Case Studies-Types of Business Contract

Semester Project-Business & Labour Laws
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SEMSTER PROJECT
CASE STUDIES TYPES OF
CONTRACT
Name of Student: MuhammadAsif Khan
Student ID: MB-2-05-51271
Campus: PAF-KIET (City Campus)
Program: MBA-Regular
Course Name: Business & Labour Laws
Course Instructor: Javed Akhtar
Semester: Summer-2016

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AN INTRO TO LEGAL SYSTEM
The law does not operate in a vacuum. The law is part of system commonly referred to as the
‘legal system’. The term can be defined broadly as including the components set out below:
Institutions Laws People
 Parliament
 Courts
 Government
Departments
 Correctional
Institutions
 Statue Law
 Common Law
 Equity
 Delegated Legislation
 Members of
Parliament
 Judges
 Magistrates
 Barristers
 Solicitors
 Court Officials
 Correctional Service
Officers
The legal system comprises number of institutions such as courts, correctional institutions
and Parliament. The courts and Parliament are responsible for producing common law and
statue law, respectively. The legal system also includes those persons who work within this
system: lawyers, judges, police officers, politicians and correctional service officers.
Definition of Business
Business is nothing new in human society. Ancient Business is a part of our social life in
different forms. Presence of business proves that we are dependent on each other and with the
passes of time this dependency is increasing.
At the early stage people engaged in exchange of goods without using money which was
called trade. Over the years many things have changed, money has been introduced as
medium of exchange and through lots of forms businesses are now in the present forms.
Today business means exchange of goods, services or money for mutual benefit or profit.
Definition of Law
Law is a structure of rules, typically prescribed through a set of institutions. Politics,
Economics and Society are shaped by it in numerous ways and aids as a primary social
mediator of relations among people.
In other words law can be defined as “A standard or rule established by the society to oversee
the behavior of its members".
Branches of the Law:
The law can be divided into two broad categories: Private Law and Public Law. The private
law category allows individuals to take one another (i.e. to sue one another). Public law is

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concerned with the imposition of rules on the whole of society so that it operates in an
equitable and peaceful way.
Examples of laws falling into each category are described below:
Criminal Constitutional Taxation Property Tort Contract
Business Law
The business law can be defined as:
“Business Law is the body of law that governs business and commercial transactions.”
In today’s complicated business world in order to operate and control a Business Laws are a
must. So, this part of law deal with businesses to keep businesses running in a disciplined
way as all the parties related to businesses get protection as well as feel responsible in their
respective positions, is known as business law.
We all make agreements, and if an agreement has special features, it is a contract, an
agreement enforceable by law. Contracts commonly entered into in the course of business are
set out in the following figure:
Contracts of Consumer Credit Contracts of Lease
Contracts for sale of Goods and Services Contracts to purchase goods
Contracts of agency Contracts for mortgage of land
Employment Contracts Contracts to insure a Property
Types of Business Contract
Types of Laws
Public Laws Private Laws

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Business law lays down the rights, duties and obligations owed by the parties to a contract. It
will define the areas of law relevant to the world of business, and the rights of people who
engaged within it. These persons may be operating a business as sole traders or partners, or
they may incorporate a company. Other people may be part of the world of business as
consumers of goods and services and as owners of property.
Purpose of Business Laws:
1. Business Laws Exist To Create Reliable Standards For Companies To Follow.
2. Business Laws Create Consistent, Predictable Standards.
3. Some Most Important Purpose Are: Uniform Commercial Code Uniformity
Enforcement Predictability
4. Enforcement Provide Enforcement That Allows Contractual Relationships To Stay
Intact.
5. Predictability Allow People In Business To Enter Into Multiple Transactions With
Certain Protection.
6. Uniformity When Business Owners Rely On The Same Laws To Conduct Business,
They Need To Know That State Agencies And Courts Apply The Laws In A Uniform
Fashion.
7. Uniform Commercial Code Extensive set of Law Governing Commercial Transactions
between Businesses.
Sources of Business Law:
Common Law:
Is known when a law is created through the court decisions by judges. It’s mostly
based on tradition, usage and court rulings.
Statutory Law:
A law created by parliament, constitution, law commission or agreement is called
statue. Most laws created today are statues. A statutory law is made up by various
legislative endorsed bodies. For a law to be constitutional it must be drawn up in a
specific way. However, courts often must interpret a law’s meaning. Statues getting
changes is sometimes due to the decision by the court.
Administrative Law:
Laws troubled with the rules and tasks of the executive branch of the government, its
organizations, their interrelations with each other, citizens and the non-governmental
entities. The intention of administrative law is to provide a legal framework for
regulating the powers, procedures and acts of public administration.
Business Being Affected By Different Laws
Several and different laws control the actions of all the businesses and each person involved
in the business, from the manager the employee and even the owner.

