8/13/2019 Winter 2013 (97-2003)

1/316

8/13/2019 Winter 2013 (97-2003)

2/316

8/13/2019 Winter 2013 (97-2003)

3/316

8/13/2019 Winter 2013 (97-2003)

4/316

8/13/2019 Winter 2013 (97-2003)

5/316

8/13/2019 Winter 2013 (97-2003)

6/316

?????

WHAT IS LAW?

MEANING?

DEFINITION?

PURPOSE?

ROLE?

8/13/2019 Winter 2013 (97-2003)

7/316

WHY STUDY LAW

Overwhelmed!...so different from studying accounts,

marketing, economics, IT or HR.

APPROACH: Learning relevant legal terminology

Framework of particular area of law i.e. relevant legislation

Application of daily life examples.

MISCONCEPTION:

Studying law is dull.merely a matter of memorising and

reproducing

8/13/2019 Winter 2013 (97-2003)

8/316

WHY STUDY LAW?

l Obvious! Course Requirementl Study of law improves powers of reasoning, clarity of

thought and the ability to analyze and expresscomplicated ideas

l A greater appreciation of the workings of the systemand the parts that ensure its functioning.

l Law forms the foundation on which any civilizedsociety is based. Nature has its own laws. So doessociety.

l Law effects all aspects of life and society and is themechanism for change employed by governments

across the globe.From the protection of life and liberty,through corporate law to international relations, thelaw is the central stage.

8/13/2019 Winter 2013 (97-2003)

9/316

WHY STUDY LAW?

Contd.

Law is of interest to all persons, not just to lawyers.

Those entering the world of business will find

themselves subject to numerous laws andgovernment regulations. A basic knowledge of these

laws and regulations is beneficialif not essentialto

anyone contemplating a successful career in the

business world of today.

8/13/2019 Winter 2013 (97-2003)

10/316

CONTD.

Legal education..not exclusively for entering into legalprofession. Not to teach to be lawyers BUT.

Key legal topics

How law works and effects business operations

Will assist future business people with decision making, ethics

Develop an awareness when legal advice is needed

Importance foundation knowledge importantknow how thelaw effects business.

NOT: Think like a lawyer

Adopt a critical legal analysis approach

8/13/2019 Winter 2013 (97-2003)

11/316

VARIOUS MEANINGS AND

DEFINITIONS

l One view is that it is not capable of definition

l But this cannot be the answer nor solve the problem

l The confusion in defining law arises out of the differentpurposes to be achieved e.g.:

l Law has been defined by various individuals from differentpoints of view

l Various schools of law define it from different angles:

- basis of nature

- on source- terms of effect on society

- end or purpose of law

8/13/2019 Winter 2013 (97-2003)

12/316

MEANINGS AND DEFINITIONS

Contd.

A universal and uniform definition is difficult. The

evolution of society is of a dynamic nature and hence the

difficulty in accepting a definition by all. One reason in

defining law is the different types of purpose sought to be

achieved:

HORSE to a zoologist, a traveller, polo player, for some

article of food etc.

8/13/2019 Winter 2013 (97-2003)

13/316

DEFINITIONS---Contd.

There have been and will continue to be different

definitions of law:

l ARISTOTLE (384-322 B.C.) a pledge that citizens of a

state will do justice to one another

l PLATO ( 427-347 B.C.) believed that law was a form of

social control.

l SIR WILLIAM BLACKSTONE (1723-1780) a rule of civil

conduct prescribed by the supreme power in a state,commanding what is right, and prohibiting what is

wrong

8/13/2019 Winter 2013 (97-2003)

14/316

MEANINGS AND DEFINITIONS: Contd.

l Generally and the most commonly accepted

definition is A rule of action to which men are

obliged to make their conduct comfortable

lLaw is the command of the sovereign. It imposes

a duty and is backed by a sanction. Command,

duty and sanction are three elements of law

All these definitions vary but all are based on: lawconsists of enforceable rules governing relationships amongindividuals and between individuals and their society

8/13/2019 Winter 2013 (97-2003)

15/316

LAW MAKING:PROCESS

LEGISLATION: The making of law. The act of enacting

or legislating laws.

Bill----Proposal

Committees of the House

Approval by the Legislature

Assent by the President.

Difference between Law and Ordinance

8/13/2019 Winter 2013 (97-2003)

16/316

PURPOSE OF LAW

Object of law is to maintain law and order in the

country i.e. police functions

Another view limit natural liberty; Man is born free butis in chains everywhere.

Hindu view , purpose of law is the welfare of the people

in the world and also salvation after death.

Muslim: the end of the law is to promote the welfare ofman both individually and socially, not merely in

respect of life on this earth but also life hereafter.

8/13/2019 Winter 2013 (97-2003)

17/316

KINDS OF LAW

1. IMPERATIVE LAW. Imposed upon on men by some authority.

Emphasis on the will and physical force of the organized political

community.

2. PHYSICAL OR SCIENTIFIC LAW . Laws of science e.g. law of

gravity

3. NATURAL or MORAL LAW. Universal rules of governance.

Principles of natural justice. Divine Law.

4. CONVENTIONAL LAW. Rules or regulations of voluntaryorganizations e.g. associations, clubs etc.

5. CUSTOMARY LAW. Customs, practices, traditions with historical

sanction and support e.g. jirga

6. TECHNICAL LAW. For efficient conduct of business e.g building

laws, laws of health7. INTERNATIONAL LAW. Sum of laws and rules recognized by

civilized in their dealings with each other

8. CIVIL LAW. Municipal Law.

8/13/2019 Winter 2013 (97-2003)

18/316

ADVANTAGES AND DISADANTAGES.

Uniformity and certainty to the administration ofjustice.

Avoids the dangers of arbitrary, biased anddishonest decisions.

Fixed principles protect the administration ofjustice from the errors of individual judgment

More reliable than whims, wishes and desires.

1. Rigidity.

2. Conservative3. Formalism

4. Complex.

8/13/2019 Winter 2013 (97-2003)

19/316

JURISPRUDENCE

Philosophy of law. Study and theory of law.

Different philosophies how law has developed:

Natural Law:The law is based on what is morally correct andethical.

Historical:The law consists of social traditions and customs.

Analytical:The law is shaped by logic

Sociological:The law provides a way to to advance certain goalsin the best interests of society.

Command:The law is the set of rules created and enforced bythe governing party.

Critical Legal Studies: Legal rules are unnecessary and legal

disputes should be solved by using rules based on fairness.Law and Economics: Promoting market efficiency should be

the key concern of the law

8/13/2019 Winter 2013 (97-2003)

20/316

JURISPRUDENCE...Contd.Human Behaviour....dominating, historically,

chronogically:

Customs and Traditions: first laws created to governhuman behaviour. First law or practices set by

man. Passed down from generation to generation.

Imperialistic: imposed by men on men. To portraywhich customs and practices were superior. Whatwas right and what was wrong kept changing with

shift in power dynamics. Natural need to dominate.A small strong group controlled a large weak groupe.g. Egyptian, Greek empires

8/13/2019 Winter 2013 (97-2003)

21/316

JURISPRUDENCE...Contd.

Religion: concept of justice and equality for all.

Defined all matters of life and the correct way of

handling them. Laid authority to a supreme power

not known to man. Beginning of moral code. Basis

for all civil and criminal law. On which morals and

international law stands today.

8/13/2019 Winter 2013 (97-2003)

22/316

LEGAL HISTORY

HANDOUT

8/13/2019 Winter 2013 (97-2003)

23/316

NATURE OF LAW

HANDOUT

8/13/2019 Winter 2013 (97-2003)

24/316

PAKISTAN...LEGAL HISTORY

HANDOUT

8/13/2019 Winter 2013 (97-2003)

25/316

ULTRA VIRES

HANDOUT

8/13/2019 Winter 2013 (97-2003)

26/316

COMMON LAW

Before the Norman Conquest in 1066 each locality in

England was subject to local laws established by the

local ruling Lord or chieftain.

William the Conqueror and his successors began to

replace the local laws with one uniform system of law. English Common Law was developed over centuries by

judges appointed by the monarch, who delivered their

opinions when deciding cases brought before court.

The emphasis of law at that time was legal procedure

over the merit of case.

Monetary compensation (damages) was the only remedy

available

8/13/2019 Winter 2013 (97-2003)

27/316

COMMON LAW...Contd.

To mitigate limited remedies available and unfairjudgments, under the authority of Lord Chancellor,Court of Chancery (equity) were established.

Appeals lay before these courts against the decisions ofKings Courts.

The Courts of Chancery would grant appropriateremedy.

These remedies were known as equitableremedies...designed to deal with particular factsituations.

Equitable remedies took precedence over the decisionsof the Kings Courts.

In the 19thcentury a law passed by the Parliamentmerged the two court systems.

8/13/2019 Winter 2013 (97-2003)

28/316

ADMINISTRATION OF JUSTICE

8/13/2019 Winter 2013 (97-2003)

29/316

WHAT IS JUSTICE?The quality of being just; propriety; correctness;

justness; rightfulness; vindication of right; meritedreward or punishment

The act of rendering what is right and equitable towardsone who has suffered a wrong.

ADMINISTRATION OF JUSTICE can be defined as the

maintenance of rights within a political community bymeans of the physical force of the state.

The origin and growth is identical with the origin andgrowth of man. The social nature of man demands that hemust live in society.

