Directorate of Distance Learning

Education
G.C University Faisalabad
FORM FOR ASSESSMENT OF ASSIGNMENT
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Name of student: Siddique Hussain Name of Tutor: Hira Habib
Roll No. 174705 Address of Tutor: ________________________________
Section: E ______________________________________________
Semester: 4th Contact No. ________________
Year: 2017-2019
Address: _____________________________
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Name of course: Business Law Assignment No. 1 Code No.________

Last date of submission of Assignment: 30-05-2019

Date of submission of Assignment: 30-05-2019
Signature of Student: ____________

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Name of study Center:_____________________ District:___________

Date of receiving Assignment: _______________

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Date of Assignment Return: _________ Signature of

Tutor
Q 01: Define the term contract. What are the essentials of a valid contract?
Contract:
“An agreement enforceable by law is a contract.”
A contract is an agreement which legally binds the parties. The analysis of the above definition reveals
that a contract has following two elements:
These two essentials are discussed below:
a) Agreement:
Every promise and every set of promises forming the consideration for each other is an agreement.
b) Enforceability:
Every contract is an agreement, but every agreement is not always a contract. An agreement creating
a legal obligation is said to be enforceable by law. The parties to an agreement must be bound to
perform their promises and in case of default by either of them, must intend to sue. For an agreement
to be enforceable by law there should be legal obligation instead of social, moral or religious
obligation.
Essentials of a valid contract:
The essentials of a valid contract are discussed below:
1. Offer and acceptance:
There must be an agreement between parties to create a valid contract. An agreement involves a valid
offer and its acceptance.
2. Legal relationship:
A contract to become valid must have a legal relationship. In case of social or domestic agreements,
the usual presumption is that the parties do not intend to create legal relationship but in commercial
or business agreements, the usual presumption is that the parties intend to create legal relationship
unless otherwise agreed upon.
3. Competency of parties:
As per section 11 the parties to an agreement must be competent to contract. In other words, the
person must be of
 The age of majority
 Person of sound mind and
 Not declared as disqualified from contracting by any law to which he is subject.

4. Consideration:
As per section 23 an agreement must be supported by lawful consideration. Gratuitous (without
consideration) promises are not enforceable at law. Consideration requires not only presence of
consideration but also lawfulness of consideration.
5. Free Consent:
As per section 14 an agreement must be made between parties by free consent. In other words, the
consent must not be obtained from following:
  Coercion
 Undue influence
 Fraud
 Misrepresentation
 Mistake

6. Lawful Object:
As per section 23 the object of an agreement must be lawful. An object is said to be unlawful when:
 It is forbidden by law
 Is of such a nature that if permitted would defeat the provisions of any law
 It is fraudulent
 It involves an injury to the person or property of another
 The court regards it as immoral, or opposed to public policy

7. Not declared as void:

As per section 24 to 30 an agreement which is not enforceable by law is called void agreement. There
are certain agreements which have been expressly declared as void such as:

 Agreement, the consideration or object of which is partly unlawful

 Agreement made without consideration
 Agreement in restraint of marriage
 Agreement in restraint of legal proceedings
 Agreement in restraint of trade
 Uncertain agreements
 Wagering agreement

8. Certainty:
As per section 29 an agreement may be void on the grounds of uncertainty. The meaning of the
agreement must be certain or capable of being certain.
9. Possibility of performance:
As per section 56 the terms of the agreement must be capable of being performed. An agreement to do
an act impossible in itself is void.
10. Legal formalities:
As per section 25 an oral contract is a perfectly valid contract, except in certain cases where a contract
must comply with the necessary formalities as to writing, registration etc.

Q 02: Discuss the various types of contract.

The different types of contract are briefly discussed below:
According to Formation
Express contracts: A contract created by words i.e. verbally or in writing.
Implied contracts: A contract created by conduct of a person or the circumstances of a particular
case.
Quasi contracts: An obligation imposed by law.
 According to Enforceability
Valid contract: An agreement which is enforceable by law.
Void agreement: An agreement which is not enforceable by law.
Void contract: A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable.
Voidable contract: An agreement which is enforceable by law at the option of the aggrieved party.
Illegal agreements: An agreement the object of which is illegal.
Unenforceable agreement: An agreement which is otherwise valid but due to some technical lacking,
such as writing etc. remains unenforceable.
According to Performance
Executed contract: A contract where both the parties have performed their respective promises.
Executory contract: A contract in which something remains to be done.
According to Parties
Unilateral contract: A contract is which a promise on one side is exchanged for an act on the other
side. In such contract one party to a contract has performed his part and performance is outstanding
against the other party.
Bilateral contract: A contract in which a promise on one side is exchanged for a promise on the
other.

