and exercise of
power over persons and things”. (Vinogradoff).
d) The word “law necessarily connotes a written law or a

written instrument having the force of law”. [PLD
(1963), SCI].
In short, we may say that law is that body of rules and

regulations which is framed by a competent authority and
recognized by courts.
PURPOSE OF LAW
The main purpose of law are:
i. Protection of rights, persons and their

properties,
ii. Enforcement of mutual contracts,
iii. Punishment of persons for their crimes.
DEFINITION OF BUSINESS LAWS
Business law is that branch of civil law which deal
with rights, obligations and liabilities of persons
arising from statutes and contracts concerning
businesses, commerce and industries.
Examples:
Contract Act, 1872, Sale of Goods Act, 1930,
Negotiable Instruments Act, 1881, Partnership Act,
1932, companies Ordinance, 1984, Factories Act,
1934, Tenancy Agreement and Partnership Deed,
etc. etc.
NEED FOR STUDY OF BUSINESS LAWS
i. Every citizen is required to know the basic law of the
country as ignorance of law is no excuse.
Examples:
a) A milkmen must know the punishment for
adulteration of milk with water. Such punishment
must be inflicted on the milkmen who sell adulterated
milk and spoil the health of people. Thus there is a
need for every citizen to know the basic law.
b) Bribery is prohibited by law. All government servants
should know it is crime.
NEED FOR STUDY OF BUSINESS LAWS
c) All drivers of vehicles should know the law of traffic signals and
should respect them otherwise serious accidents are likely to take
place and endanger human life and property. Thus there is a need
for drivers of vehicles to know and respect the law of road traffic.
d) Accountants, especially public accountants and auditors have to
share and undertake greater responsibility. It is their duty to report
true and financial information and not to hide important relevant
information, in the public interest. If they do not follow the law, it
will amount to dishonesty and criminal act.
CONCLUSION:
Since the aim of all laws is to protect society’s interests, business laws
are also made to achieve the same aim and objective.
Sources of Law
The phrase “Sources of Law” has been used in different
senses by different jurists. According to salmond, an
internationally recognized jurist there are two main
sources of law.
o Formal Sources
o Material Sources
Formal Sources
The formal sources are the will of the state as depicted
by status (laws) made by the parliament and courts.
Material Sources
Material sources are those from which the law drives its
matter. Material sources are further divided into (i) Legal &
(ii) Historical.
i. Legal Sources: Legal sources are those which are the
instruments or organs of the state by which legal rules
are framed, these sources include parliament, customs,
agreements, precedents.
Examples:
Parliaments: Which creates laws it is a source of making
law.
Customs: Customs of the society which become the basis of
a law.
Material Sources
ii. Agreements: Terms and conditions agreed by the
contracting parties have legal effects. All agreements
contain some terms and conditions which serve as rules to
be observed by the parties to the agreements.
iii. Precedent: Precedent is also known as case law or judge-
made law. While studying the development of common law
and equity, we shall note that these two sources of law
developed mainly through a series of decisions given by the
judges.
iv. Historical Sources: In historical sources, primarily the
society’s customs, rules and regulations which were in un-
authoritative form and subsequently, the courts recognized
them and made them the basis of their decisions and
judgments. In this way they took an authoritative form.
Sources of Business Laws
In Pakistan following are the sources of business law:
1. English Law Merchant.

2. British Indian Business Laws.
3. Pakistan Business Laws.
4. Judicial Decision.
5. Customs and Usages of Trade.
6. Quran and Sunnah.
After creation of Pakistan in August 1947 the same laws were
adopted by Pakistan. The following important business laws
together with all others were adopted by Pakistan in 1947.
Sources of Business Laws
1. Contract Act 1872.
2. Negotiable Instruments Act 1881.
3. Sale of Goods Act 1930.
4. Partnership Act 1932.
5. Companies Act 1913.
6. Carries Act 1865.
7. Railways Act 1890.
8. Factories Act 1934.
9. Workmen’s Compensation Act 1923.
10. Bill of Ladies Act 1856.
11. Carriage of Goods by Sea Act 1925 etc.
Pakistan Business Laws
After creation of Pakistan a number of business laws
inherited from the British India were amended and
updated, besides, new laws were also promulgated.
Examples:
a) Constitution of Islamic Republic of Pakistan 1973.
b) Companies Ordinance 1984.
c) Industrial Relation Act 2008/2010.
d) Industrial and Commercial Employment (Standing
order) Ordinance 1968.
e) Provincial Employees Social Society Ordinance 1965.
Judicial Decisions
Judicial decisions are also important sources of our
business laws. These are judge-made laws. When court
of Pakistan or a High Court gives judgment in a peculiar
case which does not find any relevant legal provision in
any specific business law such decision becomes a
binding precedent for the lower courts to decide
similarly all subsequent cases carrying the similar
material facts.
Customs and Usage of Trade
Established practices in a market become a custom or
usage of trade of such market. Such established
practices or usage of trade becomes a regulatory frame
work for that market that market must observe the
customs or usage of trade, because such practice or
usage takes the form the law for the market.
Example: Karachi Electronics market decides.
Quran and Sunnah
Pakistan is an Islamic Republic Country. Here Quran and Sunnah
are also important sources of law including business laws.
1. According to the constitution of Pakistan 1973, no law can
be made which is repugnant to the teaching of the Holy
Quran and Sunnah.
2. Legal System of Pakistan: The law of Pakistan is the law and
legal system existing in the Islamic Republic of Pakistan.
Pakistan law is based up on the legal system of British India,
thus ultimately on the common law of England and wales.
Pakistan is an Islamic Republic. Islam is the state religion and
the constitution requires that laws be consistent with Islam.
Contract and Agreements
According to sec 2 (h) of the contract Act an agreement enforceable by
law is a contract.
Sir William Anson defines contract as:-

“A contract is an agreement enforceable at law made between two or
more persons by which rights are acquired by one or more to act or for
bearers on the part of the other or others”.
Sir Frederic Pollock says:-

“Every agreement and promise enforceable at law is a contract”.
Contract and Agreements
Agreement according to section 2 (e) of the contract act:-
“Every promise and every set of promises forming the consideration
for each other is an agreement”.
When there is a proposal from one side and the acceptance of that
proposal by the other side, it results in a promise. This promise from
the two parties to one another in known as an “agreement”.
As noted above, an agreement enforceable by law is a contract.
All such agreements which satisfy the conditions mentioned in Sec 10
of the contract are contracts. Section 10 is as under:-
All agreements are contracts if they are made by the free consent of
parties competent to contract for a lawful consideration and with
lawful object and are not hereby expressly declared to be void.
Undue Influence
Definition:
According to oxford dictionary.
“Undue influence means influence that prevents someone from
exercising an independent judgment with respect to any
transition”.
According to Osborn’s dictionary.
“Undue influence means the act or power of producing an effect
without apparent force or direct exercise of command”.
According to Section 15 of the act.
“A Contract is said to be induced by undue influence where the
relation subsisting between parties are 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.
Undue Influence
Undue influence may be induced.
1. By a teacher on his taught.
2. By a medical doctor on his patient.
3. By a lawyer on his client.
4. By a guardian on his ward.
5. By a man on a pardahnashin woman.
Undue influence makes the contract voidable at the
option on the party whose consent has been obtained
by undue influence.
Undue Influence
Elements constitute undue influence.
1. Holding of a dominant position.