Owes its origin to the transition from the natural to thecivil state in the substitution of the force of organizedcommunity for the force of individuals , as the instrumentof redress and punishment of injuries.

8/13/2019 Winter 2013 (97-2003)

30/316

Contd:

It has substituted the primitive practices of privatevengeance. People are now defended by the power of statethrough its courts of law

Both a narrower and a wider sense:

NARROW flows from the dictionary meaning; after itsinstitution till the pronouncement of judgment andexecution of the decree, judgment or order.

WIDER: include aspects connected with theadministration of justice.

Divisible into administration of civil justice andadministration of criminal justice.

8/13/2019 Winter 2013 (97-2003)

31/316

Contd:

The Code of Civil Procedure 1908 prescribes for

proceeding in civil cases.

In two parts Sections: contain the basic and

fundamental principles, can be amended only by the

legislature. Schedules : contain rules or procedures and

can be amended by the high court.

TheCode of Civil Procedure prescribes detail procedure

regarding filing of suite, pleading, proceedings, writing of

judgment and executing of decrees.

The Code of Criminal Procedure, 1898 prescribes the

criminal procedure

8/13/2019 Winter 2013 (97-2003)

32/316

Contd:

The Qanun-e-Shahadat Order 1984 prescribes the

competency of witnesses where examination, evidenceand procedure for presenting the same.

The Special Courts follow the procedure prescribed in

the above codes (Code of Civil Procedure 1908 and

The Code of Criminal Procedure)

Differences between civil and criminal:

Civil- - -enforcement of rights; Criminal- - -concerned

with the punishment for them.

The difference between public and private wrongs

8/13/2019 Winter 2013 (97-2003)

33/316

Contd:

Distinction between civil wrongs and crimes relates to

legal consequences. Administered according to its ownand separate set of forms; in the legal consequences ofacts

Object of civil proceedings is to enforce rights and

object of criminal proceedings is to punish wrongs. But,sometimes civil and criminal proceedings may have asimilar result in some cases.

PURPOSE: CRIMINAL JUSTICE;

1. Deterrent: Important--- make the law breaker anexample for others so that they think of theconsequences before breaking the law,

8/13/2019 Winter 2013 (97-2003)

34/316

Contd:

2. Preventive: to disable the offender from committing thesame offence again e.g. by imprisonment, etc.

3. Reformative: Identifying the crime with disease and

treating is such---cure and not criminals.

4. Retributive:Private vengeance no longer in the private

sense but the offender should be punished.

8/13/2019 Winter 2013 (97-2003)

35/316

Contd:

PURPOSE:CIVIL JUSTICE enforces primary rights and

sanctioning rights.

Primary rights exist as such , do not have their source

in some wrong.

Sanctioning or remedial rights are those which come

into being after the violation of a primary right.

THERE IS NO BETTER TEST OF THE EXCELLENCE OF

A GOVERNMENT THAN THE EFFICIENCY OF ITSJUDICIAL SYSTEM

8/13/2019 Winter 2013 (97-2003)

36/316

8/13/2019 Winter 2013 (97-2003)

37/316

8/13/2019 Winter 2013 (97-2003)

38/316

8/13/2019 Winter 2013 (97-2003)

39/316

Contd

Only, the Federal Court was renamed as the Supreme

Court by the 1956 constitution.

The 1973 constitution upgraded the Chief Court of

NWFP and the Judicial Commission court of Pakistan

into full fledged High Courts.

FEATURES

The constitution of Pakistan contains elaborate

provisions for the composition, jurisdiction,

powers and functions of the courts

8/13/2019 Winter 2013 (97-2003)

40/316

Contd

The constitution provides for the separation ofjudiciary from the executiveand the independenceof

judiciary

Qualifications, appointment, service conditions etc. of

the judges are also laid down in the constitution.

The forum as procedure for the removal of judges of the

superior courts are also provided in the constitution.....

The Supreme Judicial Council.

Courts are federal and provincial in nature.

8/13/2019 Winter 2013 (97-2003)

41/316

Contd

System made up differing in levels of legal superiority

System separated by jurisdiction

LITIGATION

The process of bringing, maintaining and defending

a legal case in court.

8/13/2019 Winter 2013 (97-2003)

42/316

Superior Judiciary The constitution of Pakistan contains provisions on the

composition, jurisdiction, functions.

Constitution provides for separation of judiciary from the

executive, independence of judiciary and the obligation to

preserve, protect and defend the Constitution

Qualification of Judges, appointment, service conditions etc.

The forum and procedure for the removal of judges.

In the famous case of Al-Jehad Trust The Supreme Court

clarified the procedure and qualification for appointment of

judges to the Supreme and High Courts and their Chief

Justices

8/13/2019 Winter 2013 (97-2003)

43/316

Contd The Chief Justice recommended a panel to the

President who would select from the said panel asuitable judge.

For appointment in the High Courts, the respectiveChief Justices would forward a panel to the President

through the Governor of the Province and Chief Justiceof Pakistan.

The recommendation of the Chief Justice was bindingon the President, except for sound reasons to berecorded by the President.

This procedure has been changed by the Constitution18thand 19th(Amendments) Acts 2010.

8/13/2019 Winter 2013 (97-2003)

44/316

8/13/2019 Winter 2013 (97-2003)

45/316

The name recommended goes to an 8 member

PARLIAMENTARY COMMITTEEequal representation

of Government and Opposition as well as National

Assembly and Senate.

The Committee has two weeks to consider the

nomination.

If approved the name is forwarded to the President and

Prime Minster for appointment.

The Parliamentary Committee, for reasons tobe recorded, may not confirm the

recommendation by three-fourth majority.

Contd

8/13/2019 Winter 2013 (97-2003)

46/316

Contd This decision is sent back to the Judicial Commission

through the Prime Minister and the Commission sendsanother nomination.

The President has to appoint the senior most judge of

the Supreme Court as the Chief Justice of Pakistan.

For the appointment of Chief Justice and Judges of The

Federal Shariat Courtthe Chief Justice and most

senior judge of the said Court are added to the

composition of the Judicial Commission.

For appointment of the Chief Justice the most

senior judge is excluded.

8/13/2019 Winter 2013 (97-2003)

47/316

For appointment of Chief Justice and Judges of High

Courts:The Chief Justice and senior most judge of their

respective High Court

Provincial Minister for Law

Nominee of the Provincial Bar Council (Advocate of

High Court of fifteen years standing)

For appointment of Chief Justice the senior most

judge is excluded.

Appointed by the President through nominations

by Judicial Commission and confirmation by the

Parliamentary Committee

Contd

8/13/2019 Winter 2013 (97-2003)

48/316

Accountability

Procedure prescribed in the ConstitutionSupreme

Judicial Council: Chief Justice of Pakistan as chairman

Two most senior judges of the Supreme Court

Two most Senior Chief Justices of High Court

Registrar Supreme Court as Secretary

Supreme Judicial Council either on reference from thePresident or suo moto investigates the matter and

presents its finding to the President.

The President may order removal of such a judge.

Removal has to be on specified grounds and subject to

prescribed procedure.

8/13/2019 Winter 2013 (97-2003)

49/316

Supreme Court Apex court. Original, appellate and advisory jurisdiction.

Court of ultimate appeal, final arbiter of the law and the

constitution

Decision binding on all other courts.

Original jurisdiction in inter-governmental disputesbetween federal and provincial government or among

provincial governments

Original jurisdiction for enforcement of fundamental

rights

Advisory jurisdiction in giving opinion to the government

on a question of law.

8/13/2019 Winter 2013 (97-2003)

50/316

Supreme Court

Appellate jurisdiction against judgments of Federal

Shariat Court, Service Tribunals and some specialcourts.

Principal seat at Islamabad and four branch registries

at each provincial capital.

Advisory jurisdiction in giving opinion to the

government on a question of law.

Appellate jurisdiction against judgments of Federal

Shariat Court, Service Tribunals and some special

courts.

Principal seat at Islamabad and four branch

registries at each provincial capital.

8/13/2019 Winter 2013 (97-2003)

51/316

Supreme Court

Court consists of the Chief Jsustice and 16 judges

(number determined by law)

Provision for appointment of acting and ad hoc judges.

Five years experience as a judge of a High Court or

fifteen years standing as advocate of a High Court(eligible to be appointed as judge of Supreme Court).

8/13/2019 Winter 2013 (97-2003)

52/316

High Courts

One in each province and one for Islamabad Capital

Territory

A Chief Justice and other judges in each court:

Lahore High Court strength fixed at 60

Sindh High Court40 Peshawar High Court---20

Baluchistan High Court- --11

Islamabad ---11

Ten years experience as advocate of High court or tenyears service as a civil servant including three years as

district judge or ten years in a judicial office.

8/13/2019 Winter 2013 (97-2003)

53/316

High Courts

Appointed by the Judicial Commission.

A judge cannot be transferred without his consent and

consultation by the President with the Chief Justices of

Supreme Court and High Court.

Original jurisdiction in enforcement of Fundamental

Rights.

Appellate jurisdiction in judgment /orders of sub-

ordinate courts, both in criminal and civil matters. Supervises and controls all the courts

subordinate to it.

8/13/2019 Winter 2013 (97-2003)

54/316

Federal Shariat Court

Established in 1980 through a Presidential Order.

Created as an Islamisation measure and protected under

the 8thAmendment.

