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1. LEGALAND REGULATORY
FRAMEWORK FOR BUSINESS
DR. MUHAMMAD MANSOOR JAVED
Lectures Delivered By
PhD. Islamic Banking & Finance, UMT, Lahore.
MS. Finance, UMT Lahore.
Member of Association of Chartered Certified Accountants, UK.

2. ACKNOWLEDGEMENT
The contents of these lectures are based on the Book
Business Law
Written by
Khalid Mehmood Cheema
2

3. BUSINESS LAW
• Definition Of Law
• Law is a body of official rules and regulations that are used to govern a society and control the
behavior of its members. It is enforced by the State to regulate the conduct of people, protect their
property and rights, and ensure justice.
• Business Law
• Business law (also known as Commercial Law and Mercantile Law) is a branch of law which governs
the regulations the trade and commerce. It deal with the rights and obligations arising out of business
transactions.
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4. SOURCES OF BUSINESS LAW
• British Law
• Pakistan inherited the legal system from the British. Pakistan adopted the following Acts and amended
them later.
• Contract Act 1872
• Sale of Goods Act 1930
• Partnership Act 1932
• Negotiable Instruments Act 1881
• Pakistani Law
• Some laws are passed by Pakistan such as:
• Limited Liability Partnership Act 2017
• Companies Act 2017
• Judicial Decisions
• The past judicial decisions are followed by the courts while deciding similar cases.
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5. CONTRACT & ITS ELEMENTS
• Contract is an agreement between two or more parties to do or not to do something and such
agreement is enforceable by law.
• Contract = (Agreement) + (Enforceability)
• Contract = (Offer + Acceptance) + (Consideration + Legal Intention)
• Elements of a Contract
• An ‘offer’ is a proposal by one party to another to do or abstain from doing anything with a view to
obtaining assent of the other to such act or abstinence.
• Acceptance is a positive act by a person to whom an offer has been made which, if unconditional,
brings a binding contract into effect. (Normally, the nature of the offer is such that the criterion of
enforceability is automatically fulfilled).
• Consideration is what each party brings to the contract. It could be an action or forbearance.
• Legal intention i.e., intention to bind the contract legally. In business contract it is assumed that intions
to create legal intension exists unless proves otherwise. 5

6. TYPES OF A CONTRACT
• Valid Contract
• Satisfied all the conditions prescribed by law
• Void Contract
• Initially it is a valid contract, however letter becomes invalid due to change in law
• Express Contract
• Made by words, either spoken or written
• Implied Contract
• Inferred from the conduct or action rather than based on words.
• Executory Contract
• Contracting parties have still to perform their contractual obligation
• Executed Contract
• Both parties have performed their respective duties
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7. ESSENTIAL OF A CONTRACT
• Offer & Acceptance
• Lawful Consideration
• Legal Intention
• Capacity of Parties
• Should not be a minor, a person of unsound mind or a person disqualified by court
• Free Consent
• Consent should be free from
• Coercion (pressure in the form of physical harm or loss
• Undue influence (contracting parties should not such relationship that one party may dominate the decision of
the other
• Fraud (intentional misstatement of facts)
• Lawful Object
• Possibility of Performance
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8. ESSENTIAL OF A VALID OFFER
• Offer must be clear however it can be applied or expressed
• Only a person to whom the offer is made can accept it
• Offer should be distinguished from invitation to treat. An invitation to treat is an ‘invitation to
offer’. It could be made through advertisement or by displaying the goods.
• A cross offer cannot be a valid offer (when a two person make similar offers to each other without
having knowledge of other’s offer, it is called cross-offer.
• An offer can be made to a specific person or public at large.
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9. TERMINATION/REVOCATION OF AN OFFER
• Notice of revocation before acceptance of the offer.
• Lapse of specific or reasonable time
• Failure to fulfill the condition mentioned in the contract
• Death or Insanity of offeror
• Rejection by the offeree.
• Counter offer
• When an offeree instead of accepting the original offer makes a fresh offer, it is called counter offer.
• Subsequent Illegality
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10. ESSENTIAL OF A VALID ACCEPTANCE
• Offer can be accepted by only that person so whom the offer is made
• Acceptance should be absolute and unconditional
• Offeree must communicate the acceptance to the offeror
• A valid acceptance can be expressed or implied
• Acceptance should be followed by an Offer
• Acceptance should be made within specific or reasonable time.
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11. ESSENTIAL OF A VALID CONSIDERATION
• Condition can be an act or abstinence.
• Past consideration is not valid
• Present or future considerations are valid
• Adequacy of a consideration is not necessary.
• Consideration must be real and competent i.e., it should not be physically impossible, illegal or
uncertain.
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12. DISCHARGE OF A CONTRACT
• Discharge of a contract means the termination of contractual relation between the parties to a
contract.
• A contract can be discharged in following modes:
• Discharge by performance, i.e., both parties performed their obligations.
• Discharge by agreement, i.e., both parties mutually agree not to perform contractual obligations
• Discharge by subsequent impossibility, e.g., due to destruction of subject matter or death of the
contracting parties
• Discharge by operation of law in following cases
• The court declare a person as insolvent
• When a contract creating inferior rights for the party merges into a new contract creating superior rights.
• When one party makes material alteration in the contract without the consent of the other party
• Discharge by breach of contract, i.e., failure to perform contractual duties by one party
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13. BREACH OF CONTRACT
• When a party to the contract fails to perform his obligation under a contract, it is called breach of
contract.
• The following remedies are available to the aggrieved party.
• Suit for Damages, i.e., compensation awarded by the court to the aggrieved per following details
• In normal circumstances only normal damages are compensated
• Special damages can be payable in case both parties aware of circumstances which may case special damages.
• Liquidated damages are paid in case the amount to be payable as damages is mentioned in the contract.
• Suit upon Quantum Meruit, i.e., claim of the payment in the proportion to the work done in case in case
contract becomes void before completion.
• Suit for Specific Performance, i.e., claim for completion of the contractual obligation by the guilty
party when damages are inadequate remedy for aggrieved party.
• Suit for Injunction requesting court to prevent the guilty party to perform that act which he promised
not to do in the contract. 13