2. Its use to obtain an unfair advantage.
Performance of Contracts
Q. What are the persons by whom a contract may or must
be performed can a contract be performed by a person
other than a party to it. Discuss fully.
OR
Who are the persons by whom a contract may or must be
performed? Can a contract be performed by person other
than a party to it.
OR
Who are the persons by whom a contract is to be
performed? Can it be performed by a third party. Discuss
fully.
Ans. (1) Who may demand performance of contract:
Person who may demand performance of the contract
are the following:-
a. Promise Himself: As the contact is between the
promisor or and promise, therefore, the later can
himself demand to the promisor for the
performance of contract.
b. Legal Representative of Such Promise: In case the
promise of a contract dies, the legal representatives
of such promise can demand to the promisor for
the performance of the contract.
Ans. (2) Person by whom contract may or must be
performed.
a) According to Section 40 of the Contract Act 1872: If it
appears from the nature of the case that it was the
intention of the parties to any contract that any promise
contained in it shall be performed by the promisor
himself, such promise must be performed by the
promisor.
b) Promisor himself: In case of contract involving the
exercising of personal skill, credit and taste e.g. a
contract to paint a picture a contract of agency or of
service, the promisor must himself perform the
contract.
Example: A promised to contract a house for B.A must
perform the promise himself.
i. Promisor or his agent: In case of a contract of
impersonal nature a contract which does not
involve exercise of personal skill, the promisor
himself or his agent must perform the contract.
Example: A promises B to sell sugar. A must perform
this promise himself or he should ask his agent to
perform the contract.
Legal representative of promisor.
According to Section 37 of the Contract Act: Promisor bind the representative
of the promisor in case of the death of such promisor, before performance,
unless a contrary intention appears from the contract.
a) Liability of legal representative to perform contract in case of personal
skill: In case of a contract involving personal skill, the legal representative
of a deceased promisor are not bound to perform the contract.
Example: A promised to paint a picture for B by a certain day at a certain
price. A dies before that day. The contract cannot be enforced by as
representatives. As in this case the personal skill of a was involved.
b) Liability of legal representatives to perform contract in case of contract
of impersonal nature: In case of a contract of impersonal nature, the
legal representatives are bound to perform the contract.
Example: A promises to deliver goods to B on a certain day on payment of
Rs.1000/-. A dies before that day. As representatives are bound to deliver the
goods to B and B is bound to pay Rs.1000/- to as representatives.
Third Person or Third Party
According to Section 4: When a promise accepts
performance of the promise from a third person, he
cannot afterwards enforce it against the promisor.
The Contract Act
Elucidation: The section lays down where the promisor
accepts performance of the contract from a third
person, he cannot unless the contract is modified,
subsequently insist that it should be performed by the
promisor. However, the promisor can invoke section 41
only if the contract was performed in full. Acceptance
of performance of the contract dischargers the
promisor even without ratification from the promisor.
English Law: In England it is necessary that a payment
by a third person must be under prior authority or must
have been subsequently ratified.
The Contract Act
Pakistani Law: In Pakistan a debt is sufficiently discharged by
whomsoever the payment may have been made if it is accepted as
payment of the particular debt. Where the promise accepts
performance from a third party he cannot enforce it against the
promisor.
Example: A owing large sum of money to B, C offering to pay B a lesser
sum in full satisfaction of B claim on A. B accepted it B cannot recover
balance from A after receiving payment in full satisfaction. A is
discharged from liability to pay.
Third Person meanings: Third person means a person who perform

the contract whereas he is not bound of contract. That means to say a
person who performs the liability of promisor is a third person. Legal
representative does not fall under the definition of third person.
The Contract Act
Q 1. Explain clearly and illustrate the limit within which
a contract can be assigned?
Q 2. Distinguish assignment of contract from the
assignment of property to be required in pursuance of
the contract?
Ans 1. Assignment of Contract: Assignment of a
contract means transfer for contractual rights and
liabilities under the contract to a third party with out
the concurrence of that party to the contract. In such a
case, the original party or parties to the contract may
drop out and other take their place.
Indemnity and Guarantee
Q. Define a contract of indemnity and what are the rights of
an indemnity holder when sued?
OR
What is a contract of indemnity? Distinguish it from the
contract of guarantee.
OR
Define and explain contract of indemnity and a contract of
guarantee?
OR
Define a contract of guarantee and indemnity and draw a
distinction between the two?
1) Indemnity:
Definition of indemnity:
According to Black’s Law dictionary: An undertaking whereby one agrees to indemnity
another upon the occurrence of an anticipated loss.
According to contract Act (Section 124): A contract by which one party promises to
save the other from loss caused to him by the conduct of the promisor himself or by
the conduct of any other person is called a contract indemnity.
Explanation: A contract of indemnity is a direct engagement between two parties
whereby one promises to save another from the loss caused to him by the conduct of
the promisor himself, or of any third person. The expression of contract of indemnity,
has been used in a narrow sense. This section deals only with a particular kind of
indemnity which arises from a promise made by the indemnifier to save the
indemnified from the loss caused to him by the conduct of the indemnifier himself or
by the conduct of any other person. It does not deal with those classes of cases where
the indemnity arises from loss caused by events or accident which do not or may not
depend upon conduct of the indemnifier or any other person or by reason of liability
incurred by something done by the indemnified at the request of the indemnifier.
2) Illustration:
A contract to indemnify B against consequences of any proceedings which C
may take against B in respect of a certain sum of 200 rupees. This is a contract
of indemnity.
Parties involved in a contract of indemnity
Indemnify: The person who promises to make good the loss is called the
indemnifier (promisor).
Indemnified: The person whose loss is to be made good is called the
indemnity holder or indemnified.
Kinds of indemnity: A promisor to indemnify may be either express or
implied.
Express: An indemnity is express, when it is made by express promise
between the parties.
Implied: An indemnity is implied, when it has been inferred from the
circumstances of a particular case.
Right of indemnity when arises: A right to indemnity arises as
soon as the party indemnified suffers a loss or anything happens
against which he has been indemnified.
Rights of indemnity holder when sued: The person to whom the
indemnity is given the promise acting within the scope of his
authority has the following rights against the promisor.
Right to claim damages: An indemnity holder is entitled to claim
all damages which he may have been compelled to pay in any
suit in respect of any matter to which the promise of indemnity
applies.
Right to recover all costs: An indemnity holder is entitled to
recover all costs reasonably incurred in resisting or reducing or
ascertaining the claim. But the party indemnified cannot recover
costs when he has not acted as a prudent man in defending.
Obligation & Rights of a Finder of
Goods
A person, who finds goods belonging to another and takes them into his custody is
responsible for taking due care of such goods and for trying to find out the real owner.
He must restore the goods to the real owner on demand. His rights are as follows:
1. To retain the goods against the owner until he receives compensation for trouble
and expense voluntarily incurred by him in preserving the goods and not finding
out the owner, through he cannot sue for such amount.
2. Where the owner has offered a specific reward for the return goods lost, he may
sue for such reward and may retain the goods until he receives it.
3. When a thing which is commonly the subject of sale is lost, if the owner cannot,
with reasonable diligence be found or if he refuses upon demand to pay the
lawful charges of the finder, the finder may sell it:-
a. When the thing is in danger of perishing or of losing the greater part of its
value.
b. When the lawful charges of the finder, in respect of it, amount to two- third
of its value.
Discharge of Contract
The parties to a contract enter into it with the object of performing it and the performance of the
contract brings its termination. But there are some other modes as well which set the parties free
from their respective rights and liabilities under the contract. The various modes in which a
contract may be discharged are the following:
1) By Performance: When the parties to the contract have duly performed their respective
promises undertaken by them, the contract comes to an end.
2) By Mutual Agreement: A contract comes into being by the agreement between the
parties, so it may also be discharged by their mutual agreement. This can be done either by
novation or by substitute agreement or by conditions subsequent:
i. Novation: When he terms of the original contract are altered by agreement between
the parties it takes the shape of a new contract and is deemed to substitute the
original contract. The original contract is thus discharged or rescinded.
ii. Waiver: The parties may abandon their respective rights by mutual consent may
rescind the contract.
iii. Condition Subsequent: A contract may contain provisions regarding its discharge on
the non-fulfilment of a condition, precedent or the occurrence of a condition
subsequent.
Discharge of Contract
3) By Impossibility of Performance : If the performance of the contract becomes or turns out to
be impossible the parties to the contract are discharged from their respective obligations
under the contract.
4) By Operations of Law: Some times the performance of a contract is discharged by the
operation of some law. For instance as soon as a person is discharged by an order of the
insolvency court, his liabilities under contracts are discharged.
5) By Brach: When one party to the contract breaks the contract by non-performance of the
promise or otherwise the other party is discharged from his obligation under the contract
and has a right of action against the party responsible for the breach.
6) By Lapse of Time: The lapse of time under the law of limitation, amounts to a discharge for
all practical purpose.
Frustration of a contract means its pre-mature termination on account of the happening of
event which was not in the contemplation of the parties when they entered into contract.
For example in times of wars many contracts are effective because their performance
becomes wholly or in part unlawful. Frustration operates to bring the contract to an end as
regards both parties. This may be under the general rules against entering courts with the
enemy and may be the result of express executive orders issued under emergency
legislation. In such situation if performance of a contract becomes unlawful. There is said to
be frustration of that contract.
Breach of Contract
Modes of Breach:
A contract may be broken in one of the following ways:
1. By renunciation before performance: Ahmed Hussain, painter, undertakes to paint
a picture for Muhammad Anwar within a week. Before the due date, Muhammad
Anwar may inform Ahmed Hussain that he will not take delivery of the picture.
This situation where a contract is broken by the promisor before the due date of
the performance is called an anticipatory breach of contract. The following
remedies are available to the promise:-
a) He may wait till the due date of the performance arrives and if the contract still
remains unperformed he may sue for the breach.
b) He may treat the contract as broken and sue for that atone.
2. By impossibility created by one party before performance is due: For instance,
Muhammad Akhtar may undertake to repair the house of Muhammad Ali within a
week but he subsequently may close his house and be out during that period.
3. By renunciation in the course of performance: For instance Mr. “A” may employee
Miss. “B” to give two dances in his theater on a particular night. After she has
performed one dance Mr. “A” refuse to allow Miss. “B” to dance for the second
time.
Breach of Contract
4. Impossibility Created by one party in the course of performance: For instances Mr. A may
after Miss. B has completed her first dance, remove all musical instrument thereby making it
impossible for Miss. B to perform the dance.
5. By Failure of Performance: The party or parties to the contract may fail to perform their
respective obligations.
Remedies for Breach of Contract.
Where one party has broken the contract the injured party may obtain either:
a) Damages for the loss caused to him.
b) A decree for specific performance.
c) An injunction.
The damages granted to the injured party are usually nominal.
Damages:
When a party has broken the contract, the other party who suffers by such breach is entitled to
receive from the former compensation for any loss or damage caused to him thereby. But the
loss which can be compensated must be the one which naturally arose in the usual course of
things from such breach or (2) which the parties knew, when they made the contract to be likely
to result from the breach of it. If the loss of damage sustained by reason of breach is remote or
indirect, no compensation will be granted for the same. A loss which does not arise naturally is
called a special loss and can be recovered only if the contract makes special provision for its
recovery. Damages are granted as compensation for the loss actually infected and not by way of
penalty.
Breach of Contract
In estimating the loss or damage arising from a breach of contract, the means which existed of
remedying the inconvenience caused by the non-performance of the contract must be taken into
account.
When the contract has been broken if a sum is named in the contract as the amount to be paid in
case of such breach, or any other penalty is stipulated therein, the injured party is entitled,
whether or not actual damage or loss is proved to have been caused thereby, to receive from the
party accused of breach reasonable compensation not exceeding the amount so named or the
penalty stipulated for. There is, however, one exception to this rule. If a person enters into any
bail-bond, recognizance or other instrument of the same nature with the government, or gives
any bond for the performance of any public duty or act in which the public are interested, he
shall be liable, upon breach of the condition of such instrument, to pay whole sum mentioned
therein.
Illustrations:
A contracts to sell and deliver 250 mounds of salt to B at a certain price, to be on delivery. A
breaks his promise B is entitled to receive from A by way of compensation, the sum, if any by
which the contract price falls short of the price for which B might have obtained 250 mounds of
salt of like quality at the time when the salt ought to have been delivered.
Contract of Bailment
What is contract of bailment?
Bailment meanings and definition:
Meaning: The word “Bailment” has been derived from the French word “Bailor” which means to
deliver.
According to section 148 of contract Act.
“A Bailment is the delivery of goods by one person to another for some purpose, upon a contract
that they shall, when the purpose is accomplished, be returned or otherwise disposed of
according to the direction of the person delivering them”.
Bailor and Bailee:
1. Bailor: The person delivering the goods is called Bailor.
2. Bailee: The person to whom goods are delivered is called the Bailee.
Arising A Bailment: A Bailment arises when one person transfers possession of goods to another
person on condition that he will return them after the accomplishment of purpose.
Essentials of Bailment:
1. Delivery of Possession: There should be delivery of possession by one person to another.
Delivery of possession is different from mere custody. A custody without possession e.g.
custody in the hands of a servant or a guest using his host’s goods, does not create Bailment.
Actual delivery: When the bailor hands over to the bailee physical possession of the goods
that us called actual delivery.
Contract of Bailment
2. Constructive Delivery: This type of delivery takes place when there is no change of physical
possession, goods remaining where they are but something is done which has the effect of
putting them in the possession of the bailee.
Delivery should be upon contract: Delivery of goods should be made for some purpose and
upon a contract that when the purpose is accomplished, the goods shall be returned to the
bailor. When a person’s goods go into the possession of another without any contract, there
is no bailment within the meaning of section 148.
Delivery must be upon some specific purpose: Bailment of goods is always made for some
purpose and is subject to the condition that when the purpose is accomplished the goods
will be returned to the bailor or disposed of according to his mandate. If the persons to
whom the goods are delivered is not bound to restore them to the persons delivering them
or to deal with them according to his direction, their relationship will not be that of bailor
and bailee.
Change of Ownership: There must not be any change of ownership. As if there is a change in
ownership the transaction may be a sale or exchange but is not a bailment.
Return of Goods: The goods bailed must be returned to the bailor, when the purpose is
accomplished.
Agency
Q 1. Define & explain “Agent and Principle?
Q 2. What are the different kinds of agents ?
Ans 1. Principle: Principle is a person who is agreed to be represented by the agent.