Comprises of eight judges out of which three are requiredto be Ulema well versed in Islamic Law.

Hold office for three years which may be extended by the

President.

Procedure for appointment through the Judicial

Commission.

8/13/2019 Winter 2013 (97-2003)

55/316

Federal Shariat Court

On its own or through a petition by a citizen orgovernment ( Federal or Provincial), may examine and

determine as to whether or not a certain provision of

law is repugnant to the junctions of Islam.

Appeal against its decisions lie to the Shariat

Appellate Benchof the Supreme Court.

The Bench consists of three Muslim judges of the

supreme court and not more than 2 Ulama appointed

by the President.

If a certain provision is declared to be repugnant, the

government to amend the law in conformity with the

injunctions of Islam.

8/13/2019 Winter 2013 (97-2003)

56/316

Federal Shariat Court

Appellate and revision jurisdiction over the criminalcourts, deciding Hudood cases.

Decisions binding on high courts and subordinate

judiciary.

Difference of opinion: Duplicates the functions of the existing superior courts

Mode of appointment and tenure

Meet the criteria for the independence of judiciary

Not immune from influences of executives.

Protection of Women (Criminal Laws Amendment)

Act 2006, considerably curtailed its jurisdiction.

8/13/2019 Winter 2013 (97-2003)

57/316

The subordinate judiciary broadly divided into

1. Civil Courts( established under the West PakistanCivil Courts Ordinance 1962)

2. Criminal Courts ( created under Criminal ProcedureCode 1898)

Judges of Civil and Criminal courts are appointed byProvincial Governments and regulate their terms and

condition of service .

The High court exercises administrative controls overcourts.

Subordinate Courts

8/13/2019 Winter 2013 (97-2003)

58/316

S b di C

8/13/2019 Winter 2013 (97-2003)

59/316

Appointment and Recruitment

1. Civil Judge-cum-Judicial Magistrate--- initial recruitmentthrough Public Service Commission with the active

involvement of the High Court.

2. A competitive examinationwritten test and a viva voce.

3. Promotionby a committee of the judges of the high

court.

4. Additional District and Session Judge --- quota fixed for

service personal as well as induction from the Bar

5. District and sessions judge--- Promotion on basisof senioritycum-fitness from among the

serving judicial officers.

Subordinate Courts

8/13/2019 Winter 2013 (97-2003)

60/316

6. High Court exercises both administrative as well as judicial

supervision.

7. Administrative--- Disciplinary proceedings may be initiated

against the judicial officer by the High Court.

8. Judicial ControlRevisions and Appeals filed in High Courtagainst the orders and decisions of subordinate courts.

9. Supervisory--- Through inspections and calling of records.

10.The judicial officers have right of approaching the Provincial

Judicial Service Tribunal (headed by the judges of theHigh Court) for redress of their grievances.

11. Appeal against their decisions lies to the Supreme Court.

Subordinate Courts

8/13/2019 Winter 2013 (97-2003)

61/316

T ib l d Oth C t

8/13/2019 Winter 2013 (97-2003)

62/316

Such Courts/Tribunals include :

Special Courts ( control of narcotic substances)

Banking courts ( recovery loans)

Special courts (Offences in banks)

Special courts (customs, taxation and anti-smuggling)

Income Tax Appellate Tribunal

Environment Appellate Tribunal

Insurance Appellate Tribunal

Customs

Excise and Sales tax

Special Judges

Drug courts

Anti-terrorism Courts

Accountability courts

Tribunal and Other Courts

T ib l d Oth C t

8/13/2019 Winter 2013 (97-2003)

63/316

Provincial Governments have their own Special Courts/

Tribunals

Appeals or revision against such courts lie before the

superior judiciary (High Court and/or Supreme Court)

Provincial Governments have their own special courts/

Tribunals: Labour Courts

Consumer Protection Courts

Anti-Terrorism Courts

Anti- Corruption Courts.

Appeals or revision against such courts lie before the

superior judiciary (High Court and/or Supreme Court)

Tribunal and Other Courts

T ib l d Oth C t

8/13/2019 Winter 2013 (97-2003)

64/316

Service Tribunals

Exclusive jurisdiction relating to terms and conditions

of service of civil servants under the constitution.

At Provincial and Central level.

Its members appointed by the respective governments.

Appeal lies to the Supreme Court

Tribunal and Other Courts

8/13/2019 Winter 2013 (97-2003)

65/316

PRELIMINARY

PRELIMINARY

8/13/2019 Winter 2013 (97-2003)

66/316

PRELIMINARYPURPOSE:

Every Act (law) has a purpose for which it is enacted

(made).CHAPTERS AND SCHEDULES:

Every Act is divided in Chapters. Every Chapter deals

with a particular subject. Schedules are part of the Act;

often containing rules dealing detail a subject dealt

summarily within the Act.

SECTIONS,SUB-SECTIONS, CLAUSES AND SUB-

CLAUSES

Every Chapter has a subject. Each aspect of this

subject is dealt with in a separate section. Each sectiondeals with a particular topic. Its various aspects are then

dealt in separate sub-sections which is further divided

into clauses and sub-clauses

C d

8/13/2019 Winter 2013 (97-2003)

67/316

PRELIMINARYContd.

DEFINITIONS:Where and when a word is specifically defined it has a

special meaning otherwise it has ordinary dictionary

meaning. A specific meaning over rules the ordinary

dictionary meaning

TWO TYPES:

1. EXCLUSIVE DEFINITION: Gives a precise meaning

completely replacing ordinary meaning. Excludes all

other meanings. Begins with the word MEANS

2. INCLUSIVE DEFINITION: Expansive definition. Begins

with INCLUDES. Has both elements

8/13/2019 Winter 2013 (97-2003)

68/316

PRELIMINARYContd.

PROVISO:Normally varies the meaning or operation of a section,

sub-section. Makes an exception to the main provision

EXPLANATION:Specifies the meaning of a word, term or phrase which

is ordinarily capable of signifying more than one meaning

or interpretation

CONTD

8/13/2019 Winter 2013 (97-2003)

69/316

CONTD. Law divided into PARTS and each deals with a

particular subject e.g. Part II Jurisdiction of Courts.

Part III SECP, Part IV Incorporation of Companies

Sections

Sub Sections

DEFINITIONS:The word or a term specifically definedhas a special meaning assigned to it and replaces itsordinary meeting. Otherwise have their ordinarydictionary meaning e.g.

Proceed in alphabetical order

Section 2 (7) Company means a company formed andregistered under this Ordinance or an existingCompany

STARTING BUSINESS

8/13/2019 Winter 2013 (97-2003)

70/316

STARTING BUSINESS

STARTING BUSINESS

8/13/2019 Winter 2013 (97-2003)

71/316

STARTING BUSINESS

Purpose in starting business is to be

successful. Every business venture containscertain inherent risks, and any number ofalternatives. Before starting the first thing toconsider the legal form operating under because

has a number of advantages and disadvantagese.g.

COMPANY: has a higher tax rates, stricterlaws, elaborate accounting procedures, legality,forms, statements etc.

PARTNERSHIP require registration ofbusiness

8/13/2019 Winter 2013 (97-2003)

72/316

STARTING BUSINESSContd.

Successful business is a tight hold on expenditures;

anything that does not make money, protects

investment should not be ventured to especially in

the beginning. The most important element of

eventual success will be the soundness of planning

before starting business. Success takes planning and

planning involves and includes an understanding

and grasp of Business Laws

STARTING BUSINESS

8/13/2019 Winter 2013 (97-2003)

73/316

STARTING BUSINESS

ENTREPRENEUR: One whoinitiates and assumesthe financial risks of a new enterprise andundertakes to provide or control its management.

Question before entrepreneur what form of

business organisation choose for his businessendeavour:

OPTIONS:

1. Sole Proprietorship

2. A Partnership

3. A Corporation (Limited Company)

SOLE PROPRIETORSHIP

8/13/2019 Winter 2013 (97-2003)

74/316

SOLE PROPRIETORSHIP

Simplest form

Owner is the business Business without creating a separate business

organization

ADVANTAGES:

1. Proprietor receives all the of the profits (all risksassumed)

2. Easier, less costly than to start any other kind ofbusiness

3. Entails more flexibility compared to otherorganizations

4. Free to make any decision concerning thebusiness

5. Pays only personal income tax (relatively less)

8/13/2019 Winter 2013 (97-2003)

75/316

SOLE PROPRIETORSHIP

DISADVANTAGES:

1. Alone bears losses or liabilities incurred by the

business

2. Unlimited liability or legal responsibility for business

obligations incurred

3. Opportunity to raise capital is limited mostly to

personal funds

4. Lack of continuity upon death of proprietor.

Automatically dissolved

5. If transferred to family members new proprietorshipcreated

BUSINESS

8/13/2019 Winter 2013 (97-2003)

76/316

BUSINESS

BUSINESS LAW IN PAKISTAN

Legal form under which operating Main forms of business organizations by PRIVATE

sector in Pakistan:

Sole Proprietorship

Partnership

Limited Liability Company Joint venture: Created in contemplation of a limited

activity or a single activity.

PUBLIC SECTOR. Where the Government undertakesan enterprise either a statutory corporation or limited

company. For medium and large scale business in Pakistan

limited company is the preferred form

8/13/2019 Winter 2013 (97-2003)

77/316

8/13/2019 Winter 2013 (97-2003)

78/316

Introduction

Keeping promises is important to a stablesociety. Contract law deals with, among otherthings, the formation and keeping of promises.