Q 03: Give a brief note on offer and acceptance and essentials of a valid offer and
acceptance.
Proposal/Offer
When one person signifies to another his willingness to do or to abstain from doing anything, with a
view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.
Thus, an offer is a proposal by one person to another for entering into a legally binding agreement
with him.
Essentials of a valid offer
The essentials of an offer are discussed below:
1. Two persons:
For a valid offer there needs to be two persons. A person cannot make an offer to himself. The person
making the proposal is called offeror and the person to whom offer is made is called offeree.
2. Certain and definite:
A valid offer is one which is certain and definite. Thus, no contract can come into existence if offer is
uncertain.
3. Contractual intention:
An offer must be made with an intention to create a contract.
4. Communication:
The offer must be communicated to the offeree. The communication is complete when it comes to the
knowledge of the person to whom it is made. In case an offer is made by post, its communication will
complete when the letter reaches the offeree. An offer can be made by words spoken or written or
through conduct of the person. [Section 4]
5. Objective of consent:
An offer must be made with a view to obtain the consent of the other person to proposed act or
abstinence.
6. Conditional:
An offer may be subject to some condition. It is on the sole discretion of the person to whom such offer
is made to either accept or reject it. A conditional offer lapses when condition is not accepted.
7. Negative confirmation:
An offer cannot be in the form of negative confirmation i.e., if it is not accepted within a specific time
then it will be presumed to have been accepted.
8. Invitation of an offer:
An offer is different from an invitation of an offer. The intention in invitation of an offer is to circulate
information of his readiness to do the transaction. Such intentions are not offers and do not
tantamount to promise on acceptance. In other words, an invitation of an offer means an intention of a
person to invite others with a view to enter into an agreement.
Example: Invitation of an offer
Goods were displayed in a departmental store for sale and self-service system was there. One
customer selected an item. Here the display of goods is an invitation to offer and selection by the
customer is an offer to buy.
9. Communication of special conditions:
When there are special terms and conditions in an offer they must be specifically communicated to the
other party.
Acceptance
When the person to whom the proposal is made signifies his assent to it, the proposal is said to be
accepted.
Thus, an acceptance means assenting to an offer made. An offer when accepted becomes a promise.
Essentials of a valid acceptance
The essentials of acceptance are discussed below:
1. Absolute and unconditional:
An offer should be accepted without any condition. If any condition is imposed on an offer then it
turns out to be counter offer instead of acceptance.
2. Communication:
The acceptance may be complete when it is communicated to the offeror. An offer can be accepted by
words spoken or written or through conduct of the person. Further, a valid acceptance is
communicated either by the offeree himself or any person authorized by him to communicate to the
offeror.
3. Reasonable time:
A valid acceptance is when it is accepted within the time specified or within a reasonable time where
no time is specified.
4. Reasonable mode:
Acceptance should be made in the manner specified or in a usual manner where no mode is specified.
If the proposal prescribes a manner in which offer is to be accepted and the acceptance is not made in
that manner. The offeror shall, in this case, when the acceptance is communicated to him, insist that
his proposal shall be accepted in the prescribed manner and not otherwise. If the offeror fails to insist
within a reasonable time it is deemed that he has accepted the performance.
5. Awareness of proposal:
The acceptor must be aware of the proposal at the time of acceptance of the proposal.
6. Before lapse of an offer:
The acceptance must be given before the offer lapses or is withdrawn.
7. Negative confirmation:
A proposal is not accepted if the offeree remains silent. In cannot be in the form of negative
confirmation i.e. if it is not accepted within a specific time than it will be presumed to have been
accepted.

Q 04: Define consideration. Discuss the law relating to contract by person of

unsound mind and disqualified person.
Consideration
When at the desire of the promisor, the promisee or any other person who has done or abstained from
doing, or does or abstains from doing, or promises to do or to abstain from doing something, such act
or abstinence or promise is called a consideration for the promise.
When a party to an agreement promises to do something, he must get something in return. This
something is in return of consideration. The analysis of the above definition reveals that a
consideration may be the value by which promise is bought. Consideration may be following:

 An act i.e. doing of something

 An abstinence or forbearance i.e. abstaining or refraining from doing something.
 A return promise
Agreements by Persons of Unsound Mind
Meaning of sound mind:
According to Section 12 of the Contract Act, a person is said to be of sound mind for the purpose of
making a contract
 if at the time when he makes it,
 he is capable to understand the terms of the contract,
 to form a rational judgment as to its effect upon his interests.
Thus, if a person is not capable of both, he is said to have suffered from unsoundness of mind. The
examples of persons having an unsound mind include:
a. Specific persons/idiots:
A person who is so mentally deficient by birth as to be incapable of ordinary reasoning or rational
conduct is said to be a specific person.
b. Lunatic:
A person affected by lunacy is said to be 'lunatic'. A person can become lunatic at any stage of his life.
Position of agreements with a person of unsound mind:
The positions of such agreements are given below:
 If a lunatic enters into a contract while he is of unsound mind, an agreement during this period is
void.
 If a lunatic enters into a contract while he is of sound mind, an agreement during this period is
valid.
 An agreement with a specific person is void.
 A person delirious from fever or drunken person cannot enter into a contract while such
delirium or drunkenness lasts and he is not able to understand the terms of the contract or form
a rational judgment.
 A person of unsound mind can enforce a contract for his benefits
 A person who supplied necessaries to a person of unsound mind or his defendant entitled to be
reimbursed from the property of such person of unsound mind. Such claim is against the
property of the person of unsound mind not against the person personally.
Position of a person who is usually of unsound mind but occasionally of sound mind:
A person who is