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Some major business law categories are as follows:
The Law of Tort:
While criminal law deals with crimes against society and people, tort law is worried with
rewarding the victims of noncriminal wrongs. Tort is a noncriminal injury to any other
person, their reputation or their property. There are two types of torts:
Intentional Torts:
Any deliberate act by a business firm or person is known as an Intentional tort.
Negligence Torts:
When one party causes injury to another party and fails to use reasonable care, this is
known as a negligence tort. Negligence torts arise from carelessness rather than
intentional behavior. Product accountability is a vital part of the tort law. Business
firm’s responsibility is to involve the product liability for negligence in their
manufacture, design, sale, and operation of their products. The business action
examines some product liability cases in the tobacco industry. In many ways product
liability laws have been extended to their ends in which the producer or marketer of
the product is not able to prove negligence. Under strict product liability, the
manufacturer is responsible if the injured party can show that the product was
effective, that the defect caused the injury and the product to be dangerous.
The Law of Contract:
A contract is a legally binded agreement between two or more parties. A contract is like a
private statue, in which the parties to explain the agreement they owe each other. Most
business transactions contain some kind of contract. They can be either express or implied. A
contract in which the words are actually put forth, either orally or in writing is known as an
express contract. Generally, oral contracts are just as legally enforceable as written contracts.
Law of Sales:
Products sold for money or credit is known as sales law. This law grew out of the contract
law. Even if all the requirements are not met for a contract, the uniform commercial code
provides that some sales contracts are still binding. For instance, a sales agreement is legally
binding even if the selling price is left out of the agreement; the buyer must then still pay a
reasonable value of what the goods are worth.
The Law of Agency:
An agency is a business relationship in which a principal appoints an agent to act on his or
her behalf. The actions of the representative, authorized by the principal, are legally
recognized as though they were performed by the principal. For example, a talent agent can
enter into a contract for a client as though the client signed the contract him or herself. Agents
are used in many diverse industries, including insurance, sports, entertainment, and real
estate. Generally, agents are paid a fee or commission or their services.