Like other types of law, contract law reflectssocial values, interests, and expectations at agiven point in time e.g. what kind of promisesshould be legally binding, what excuses are

accepted for breaking promises, legally void orinvalid.

8/13/2019 Winter 2013 (97-2003)

79/316

FUNCTION OF CONTRACTS

No aspect of life is entirely free of contractualrelationships

Contract law is designed to provide stabilityfor both buyers and sellers

Followed in business agreements to avoidpotential problems

Necessary to ensure compliance

8/13/2019 Winter 2013 (97-2003)

80/316

LAW GOVERNING CONTRACTS

Resolving such questions is the essence ofcontract law. In business law and the legalenvironment of business, questions anddisputes concerning contracts arise daily.

The law which governs contracts is:

THE CONTRACT ACT of 1872.

Promulgated on 25th. April,1872

Technically Act IX Chapters 10

Sections 237

CONTRACT ACT 1872

8/13/2019 Winter 2013 (97-2003)

81/316

CONTRACT ACT, 1872

CHAPTER IOf the Communication Acceptance andRevocation of Proposals.

CHAPTER II

Of Contracts, Voidable Contracts and VoidAgreements

CHAPTER III

Of Contingent Contracts. CHAPTER IV

Of the Performance of Contracts

CONTRACT ACT 1872

8/13/2019 Winter 2013 (97-2003)

82/316

CONTRACT ACT, 1872

CHAPTER V

Of Certain Relations Resembling ThoseCreated By Contract.

CHAPTER VIOf The Consequences of Breach of Contract

CHAPTER VII

Repealed

CHAPTER VIII

Of Indemnity and Guarantee

CONTRACT ACT 1872

8/13/2019 Winter 2013 (97-2003)

83/316

CONTRACT ACT, 1872

CHAPTER IX

Of Bailment

CHAPTER X

Agency.

The first 6 chapters lay down the generalprinciples on which all contracts arebased, while the rest deal with the

important classes of commercial contractsviz. indemnity and guarantee, bailment,agency

CONTRACT ACT

8/13/2019 Winter 2013 (97-2003)

84/316

CONTRACT ACT

Extends to whole of Pakistan

Main source of law regulating contracts inPakistan law

Determines the circumstances in whichpromises made by the parties to a contractshall be legally binding on them.

Contract creates right and duties upon

contracting parties The Act deals with the enforcement of these

rights and duties upon the parties.

8/13/2019 Winter 2013 (97-2003)

85/316

INTERPRETATION CLAUSE

8/13/2019 Winter 2013 (97-2003)

86/316

DEFINITIONS

INTERPRETATION OF CLAUSE is a section ofa statute which defines the meaning of certainwords occurring in other sections.

Aims to introduce some of the words andexpressions as are used in Contracts Act withtheir peculiar meanings and connotations.

Words used to be understood in specific sense

PROPOSAL:

8/13/2019 Winter 2013 (97-2003)

87/316

PROPOSAL:

Is declaration by the proposer of his

intention to be bound by an obligation if theofferee fulfills or undertakes to fulfill certainconditions

A proposal is made when one personsignifies to another his willingness to do orabstain from doing anything, with view toobtaining the assent of that other to such actor abstinence

The starting point for a contract

PROMISOR:

8/13/2019 Winter 2013 (97-2003)

88/316

PROMISOR:

Person making the proposal

PROMISEE:Person accepting the proposal

The promisor and the promisee must be twodifferent persons

The two must exist to constitute a contractPROMISE:

An undertaking by one man with another for theperformance or the non-performance of some

particular thing. A verbal covenantThe technical use is narrower than the popular

use.

The proposal when accepted becomes a

8/13/2019 Winter 2013 (97-2003)

89/316

p p ppromise. There must only be a proposal butthere must be an acceptance of the proposal

by the other sideEvery promise is an accepted proposal

CONSIDERATION:

Act, done or promised to be done, at thedesire of the promisor. At the desire of the promisor The promisee or

any other person Must have done or abstained from doing, or Must do or abstain from doing or Must promise to do or abstain from doing

Something

AGREEMENT:

8/13/2019 Winter 2013 (97-2003)

90/316

G

Every promise and every set of promises,

forming consideration for each other. An accepted proposal. Result of a proposal

from one side and its acceptance by theother.

Regarded as a contract when it is enforceableby law.

An agreement that the law will enforce is a

contract.

Contd.

8/13/2019 Winter 2013 (97-2003)

91/316

Cont d.

When one person signifies to another his

willingness to do or to abstain from doinganything with a view to obtaining the assent ofthat other to such act or abstinence, he is saidto make aproposal. When the person to whom

the proposal is made signifies his assentthereto, the proposal is said to be accepted. Aproposal when accepted becomes apromise.The person making the proposal is called the

promisor. The person accepting the proposal iscalled thepromisee.

WHAT ARE CONTRACTS?

8/13/2019 Winter 2013 (97-2003)

92/316

WHAT ARE CONTRACTS?

An agreement or mutual promise upon lawfulconsideration or cause which binds the partiesto a performance; a bargain; a compact.

A contract is an agreement that can be

enforced in court. It is formed by two or moreparties who agree to perform or to refrainfrom performing some act now or in thefuture,

Is an agreement enforceable at law. It isbilateral document meant to create legalrelationship

Contd.

8/13/2019 Winter 2013 (97-2003)

93/316

The first step towards a contract is for theparties to get into communication with eachother. This is done by one of them making aproposal. An offer to do or not do something,

and that offer must be made for the purpose ofbeing agreed to

The next step is that the person, with a viewto whose assent the proposal is made, should

express his concurrence in the act orabstinence. The proposal now becomes apromise.

o

DISTINGUISHING: PROPOSAL (OFFER)

8/13/2019 Winter 2013 (97-2003)

94/316

AND INVITATION TO TREAT.Person making the proposal (offer) is called the

promisor (offerer) and person to whom the offeris made, and who can thus accept it is called thepromisee (offeree). The proposal is a statementof intent to be legally bound by the terms of the

proposal if it is accepted, and the contract existsonce acceptance has taken place.

This and it is not always the case, however, the firststage in negotiations is a proposal (offer).Oftenthe first step is an entirely passive state and isopen to negotiations e.g. goods displayed in ashowroom of a store.

This display is not a proposal (offer) but an

8/13/2019 Winter 2013 (97-2003)

95/316

example of an invitation to treat..invitationto another person to make an offer.Contract is

then formed when the offer is accepted.

It is important to distinguish between an offer andan invitation to treat as they have different legalconsequences. A person who is not prepared totake the legal consequences of the offer beingaccepted should not make an offer e.g. to pay areward, by placing an advertisement, to theperson who fulfills the requirements of the offer.

An invitation to treat is not an offer it is onlyinvitation to the other party to make an offer e.g.goods displayed in a shop with price a label;

th h k i t bli d t ll it t th

8/13/2019 Winter 2013 (97-2003)

96/316

the shopkeeper is not obliged to sell it at thedisplayed price because display is an invitation totreat, not an offer.

The offer must be certain, it must be notified to theparty to whom it was made (promisee/offeree)although the offer may be made to no one personin particular as in the case of an advertisementplaced in a newspaper.

DISTINCTION

8/13/2019 Winter 2013 (97-2003)

97/316

S C O

Party A makes an OFFER(PROPOSAL)

Party B ACCEPTS the OFFER(PROPOSAL)

CONTRACTformed at this point

OFFER (PROPOSAL) INVITATION TO TREAT

Party A makes anINVITATION TO TREAT(This is not an OFFER)

Party B makes an

OFFERTO BUY

(This is not an acceptance)

THE CONTRACT CANNOT BEFORMED AT THIS POINT

Party A agrees to sell (this is theACCEPTANCE)

CONTRACT formed at this point

8/13/2019 Winter 2013 (97-2003)

98/316

The point at which a contract is made in a

standard offer (Proposal) and acceptance, andwhere there is firstly an invitation to treat

8/13/2019 Winter 2013 (97-2003)

99/316

PROPOSALS--COMMUNICATION,

8/13/2019 Winter 2013 (97-2003)

100/316

ACCEPTANCE AND REVOCATION

Before a proposal is accepted there is:COMMUNIUCATION:Communicate:Imparting of news or information

on one side and reception and understanding onthe other

Rule when communication of proposal isconsidered complete. Not a mere mental assent to the terms of an

offer. Some act done with the intention of

communicating the resolution to the other party Mere intention not communicated by words or

conduct cannot give rise to a contract

COMMUNICATION

8/13/2019 Winter 2013 (97-2003)

101/316

COMMUNICATION

Communication of aproposal is completewhen it comes to the knowledge of theperson to whom it is made.

Communication of an acceptance is complete,as against the proposer, when it is put in

course of transmission to him.Acceptance

Agreeing to a previous act or promise to doby another. The acquiescence to an offer of a

party makes the agreement enforceable in law.Signifying ones assent to the proposal madeby another.

REVOCATION

8/13/2019 Winter 2013 (97-2003)

102/316

REVOCATION:

The calling back of a thing done. The makingvoid of a deed that was in force, the cancellingof an authority once given.

The communication of a revocationiscomplete, as against the person who makes it,when it is put it is put into course oftransmission to the person who made it

Aproposalmay be revoked at any time beforethe communication of its acceptance is

complete as against the proposer but notafterwards.