i. Who may be principle: Any person who is of the age of maturities according to the law to
which he is subject and who is of sound mind may become principle.
ii. Agent: An agent is a person employed to do any act for another or to represent another in
dealing with third persons. The persons for whom such act Is done or who is so represented
is called the principle.
An agent is a person employed to do any act for another or to represent another in dealing
with third persons. But a person who merely gives advice to another in matters of business,
does not thereby become his agent. The essential point about an agents position is his
power of making the principle answerable to third persons. The acts done by the agent if
within his authority are binding on the principle who is represented for all lawful purpose of
the agency by the agent till the latter’s authority is terminated. An agent can neither sue nor
be sued personally in respect of contracts made by him for his principle. If an agent does
some unauthorized act he is personally liable for the same, but a principle may take the
responsibility for the unauthorized act also by ratification.
Kinds of Agents
1. Del creder agent: A del credere agent is one who IOL an extra remuneration, called a del
credere commission undertakes the liability to guarantee the due performance of the contract
by the other party. Because he charges an extra commission he assumes responsibility for the
solvency and performance of their contracts by the other parties and thus indemnifies his
employer against loss. A del credere agent is liable to pay the seller only if owing to insolvency
of the buyer or other analogous cause the seller is unable to recover the price from the buyer,
but not if the buyer through solvent has refused to pay on the ground that the seller has not
duly performed the contract.
2. Commission agent: A commission agent us a person who buys or sells goods in the market on
behalf of his employer on the best terms and who receives commission for his labour.
3. Factor: A factor is an agent entrusted with the possession of goods for the purpose of selling
them. He can sell the goods in his own name. A factor has a right to retain the goods for a
general balance of accounts.
4. Broker: A broker is a mercantile agent employed for the purpose of purchase and sale of
goods. His main duty is to established privity between two parties for a transaction and he gets
commission for his labour. He is not entrusted with the possession of goods. He simply brings
the two parties together and if transaction materializes he becomes entitled to the
commission.
Kinds of Agents
5. Co-agent: Where an authority is expressly given on several person with no stipulation that
any one or more of them shall be authorized to act in the name of the whole body they have
a joint authority and they are called co-agents.
6. Sub-agent: A sub-agent is a person employed by and acting under the control of the original
agent in the business of the agency.
When the sub-agent is improperly appointed:-

In this case, section 193 governs the rights and liabilities of the principle, agent and sub-agent,
which provides that.
1. The principle is not liable for the acts of sub-agent.
2. The agent is responsible for the acts of sub-agent to the principle as well as to the third
parties.
3. The sub-agent is responsible only to the agent. In no case he is responsible to the principle,
even if he commits a fraud or willful wrong.
Termination of Agency
An agency may be terminated in a one of the following ways:
1. Agreement: An agency can be terminated at any time by an agreement between the principle
and the agent of this effect.
2. Revocation by Principle: A principle can be terminate the agency by given the notice of
revocation to the principle.
3. Revocation by Agent: An agent can terminate the agency by giving the notice of revocation to
the principle.
4. Completion the Business: The agency is automatically terminated when the business of
agency is completer.
5. Expiry of Times: If the agent is appointed for a specified period, the agency terminates at the
expiry of that period.
6. Death: Death, either of the agent or of the principle, terminates the agency.
7. Insanity: Insanity, either of the agent or of the principle, terminates the agency.
8. Dissolution of Company: Where either the principle of the agent is a joint stock company,
dissolution of the company terminates the agency.
9. Alien Enemy: Agency terminates, when either the principle or agent becomes alien enemy.
10. Insolvency of Principle: Agency terminates, when the principle is declared insolvent.
11. Destruction of Subject Matter: If the subject matter of contract of agency destroys, the
agency terminates.
Past Paper Questions
1. Define agency 1998P-6.
2. What are different ways for creation of agency 2005P-8.
3. How an agency be created 2007R-9, 2009R-9, 2010R-8, 2012R-2, 2013R-7.
4. In how many ways contract of a agency can be created 2011P-12.
5. What are essential to constitute a valid agency? How an implied agency can be created?
2011R-12.
6. Define the term agent? 2009P-5, 2010P-5.
7. Give rights of gent 1999-5, 2008P-7, 2012P-7.
8. Explain appointment and authority of an agent 2002-7.
9. Give the rights and responsibility of an agent? 2005P-10, 2013P-8.
10. What are the liabilities of principle towards agent 2007P-5.
11. Discuss the different modes in which the authority of an agent may be terminated 1995P-17,
2009P-10, 2010P-12.
12. How agency is eliminated 1998P-12.
13. Briefly state the provision of law of agency with regard to termination of an agency by
operations of law 2006R-10.
14. Who is sub agent? When can an agent appoint a sub agent? 2002-10
Indemnity:
Definition of Indemnity: According to blocks law dictionary:
An undertaking whereby one agrees to Indemnity another upon the occurrence of an
anticipation loss.
According to contract act (section 124). A contract by which one party promises to save the
other from loss caused to him by the conduct of the promisor himself or by the conduct of any
other person is called a contract of Indemnity .
Parties involved in a Contract of Indemnity:

Indemnifier: The person who promises to make good the loss is called the indemnifier (promisor).
Indemnified: The person whose loss is to be made good is called the indemnity holder or
indemnified.
Kinds of Indemnity: A promise to indemnify may be either express or implied .