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Because the principal is bound by the actions of the agent, it is important to put the agency
agreement in writing. Generally, a legal document called a power of attorney is granted to
authorize the agent to act on behalf of the principal.
The Law of Property:
Property is considered by anything that can be owned. Property is something for which a
person or business entity has unrestricted of possession or use. Property is divided into
several categories. Real estate, land, and anything permanently attached to it, such as
buildings, parking lots and houses is known as real property. Physical items such as a store’s
inventory of goods, automobiles, and equipment is known as tangible personal property.
Intangible personal property is that shown by documents or other written instruments, such as
money orders, cheques, stocks, bonds and receipts.
Individuals or business firms get legal protection from any of the three forms of intangible
personal property. A name or symbol registered with the trademark and patent office is
known as a trademark. This will guarantee the owner exclusive rights for a certain amount of
years (differs from country to country) and the owner can renew it as many times as he
wishes. Patents granted by the patent and trademark office give inventors the exclusive right
to make, use, or sell their product for certain years (varies country to country). A copyright
filled, with the copyright office, gives the creator or owner exclusive right to publish and sell
original written work.
The Law of Bankruptcy:
Individuals and business firms that cannot pay their debts will be declared as bankruptcy. By
declaring bankruptcy, the individual or firm asks the court to declare them as unable to satisfy
creditors and to be released from financial responsibilities. The debtor’s assets are usually
sold to pay off as much of the debt as possible.
The Law of Negotiable Instruments:
A negotiable instrument is a substitute for money. It is a written promise to pay a specified
sum of money, if it can be transferred from one person or business firm to another. There are
three types of negotiable instrument:
 Promissory note
 Bill of exchange
 Cheque
How Business Laws Effect Business Operations
In the current business world are playing an important role in every aspect of life. One’s
standards of living, lifestyle, education and even cultural standards are determined by the
business. Studying business and understanding business will lead to a better life. If we
understand business, both expected and unexpected events can be easier to cope with, less
stressful and more efficient. The studying of business will give us a better understanding that
in today’s world, national economies are not an independent entity anymore, but rather
dependent and taking an uneven global shape. Now a day’s businesses are the crucial part of
our daily life, there must be some kind of law (rules and regulations) for them to control their

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functions and align their work in a disciplined way. Business laws were introduced in order to
fulfill this purpose. In today’s world, businesses must function within the restrictions of laws
and under the defined regulations of the governments. Business laws are not only developed
to protect consumers, but also to preserve competition. These laws are enforced by
government agencies at different administrative levels. Any business firm that does not keep
to these laws will face fines, penalties and in consequences fail to run. It is very important to
the individuals, who is studying management curriculums, to know the business laws to
operate a business in a successful manner.
The Legal system of a country provides a progressive legal framework for the organization to
operate their business in a manner that it will be mutually beneficial for the society and itself.
Legislation has been done to address the commerce and labor issues and it provides a
complete guideline to the business owners to formulate their working policies and procedures
that protect their rights and as well as the rights of the other parties which are associated with
them. The other laws hav been developed not only to protect the legal rights of the businesses
but also to develop the healthy competition among them, which includes laws relating to
competition policy, copyright, patents, trademarks, etc. Purity of contract is protected under
common law, and independent courts ensure respect for commercial rights and obligations.
The laws relating to the financial instructions have been developed to protect the businesses
and provided a guideline to how to fulfill their financial obligations. Under these legal
framework many organizations has been developed to protect these organizations from the
extraordinary act of the other organizations/institution, for example of the Monopolistic
Competition Commission, etc.
Therefore, we see that laws are affecting business in numerous ways. Laws protect the
businessmen as well as the customers which is essential to have a good relation between
these two parties otherwise business firms will not run. Laws are necessary to incorporate a
business firm, to run a business firm and to dissolve it. It should be mentioned that in this
assignment, only the major laws from international perspective that are affecting business
have been discussed shortly and only a list of the laws that are applicable in the field of
business in Pakistan.
Business & Labour Laws Prevailing In Pakistan
Following are some prominent business laws exist in Pakistan:
 Bill of lading Act 1856
 Contract Act 1872
o Indemnity & Guarantee
o Pledge and Bailment
o Agency
 Negotiable Instruments Act 1881
o Carriage of Goods
 Trust Act 1882
 Carriage of Goods By Sea Act 1925
 Sales of Goods Act 1930
 Partnership Act 1932
 Companies Ordinance 1984