An acceptance may be revokedat any time

8/13/2019 Winter 2013 (97-2003)

103/316

accepta ce ay be e o ed at a y t ebefore the communication of the acceptance iscomplete against the acceptor but not

afterwardsA proposal can be revoked, obviously before

it becomes a contract, by:

1. Communication of notice of revocation

2. Lapse of stipulated time in the proposal3. If the proposal is conditional or qualified by

the failure of the acceptor to fulfill thecondition precedent

4. By the death or insanity of the proposer, ifthe fact comes to the knowledge of theacceptor before acceptance

CONTRACTSVALID?

8/13/2019 Winter 2013 (97-2003)

104/316

A valid contract has the elements necessary

for contract formation; An agreement (proposal and acceptance).

Supported by legally sufficient consideration

For legal purpose

Made by parties who have the legal capacityto enter into the contract i.e. contractualcapacity:

1. Age of majority: when supplies made tominor binding on him and his estateresponsible for payment

2. Sound mind: at the time making contract is

8/13/2019 Winter 2013 (97-2003)

105/316

gcapable of understanding it, and of forming arational judgment as to its effect upon his

interest3. No other disqualification like foreign enemy4. Free Consent i.e. when not caused by: Coercion. It becomes voidable at the option of

the person whose consent was obtained bycoercion. Undue influence. Domination of a weak mind

by a strong mind. Fraud: False representation of fact made with

a knowledge of it Misrepresentation. causing a party to make a

mistake.

VOID AGREEMENT, CONTRACT

8/13/2019 Winter 2013 (97-2003)

106/316

A bilateral document meant to create legalrelationship. It is conceived by valid acceptanceof a valid offer at the desire of the promisor.

VOID AGREEMENT: Not enforceable at law

Lawful having a lawful consideration. Enteredinto with a lawful object

Every contract is an agreement but everyagreement is not a contract.

VOID AGREEMENT, CONTRACT

8/13/2019 Winter 2013 (97-2003)

107/316

Agreement enforceable at law when it is notagainst public policy, immoral, withoutconsideration, having not been hatchedthrough fraud or deceit.

VOID CONTRACT: Difference between void agreement and void

contract

Ceases to be enforceable by law e.g.

impossible unlawful.

CONTRACTPERFORMANCE.

8/13/2019 Winter 2013 (97-2003)

108/316

Deals with time, mode, and order ofperformance as also who is bound to perform

and who can demand performance Parties to contract must perform or offer to

perform their respective performances unlessdispensed by law.

In case of death binding on legal heirs unless

contrary to it from the contract.TIME AND PLACE OF PERFORMANCE: When promisor to perform without demand

from the promisee and no time fixed thenpromisor must perform within reasonabletime (reference to nature of character ofgoods dealt, surrounding circumstances, factsof case)

To be performed when promisee applies then it

8/13/2019 Winter 2013 (97-2003)

109/316

his (promisee) responsibility to apply---properplace and within usual business hours

If no application from promisee then duty ofpromisor to apply to promiseeWhen parties agree on the time of performance

of any obligation under the contract and is made acondition of the contract then time is the essence

of the contract. Breach entitles the party torepudiate the contractAvoiding the contract. Circumstances: Parties agree to substitute a new contract,

rescind or alter original. Every promisee may dispense with or remit

wholly or in part the performance of the promise. Contract is ab initio void

CONTRACT--ASSIGNMENT

8/13/2019 Winter 2013 (97-2003)

110/316

ASSIGNis to transfer, make over or set over toanother. ASSIGNMENT is the act of transferring to

another all or part of ones property, interest orrights-----

Assignment of contract: transfer of rights orliabilities under a contract. Maybe:1. Operation by law: in cases of bankruptcy or

purchase or loss of interest of law2. Assignment by act of parties: cannot be

assigned (liability passed on) without theconsent of other party. Where personalconsiderations are involved contracts cannot beassigned. Benefit can be assigned over to otherparty provided the benefit does not entail anyliability.

8/13/2019 Winter 2013 (97-2003)

111/316

CONTRACTTERMINATION &DISCHARGE

8/13/2019 Winter 2013 (97-2003)

112/316

DISCHARGE

The contractual ties may be loosened and theparties wholly freed from the rights andliabilities under the contract by:1. By Agreement. Contract discharged by the

same process which created it by mutual

agreement: Waiver: Parties agree to demand

performance. Waive rights and by waiverother party discharged.

Novation or Substituted Agreement: Mutual desire ofthe parties to substitute a new contract in place of old.

Old contract need not be performed.

2. By Performance: Duties undertaken by either party

8/13/2019 Winter 2013 (97-2003)

113/316

fulfilled.

3. 3. By Breach: A contract may be broken. Will discharge

either party from performance. It maybe: By Renunciation: before performance is due

By impossibility created by other partybefore performance is due.

Impossibility e.g. change in law

Frustration e.g. One of the parties contractedto marriage goes mad.

4. By operation of Law:

Merger

Bankruptcy.

8/13/2019 Winter 2013 (97-2003)

114/316

CONTRACT---BREACH

8/13/2019 Winter 2013 (97-2003)

115/316

In case of breach of contract three remedies

are available to the other party:

1. Damages: The amount is to the extent ofdamages. For loss which is direct result ofbreach. Cannot claim for indirect loss

2. Specific Performance of the Contracts: Actualcarrying out of contract by a party. Courtorders one party, at the suit of the other, to

carry out the agreement. Usually not grantedwhere damages sufficient compensation tothe party.

CONTRACT---BREACH

8/13/2019 Winter 2013 (97-2003)

116/316

CONTRACT BREACH

3. Injunction. An order or judgment of a courtrestraining some person or persons fromdoing certain things which are detrimental tothe interests of another or others. It is

considered to be a negative remedy

CONTRACTSSPECIAL TYPES.

8/13/2019 Winter 2013 (97-2003)

117/316

CONTINGENT CONTRACT:

A contract to do or not do something unless suchevent takes place e.g. life insurance where contractis complete only when the insurer passes away.

The uncertainty and futurity of the event to which

the contract is related. Liability of performance isnot absolute but depends upon the happening ornot happening of certain event

The event being collateral to the event.

Contingency should relate to a matter collateralto the main purpose of the agreement

The contingency should not depend on the

8/13/2019 Winter 2013 (97-2003)

118/316

mere will and pleasure of a party, but mustdepend on the act of a party.

8/13/2019 Winter 2013 (97-2003)

119/316

Contd

8/13/2019 Winter 2013 (97-2003)

120/316

Cont d

The person (A) who gives the indemnity is called theindemnifier and the person(B)for whose protection it

is given called the indemnity-holder or indemnified.

Scope of indemnity is restricted to those cases

where there is a promise to indemnify against loss,

caused by the (a)promisor himself or (b)by any other

person. Excludes loss from accidents like fire etc.

Promise of indemnity may be expressed or implied.

Contd

8/13/2019 Winter 2013 (97-2003)

121/316

Cont d

INDEMNITY HOLDER:The person to whom the indemnity is given

i.e. the promisee acting within the scope of hisauthority.. His rights:

Entitled to claim all damages which he mayhave been compelled to pay.

Recover all cost reasonably covered inresisting, reducing or ascertaining the claim

Can compromise a claim on best term he canand then bring an action on the contract ofindemnity

8/13/2019 Winter 2013 (97-2003)

122/316

8/13/2019 Winter 2013 (97-2003)

123/316

Contd

8/13/2019 Winter 2013 (97-2003)

124/316

Atakes a loan from Bwhen Cguaranteedrepayment of the loan. Ais theprincipaldebtor, Bthe creditor and Cthe surety.

The function of a contract of guarantee is to

enable a person to get a loan, or goods oncredit or an employment

Mutual assent is an essential element of acontract of guarantee. It is not a unilateral

contract. There must be an offer andacceptance.

Contd

8/13/2019 Winter 2013 (97-2003)

125/316

ESSENTIALS:

It is a contract

To perform the promise or

To discharge the liability Of a third person

In case of his default

The contract may either be written or oral.

Contd

8/13/2019 Winter 2013 (97-2003)

126/316

Differences between Contracts of Guarantee

and Indemnity:1. In case of Guarantee there are 3 parties. In

case of Indemnity 2 parties2. In case of Guarantee there is a Principal

debtor. In Indemnity an original and directengagement; independent of the existenceof the third party

3. Guarantee exists for the security of the

creditor. Indemnity is for reimbursement ofloss

8/13/2019 Winter 2013 (97-2003)

127/316

BAILMENTl f b ll ( h)

8/13/2019 Winter 2013 (97-2003)

128/316

Bailment from bailler (French) meaning todeliver. Signifying a contract resulting fromdelivery.

Bailment implies a sort of relationship inwhich the personal property of one persontemporarily goes into the possession ofanother. The ownership of the articles or goodsis in one person and the possession in anothere.g. leaving a car for repair, cloth to a tailor,parcel to TCS, goods in a cold store.

The delivery of goods by one person thebailor to another the bailee for some purpose,

upon a contract that they shall, when purpose isaccomplished be returned or otherwise disposed of

8/13/2019 Winter 2013 (97-2003)

129/316

accomplished, be returned or otherwise disposed ofaccording to the direction of the person delivering it.