Express: An indemnity is express, when it is made by express promise between the parties.
Implied: An indemnity is implied, when it has been inferred, from the circumstances of a
particular case.
Contract of Guarantee
Definition:
According to Black’s Law dictionary: An undertaking or promise that us collateral to primary or
principle obligation and that binds guarantor to performance is event of non-performance by the
principle debtors.
According to section 26 of contract act: A contract of guarantee is a contract to perform the
promise or discharge the liability of a third person in case of his default.
Parties to a Contract of Guarantee:

There are three parties to contract of guarantee there are:
1. Surety
2. Creditor
3. Principle Debtor
Surety: The person who gives the guarantee is called the surety.
Creditor: The person to whom the guarantee is given is called the creditor.
Principal debtor: The person in whose default the guarantee is given is called the principle
debtor.
Condition and Warranty
Condition (meaning & definition).
A condition is a stipulation essential to the main purpose of a contract the
breach of which gives rise to a treat the contract repudiated Section 12 (2).
Condition is a stipulation essential to the main purpose of the contract and
breach of which gives the aggrieved party a right to terminate the contract or
to claim damages in case of acceptance of contract.
Example: C Contract to deliver 100 royal fans to B. C delivers climax fans. It is
a breach
Difference between Fraud and
Misrepresentation.
Fraud:
Fraud may be defined as an intentional or will full misstatement of facts which are
necessary for formation of the contract. It includes all acts committed by a person in
order to deceive another person (section 17) states. Fraud means and includes any of
the following acts committed by a party to a contract with his connivance or by his
agent, with intent to deceive another party there to or his agent or to induce him to
enter into the contract.
Misrepresentation:
The term misrepresentation means false representation of a fact made innocently or
non-disclosure of material fact without any intention to deceive the other party.
According to Section 18.
Example: A tells B that his land produces 4000Kg of wheat per acre. A believes it to be
true. B buys it. Later, it appears that the land produces 1000Kg of wheat per acre. It is
misrepresentation.
Difference between Fraud and
Misrepresentation.
Misrepresentation:
1. A false statement without any intention to deceive would be a misrepresentation.
2. It makes a contract voidable.
3. The fact that the plaintiff has the means of discovering the truth is a good plea.
Fraud:
1. A false statement deliberately made to deceive another is a case of fraud.
2. It gives rise to an independent action.
3. It is not open to the person making of false statement to say that the plaintiff had
means of discovering truth with ordinary diligence.
Contracts, Voidable Contracts & Void
Agreements
Q. Explain and discuss the essentials of a valid contract?
OR
What are the essentials of a valid contract?
Ans. (1) Definition of Contract.
i. According to section 2(h) of contract act 1872: An agreement enforceable by law
is a contract.
ii. According to Anson: A contract is an agreement enforceable at law made
between two or more persons, by which rights are acquired by one or more to act
or forbearance on the part of the other or others.
iii. According to Sir Frederic Pollock: Every agreement and promise enforceable at
law is a contract.
Definition of Valid Contract
According to Section 10 of Contract Act 1872: All agreements are contract if they are made by
the free consent of parties competent to contract, for a lawful consideration and with lawful
object and are not hereby declared as void.
Essentials of a Valid Contract:

Essentials of a valid contract are as under:
1. Agreement
2. Legal Relationship
3. Free Consent
4. Capacity of Parties
5. Lawful Consideration
6. Lawful Object
7. Certainty
8. Possibility of Performance
9. Not Expressly Declared Void
10. Legal Formalities
1. Agreement: There must be a lawful proposal or offer by one party and lawful acceptance of
that proposal or offer by the other party. A proposal when accepted become a promise or
agreement.
Proposal and Acceptance
Proposal: When one person signifies to another his willingness to do or to abstain from
doing any thing with a view to obtaining the assent of that other to such act or abstinence,
he is said to make a proposal : Sec 2(a)
Acceptance: When the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted.
2. Legal Relationship: The agreement must create legal relationship between the parties.
Agreement of social or domestic nature does not create legal relations and as such cannot
give raise to legally enforceable contract. Thus the second essential of a valid contract is that
both the parties should be willing to from legal relationship with each other.
3. Free Consent: The agreement must have been made by free consent of the parties i.e. when
they agree upon the something in the same sense.
Consent: The consent is defined under Section 10 as “Two or more persons are said to
consent when they a free upon the something in same sense. Section 10 also says that “all
agreements are contract if they are made by the free consent of the parties”.
When there is no consent or no real and certain object of consent, there is no contract.
Free Consent: Section 14 of the contract act defines free consent as follows: Consent is said
to be free when it is not caused by:-
o Concern
o Unduinfluence
o Fraud
o Misrepresentation
o Mistake
So that third essential for the validity of a contract is that both the parties should agree to
the something in same sense and the consent should be a free one. As it is obtained
coercion, under undue influence, fraud and misrepresentation, then it has the effect to make
the agreement voidable at the option of the other party and if it is induced by mistake, then
it has the effect to make the contract void.
4. Capacity to Contract: The fourth essential of a valid contract is that parties to it must have
competency to enter into contract. According to Section 10, an agreement becomes a
contract if it is entered into between the parties who are competent to contract.
Section 11: According to Section 11 every person is competent to contract who is:-
Of age of majority
Of sound mind
Who is not disqualified from contracting by any law to which he is subject.
This means that a person who is of age of majority, of sound mind and is not disqualified by
any law may enter into a contract.
The second provision states, a person is incapable of entering into contract if:
 He is minor
 He is not sound mind
 He is disqualified from contracting by any law which he is subject.
This want of capacity arises from minority, lunacy, idiocy and disqualified etc.
5. Lawful Consideration: In order to make the agreement the consideration or
object of the agreement must be lawful.
In the following cases the consideration or object has been consideration to be
unlawful.
 It is forbidden by law
 Is of such a nature that if permitted, it would defeat the provision of any law.
 Is fraudulent
 Involves or implies injury to the person or property of another.
 The court regards it as immoral or opposed to public policy.
In each of these cases the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is unlawful is
void.
6. Lawful Object: The object of the agreement must not be illegal, immoral
or opposed to public policy. If an agreement suffers from any legal flaw, it
would not be enforceable by law.
7. Certainty: The terms of the agreement must be certain not vague or
ambiguous. Section 29 of the contract act, 1872 provides that
agreements the meanings of which is not certain or capable of being
made certain are void. So in order that a contract may be valid, its terms
must be certain and not vague.
8. Possibility of Performance: The terms of the agreement must also be
such as are capable of performance. An agreement to do an act
impossible in itself, cannot be enforced.
9. Not to be Void: The agreement must not have been expressly declared to be
void. The following agreements have been declared void.
 Where both the parties to an agreement are under a mistake of fact essential
to the agreement.
 Agreement without consideration.
 Agreement in restraint of marriage of any person other than a minor.
 Agreement in restraint of trade.
 Agreement in absolute restraint of judicial proceedings.
 An agreement, the meaning of which is uncertain and incapable of being made
certain.
 Agreement by way of wager.
 Agreement contingent on impossible event.
 Agreement to do an act which is impossible in itself or which subsequently
becomes impossible without any default of a party.
10. Legal Formalities: The agreement may be oral or in writing where it is to be in
writing, it must comply with all legal formalities as to writing registration and
attestation. If the agreement does not comply with the necessary legal
formalities, it cannot be enforced.
Q. What is a void agreement? What agreements are specifically declared void agreements under
the contract act?
OR
What is a void contract? What contracts are specifically declared void contracts under the
contract act 1872.
Ans. Void Agreements:
1. Definition of Void Agreements U/S 2(G): An agreement not enforceable by law is said to be
void. It does not create any legal obligation and is void ab initio (from the very beginning).
2. Agreements Specifically Declared Void: The agreements that have been specifically
declared void are as under:-
a) Common Mistake of Facts (Sec 20): Section 20 says, where both the parties to an
agreement are under a mistake as to matter of facts essential to the agreement, the
agreement is void.
There are various types of mistakes of fact which might affect the validity or operation
of contracts namely:-
i. There may be an error in the expression of a contract i.e. in the language used to
embody the intention of the parties to the contract.
ii. Mistake may be made with regard to the nature or terms of the contract (error in
consensus ad adem).
iii. Mistake may relate to reason or an error as to the facts which have induced the
formation of contract (error in cause).
b) Agreement Void if Consideration or Object thereof is unlawful (Section 24): Almost
every agreement has a purpose or object and consideration is a sine qua non for
each and every contract. Section 23 and 24 lay down that an agreement is void if
consideration or object thereof is unlawful in part or in whole.
c) Agreement without consideration (Section 25): It is a general rule that where an
agreement has been made without consideration, it is void. However, this rule is
subject to some exception as well.
i. Where it is expressed in writing and registered or and on account of natural
love and affection.
ii. Where it is promise to compensate a person who has already done something
for the promisor
Remedies for Breach of Contract
Suit for damages:
The aggrieved party may sue for damages in case of breach of contract. Damages are a monetary
compensation allowed to the aggrieved party for the loss suffered by him as a result of the
breach of contract in case of a breach of the contract, the aggrieved party can claim the following
kind of damages. (Sec 73)
Kinds of Damages: The damages may be of the following five kinds:-