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 Insurance Law
Labour Laws:
 Workmen Compensation Act 1923
 Factories Act 1934
 Payment of Wages Act 1936
 Industrial & Commercial Establishment (Standing Order) Ordinance 1968
 Social Security Act 1968
 Employees’ Old Age Benefit Act
 Industrial Relations Act 2008
Law of Contract 1872
The law relating to contracts in Pakistan is adopted from the law existing during the British
era. The contract law of 1872 has been enforced in Pakistan with the necessary amendments.
It extends to the whole of Pakistan and deals with the following:
 General Principles governing all types of contracts, including:
o Contracts of indemnity,
o Contact of Guarantee,
o Contract of Bailment,
o Contract of Pledge,
o Contract of Agency
Definition of Contract
A contact is an agreement between two more persons to carry out a specified work or to
accomplish a task for monetary or non monetary benefits. We can classify the agreements
into following three categories:

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 Social Agreements
 Domestic Agreements
 Business Agreements
The law of contract only deals with the Business Agreements. The term contract has been
define by many scholars as follows:
According to Pollock:
“Every agreement and promise enforceable at law is a contract.”
According Salmond:
“A contract is an agreement creating and defining obligations between the parties.”
According Sir William Anson:
“An agreement enforceable by law made between two or more persons, by which rights are
acquired by one or more to acts or forbearance on the other or others.”
The Law of Contract Act 1872 defines the terms contract as follows:
According to Section 2(h):
“An agreement enforceable by law is a contract.”
This simple definition consists of following elements:
1) An Agreement 2) The agreement enforceable by law
1) An Agreement: Section 2(e) provides us the distinctive definition of the agreement
for this definition:
“Every promise and every set of promises, forming the consideration for each other, is an
agreement.”
The term promise has been further clarified by the law in Section 2(b):
“When the person to whom the proposal is made signifies his assent thereto, the proposal
is said to be accepted. A proposal, when accepted, becomes a promise.”
2) The Agreement Enforceable By Law: An agreement is enforceable if it is
recognized by courts. In order to be enforceable by law, the agreement must create
legal obligations between the parties. The term Agreement has broader meaning then
the Contract. Thus, it can be say that every contract is an agreement but every
agreement is not a contract.
Classification of Contracts:

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The contracts can be classified in to following broader categories:
1. According to Enforceability / Validity
2. According to Formation
3. According to Performance
4. According to Parties
1) According to Enforceability:
In this category the contracts can be divided in to following:
a) Valid Contract: A valid contract is enforceable by law. An agreement
becomes enforceable by law when all the essentials of valid contract are
present.
b) Void Contract: The section 2(j) defines the void contract as:
“A contract which ceases to be enforceable by law becomes void, when it
ceases to be enforceable.”
From the above definition a void contract is not void from the its beginning.
It is a valid contract when it is made but subsequently it becomes void due to
certain reasons.
According to section 2(g), “An agreement with minor and an agreement
without consideration is void from the beginning.”
c) Voidable Contract: According section 2(i) the voidable contract is:
“An agreement which is enforceable by law at the option of one or more of the
parties thereto, but not at the option of the other or others, is a voidable
contract.”
A contract becomes voidable when the consent of one or more of the parties to
a contract is obtained by coercion, undue influence, misrepresentation or
fraud.
d) Unenforceable contract: An unenforceable contract is that contract which
cannot be enforced in a court of law because of some technical defects such as
absence of writing, registration, requisite stamp, etc. When these defects are
removed, the contract can be enforced.
2) According to Formation:
According to formation a contract has following three kinds:
a) Express Contract: Express contract with, one which is expressed in words
spoken or written. When such a contract is formed, there is no difficulty in
understanding the rights and obligations of the parties. According to section 9,
in express contract, the parties directly stat the terms of the contract.