Formed by the delivery of personal property ,without transfer of title by bailor to a bailee usuallyunder an agreement. Obligations and duties arisefrom the bailment relationship.

CHARACTERISTICS:1. Delivery of goods. Delivery of possession is

essential. Not transfer of ownership; that wouldbe sale or exchange

2. Delivery of possession is temporary but it is forsome purpose. Bailor reserves right to claimredelivery of goods deposited.

3. Delivered goods to be returned according todirections of bailor when purpose accomplished

8/13/2019 Winter 2013 (97-2003)

130/316

directions of bailor when purpose accomplished.

4. Only movable properties can be bailed.

RIGHTS AND DUTIES OF BAILEE and BAILOR.

DUTIES of BAILEE:

Take care of the goods entrusted to him reasonable.

Not to make unauthorized use of goods entrustedto him. Becomes responsible for any loss.

Not to mix goods with his own goods

Not to set an adverse title to the goods Return the goods after purpose or period of

bailment is over.

DUTIES of BAILOR: To disclose defects of goods bailed

8/13/2019 Winter 2013 (97-2003)

131/316

g To bear extraordinary expenses

Compensate or indemnify for reasons notentitled to make bailmentAGAINST THIRD PARTIES:

If use or possession wrongfully deprived by thirdparty bailee can claim damages. Option also with

bailor.TERMINATION: Bailee wrongfully uses or disposes goods. Period or purpose of bailment over

Gratuitous bailment terminated any time bybailor

On death of bailor or bailee gratuious bailment.

8/13/2019 Winter 2013 (97-2003)

132/316

AGENCY.

8/13/2019 Winter 2013 (97-2003)

133/316

Since it is not possible for every person to doeverything by self, he allows the person to berepresented in the performance of persons legalacts by another and gives acts done by suchrepresentative the same effect as they would havedone it by self.

One of the most common, important andpervasive legal relationship is that of the agency;relationship between (agent) who agrees torepresent or act for the other (principal). The

principal has the right to control the agentsconduct in matters entrusted to the agent,

and the agent must exercise its powers for thebenefit of the principal only.

8/13/2019 Winter 2013 (97-2003)

134/316

The principal, by using agents, can conductmultiple business operations simultaneously in

various locations e.g. corporate officer.

AGENCY:A legal relationship between a person and

another called the principal for whom he acts.

There must be an authority from the principal,express or implied.Is founded upon a contract, either express orimplied, by which one of the parties confides to theother the management of some business to be

transacted in his nameand on his account and bythe other assumes to do business and to render anaccount of it.

8/13/2019 Winter 2013 (97-2003)

135/316

CREATION :

8/13/2019 Winter 2013 (97-2003)

136/316

1. By Direct Appointment when agents authorityis expressly given

2. By Implication when agency is inferred fromdealings between two persons.

3. By Necessity when an emergency acts withoutauthority

4. By Estoppel (a plea in bar, grounded on onesown act). Principal induces third person that theacts done by his agent are by his authority.

5. By Ratification when a previous unauthorisedact is approved and made valid.

TERMINATION:

8/13/2019 Winter 2013 (97-2003)

137/316

BY ACT OF PARTIES:

Lapse of Time: Period for agency relationshipexpires.

Purpose Achieved

Occurrence of Specific Event Mutual Agreement

BY OPERATION OF LAW:

Death or mental incompetence. Automatic andimmediate. Knowledge of death not required.

DUTIES OF PRINCIPAL TO AGENT:

1 Indemnify him against all lawful acts done in

8/13/2019 Winter 2013 (97-2003)

138/316

1. Indemnify him against all lawful acts done inexercise of conferred authority

2. Indemnify for acts done in good faith.

3. Compensate for injury caused by principalsneglect

RIGHTS OF AGENTS:

1. Right of retainer out of sums received onprincipals account

2. Entitled to commission (subject to contract)3. Entitled to retain property, documents etc.

until commission due received

1. Indemnified by principal for lawful acts

2 Indemnified by principal for acts done in good

8/13/2019 Winter 2013 (97-2003)

139/316

2. Indemnified by principal for acts done in goodfaith.

RIGHTS OF PRINCIPAL:

1. Agent to carry out business according toprincipals directions as a prudent man.

2. Entitled to examine accounts.

3. Agent to obtain instructions from principal

4. Can repudiate transaction if agent carries outbusiness in his own account.

5. Agent cannot delegate authority withoutconsent.

8/13/2019 Winter 2013 (97-2003)

140/316

8/13/2019 Winter 2013 (97-2003)

141/316

LAW RELATING TO PARTNERSHIP

8/13/2019 Winter 2013 (97-2003)

142/316

PARTNER: One who partakes or shares with another

An associate

One who has a share with another or othersin some commercial, manufacturing or otherundertaking

One who dances with another.

An associate in a firm. A member of a firm orpartnership.

PARTNERSHIP: The state or condition of being a partner

8/13/2019 Winter 2013 (97-2003)

143/316

g p The association of two or more persons for the

purpose of undertaking and prosecutingconjointly any business, occupation, or calling That which subsists between persons who

have agreed to combine their property, labourskill in some business and to share the profits

thereof between them A type of business entity in which partners

share with each the profits or losses of thebusiness.

FIRM: Persons who enter into partnership arecollectively called a firm

Persons who enter into partnership with oneanother are individually partners and

8/13/2019 Winter 2013 (97-2003)

144/316

another are individually partners and

collectively a firm and the name under which

their business is carried on is called the firmname

Partners may choose any name as their firms

name provided it does not go against the rulesrelating to trade name or goodwill----mislead thepublic into confusing with a firm already inexistence or words which express or imply

sanction, approval or patronage of theGovernment

In Pakistan for small to medium size businessset ups the common mode of business

8/13/2019 Winter 2013 (97-2003)

145/316

set ups the common mode of business.

Advantage of structural flexibility andformality of relationship between partners.

Maybe registered or not. Not compulsory

Registered firms have the advantage of tax

and consequences of litigation. Favoured over corporate structure (companies)

as no dividend is levied.

But partners exposed to greater personalliability than the shareholders of a company.

8/13/2019 Winter 2013 (97-2003)

146/316

No.IX of 1932

Adopted and followed by the Government of

8/13/2019 Winter 2013 (97-2003)

147/316

Adopted and followed by the Government ofPakistan

SCHEME OF LAW:

Divided into 8 Chapters

Sections 74

Schedule 1

CHAPTERS:

1. Preliminary

2. The Nature of Partnership3. Relations of Partners to One Another

4. Relations of Partners to Third Parties

8/13/2019 Winter 2013 (97-2003)

148/316

5. Incoming and Outgoing Partners

6. Dissolution of a Firm

7. Registration of Firms

8. Supplemental

SCHEDULE:

Fees Prescribed

DEFINITIONS

8/13/2019 Winter 2013 (97-2003)

149/316

Intention to economise words

Does not lay down general principles With reference to the whole Act and with

reference to the content

ACT OF A FIRM Binds every one of the partners An act in which every one of them had

actually participated Gives rise to a right enforceable by or against

the firm

BUSINESS:

8/13/2019 Winter 2013 (97-2003)

150/316

Includes every trade, occupation and

profession. Includes and not Means.

An Inclusive and not Exhaustive definition

General and vague Broadly, any activity which, if successful,

would result in profit

Must be in existence May be temporary or permanent (indefinite)

PARTNERSHIP:

8/13/2019 Winter 2013 (97-2003)

151/316

The relation between persons who have

agreed to share the profits of a business carried

on by all or any of them acting for all

Persons who have entered into partnership

with one another are individually calledpartners and collectively a firm and thename under which their business is carried onis called the firm name

A voluntary act between two or more persons.

Placing their money, effects, labour and skill,

8/13/2019 Winter 2013 (97-2003)

152/316

g y, , ,or some or all of them

In lawful commerce or business

Understanding that there shall be communionof profits or thereof between them.

Contains the following elements/essentials

ESSENTIALS:

A i ti f t t

8/13/2019 Winter 2013 (97-2003)

153/316

Association of two or more persons to carry on

a business An agreement entered into by all concerned

Agreement must share the profits

Business must be carried on.

Carried on by all or any of the personsconcerned acting for all.

All elements must be present before a groupof persons can be called partners. Only then apartnership can be said to come intoexistence.

Elements may appear to overlap but aredistinct

8/13/2019 Winter 2013 (97-2003)

154/316

distinct Existence of partnership is a question of fact.

Association of two or more persons: There must be at least two persons who

should join together to constitute a

partnership. A group of persons with no legal relations (no

mutual rights and liabilities) not apartnership

No existence or responsibility separately fromits partners.

An Agreement: Entered into by all persons concerned

8/13/2019 Winter 2013 (97-2003)

155/316

y p Partnership arises only as a result of an

agreement, express or implied Created by a contract, it does not arise by

operation of law e.g. joint operation (heirs ondeath )

Voluntary contractual Lawful agreement; founded on good faith, for

lawful object between competent persons.Fulfill all the essentials of a valid contract.

Can even come into being upon an oralagreement

Sharing Profits:

Must be an agreement to share profits arising

8/13/2019 Winter 2013 (97-2003)

156/316

Must be an agreement to share profits arising

out of the business An essential element of partnership

agreement

Different from clubs, societies, charitable

associations etc.

How to be shared left to the partiesthemselves

Sharing of losses not essential. Profits refer to net profits.