 usually of unsound mind but

 occasionally of sound mind
may make a contract when he is of sound mind.
Position of a person who is usually of sound mind but occasionally of unsound mind:
A person who is
 usually of sound mind but
 occasionally of unsound mind
may not make a contract when he is of unsound mind
Burden of proof:
The rules regarding the burden of proof are following:
 If a person is usually of sound mind or in drunkenness or in delirium from fever then the burden
of proof that he was of unsound mind lies on the person who questions the validity of contract.
 If a person is usually of unsound mind then the burden of proof that he was of sound mind lies on
the person who confirms it.
 Agreements with Persons Disqualified by Law
There are some disqualifications imposed on certain persons in respect of their capacity to contract
which are discussed below:
a. Alien enemies:
An alien is a person who is the citizen of a foreign country. He can enter into a contract and be sued
during peace time but if a war is declared than an alien enemy can neither enter into a contract or be
sued during the period of war. Contracts entered before the declaration of war are either suspended
or terminated during the period of war.
b. Foreign sovereigns and ambassadors:
Such persons have immunity unless they choose to submit themselves to the jurisdictions of our
courts. They have a right to enter into a contract but can claim the privilege of not being sued.
c. Convicts:
A convict while under imprisonment is incapable of contracting but this disability comes to an end
after the expiry of the sentence or when he is on parole.
d. Insolvent:
A person declared as insolvent cannot enter into a contract as his property is dealt with by official
assignee or official receiver.
e. Companies:
A company is an artificial person and a contract entered into by a company will be valid only if it is
within the powers granted by the Memorandum of Association.

Q 05: Discuss briefly expressly declared void agreements under the contract act.
Void Agreement:
An agreement not enforceable by law is said to be void. All agreements may not be enforceable by law.
The agreements which are not enforceable by law right from the time when they are made are called
void-ab-initio. [Section 2(g)]
Effect on agreement collateral to void agreement:
When an agreement is void, other agreement which is collateral to it is also void and is not
enforceable by law if the other party has knowledge about it.
Expressly declared as void agreements under the Contract Act
a) Agreement in Restraint of Marriage:
Every agreement in restraint of the marriage of any person other than a minor is void. This is because
the law regards marriage and married status as the right of every individual.
Example: A promises with B for good consideration that she will not marry C. It is a void agreement.
b) Agreement in Restraint of Trade:
Every agreement by which anyone is restricted from exercising a lawful profession, trade or business
of any kind, is to that extent void.
Example: A and B carried on business in a certain locality in Karachi, A promised to stop business in
that locality if B paid him Rs. 1,000. A stopped his business but B did not pay him the promised money.
It was held that A could not recover anything from B because the agreement was in restraint of trade
and was thus void.
c) Agreement in Restraint of Legal Proceedings:
Every agreement by which any party thereto is restricted absolutely from enforcing his rights under
or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits
the time within which he may enforce his rights, is void to that extent.
It means an agreement which prohibits a person from taking judicial proceedings in respect to any
right arising from a contract is void. Similarly, an agreement which reduces the period of limitation
prescribed by law of limitation is void because the object is to defeat the provisions of law.
Example:

 A agrees to sell sugar to B and both agree that in case of breach of contract by any party, none of
them would go to the court. The agreement is void.
 A gives Rs. 1 Lac to B as loan for 1 year and agrees that if B fails to return The loan, A must sue
within 2 years otherwise B will not be liable. The agreement is void.
Exceptions:
The following are exceptions to the above rule:
 The parties may agree that in case of dispute among the parties, the dispute will be referred to
arbitration.
 The parties may agree that neither party shall appeal against the lower court’s decision.
 The parties may agree to select one of the two courts which are equally competent to try the
lawsuit.
d) Uncertain Agreement:
An agreement the meaning of which is not certain or capable of being made certain are void.
Example: A agrees to sell to B "a hundred ton of oil." There is nothing whatever to show what kind of
oil was intended. The agreement is void for uncertainty.
e) Wagering Agreement:
An agreement between two persons under which money or money’s worth is payable, by one person
to another on the happening or non-happening of a future uncertain event is called a wagering event.
An agreement by way of wager is void.
Example: A promises to pay Rs. 10,000 to B if it rained today, and B promises to pay Rs. 1,000 to A if it
did not.
f) Agreement Contingent on Impossible Events:
Contingent agreements to do or not to do anything, if an impossible event happens are void whether
the impossibility of the event is known or not to the parties to the agreement at the time when it is
made.
Example: A agrees to pay Rs. 1,000 if B marries C (a Hindu) who is already married to D. This
agreement is void.
g) Agreement to do Impossible Acts:
An agreement to do an impossible act is void.
Example: A agrees with B to discover treasure by magic. The agreement is void.