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b) Implied Contract: According to section 9, an implied contract is made
otherwise than by words spoken or written. It arises from the acts, conduct of
the parties, course of dealings or circumstances. It arises from when one
person, without being requested to do so, renders services under circumstances
indicating that he expects to be paid for them, and the other person, knowing
such circumstances, accepts the benefit of those services.
c) Quasi Contract: In a quasi contract the law imposes certain obligations under
some special circumstances. It is based upon the principle of equity that a
person shall not be allowed to get benefit at the cost of another. In fact, it is
not a contract, but creates relations similar to a contract. It is also called a
constructive contract.
3) According to Performance:
According to the performance of a contract, it has two kinds:
a) Executed Contract: A contract is said to be executed when both the parties
have completely performed their obligations. It means that nothing remains to
be done by either party under the contract.
b) Executory Contract: In an executory contract, something remains to be done.
In other words, a contract is said to be executed when both the parties to a
contract have yet to perform their obligations.
4) According to Parties:
According to parties a contract may be of the following two kinds:
a) Unilateral Contract: In a unilateral contract with only one party makes a
commitment. In other words, it is a contract where only one party is bound,
but the other party chooses to be bound by it.
b) Bilateral Contract: It is a contract where as soon as the contract is made,
both parties are bound by it. In other words, it is a contract in which both the
parties have yet to perform their obligations.
Further Classification of Contract:
Contract can also be classified into simple and formal contracts.
Formal Contracts:
Formal contracts must be in a particular form, but do not have to possess consideration. They
are enforceable because of their form.
Formal Contracts can be further divided into two broad categories:
 Contract of Record
 Contract of Under Seals(Deeds)
Simple Contracts:

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Simple contracts are all those contracts that are not formal contracts. They are not required to
be in any particular form but are required to have consideration. As the name suggests, it’s
required some formalities.
One significant difference between the two forms of contract relates to the rights of
enforcement if a contract should be breached. Under a formal contract, contractual rights are
enforceable for a longer period of time than is the case for simple contracts.
Case Studies of Types of Contracts
Following are the four selective case studies which help to understand the contract and its
types:
Case Study 1:
Contracts
Formal
Contracts
Simple
Contracts
Contracts
of Records
Contracts
under
Seal
No
Particular
Form
Consideration
must be
Present

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Mr. S purchased a Triumph ‘Spitfire’ sports car from Mr. T who claimed that the car was part
of a limited series released in the mid-1960s. At a Triumph car show Mr. S is advised by a
number of experts that the Triumph is a later model with some of the trimmings associated
with the earlier model. Mr. S wishes to know whether the elements necessary to give rise to a
valid contract are present.
Advise Mr. S on this point and outline his potential options.
Facts:
 Mr. S has purchased a Sports Car ‘Spitfire’ of Triumph, from Mr. T.
 The special characteristic of this sale contract was the unique quality of the
Car that it belongs to the limited edition of the mid-1960, released by the
Triumph.
 In a Triumph car show it has been revealed to Mr.S that the Car does not
belong to the mid-1960’s special edition released by Triumph. This Car is the
later version the same series.
Common Law:
 General rules that applicable to every kind of sales and purchase activity that
the seller will liable disclose all necessary facts that will help the buyer to
make effective decision for the purchase of good.
Law:
 The Law of Contract 1872 defines the parameters that make an agreement
valid. According to act a contract is voidable when one of its essential is
missing in the contract. From the above facts, we can extract two assumptions:
o Mr. T has misrepresented the facts, or
o Mr. T has an intention to make a fraud
 The section 14 of the Contract Act 1872 emphasized that a consent will be
free if it has not been affected one of following elements:
o Coercion
o Undue influence
o Fraud
o Misrepresentation
o Mistake
Conclusion:
The following remedies available to the Mr. S:
 Mr. S can avoid the contract and can contact with the court for the revocation
of the contract.