Carrying of Business:

Business as defined i.e. any trade,

8/13/2019 Winter 2013 (97-2003)

157/316

Business as defined i.e. any trade,

occupation or profession.

May be temporary or permanent(indefinite).But must be in existence.

Agreement to carry on business at a future

time does not result in present partnership. Must be carried on by all or by any concerned

acting for all

Business must be lawful Mutual agency

True test of partnership.

Partnership based on the idea of mutual

8/13/2019 Winter 2013 (97-2003)

158/316

Partnership based on the idea of mutual

agency. Every partner assumes a dual role i.e. that of

a principal and agent.

Action of each partner is binding on the other;

agent and principal. Liable to account for all.

Contract in the name of the firm.

PARTNERSC b t d i t b t t

8/13/2019 Winter 2013 (97-2003)

159/316

Can be entered into by every competent

person Attained age of majority

Of sound mind

Disqualified from any law to which he issubject

Unsound mind

Married woman is competent

Minor cannot become a partner but can beadmitted to benefits of partnership.

WORKING PARTNER:

Not necessarily a partner in business

8/13/2019 Winter 2013 (97-2003)

160/316

Not necessarily a partner in business

Maybe only an employee Gets a share in the net profits

Remuneration for services rendered.

FIRMFi

8/13/2019 Winter 2013 (97-2003)

161/316

Firm:

Persons who have collectively entered intopartnership with one another is collectivelycalled a firm

Name under which business is carried isFirm Name.

Business under any name or style

Taking care of rules like trade name, goodwill

etc.

ILLEGAL PARTNERSHIPObj f hi i l f l S i 23

8/13/2019 Winter 2013 (97-2003)

162/316

Object of partnership is unlawful. Section 23

of Contract Act Number of persons entering into partnership

exceed the permitted. Section 4 of CompaniesAct.1913:

1. Business of bankingmore than 10

2. Any other businessmore than 20

With an alien enemy (alien friend); enjoys

civil and personal rights as a citizen Against international comity.

CO-OWNERSHIP Akin but different

8/13/2019 Winter 2013 (97-2003)

163/316

Partnership result of an agreement Mutual rights and obligations different Consent of all trade/business: Examples Transfer of interests

COMPANY:1. Person---Legal2. CreationLegal formalities/agreement

3. Transfer of interest4. Agents of others

5. Liability to debts

6. Contract

8/13/2019 Winter 2013 (97-2003)

164/316

7. Private arrangements

8. Number

9. DeathDissolution

10.Property

11.Restrictions

12.Sue and be sued

13.Decree

14.Registration15.Shareholder

PARTNERSHIP DISTINGUISHEDCOMPANY:

8/13/2019 Winter 2013 (97-2003)

165/316

COMPANY:

1. PARTNERSHIP is not a distinct legalperson, but is made of the persons composingit.

COMPANY is a distinct legal person

2. Creation of PARTNERSHIP is purely amatter of agreement between the parties suchan agreement need not even be in writing.

Creation of COMPANY involves elaboratelegal formalities

3. In a FIRM partner can transfer his interestwith the consent of other partners.

8/13/2019 Winter 2013 (97-2003)

166/316

with the consent of other partners.

Shares in a COMPANY (especially Public) aregenerally freely transferable.

4. Each partner is prima facie the agent ofothers, and can bind them by his contract

made in the course of business of thepartnership.

Shareholders in a COMPANY are not the

agents of one another.

5. Each PARTNER is liable in full for the debtsof the firm

Th li bili f h C h h ld i

8/13/2019 Winter 2013 (97-2003)

167/316

The liability of the Companys shareholders is

limited by shares or guarantee.6. A PARTNER cannot contract with the firm.

A shareholder in a COMPANY can contractwith the COMPANY.

7. PARTNERS may make any privatearrangements among themselves e.g buyothers shares.

Arrangements in COMPANY are regulated bylaw e.g Company cannot buy its membersshares

8. In PARTNERSHIP maximum number ofmembers is restricted

8/13/2019 Winter 2013 (97-2003)

168/316

In COMPANY no maximum number.

Minimum is prescribed9. Death of a partner dissolves a

PARTNERSHIP

Death or retirement of shareholder does notdissolve the COMPANY.

10.Property may be the common property ofPARTNERS.

Property belongs to the COMPANY and notits members

11. Restrictions contained in partnership deedwill not effect third parties, who are not

8/13/2019 Winter 2013 (97-2003)

169/316

aware of it

Restrictions in Articles of Association effectthird parties also.

12.A FIRM cannot sue or be sued.

A COMPANY can in its own name.13.Decree against the FIRM can be executed

against the partners.

Decree against the COMPANY cannot beexecuted against its shareholders.

14.For a PARTNERSHIP registration isoptional

8/13/2019 Winter 2013 (97-2003)

170/316

For a COMPANY it is compulsory

15.A FIRM cannot be a shareholder. in acompany

A COMPANY can be a shareholder in

another company.

CLUB:

8/13/2019 Winter 2013 (97-2003)

171/316

Entirely different Club members not liable for acts of other

members

Not liable to be creditor of club

Liabilityextent of Clubs regulations

No implied authority i.e. bind other membersof the club.

TRADE ASSOCIATION:

Mutual agency does not exist

8/13/2019 Winter 2013 (97-2003)

172/316

Mutual agency does not exist

PARTNERSHIP EXISTENCEHOW TO DETERMINE? Real relation between the partners

Mainly a question of fact

Onus to prove on the appellant

8/13/2019 Winter 2013 (97-2003)

173/316

PARTNERSRELATIONS TO ONEANOTHER

PARTNERSRELATIONS TO ONEANOTHER

8/13/2019 Winter 2013 (97-2003)

174/316

Relations between partners defined Freedom to arrange their own affairs among

themselves

Mutual rights and duties regulated by

contractDuties and liabilities on a partner:

1. Duty of good faith and common advantage

Carry on business to the greatest commonadvantage

Just and faithful to each other

Use knowledge and skill for benefit of firm

Not personal advantage

I f l fi b f d f

8/13/2019 Winter 2013 (97-2003)

175/316

In case of loss to firm by fraud of a partner---

indemnify firm (make good the loss)2. Duty to render true accounts and full

information:

Not to mix with personal business

Disclose full facts.

Rights and duties of partners determined bycontract between them.

Contract varied only by consent of allpartners

In conduct of business every partner has rightto:

8/13/2019 Winter 2013 (97-2003)

176/316

1. Take part in conduct of business

2. Access, inspect and copy books of account

3. Express opinion. Majority opinion

Mutual rights and liabilities. Subject tocontract:

1. Not entitled to any remuneration

2. Entitled to share equally

3. Advance by partner to firm (over and abovecapital) entitled to profit (interest)

PROPERTY OF FIRM:

8/13/2019 Winter 2013 (97-2003)

177/316

Inclusive definition1. All property and rights originallybrought to

the stock of the firm

2. Acquired by purchase or otherwise during thecourseof the business

3. Goodwill of the business

4. Rights and interests acquired with money

belonging to the firm. Deemed.

GOODWILL:

Not defined

Th h l d t h t it b f

8/13/2019 Winter 2013 (97-2003)

178/316

The whole advantage, whatever it may be, of

the reputation and connection of the firm Intangible

Easy to describe, difficult to define

It is benefit and advantage of the good name,reputation and connection of a business

No independent existence

Cannot subsist by itself

Attached to business Attribute of a business, trade or profession.

APPLICATION OF PROPERTY:

Shall be held

8/13/2019 Winter 2013 (97-2003)

179/316

Shall be used By the partners

Used by the partners

Exclusively for purposes of business

Common benefit of all partners

One partner cannot use assets for personalbenefits

PERSONAL PROFITS OF PARTNERS

Subject to contract

8/13/2019 Winter 2013 (97-2003)

180/316

If a partner derives personal profits ----transaction, use of property or connection---ofthe firm. Shall account for and pay to the firm

Carries on any business----same structure

and competing with the firm. Shall accountfor and pay profits made in that business.

Cannot carry on competing business during

subsistence of partnership In that case pay to firm all profits.

RIGHTS AND DUTIES AFTER CHANGE INFIRM

G l l l id d f d i i f

8/13/2019 Winter 2013 (97-2003)

181/316

General rules laid down for determination of

rights and duties of partners. No effect onregistration. Three situations. In case of:

Change in constitution: Rights and duties

remain the same as immediately beforechange

After expiry of term of firm, remain the same

Additional undertakings are carried out

1. CHANGE IN CONSTITUTION

Partnership not dissolved

8/13/2019 Winter 2013 (97-2003)

182/316

Mutual rights and duties of partners

Remain same in reconstituted firm

Same as immediately before reconstitution

2. AFTER EXPIRY OF TERM OF OFFICE:

In spite of being constituted for fixed termcarries on business

Term expired

Mutual rights and duties remain the same Same as before expiry.

3. ADDITIONAL UNDERTAKINGS ARECARRIED OUT:

8/13/2019 Winter 2013 (97-2003)

183/316

Originally constituted to carry out one ormore undertakings

Carries out other undertakings

Mutual rights and duties in the newundertaking same as in old

PARTNERS

8/13/2019 Winter 2013 (97-2003)

184/316

RELATIONS TOTHIRD PARTIES.

PARTNERSRELATIONS TO THIRDPARTIES.