Q 06: What are the various ways in which a contract may be discharged?
When the rights and obligations arising out of a contract come to an end, the contract is said to be
discharged or terminated. A contract may be discharged in any of the following modes:
1. Discharge by Performance:
Performance is the natural mode of discharge of contract. When the parties to a contract perform their
promises, the contract is discharged. If only one of the several parties performs the promise, he alone
is discharged.
a) Actual Performance:
When both parties to a contract fulfill the obligations according to the terms and conditions of the
contract, it is called actual performance of the contract and the contract comes to an end.
Example: A agrees to sell his watch to B for Rs. 400. A delivers the watch to B and B makes the
payment. This is actual performance of contract.
b) Tender:
It is also known as offer of performance or attempted performance. When one of the parties to the
contract offers to perform the contract but the other party does not accept it, there is a tender. It is not
an actual performance but is equivalent to actual performance. In offer of performance, the promisor
is excused from performance and is entitled to sue the promisee for damages.
Example: A agrees to sell his book to B for Rs. 500. A offers to deliver the book but B does not accept
it. This is offer of performance.
Essentials of Valid Tender:
A valid tender must fulfill the following conditions:
1. It must be unconditional. It must be made in accordance with the terms of the contract, e.g. A is a
debtor of company B. A offers to pay if share are allotted to him at par. it is not a valid tender.
2. It must be made at proper time and proper place, e.g. A is tenant oi B. A offers him rent at a
marriage party. B is not bound to accept as it is not at a proper place.
3. It must be of the whole obligation. An offer to perform a promise in part is not a valid tender, e.g.
A is a debtor oi B. A offers to pay in installments to B. it is not a valid tender.
4. If the tender relates to delivery of goods, the promisee must be given opportunity to check that
the goods are according to the contract, e.g. A delivers the goods to B at 2 P.M. and does not give
him a time for inspection. It is not a valid tender.
5. It must be made by a person who is able to perform the promise, e.g. a tender by minor is not a
valid tender.
6. It must be made to the promisee or his agent, e.g. A was liable to return the goods to B or his
agent C. But A returns the goods to X. It is not s valid tender.
7. If there are several joint promisees, a tender to any one of them is valid, e.g. A gets the chairs on
rent from XYZ jointly. A can return the chairs to any one of them.
8. In case oi tender of money, exact amount should be tendered, e.g. tendering cheque of Rs. 100 to
a bus conductor for a ticket of Rs. 5 is not a valid tender.
2. Discharge by Agreement:
A contract is discharged by agreement in the following ways:
a) Novation:
Novation of contract means replacement of an existing contract by a new contract. The new contract
may be formed between the same parties or between new parties. Thus, an old contract is discharged
and a new contract comes into existence.
Example:
 A owed to B and B to C. A's debt to B is cancelled and C accepts A as his debtor. It is novation.
 A owes B, Rs. 10,000. A mortgaged his estate to B for the debt of Rs. 10,000. This is a new
contract and terminates the old one.

b) Alteration:
Alteration of a contract takes place when one or more of the terms of contract are changed. If
alteration in contract is made with the consent of all the parties, the original contract is discharged
and a new contract takes its place. In case of alteration, the parties remain the same and only the
terms of contract are changed.
Example: A agrees to supply salt to B on 1st Feb. Later, A and B agree to change the date of delivery to
1st March, It is alteration of contract.
c) Rescission:
The rescission means cancellation of contract by mutual consent. A contract may be cancelled by
agreement between the parties at any time before it is discharged by performance. The cancellation of
agreement releases the parties from their obligations.
Example: A promises to deliver goods to B on a certain date. Before the date of performance, A and B
agree that the contract will not be performed. The contract is rescinded.
d) Remission:
Remission means the acceptance of lesser fulfillment of a promise that was made. It is an act of
promisee discharging the obligations of another either wholly or partly. Thus, contract may be
discharged by remission of performance or extension of time, etc.
Example:
 A owes B, Rs. 5.000. B agrees to accept Rs. 2,000 in lull satisfaction of his claim. The whole debt
is discharged.
 Government decided to recover only 40% of debt. Later, the Government cannot recover more
than 40% of debt.