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 If fraud or misrepresentation is proved Mr. S will be eligible to recover his
amount from Mr. T paid against the purchase of a car.
 Mr. S can sue for damages and recover the excess amount paid to the unique
characteristics of the car.
 Mr. S can plea the court for the specific performance of the contract and Mr. T
will liable provide him the prescribed a car.
Case Study 2:
Mr. G has agreed verbally to pay Rs. 15,000/= for Mr. T’s collection of Literature. Before the
matter can proceed any further Mr. T is involved in a serious car accident that results in him
entering a coma. It is uncertain whether Mr. T will regain consciousness. Worried about Mr.
T but still eager to purchase the Literature, Mr. G consults you to ascertain what essential
elements required to give rise to a valid contract.
Advise Mr. G on this point and explain what facts may prevent the existence of a valid
contract.
Facts:
 Mr. G was interested to purchase Literature from Mr. T amounted Rs.
15,000/=.
 There is a verbal agreement between them.
 Before the performance of the contract Mr. T has got an accident and went
into the coma.
 There is a lesser chance that Mr. T will regain his state of consciousness.
Common Law:
 A general rule is that, when an agreement has been formed with the mutual
consents of the parties and the process of formal offer and acceptance has been
performed whether verbally or in written, the legal heirs or representative of
the parties will liable to perform the contract.
Law:
 Section 2(a) and Section (b) of the Contract Act 1872 has defined offer and
acceptance. When the offer and acceptance has taken place in defined the
manner between the parties, then it will become a valid contract.
Conclusion:
 Mr. G can ask the legal heirs or representatives of the Mr. T for the
performance of the contract.
Case Study 3:

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Mr. B owns a large yatch, which he moors at the Island. Upon turning eighty years of age, he
reluctantly decides to sell his beloved possession. After an existing period of advertising Mr.
B finds a willing purchaser in his home town, Mr. A. At the time of contract, unbeknown to
either of them, the yatch had been wrecked. The yatch was wrecked by storm the day before
the agreement was made.
What is the status of this contract?
Facts:
 Mr. B owns a yatch which moors at the Island. He had decided to sell out his
collection.
 He has made an advertisement for the same and got a tentative buyer Mr. A
for the same.
 A storm has destructed the yatch the day before they are going to make a
contract of sales.
Common Law:
 A general rule is that if the subject matter is destructed due to the reason
beyond the control of the parties then the sales agreement stands enforceable.
Law:
 Section (56) of the Contract Act 1872, explains that a contract will become
void when the subject matter has been destructed or after the formation of the
contract without the fault of the promisor or promisee.
Conclusion:
 The destruction of the yatch due to the storm has discharged Mr. B and Mr. A
from their obligations under the contract.
Case Study 4:
Mr. T owns two motorbikes, a Suzuki and a BMW. He agrees to sell his BMW to Mr. C for
Rs. 200,000/=. Mr. C thinks that he is buying the Suzuki.
Does a contract exist between the parties?
Facts:
 Mr. T owns two motorbikes of two different brands Suzuki and BMW.
 Mr. C agrees to purchase one of his bikes.
 Mr. T is intended to sale his BMW to Mr. C.
 Mr. C has an intention to purchase Suzuki.

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Common Law:
 The general rules say that it is the duty of the seller to clearly define the
specification of the product (s) and its characteristics of the buyer and the
buyer has the responsibility to make all necessary investigations about the
product that will help him to make buying decision and to avoid any
misconception regarding the product (s).
Law:
 Section (14) of the Contract Act 1872, defines the free consent which makes
the contract valid. If a contract is free from of the following elements:
o Coercion
o Undue influence
o Fraud
o Misrepresentation
o Mistake
 Law further explains that if parties give their consent under any error, there is
no agreement. It means that there should be consensus ad-idem. The mistake
can be divided into:
o Mistake of Fact
o Mistake of law
 Mistake of fact further divided into the following:
o Bilateral Mistake
o Unilateral Mistake
 According to Section (22). “A contract is not voidable merely because it was
caused by one of the parties to it being under a mistake as to a matter of fact.”
Conclusion:
 The contract between Mr. T and Mr. C is a valid contract if it is the negligence
of the Mr. C to understand the subject matter.
 Mr. C can avoid the contract or can sue for the cancellation of the contract if
he proves the fraud or misrepresentation at the end of Mr. T.

Case Studies-Types of Business Contract

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