8/13/2019 Winter 2013 (97-2003)

185/316

Rights and duties of partners as regards tothird parties

PRINCIPAL AND AGENT: Agency is the essence of partnership

Partner is both an agent and principal Relation between partners of principals To third parties agents of the firm Acting on behalf of firm can bind co-partners Acting in personal capacitypersonal

liability

IMPLIED AUTHORITY:

Important

8/13/2019 Winter 2013 (97-2003)

186/316

Important

The act of a partner which binds the firm This authority of the partner which binds the

firm is his implied authority

To exercise implied authority necessary that:1. Act must be done in the conduct of business of

the kind carried on by the firm

2. Must be done in the way which is usual insuch business

3. Must be done in the firm name or in any othermanner expressing or implying an intention tobind the firms

8/13/2019 Winter 2013 (97-2003)

187/316

Relevant factors: Nature of business

Practice of persons engaged in it.

FRAUDULENT ACTIMPLIED AUTHORITY?

Liability of firm on fraudulent act of partner

Partners implied authority

Factorprincipal answerable for acts of agent Firm liable

Firm not liable if collusion between partnerand third party

If third party bona fide then firm liable

8/13/2019 Winter 2013 (97-2003)

188/316

IMPLIED AUTHORITYACTS OF THE PARTNER WHICH DO NOTBIND

THE FIRM:

1. Submit dispute relating to firms business forARBITRATION.

2. Open on behalf of firm BANK ACCOUNT

3. Compromise/relinquish CLAIM (part) of firm

4. WITHDRAW suit/proceeding filed on behalf offirm

5. ADMIT liability in suit/proceeding againstfirm

6. ACQUIRE immovable property on behalf of

8/13/2019 Winter 2013 (97-2003)

189/316

Q p p y

firm7. TRANSFER immovable property belonging tofirm

8. ENTER into PARTNERSHIP on behalf of

firmMay also include:

Bind the firm by giving GUARANTEE inrespect of debts of third parties.

SET off PERSONAL DEBTS against debtsdue to firm.

SET OFF DECREE obtained by firm for lessthan the decreed amount

ACCEPT FULLY PAID SHARES i

8/13/2019 Winter 2013 (97-2003)

190/316

ACCEPT FULLY PAID SHARES insatisfaction of debts due to firm.

LIABILITY OF PARTNER

1. RIGHTFUL ACT:

Every partner jointly and severally responsible2. WRONGFUL ACT:

Wrongful act/omission during ordinary course

of Business loss to third party then firmresponsible

4. MISAPPLICATION:Partner or firm misapplies money or property

Received from third party firm is liable

8/13/2019 Winter 2013 (97-2003)

191/316

p y

5. HOLDING OUT:Where a person by word or conduct induces

another to believe him and acts accordingly hecannot subsequently deny the existence of such

facts Becomes personally responsible

Does not become member in the firm

Not entitled to any rights as against those inthe firm

Does not become agent of the firm

MINORS (according to law)Cannot be a partnerMay be admitted to benefits of partnershipC t d l t b t l th t

8/13/2019 Winter 2013 (97-2003)

192/316

Cannot declare as partners but only that

entitledto benefits.No partnership wholly of minors.RIGHTS:1. Admitted to benefit2. May inspect/access accounts3. Share property and profits

4. Sue for accounts on severing ties with firm5. On attaining majority option of becomingmember

1. On attaining majority option to leave

2. Not personally responsible for acts of firm

8/13/2019 Winter 2013 (97-2003)

193/316

LIABILITIES:

1. Share liable for acts of firm. Within 6 monthsof majority can sever connection

2. On majority if a member then personallyresponsible to third parties

3. Fails to give public notice he becomes a

member after 6 months.

8/13/2019 Winter 2013 (97-2003)

194/316

PARTNERSINCOMING AND

OUTGOING

PARTNERSINCOMING ANDOUTGOING

8/13/2019 Winter 2013 (97-2003)

195/316

Partnership a contract based on good faithimplies that no new partner can be introducedwithout the consent of all the partnersINCOMING PARTNER:

Subject to contract between partners Introduction subject to consent of all existing

partners Not liable to any acts of firm before coming a

partner Liability after becoming a partner

A new partner usually has no personalliability.

Unless he expressly agrees

8/13/2019 Winter 2013 (97-2003)

196/316

Unless he expressly agrees Liability of a minor on becoming a member

from the time he was admitted to benefits ofpartnership

OUTGOING PARTNER:Leaves the firm. No longer a partner in the

partnership. Subject to contract not entitled tobenefits. Becomes outgoing by:

1. Retirement2. Expulsion

3. Insolvency4. Death.

RETIREMENT:

8/13/2019 Winter 2013 (97-2003)

197/316

RETIREMENT:Three rules how a partner can retire: With the consent of all partners In accordance with an express agreement by

all partners Giving written notice to all to all partners

Liability on Retirement To third party for acts before retirement;

discharged by an agreement with third partyand reconstituted firm

Otherwise liability continues until publicnotice given

8/13/2019 Winter 2013 (97-2003)

198/316

EXPULSION: Governed by contract Majority cannot expel except in good faith Conferred by express agreement If conferred powers then exercised by

majority

Liability on Expulsion:Same as in case of retirement.

INSOLVENCY:

The condition which marks a persons liability

to meet full monetary obligations Ceases to pay

8/13/2019 Winter 2013 (97-2003)

199/316

to meet full monetary obligations. Ceases to pay

debts in the ordinary course of business orcannot pay as they become due

On being declared an insolvent ceases to be a

partner on the date of order Firm not necessarily dissolved depending on

the contract

Firm automatically dissolved if all partners

(but one)declared insolvent

Liability:

After insolvency estate not liable to any act offirm

8/13/2019 Winter 2013 (97-2003)

200/316

firm

Firm not bound by acts of partner

DEATH:

If by agreement firm not dissolved on deathestate of deceased not liable to any act of firm

If by agreement firm dissolved surviving

members responsible till public notice given

DISSOLUTION OF

8/13/2019 Winter 2013 (97-2003)

201/316

FIRM

DISSOLUTION OF FIRMSo far:1 Formation of partnership

8/13/2019 Winter 2013 (97-2003)

202/316

1. Formation of partnership2. Nature of partnership3. Rights and liabilities of partners4. Partners inter se third persons.

5. Changes in a firm without dissolution i.ereconstitution where business continues asbefore.

Literal Meaning:

Breaking Up. Of partnership:

The discontinuance of a partnership from anylegal cause. Breaking up or the extinction whichsubsisted between all the partners of the firm.

8/13/2019 Winter 2013 (97-2003)

203/316

There are various ways of dissolution of firm. Itmay take place:

1. AGREEMENT:By agreement (consent) between all the

partners or according to the contract amongstthemselves

2. COMPULSORY:

Occurrence of events making dissolutionunavoidable e.g.

Insolvency of all partners or all except one(when only one remains then no longer apartnership)

8/13/2019 Winter 2013 (97-2003)

204/316

partnership) Unlawful business. When object of

partnership is illegal and carrying on ofbusiness becomes unlawful

3. CONTINGENCIES:Activities for which firm constituted comingto an end, it cannot function and standsdissolved on its own death

Expiry of the fixed term for which the firmwas constituted

The undertaking or particular adventure forwhich constitutes firm has been completed

Death of partner as partnership based on

8/13/2019 Winter 2013 (97-2003)

205/316

personal relations A partner declared insolvent

4. AT WILL:Any partner can give notice in writing to all

partners of his intention to dissolve. Definiteterm not specified exists only during pleasure ofall partners.

Dissolution from date mentioned in notice ifnot then from date of communication of notice

5. BY COURTSeven grounds in which the Court on any can

order dissolution on a suit filed by a partner

8/13/2019 Winter 2013 (97-2003)

206/316

y p

Unsound mind: As it is necessary to protectthe interest of the insane and other partners

Permanent Incapacity:Due to illness, mental

or physical but should be of permanentnature, incapable of performing duties

Conduct:Guilty of conduct to effect carryingof business; moral turpitude, professional

misconduct. Connected with business anddamage it.

Conduct: Willful and persistent breach ofagreements relating to firm or conduct e.g.destroying old account books, false in books of

8/13/2019 Winter 2013 (97-2003)

207/316

y g

account etc. Mutual confidence does not existand continuance not practical.

Transfer of share: by a partner of his wholeshare to a third party.

Motive:Business cannot be continued only ata loss as motive of every partnership is profit

Any other ground:just and equitable to

dissolve. Judicial discretion with regard tocircumstances and exigencies.

8/13/2019 Winter 2013 (97-2003)

208/316

Settlement of accounts: Losses first paid out ofprofits, then capital and lastly partnersindividually on basis of sharing profit ratio

8/13/2019 Winter 2013 (97-2003)

209/316

Assets of firm first debts of third parties, thenpartners ratably for advances (distinguish fromcapital), followed by capital and balance if anydivided ratably

Debts: Joint debts paid from property of firmand separate from separate property of firm

Goodwill:It can be included in assets and can

be sold separately or along with property offirm

PUBLIC NOTICE

8/13/2019 Winter 2013 (97-2003)

210/316

By intimation to Registrar of Firms By publication in official Gazette

In at least one vernacular newspapercirculating in the district.

8/13/2019 Winter 2013 (97-2003)

211/316

REGISTRATION OFFIRMS.

REGISTRATION OF FIRMS Law provides for registration of firms but has

8/13/20