a. Ordinary damages: These are also called general damages. When a contract broken, the
aggrieved party can recover ordinary damages from the guilty party. Ordinary damages are
usually assessed on the basis of actual loss. In contract of sale of goods, the damages payable
are the difference between the contract price and market price at the date of breach. (Sec
73).
Example:
I. A contracts to pay Rs. 1 Lac to B on 1st May. A could not pay on that day. As a result, B is
totally ruined. A is liable to pay B only principal sum and interest in it.
II. H delivered the shaft to B, a carrier, to take it to the manufacturer as a pattern for new one.
H did not tell B that delay would result in loss of profits. The delivery of shaft was delayed
and the factory remained closed for a long period. H sued B for loss of profits. Held, that B
was not liable for loss of profits. The ordinary damages were awarded. (Hadley Vs
Baxendale)
Special damages: Special damages arise under some special circumstances. These
damages include indirect loss which may arise due to breach of contract. The parties
must be aware of the loss which may arise from breach of contract. The notice of this
effect must have been given to the other party otherwise he is not responsible for
special damages. Subsequent knowledge of special circumstances will not create
special liability on guilty party. (Sec. 73)
Example:
I. A contract C to buy 1 ton of iron for Rs. 80,000. A also contract to sell B, 1 ton iron
for Rs. 1 Lac. A informs C about the purpose of contract C fails to supply. As a
result, A cannot supply to B. C is liable for loss of profit which A would have
earned from B.
II. S delivered his samples to NWR Co. for exhibition at New Castle. He wrote on
consignment “must be at New Castle on Monday certain”. Due to negligence, the
goods reached after the show. The NWR Co. was aware of the object of carrying
the goods. Held S could claim special damages. (Simpson vs. London & V.W
Railway)
Exemplary Damages: Exemplary damages are awarded to punish the guilty party for
the breach of contract. The breach of contract results in monetary loss to the
aggrieved party and causes disappointment. Exemplary damages have no place in law
of contract and are not recoverable. These are awarded in the following cases:
• In case of breach of contract to marry, the amount of damage depends upon the
extent of injury to the feelings of the party.
• In case of dishonor of cheque by a bank when there are sufficient fund to the
credit of the customer. According to rule, the smaller the cheque dishonored, the
greater the damage.
Example:
OS bank promised to give loan to W for a trip to California by crediting his account.
Bank failed to do so and W’s cheque was dishonored. The court allowed exemplary
damages for the emotional distress. (Wests vs. Olathe State Bank)
Liquid Damages: When parties to a contract fix the amount of damages for breach of contract at
the time of formation of contract, such damages are called liquidated damages. Where a sum is
agreed in the contract to be paid by the defaulting party in case of breach of contract, the court
will allow reasonable damages not exceeding the amount already agreed. If actual loss is more
than the agreed amount, damages will be payable to the agreed amount. (Sec.74)
Example:
A contract to pay Rs. 20, 000 as damages to B, if he fails to pay Rs. 5 Lac on a given day, A fails to
pay on that day, B can recover damages not exceeding Rs. 20, 000.
Nominal Damages: Nominal damages are neither awarded to compensate the aggrieved party
not to punish the guilty party, when the aggrieved party suffers no loss. The court may award
nominal damages in recognition of his right. The court has discretion in this case. The court may
refuse to award damages.
Example:
• A promises to sell cement to B for Rs. 200 per bag. A does not supply. At the time of breach,
the market rate of cement is the same. B is entitled to nominal damages.
• S contracted to buy a Hillman car from C, a car dealer, but later refused to buy. C sold the
same car to another customer and suffered no loss. C sued for loss of profit. Held he could
recover nominal damages. (Charter vs. Sullivan)
Suit for Specific Performance
Specific performance means the actual carrying out of the contract by a party in cases where
damages are not an adequate remedy, the court may direct the guilty party to fulfill the contract.
The aggrieved party can sue for specific performance in the following cases:
• When monetary compensation is not an adequate remedy.
• When it is difficult to calculate the actual damages.
• When compensation in money cannot be obtained.
Specific performance is not granted in the following cases:

• when damages are an adequate remedy.
• when the court cannot supervise the execution of contract e.g. construction contract.
• when the contract involves personal skill, taste and qualification.
Example:
a) B agrees to sell his plot to C, who wants to erect a factory. B commits breach. On the suit of
C, B is directed by the court to perform the contract.
b) A agrees to sell B his painting but commits breach. B cannot sue for damages. A shall be
ordered to make specific performance to B.
Suit for Injunction
Suit for injunction means to demand a court’s stay order. Injunction means an order of
a court which prohibits a person from doing a particular act. Where a party to a
contract does something which he promised not to do, the court may issue an order
prohibiting him from doing so.
Example:
• W agreed to sing at Lu’s theatre and for no one else. Afterward, W contracted Z to
sing at another theatre and refused to sing for Lu. Held, W could be restrained by
injunction from singing for Z. (Lumly vs. Wagner)
• G agreed to take the supply of electricity only from M Co. G was, restrained
Introduction
The first act for the purpose of regulating the activities of Joint Stock Companies in
sub-continent was enacted in 1850 in the then British India with the title ‘Registration
of Joint Stock Companies Act, 1850. Thereafter, various Companies Act were
promulgated to regulate the joint stock companies. These acts were Indian Companies
Act, 1857, Indian Companies Act 1866, Indian Companies Act, 1882 and lastly the
Indian Companies Act, 1913.
After the emergency of the Islamic Republic of Pakistan, the Companies Act, 1913 was
adopted. Since then till 1984 that Act, with some minor amendments, was the law
regulating the Stock Companies in Pakistan.
In Oct, 1984, the President of Pakistan approved the Companies Ordinance, 1984. It
was published on Oct 08, 1984 at pages 195 through 571 of the Gazzette of Pakistan,
Extraordinary. This Ordinance is the combination of various Acts and Ordinance, such
as, the Companies Act, 1913, the Companies (Foreign Interests) Act, 1918, the
Companies (amendment) Act, 1930, the Undesirable Companies Act, 1958, the
Securities and Exchange Ordinance, 1969, the Companies (Managing Agency and
Election of Directors) Order, 1972, and the companies (shifting of Registered Office)
Ordinance, 1972. All these laws (expect the Securities and Exchange Ordinance, 1969)
were repealed by the Seventh Schedule of the Companies Ordinance 1984.
Introduction
Currently, the Companies Ordinance, 1984 (XLVII of 1984) is the law which regulates all matters
relating to the companies. Originally it had 514 section and eight schedules. Thereafter, off and on
certain amendments have been incorporated. It provides the guiding principles and lays dawn the
rules and regulations which cover almost the whole matters relating to a company.
Object of the Companies Ordinance:

The preamble of the Companies Ordinance, 1984 specifies the objects of the Ordinance as “to
consolidate and amend the law relating to the companies and certain other associations for the
purpose of healthy growth of the corporate enterprises, protection of investors and creditors,
promotion of investment and development of economy and matters arising out of or connected
therewith.
Sources of the Company Law:

The following are the sources of the company law.
1. The Companies Ordinance 1984.
2. The Companies (General Provisions & Forms) Rules 1985.
3. The Rules, notification, circulars etc, issued by the Securities and Exchange Commission of
Pakistan (SECP) or the Federal Government.
4. The rulings of the High Courts and the Supreme Court.
Introduction
Applicability of the Ordinance:
The Companies Ordinance is applicable to the following companies and corporation.:
1. A company which is incorporated under the Companies Ordinance, 1984.
2. A company which was registered and formed under any law regulating companies prior to the
promulgation of the Companies Ordinance, 1984 (440).
3. A company which was registered but not formed under any previous companies Act (441).
4. A foreign company having a place of business in Pakistan.
5. A non-trading corporation whose objects are confined to a single province.
6. A company which is governed by social enactment. Application of the Companies Ordinance,
1984 to such companies shall be subject to the provisions of section 503.
Besides the companies registered under it, the Companies Ordinance, 1984 is also applicable to
such companies which are not registered under it. Coming paragraphs contain a brief description of
and legal provisions applicable to such companies.
Introduction
Existing Companies:
Existing company is a company which was registered under any law governing companies in Pakistan prior
to the promulgation of the Companies Ordinance, 1984. These companies may fall under any of the
following categories:
1. A limited company other than a company limited by guarantee.
2. A company limited by guarantee.
3. A company other than a limited company i.e. an unlimited company.
4. A company registered but not formed under any previous Companies Act.
5. An unlimited company registered as a limited company according to any previous Companies Act.
The provisions of the Companies Ordinance, 1984 shall apply in respect of all above referred companies in
the like manner as are, respectively, applicable to the following companies.
1. Companies limited by shares.
2. Companies limited by Guarantee.
3. Unlimited companies.
4. Existing companies.
5. Unlimited company registered as limited company Ordinance, 1984.
Notes:
1. In respect of the existing companies, the reference about the date of registration shall mean the date
on which the company was actually registered under any previous Companies Act.
2. The Companies Ordinance, 1984 also applies foreign companies, having a place of business in
Pakistan.
Memorandum of Association
Definition [2(1)(22)]
The companies ordinance defines a memorandum as the Memorandum of Association of
a companies originally framed or as altered from to time in pursuance of the provisions
of the law.
Lord cairns has defined a memorandum as a charter of a company which defines the
limitations of the power of the company established under the law/ It contains the
fundamental conditions upon which alone the company is allowed to be incorporated. It
is the constitution of the company and is the foundation on which the structure of the
company is based. It defines its relation with the outside world and the scope of its
activities. Its purpose is to enable the shareholders and those who deal with the
company to know what permitted range of the enterprise is.
The memorandum of association is considered as the constitution of company. Any act

of the company in violation of its memorandum is ultra vires and void. The company
cannot confirm or ratify such act. Even a resolution which has been passed unanimously
by all members of the company cannot legalize such acts.
From the Memorandum [29 & FIRST SCHEDULE]
The memorandum of a company shall be in the form as specified in various tables laid
down in the First Schedule. The schedule given below contains the information about the
tables applicable different classes of companies.
Class of Company Table applicable

Company limited by shares Table – B
Company limited by guarantee and not having Table – C
share capital
Company limited by guarantee and having share Table – D

capital
Unlimited company Table - E

Contents of the [Memorandum 16, 17 & 18]
Sections 16, 17 & 18 of the companies Ordinance deal with the contents of the memorandum of
association of the company limited by shares, limited by guarantee and unlimited company,
respectively. The legal provisions as to the contents of the Memorandum of Association may be
classified under following headings.
• Name clause
• Registered office clause of the domicile clause.
• Object clause
• Liability clause
• Capital clause
• Subscription clause or Association clause
Name clause
This clause contains the name of company. The Ordinance has earmarked the limitation within
which the name of company may be selected. The name should not be deceptive, identical with the
already registered company or designed to exploit or offend the religious susceptibilities of the
people.
The memorandum shall state the name of the company. It shall, respectively, include the word
‘Limited’ , “(Private) Limited”, “(SMC-Private) Limited” or “(Guarantee) Limited”, as last word of the
name in case of a public company, a private company, a single member company or a guarantee
company.
Registered Office / Domicile Clause:
Another obligatory content of the memorandum is the place if its registered office. This clause
contains the name of the province or part of Pakistan not forming part of a province in which the
registered office of the company is to be situated. The exact address of the registered office of the
company is not required to be stated in the memorandum.
Notice of situation of Registered Office [142]

Generally the memorandum of a company does not contain the exact address of its registered
office. A company is required to establish its registered office and notify the same to the register
with a period which is earlier of the following two dates:-
• Twenty eight ) 28 days after the date of incorporation of the company
• The day on which the company is allowed to carry on its business.
Any change in the registered office of the company shall also be intimated to the registrar within 28
days of such change. Notice of situation of registered office or change in registered office is given on
the Form-21.
Limitation to the registrar on Form-21 is mandatory. The inclusion of registered office address in the
annual return or any other document of the company shall not be taken to meet this legal
requirement.
If the v has not intimated the registrar within the stipulated time, the company and its every
defaulting officer shall be liable to fine up to Rs.200/- per day for the period during which the
default continues.
Object Clause:
It is the most important portion of the memorandum of association. It contains not only the main
object but also specifies the shipment objects which the company is likely to
Articles of Association
Definition [2(1)(1)]
The companies ordinance defines the ‘articles’ as Articles of association of a company as original
framed or as altered in accordance with the provision of the law including so far as they apply to the
company, the regulations contained in Table – A in the First Schedule of Companies Ordinance. .
‘Articles’ is the bye-laws of company and contain the rules and regulations about the internal
matters of the company. These are subordinate to the memorandum and companies ordinance.
Thus any provision in the articles, which is un contravention to the provisions of the status (i.e.
Companies Ordinance) or the constitution of the company (i.e. memorandum) shall be ultra vires
and void.
Form of the Articles
The articles of a company shall be in accordance with the forms set out in various Tables given in the
first Schedule or as near there to as circumstances admit. The chart given below contains the
information about the types of companies and the table applicable to each of them:
Type of Company Table applicable
Company limited by shares Table – A
Company limited by guarantee and not having share capital Table – C
Company limited by guarantee and having share capital Table – D
Unlimited company Table – E
Form S8 of SMC
Single member company Rules, 2003.
Contents of the Articles
These ‘A’, ‘C’, ‘D’, and ‘E’ of the First Schedule to the companies ordinance contain, respectively, the
regulations for management of a company limited by shares, company limited by guarantee and not
having share capital, company limited by guarantee and having share capital and unlimited company.
Articles of a Company Limited by Shares:

The articles of a company limited by shares shall contain the regulations about the following
matters:
Interpretation
The ‘articles’ of a company is a booklet of rules and regulations. Just like other bye-laws, it may have
its own terminology. Thus at the start, it generally contains the specially assigned meanings of such
terms which are frequently to be used in the articles. These definitions shall apply to a particular
company only.
Commencement of Business.
In case of a public company, the articles shall impose a restriction that the company shall commence
its business only if it has obtained the certificate of commencement business as required under
section 146 of the Ordinance.
Shares
The articles shall contain the regulations about the following matters:
• Any restriction on the issue of shares to the public.
• Amount payable on application for the shares.
• Procedures for issuance of shares.
• Issue of share certificate.
• Transfer and transmission of shares.
• Any restrictions on transfer of shares.
• Issue of duplicate share certificate in a case where original certificate is defaced, lost or
destroyed, and
• Fee payable to the company on transfer of shares and issue of duplicate shares certificate.
Alteration of Capital
Generally, the power of a company to alter its share capital is provided in the memorandum. The
articles shall contain the provisions regarding the procedure to be adopted while increasing,
consolidating, dividing, sub-dividing, cancelling or reducing the share capital of the company.
General Meeting
The articles shall provide for the following matters:
• Types of meetings.
• Number of meetings to be held.
• Period for holding general meetings.
• Business to be transacted in general meetings.
• Notice period.
• Quorum of the meetings.
Types of Companies
Various types of companies are found in the world. These may be classified in the following broad
categories:-
1. Chartered Companies.
2. Statutory Companies.
3. Registered Companies.
Chartered Companies:
Chartered Company means a company that is formed by and is being regulated through the provisions of a
special charter granted by the king. Queen of the state. Such type of companies enjoys certain privileges
over other companies and at the same time has also to perform special functions and fulfill special
obligations. In the sub-continent East India Company and the Chartered Bank of England (now-a-days
known as Standard Chartered Bank, after mergers with some other banks) were some of the chartered
companies.
Statutory Companies:
Statutory Company means a company which is incorporated and regulated by a special act of the
parliament or an ordinance issued by the Head of State. The provisions of the statute shall be applicable
only to that particular company. Generally, a statutory company does not have the memorandum or
articles. The objects, limitations, liabilities, jurisdictions and the concerned statute and the regulations
made under that statute. The State Bank of Pakistan is the first statutory company of Pakistan. Institute of
Chartered Accountants of Pakistan. Institute of Cost and Management Accountants of Pakistan, Agricultural
Development Bank of Pakistan, Investment Corporation of Pakistan and House Building Finance
Corporation are some other examples of statutory companies.
Types of Companies
Registered Companies:
Registered Company means a company, which has been registered under the specific law of the country
regulating the companies, in general, in that particular Country. In Pakistan, a company that is registered
under the Companies Ordinance 1984 or any of the previous companies acts falls under this category of
companies. The Companies Ordinance further classifies the registered companies into the following four
broad classifications: {15(2) & 42}
a) Companies limited by shares.
b) Companies limited by guarantee.
c) Unlimited Companies.
d) Associations not for profits.
Unregistered Company:
For the purpose of Part-XIII of the Companies Ordinance, 1984 (i.e. Winding-up of unregistered
Companies) the expression “unregistered company” has been defined as below:
“Unregistered Company” shall not a railway company incorporated by act of parliament of the United
Kingdom or by a Pakistan law, nor a company registered under any previous companies act or under the
Companies Ordinance, 1984 but save as aforesaid shall include any partnership, association or company
consisting of more than seven (7) numbers.
Foreign Company:
“Foreign Company” means such a company which is incorporated or formed outside Pakistan and has
established a place of business within Pakistan.
Part-XIV of the Companies Ordinance, 1984 (i.e. Section 450 through 465) provides specific provisions
which are applicable to foreign companies.
Types of Companies
Company Limited by Shares:
It means a company whose memorandum of association limits the liabilities of its members to the amount
unpaid, if any, on the shares respectively held by each of them. It is the most popular from of companies
throughout the world. Practically some individuals get together, decide the objects, pool the required
capital, obtain the registration from the concerned authority and start their business in the name of the
Company.
Company Limited by Guarantee:
It means a company whose memorandum of association limits the liabilities of its members to the amount
as the members may respectively undertake to contribute to the assets of the company in the event of its
winding up. This company may or may not have a share capital.
Where a company is being wound-up , a member of such company may be called to contribute towards
the assets of the company for:
i. The payment of debts and liabilities of the company contracted during the period when he was a
member.
ii. The costs, charges and expenses of winding-up.
iii. The adjustment of the rights of the contributories among themselves.
A member can be called upon to contribute for above purposes during the period of his membership or
within one year afterwards.
Types of Companies
Unlimited Company:
“Unlimited Company” is a company which does not limit the liability of its members. A company whose
memorandum of association either state that liability of the members shall be unlimited or does not state
the liability shall be limited to the extent specified therein is termed as an unlimited company. As there is
no limit on the liability of members, only few companies are registered in Pakistan as unlimited.
Association not for Profits:
The Companies Ordinance, 1984 provides that an association capable of being formed as a limited
company may be formed as a company with limited liability but without adding to its name the words
“Limited”, “(Private)” Limited” or “(Guarantee) Limited” as the case may be. The securities and Exchange
Commission of Pakistan may allow the registration of such a company if the following conditions are
fulfilled:
1. The company is being formed for promotion of:
i. Commerce.
ii. Science
iii. Religious
iv. Sports
v. Social Services
vi. Charity
vii. Any other useful object
2. It applies or intends to apply its profits. If any, or incomes in promoting its objects.
3. It prohibits the payment of any dividend to its members.
Types of Companies
While granting license, the SECP may impose such conditions and regulations as it may think fit. The
association, upon registration, shall enjoy all privileges of a limited company.
The SECP may at any time revoke the license granted u/s 42. But before revocation of the license. It
shall give the association a written notice of its intention and shall provides an opportunity of
submitting a representation in opposition to the revocation.
Private Company:
“Private Company” is a company which by its articles,
1. Limits the number of its members to fifty excluding the persons who are in the employment of
the company.
2. Restricts the right to transfer its shares, if any.
3. Prohibits any invitation to the public to subscribe for the shares in, if any or debentures of the
company.
Notes:
1. Where two or more persons hold one or more shares in the company jointly, they shall, for the
purpose of this definition, be treated as a single member.
2. A private company may be formed with at least one member.
Types of Companies
Public Company:
“Public Company” means a company, which is not a private company. In other words, it is a company,
which does not:
1. Limit the maximum number of its members to fifty.
2. Restrict the right to transfer its shares, if any.
3. Prohibit from inviting public to subscribe for the shares in, if any, or debentures of the company.
A public company may be incorporated with at least three (3) members {15(1)}. Public companies may
further be classified into the following two categories:
a. Listed companies.
b. Non-listed companies.
Listed Company:
A listed company means a company whose securities are allowed to be traded on a stock exchange.
Non-Listed Company:
A non-listed company is a company whose securities are not allowed to be traded on a stock exchange.
Holding Company:
A company or a body corporate shall be the holding company of another company or body corporate, if
any of the following conditions is satisfied:
1. It holds more than 50% of the voting securities of another company (these securities may be held
directly or indirectly).
2. It has the power to elect and appoint more than 50% of the directors of another company.
A company may control, beneficially own or hold the voting securities either directly or indirectly.
Types of Companies
“Voting Security” means such a security which carries voting rights in meetings of
members of the company. It includes shares and may include debentures and other
securities which carry voting rights.
Associated Companies / Undertakings

Conversion of A Private Company into A Public Company:
A private company may be converted into a public company by passing a special
resolution. The resolution should empower the company to either its articles of
association in such a manner that the following conditions no longer remain in the
articles.
1. The maximum number of the company’s members shall be restricted to fifty (50).
2. The company shall not issue invitation to public to subscribe for the shares in or
debentures of the company.
3. The right of transfer of shares shall be restricted in a manner as specified in the
articles.
Types of Companies
Conversion of A Public Company into a Private Company:
A public company may be converted into a private company through the following
procedures:-
1. Pass a special resolution for inclusion of the following provisions in articles of
association of the company:-
i. The maximum number of the company’s members shall be restricted to fifty
(50).
ii. The company shall not issue an invitation to public to subscribe for the shares in
or debentures of the company.
iii. The right of transfer of shares shall be restricted in a manner as specified in the
articles.
2. Obtain prior written approval of the SECP. For the purpose the company shall make
an application to the SECP within 60 days of passing the resolution. The applications
is made in Form-2.
Prospectus
“Prospectus” means any document, notice, circular, advertisement or other
communication etc, through which a company invites offers from the public for the
purchase of its shares or debentures.
Any such invitation made by a banking company or a financial institution for the deposits
will not be considered as prospectus.
In order to render a document as prospectus, the following conditions must be satisfied:-
1. It should be a communication. The communication may be in the form of any
document, notice, circular, advertisement, etc.
2. The communication should have been made to the public and not a specific group of
persons.
3. The communication should invite offers from the public shares or debentures of the
company.
Contents of Prospectus
The law requires that every prospectus shall state the matters specified in Section 1 of
part-I of the second schedule to the Companies Ordinance, 1984 and shall set out the
reports specified in Section 2 of the part {53)1){. A list of contents of prospectus based
on part-I of the second schedule in given below:
1. The names, addresses, descriptions and occupations of the signatures to the
Memorandum of Association and number of shares taken by each of them.
2. Description of business to be undertaken and its prospects.
3. Any provision in the articles of the company as to remuneration of the directors.
4. The names, addresses, descriptions and occupations of the directors, Chief Executive,
Managing Agent and Secretary of the Company, (whether actual or proposed). If any
of these persons is a director or officer of any other company, the name of such
other company and the held therein shall also be mentioned.
5. Any provision in the articles or in any contract as to the appointment of a Chief
Executive, Managing Agent or Secretary and the remuneration and compensation, if
any, payable for loss of office.
Contents of Prospectus
6. Where the shares are offered to the public for subscription the following matters shall be disclosed:
o The amount of minimum subscription.
o The purchase price of any property purchased or to be purchased out of the proceeds of the
issue.
o Detail of any preliminary expenses payable by the company.
o Any commission payable to any person for procuring or agreeing to procure subscription for any
shares in the company.
o The payment of any money borrowed by the company for any of the above stated matters.
o The working capital.
o Any other expenditure, stating the nature, purpose and estimated amount thereof.
o If the amount is provided for above purposes otherwise that out of the proceeds of the issue, the
source and the amount so provided.
7. The date and time of the opening and closing of the subscription.
8. The amount payable on application for each share.
9. In case of a second or subsequent offer of shares, the amount offered for subscription on each
previous allotment made within the two preceding years. In this case the number of shares actually
allotted and the amount paid on such shares shall also be specified.
10. Where any option or preferential right is being given to any person to subscribe for any shares in or
debentures of the company, the particulars of any contract about the following matters shall be
stated.
Reports to be Set Out
The prospectus issued by a company must contain the following reports in it:
1. A report of the auditors of the company with respect to the profits and losses, assets and liabilities
and the rates of dividend for each of the five (5) financial years immediately preceding the issue of
prospectus.
2. A summary (in columnar form) of the earnings of the company and / or its subsidiaries for each of the
last three (3) financial years.
Legal Provisions in Respect of Prospectus:

Following are sundry legal provisions regarding the approval, issue and registration of prospectus:-
1. A prospectus shall be dated. Unless the contrary is proved, the date of publication of the prospectus
shall be the date of the prospectus.
2. A prospectus may be issued by any of the following persons:
i. A company or any other person on its behalf.
ii. Any person who has been engaged or interested in the formation of the company or any other person on behalf of such person.
3. A prospectus shall not be issued or published in the newspaper less than seven (7) days or more that
thirty (30) days before the subscription date. However, the SECP may (on an application) allow the
publication or prospectus more than 30 days before the subscription date.
4. Where a prospectus does not contain the required information or is not issued within the specified
period then every such person who is responsible for issue of such further fine up to Rs.200/- shall
also be payable for every day from the issue of prospectus until a proper prospectus is issued and filed
with the register.
5. A condition requiring or binding an application for shares or debentures to waive
compliance of the above requirements shall be void.
6. The form of application shall be accompanied by a prospectus otherwise there will
be a fine up to Rs.2000/-. {53(5) & (6)}
7. A director or any other person can escape from the above liabilities if:-
a) It is proved that he has no knowledge of the matter not disclosed in the
prospectus.
b) It is proved that non-compliance arose from an honest mistake of fact on his
part.
c) In the opinion of the register, the mistake was immaterial.
8. A listed company or a company which proposes to make an application to a stock
exchange for listing of its securities shall not issue., circulate or publish a prospectus
unless the approval of such prospectus is obtained from the SECP.
9. The application for approval must be accompanied by a duly paid treasury challan as
an evidence for payment of a non-refundable application fee payable as per sixth
schedule
5. A condition requiring or binding an application for shares or debentures to waive
compliance of the above requirements shall be void.
6. The form of application shall be accompanied by a prospectus otherwise there will
be a fine up to Rs.2000/-. {53(5) & (6)}
7. A director or any other person can escape from the above liabilities if:-
a) It is proved that he has no knowledge of the matter not disclosed in the
prospectus.
b) It is proved that non-compliance arose from an honest mistake of fact on his
part.
c) In the opinion of the register, the mistake was immaterial.
8. A listed company or a company which proposes to make an application to a stock
exchange for listing of its securities shall not issue., circulate or publish a prospectus
unless the approval of such prospectus is obtained from the SECP.
9. The application for approval must be accompanied by a duly paid treasury challan as
an evidence for payment of a non-refundable application fee payable as per sixth
schedule
Misstatement in Prospectus
Where a company issues a prospectus containing wrong, incorrect or misleading information or
omits an important matter which can influence the decision of the persons intending to subscribe in
the shares or debentures of the company such an act or omission is called a misstatement in the
prospectus.
A misstatement in prospectus may exist in any of the following circumstances:
1. The prospectus does not contain an information that is required by the law to be included
therein.
2. In contains an information which is incomplete or incorrect.
3. Information is presented in such a way so as to mislead the prospective investors.
Liability for Misstatement in Prospectus:

The Companies Ordinance introduces two types of liabilities in respect of misstatement in the
prospectus, namely:
1. The Civil Liability
2. The Criminal Liability
The civil liability is a liability to pay for the loss or damage occurred to some person due to the act,
omission or abstinence of some other person. The criminal liability is the punishment in item of a
fine or imprisonment for contravention of any of the provisions of the law.
Remedies Available to a Subscriber
Where a person subscribes for the shares or debentures of a company by responding a prospectus
that contains as untrue statement, then the following remedies shall be available to him:
1. Declaring the Contract as Void:
A contract induced by misrepresentation is voidable. A person may render a contract for shares
or debentures as void if the following conditions are fulfilled:
a) There was a misstatement in the prospectus.
b) The misstatement must be about the facts.
c) The statement on which he relied upon was actually untrue.
d) The misstatement is of the nature that may influence the decision of the investors.
e) The investor actually relied upon such statement while deciding for the subscription in
shares or debentures.
Directors
The companies ordinance does not provide a comprehensive definition of the “Director”. According
to section 2(1)(13) any person, by whatever named called, occupying the position of a director is a
director. A director is an officer of the company concerned with the management of the affairs of
the company on behalf of the members. He acts as an agent and representative of the company. It is
to be noted that only a natural person can become a director of a company.
Kinds of Directors:
Under the companies ordinance, 1984 and rules made thereunder there may be the following kinds
of directors.
Elected Director:
It is the most common kind of directors. Initially the subscribers to the memorandum and
thereafter, the members of the company elect the persons out of themselves who will act as
directors of the company. These persons are termed as elected directors.
Nominated Director:
Certain persons may become director of a company due to their nomination by some other person
or body. Such directors are known as “nominated directors”. This nomination may be under the
provision of any law or an agreement with the company.
Directors
Ex-Officio Director:
Every person who is appointed as “Chief Executive” of a company, if already not a director of that
company, will automatically become a director of the company. Such a director is called an “ex-
officio director”. Such a person will cease to be a director as soon as he vacates the office of chief
executive.
Sole Director:
A person who is the single member of a Single Member Company shall also be the director of that
company and is termed as “sole director”. If there is more than one director in that company than
such director shall be termed as the “member director”.
Nominee Director:
In a single member company a person is nominated by the single member to act as director in case
of death of the single member. The person so nominated is called “nominee director”.
Alternate Nominee Director:

The law requires that besides a nominee director the single member of a single member company
shall nominate another person who will act as nominee director if at the time of death of the single
member the nominee director is not available. This person is known as “alternate nominee
director”.
Directors
Number of Directors:
The law has specified that a company shall have such number of minimum directors as are fixed by
the Companies Ordinance. The companies and their respective minimum number of directors are
tabulated below:
Sr. # Type of Company Minimum Directors
Private Company:
1 i) Single Member Company One (1)
ii) Multi Member Company Two (2)
Public Company:
2 i) Non -listed Company Three (3)
ii) Listed Company Seven (7)
Notes:
1. A single member company shall also have one “nominee director” and another “alternate
nominee director”. These persons shall have a legal role only in the event of death of the single
member.
2. A listed company shall have at least seven (7) elected directors. However, in case of a non-listed
public company or a multi member private company the minimum number of directors may
include the nominated and ex-officio directors.
Directors
Director and his position in relation to a company:
Only a natural person, who does not fall under any of the ineligibilities specified by the law or the
articles, shall be a director of company. Unlike a partner in a firm, a director has restricted powers
and is not a variable representative of the company. A director can exercise only those powers and
jurisdiction as have specifically been assigned to him.
Qualification of a Director of a Company:

Every natural person is eligible to become a director of a company except the following persons:
1. A minor.
2. A person of unsound mind.
3. A person who has applied in a court of law for his insolvency and whose application is pending.
4. A person who is a bankrupt.
5. A person who is an un-discharged insolvent.
6. A person who has been declared a guilty of an offence of moral turpitude by a court of law.
7. A person who has been debarred from holding an office of the director under any provision of
the Companies Ordinance, 1984.
Directors
8. A person who has been declared by the Court as having of fiduciary behavior at any time during
the last five years. The court may declare so under the following circumstances:
i. Where a director has not disclosed his interest in any contract, etc, entered into by or on
behalf the company as required U/S 214(1).
ii. Where a director or officer has not disclosed the nature and extent of his interest in a
proposed contract or arrangement and has entered into such contract without obtaining a
prior approval of the directors {215 (1)}.
iii. Where an interested director has participated or voted in proceedings of directors in which
any contract, etc, (in which he has interest) was brought before the directors and discussed .
9. A person who is not a member of the company. However, the following persons may become
directors of a company without being a member of the company:-
i. A person nominated by the Government.
ii. A person nominated by an institution or an authority.
iii. A person nominated by the creditors.
iv. A whole time director who is an employee of the company.
v. A Chief Executive of the company.
Directors
10. A person who has been declared by the Court as defaulter in repayment of a loan
amounting to rupees one million or more {SRO 922(I)/2003, dated 13-09-2003}
11. A person who is:
i. Engaged in the business of brokerage.
ii. A spouse of a person to be appointed as director.
iii. A sponsor, director or officer of a corporate brokerage house.
This prohibition shall not apply where the company is a stock exchange.
Note:
Disqualification under point number 10 and 11 shall apply in case of a listed company.

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DEFINITION OF LAW

Different authorities have defined the words ‘law’ differently.

a) “Law is a body of acts, Orders Ordinances, Regulations,

b) “Law is a body of principles recognized and applied by the

d) The word “law necessarily connotes a written law or a

In short, we may say that law is that body of rules and

i. Protection of rights, persons and their

1. English Law Merchant.

Sir William Anson defines contract as:-

Sir Frederic Pollock says:-

1. Holding of a dominant position.

Third Person meanings: Third person means a person who perform

Ans 1. Principle: Principle is a person who is agreed to be represented by the agent.

When the sub-agent is improperly appointed:-

Parties involved in a Contract of Indemnity:

Kinds of Indemnity: A promise to indemnify may be either express or implied .

Parties to a Contract of Guarantee:

Essentials of a Valid Contract:

Kinds of Damages: The damages may be of the following five kinds:-

Specific performance is not granted in the following cases:

Object of the Companies Ordinance:

Sources of the Company Law:

The memorandum of association is considered as the constitution of company. Any act

Class of Company Table applicable

Company limited by guarantee and having share Table – D

Unlimited company Table - E

Notice of situation of Registered Office [142]

Articles of a Company Limited by Shares:

Associated Companies / Undertakings

Legal Provisions in Respect of Prospectus:

Liability for Misstatement in Prospectus:

Alternate Nominee Director:

Qualification of a Director of a Company:

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