e) Waiver:
Waiver means the intentional abandonment of a right which a person is entitled to under a contract.
When a party waives his right under the contract, the other party is released from his obligations. In
case of waiver, neither an agreement nor consideration is necessary.
3. Discharge by Operation of Law:
A contract may be discharged by operation of law in any of the following cases:
a) Death:
On the death of the promisor a contract involving the personal skill or ability is discharged. In other
contracts, the rights and liabilities of the deceased person pass on to his legal representatives.
Example: A (an artist) promises to paint a picture for B by June 22, 2013 for Rs. 100,000. A dies
before completing the picture. Here it is a contract involving personal skill and on death of A the
contract will be discharged.
b) Insolvency:
When a person’s debts exceeds his assets, he is adjudged insolvent and his property stands vested in
the Official Receiver or Official Assignee appointed by the court. Such person cannot:
 Enter into contracts relating to his property
 Sue
 Sued
Therefore, on declaration of a person as an insolvent person is discharged from his liabilities incurred
prior to his adjudication.
Example: A took a loan from B amounting to Rs. 1 million payable in June 2013. On March 2013 A was
declared as insolvent by relevant court. After the order adjudication he is discharged from his
liabilities as the amount will be paid by the Official Assignee/Official Receiver.
c) Material alteration:
A contract is discharged if the terms of the contract are materially altered without getting prior
consent of parties. A material alteration is one which changes following in a significant manner:
 Legal identity of the contract; or
 Character of the contract; or
 Rights and liabilities of the parties to the contract
An alteration which is not material or which is made after getting prior consent does not affect the
validity of the contract.
Example: A gives a promissory note amounting to Rs. 50,000 to B payable on August 16, 2013. B
subsequently, endorses the same note in favor of C after altering the date from August 16, 2013 to
August 23, 2013.
Here, change of date is a material alteration and has discharged A from the instrument because it was
made without his consent.
d) Same identity:
When the promisor becomes the promisee, the other parties are discharged e.g. negotiation back in
case of negotiable instrument i.e. creditor to himself becomes a debtor of the same loan.
Example: A gives a promissory note to B. B endorses the note in favor of C who in turn endorses in
favor of A. Here, A is both the promisor and the promisee and hence the other parties are discharged.
4. Discharge by Subsequent Impossibility:
Initial Impossibility:
An agreement to perform an impossible act is void ab-initio. It means agreement which is obviously
impossible cannot be binding, e.g. an agreement to discover treasure by magic is void agreement.
Subsequent Impossibility:
A contract capable to be performed after formation becomes impossible, or unlawful and as a result
void. It means that subsequent impossibility or illegality will make the contract void and the contract
will be discharged. A contract will remain valid, if the party to a contract feels difficulty in performing
the contract. This is known as the Doctrine of Frustration or Doctrine oi Supervening Impossibility.
The following factors make the contract void:
a) Destruction of Subject matter:
When the subject matter of a contract after the formation of a contract is destroyed without the fault
of the promisor or promisee, the contract is discharged.
Examples:
 C lent his hall to T for concerts. The hall was destroyed by fire before the first concert. The
contract becomes void.
 C contracted to sell potatoes to H but failed to supply as the crop was destroyed by a pest. The
contract was held to be discharged.
b) Failure of Purpose:
Where the formation of a contract depends upon happening of certain event and if that event does not
happen, the contract is discharged. When there is change in certain things which are necessary for
performance, the contract becomes void on the grounds of impossibility oi performance.
Examples:
 A contracts to hire a room at a hotel to attend a seminar to be held on a particular date. The
seminar is postponed. The contract is discharged.
 H hired a room from K to see the coronation of king. The coronation was cancelled due to the
king's illness. K sued for rent. It was held that H need not pay the rent.

c) Death or Personal Incapacity:

Where the performance of a contract depends upon the personal skill or qualification or existence of a
particular person, the contract is discharged on the illness, incapacity or death oi that person.
Examples:

 A and B contract to marry each other. A dies before the time fixed tor the marriage. The
contract becomes void.
 An artist agreed to sing on particular date but fell ill and could not sing. Held, that the contract
was discharged.

d) Change of Law:
Sometimes, contracts which are lawful when made become unlawful due to change in law.
Subsequently, such contracts become impossible to be performed. A subsequent change in law may
render the contract illegal and the contract is deemed to be discharged.
Examples:
 A promise to sell wheat to B. Before delivery oi wheat, the government banned the sale of
wheat by private traders. The contract was discharged.
 There was a contract for sale of trees of a forest. Later, it was discharged when the State of
Rajasthan forbade the cutting of trees in that area.

e) Declaration of War:
A contract entered into with an alien enemy during the war is void ab-initio. A contract entered into
before the commencement of war remains suspended during the war. However, such contract may be
revived after the war is over, if the nature of the contract so permits.
Example: A contracts to carry cargo for B at a foreign port. Later, A's government declares war
against the country where the port is situated. The contract becomes void.
5. Discharge by Lapse of Time:
The Limitation Act, 1908 states that in case of breach of contract, legal action should be taken within a
specified period. If the contract is not performed and no legal action is taken by the promisee within
the period of limitation, he is debarred from enforcing the contract. Lapse of time terminates a
contract. The period of limitation for simple contract is 3 years. If 3 years expire and creditors fail to
file a suit to recover their amount, the debtor is discharged form his liabilities.
Example: A owed Rs. 5000 to B. The last date for repayment of the loan expired but B did not sue A
until 3 years. B lost the rights to recover.
6. Discharge by Breach of Contract:
The breach of contract means the failure of party to perform his obligations. When a party tails to
perform the contract, there is a breach of contract. It discharges the aggrieved party from performing
his obligations. It may be (1) actual breach (2) anticipatory breach.
a) Actual Breach:
Actual breach of contract occurs when a party fails to perform the contract when the performance is
due. Actual breach of contract can occur in the following two ways:
(i) On due date of performance:
If a party fails to perform the contract on the due date of performance, it is an actual breach of
contract. If time is not the essence of contract, the guilty party may later perform the contract after
paying compensation for delayed performance.
Example: A agrees to deliver 5 bags of wheat on 1st March. He does not deliver the wheat on that day.
This is an actual breach of contract.
(ii) During the course of performance:
If a party has performed a part of the contact but refuses to perform the remaining part of the
contract, it is an actual breach of contract.
Example: A agreed to deliver 500 shoes to B. The shoes were to be delivered in installments. After
200 shoes had been delivered, B declared that no more shoes were required. B has committed an
actual breach of contract.
b) Anticipatory Breach:
Anticipatory breach of contract occurs when a party declares his intention not to perform the contract
before the due date of performance. Anticipatory breach may happen in the following ways:
(i) Express Breech:
In express breach, a party to the contract communicates to the other party, his intention not to
perform the contract before the due date of performance.
Example: A agrees to supply wheat to B on 1st July. On 15th June, A informs B that he will not supply
the wheat. This is express breach of contract.
(ii) Implied Bunch:
In implied breach, a party to the contract does an act which makes the performance of the contract
impossible.
Example: A promises to sell his horse to B on 1st June. Before that date, A sells the same horse to C.
This is implied breach of contract.

Q 07: Define the term agent and principal. Also discuss the rights and duties of
principal and agent?
Agent end Principal
“An agent is a person employed to do any act for another or to represent another in dealings with
third persons. The person for whom such act is done or who is so represented is called the principal.
A person who acts on behalf of another person is called an agent. The person who authorizes another
person to act is called a principal. The contract which creates the relationship of principal and agent is
called an agency. The agent is authorized to create s contract between his principal and a third party.
After entering into a contract, the agent drops out and ceases to be a party to the contract and the
contract binds the principal and third party.
Example: C appoints B to buy 10 bags of sugar on his behalf. C is the principal and B is the agent. The
contract between the two is agency.
Duties of Agent
1. Duty to Follow Directions or Customs:
The agent is bound to conduct the business of agency according to the directions of the principal. lf the
principal does not give any directions, then he should follow the custom of trade. If he does not act
according to the prevailing customs of trade, he will be liable for any loss sustained by the principal.
Examples:

 P, the principal, instructs his agent A to insure the goods. A neglects to do so. A is liable to
compensate P if the goods get damaged.
 A works as an agent for B's business in which it is the custom of trade to invest at an interest,
the money which is in hand. A omits to do so. A must compensate B for the interest usually
obtained by such investments.
2. Duty to Work with Reasonable Skill:
The agent must act with reasonable skill and diligence. Reasonable skill means skill that can be
possessed by the ordinary man. If the agent does not work with reasonable skill and diligence, he
must compensate his principal in respect of loss arising there from.
Examples:
 A, an agent, sells goods on credit to B without making proper enquiry about solvency of B. B is
insolvent at the time of sale. A must compensate his principal for loss.
 A, in England, directs his agent B in Karachi to send cotton by a certain ship. B omits to do so.
The price of cotton rises. B is bound to pay A, the profit which he might have earned.
3. Duty to Render Accounts:
An agent is bound to render proper accounts to his principal on demand. It is the duty of an agent to
keep true accounts regarding all the property or money belonging to his principal. He should also
produce them to his principal on demand.
Example: P sends goods to his agent A to sell on credit. A must keep proper accounts of sale and
render to P on his demand.
4. Duty to Communicate:
It is the duty of an agent, in case of difficulty, to use reasonable diligence in communicating with his
principal and in seeking to obtain his instructions.
But if it is impossible to get instructions from the principal, the agent can act on his own in the
interests of his principal.
Example: P sends goods to his agent A in Karachi for the purpose of export. A finds that some goods
are damaged. A must inform P and get instructions in this regard.
5. Duty on Termination of Agency:
When an agency terminates due to the death or insanity of principal, the agent must take reasonable
steps for the protection of interests of the legal representatives of late principal.
Example: Y, an agent, sells the goods of his principal P to X on credit. P dies. The agency terminates. Y
must collect and remit the amount to legal representatives of P.
6. Duty not to Deal on his Own Account:
If an agent deals on his own account in the business of agency without obtaining proper permission of
his principal, the principal may reject the transaction. If it appears that any material fact has been
concealed from him by the agent and he has earned any profit, the principal may claim such profit.
Example: A directs his agent B to buy a certain house. B buys it for himself. A can cancel the contract.
7. Duty not to make Secret Profit:
An agent should not make any secret profit out of the agency. If the agent earns any secret profit, the
principal can recover it from the agent. Moreover, the principal may refuse to pay commission and
terminate the agency. The agent can, however, deduct all money due to himself in respect of his
remuneration and other expenses, if any.
Example: P directs his agent A to buy a certain land. A buys the land and receives secret commission.
A is liable to pay the secret commission to P.
8. Duty to Pay Sums Received:
Any amount which an agent receives on behalf of the principal must be paid to the principal. However,
an agent can deduct from it his expenses and remuneration regarding business of the agency.
Example: A appointed B to collect rents from X. B collected the rents and incurred Rs. 200 as traveling
expenses. B must remit the amount to A after deducting his traveling expenses.
9. Duty not to Delegate Authority:
An agent must perform the work of agency himself. An agent must not delegate his authority to
another person. However, the following are some exceptions to this rule:
 When the principal has permitted to delegate authority.
 When by ordinary custom of trade, a sub-agent can be appointed.
 When the nature of agency makes it necessary to appoint a sub-agent.
 When an emergency arises which permits delegation of authority.
Example: P appoints A as his agent to buy a certain house. A delegates the authority to X to buy a
house for P. A is not authorized to delegate to X.
Rights of Agent
The following are rights of an agent:
1. Right to Retain:
An agent has the right to retain his principal’s money until his claims in respect of remuneration,
advances or reasonable expenses incurred by him in conducting the business of agency. The right can
be exercised on any sums received on account of the principal in the business of agency.
Example: P employs A to sell some old furniture and agrees to pay him Rs. 200 as commission. A sells
the furniture for Rs. 2,000. A can retain Rs. 200 as his commission and pay the balance to P.
2. Right to receive Remuneration:
An agent is entitled to receive the agreed remuneration. In the absence of an agreement, an agent is
entitled to a reasonable remuneration according to the custom or usage. If an agent is guilty of
misconduct, he is not entitled to any remuneration.
Example: P employs A to recover Rs. 1 Lac from T. Due to A's misconduct, the money is not recovered.
A is not entitled to any remuneration.
3. Right of Lien:
An agent can retain goods, documents and other property whether movable or immovable of the
principal until the amount due to him for commission. services and expenses has been paid to him.
This right is subject to a contract between the principal and agent.
Example: P employs A to sell 100 books. A sells 50 books. P becomes insolvent. The official receiver of
P claims the remaining 50 books from A. A can refuse to give the books until he receives his
commission.
4. Right to be indemnified for lawful acts:
An agent has the right to be indemnified against the consequences of all lawful acts done by him in
exercise of the authority conferred upon him. However, an agent cannot claim indemnity in respect of
the acts which are apparently unlawful or criminal.
Example: A employs B to beat C and agrees to indemnity him against the consequences of the act. B
beats C and has to pay damages to C for such act. A is not liable to indemnify B.
5. Right to be indemnified for acts in good faith:
Where one person employs another to do an act, and the agent does the act in good faith, the
employer is liable to indemnify the agent against the consequences of that act though it causes an
injury to the rights of third persons.
Example: B, at the request of A, sells goods which A has no right to sell. B does not know this and
sends the money to A. Afterwards C, the true owner of the goods, sues B and recovers the money. A is
liable to indemnify B.
6. Right to Compensation for Injury:
An agent has the right to be compensated for injuries sustained by him due to the principal's neglect
or want of skill. Thus, where the principal keeps any dangerous premises and the agent meets
accident, the principal is liable to pay compensation to the agent.
Example: A employs B as a mason for building a house. A puts up the scaffolding himself. The
scaffolding is unskillfully put up. As a result, B falls and gets injured. A must make compensation to B.
7. Right of Stoppage of Goods:
An agent has the right to stop the goods in transit to the principal like an unpaid seller, it he has
bought the goods with his own money and the principal has become insolvent.
Example: A buys goods for his principal P with his own money. A delivers the goods to carrier for
transmission to P. Afterwards, A comes to know that P has become insolvent. A can stop the goods in
transit.
Rights of Principal
1. Right to Recover Damages:
If the principal suffers any loss, he has the right to recover from his agent. The agent is liable for loss if
he does not act according to the directions of his principal and does not follow the customs of trade.
The agent is also liable if he does not perform his duties with skill, care or diligence.
Example: P asks his agent A to sell goods on cash basis. A sells goods on credit and the amount
becomes irrecoverable. P can recover the amount from A.
2. Right to Obtain Secret Profit:
If the agent, without the knowledge and consent of principal, makes any secret profits out of agency,
the principal has a right to recover them from the agent. In such a case, the agent loses his right of
commission.
Example: P asks his agent A to sell his house. A sells the house for Rs. 10 Lac but tells P that he sold it
for Rs. 8 Lac. P can recover the balance from A.
3. Right to Refuse to Indemnify Agent:
If the principal shows that agent has acted as a principal himself and not as agent, he has a right to
refuse to indemnify the agent against the loss suffered by the agent in such transaction.
Example: P directs his agent A to buy a certain plot from X for him. A makes an agreement with X for
himself and pays Rs. 1 Lac as advance. X becomes insolvent. A has to suffer a loss. P can refuse to
compensate A.
Duties of Principal
The duties of a principal against the agent are as follows:
1. Duty to Indemnify for Lawful Acts:
The principal is bound to indemnify the agent against the consequences of lawful acts done by such
agent in exercise of authority conferred upon him.
Example: Y, on the direction of his principal P, sells goods to X on credit. X does not pay. Y sues X but
is compelled to pay damages. P must indemnify Y.
2. Duty to Indemnify for Acts In Good Faith:
When one person employs another to do an act, and the agent does the act in good faith, the principal
is liable to indemnify the agent against the consequences of the act though it causes an injury to the
rights of the third person.
Example: P employs an agent A to buy a car from M. A buys the car from M which belongs to W.
Afterwards, W recovers the car from A. P is liable to indemnify A.
3. Duty to Indemnify for Injury by Principal’s Neglect:
The principal must make compensation to his agent in respect of injury caused to such agent by the
principal’s neglect or want of skill.
Example: P employs M, a mason, to build a house. P puts up the scaffolding unskillfully. As a result, M
falls down and gets injured. P is liable to compensate M.
4. Duty to pay Remuneration and Dues:
It is the duty of the principal to pay the agent all of his dues, remuneration or commission and also to
reimburse all expenses incurred by him in case of his authority.
Example: C, an agent, spent Rs. 500 while performing his duties for B. B is liable to pay such expenses
to C.

Q 08: How will you differentiate between?

a) Coercion and undue influence
The following are points of difference between the two.
Coercion Undue Influence
Nature:
Coercion is a physical threat to property or Undue influence is a mental or moral threat.
person.
Illegal & Unfair:
Coercion involves doing or threatening to do In undue influence the act may not be illegal,
an illegal act. it may be unfair.
Penal Action:
In coercion, penal action is also taken against In undue influence, no penal action is taken
guilty party. against guilty party.
Parties:
Coercion may be exercised by or against the Undue influence must be exercised by or
party to the agreement. It may also be against the party to the agreement.
exercised by or against some third party.
Relationship:
For coercion no specific relationship between For undue influence there must be a specific
the parties is necessary. relationship between the parties.
 Refund of Benefit:
In coercion the aggrieved party has to refund
the benefit, received from other party.
Effect:
In coercion, the contract is voidable at the
option of aggrieved party.
Punishment:
It involves criminal liability.
b) Fraud and misrepresentation
The following are points of difference between the two:
Fraud
Intention:
In case of fraud, the party makes a false
statement with an intention to deceive the
other party.
Belief:
In case of fraud, the person making the
suggestion does not believe it to be true.
Damages:
In fraud, the aggrieved party can avoid
contract and claim damages.
Offence:
Fraud may amount to an offence of cheating. It
is a criminal act.
Truth:
In case of fraud, the aggrieved party can avoid
contract even if it had the means to discover
the truth with ordinary diligence.
In undue influence, the court may direct the
aggrieved party to refund the benefit,
received from the other party.
In undue influence, the contract is voidable or
the court may cancel or enforce it in a
modified form.
It does not involve criminal liability.
Misrepresentation
In case of misrepresentation, there is no
intention to deceive the other party.
In case of misrepresentation, the person
making the suggestion believes it to be true.
In misrepresentation the aggrieved party can
avoid contract and cannot claim damages.
Misrepresentation does not amount to an
offence of cheating. It is not a criminal act.
In case of misrepresentation, the aggrieved
party cannot avoid contract if it had means to
discover the truth with ordinary diligence.