14. CONTRACT OF BAILMENT
• A bailment is the delivery of goods by one person to another person for some purpose, upon a
contract that they shall, when the purpose is accomplished, be returned or otherwise disposed off
according to the directions of the person delivering them.
• A person delivering the goods called the ‘Bailor’ and the person to whom they are delivered is
called ‘Bailee’.
• Essential of the contract of Bailment
• A the bailment is the result of a contract between the bailor and the baliee
• The bailment of goods must be made for a specific purpose.
• Only the possession of goods are transferred the ownership remain with the bailor.
• There must be return of same goods by the bailee to the bailor after completing the specific purpose.
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15. TYPES OF BAILMENT
• Gratuitous Bailment
• Neither the bailor or the bailee are entitled to any remuneration
• Non- Gratuitous Bailment
• Either the bailor or bailee is entitled to remuneration
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16. DUTIES & RIGHTS OF THE BAILOR
• Duties
• Duty to disclose faults otherwise the bailor has to pay the damages for losses suffered by the bailee due
to those faults in the goods delivered
• Duty to bear extra ordinary expenses incurred by the bailee.
• Duty to indemnify on termination, i.e., bailor is liable to compensate the bailee regarding the loss he
suffered exceeding the benefit he enjoyed in case of early termination of a gratuitous bailment.
• Rights
• Right to recover damages caused to the goods from the bailee
• Right to demand goods from bailee when the purpose of bailment is accomplished
• Right to claim increase or profit which may have accrued from the goods
• Right to sue if bailee breach any term of the contract.
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17. DUTIES & RIGHTS OF THE BAILEE
• Duties
• Duty to take care of goods
• Duty not to make unauthorized use of goods
• Duty not to mix bailor goods with other goods
• Duty to return the goods to bailor after accomplishment of the purpose
• Duty to return increase or profit earned from the goods
• Rights
• Right to claim damages derived incurred from faulty goods
• Right to recover expenses incurred by him to meet the purpose of bailment
• Right to be indemnified for losses incurred due to termination of gratuitous bailment by the bailor
• Right to stop delivery
• Right to lien i.e., retain the possession of goods until he received the charges 17

18. TERMINATION OF BAILMENT
• Expiry of time
• Accomplishment of the purpose
• Unauthorized use by the bailee
• On the death of any party of the contract
• Termination by bailor in case of gratuitous bailment
• Destruction of a the subject matter of the bailment
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19. CONTRACT OF PLEDGE & ITS ESSENTIALS
• The bailment of goods as security for payment of a debt or for performance of a promise is called
pledge. The person who delivers the goods called pledger and the person to whom the goods are
delivered is called pledgee.
• Essentials of Pledge:
• Pledge relates to moveable goods only.
• When a person pledges goods in which he has only limited interest, the pledge is valid to the extent of
that interest only.
• Only the possession of goods is transferred by the pledger. The ownership of goods remain with the
pledger.
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20. RIGHTS AND DUTIES OF PLEDGEE
• Rights
• Right to retain the goods pledged for payment of debt or performance of promise
• Right to receive extraordinary expenses incurred by him for the preservation of the goods pledged
• Right to sue and sell the goods in case pledgor defaults.
• Duties
• Take reasonable care of the goods
• No unauthorized use of the goods
• No mixing of pledged goods with other goods
• Return of goods pledged on receipt of full dues
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21. RIGHTS AND DUTIES OF PLEDGOR
• Rights of Pledgor
• If a pledger makes an unauthorized sale, the pledger has a right to sue for redemption of goods treating
the sale contract as void.
• Right to claim damages for any loss incurred due to pledgee conduct.
• Right to claim goods with accretion
• Duties of Pledgor
• Duty to compensate pledgee for the extra-ordinary expenses
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22. CONTRACT OF AGENCY
• A contract which creates the relationship of principal and agent is called a ‘contract of agency’.
• 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 principle.
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23. ESSENTIALS OF AGENCY
• An agency is the result of an agreement between principal and agent
• Principal must have attained the age of maturity and have a sound mind.
• An agent can be any person including minor or a person with unsound mind.
• Consideration is not necessary in the contract of agency.
• An agent must have intention to act on the behalf of the principal.
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24. KINDS OF AGENT
• General Agent
• Has authority to perform all acts of a business
• Special Agent
• Has authority to do a particular transaction only.
• Universal Agent
• Has unlimited authority and can perform any type of transactions
• Mercantile Agent
• Has authority to sell or buy goods
• Auctioneer
• Appointed to sell goods to the highest bidder at a public sale
• Indenter
• Has authority to buy and sell goods from foreign countries
• Advocate
• Appear before the court on behalf of his client
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25. CREATION OF AGENCY
• Agency by express agreement
• Agency by implied agreement
• Agency by estoppel, i.e., a person by his present conduct induces a third person to believe that a
particular person is his agent
• Agency by holding out, i.e., a person by his past conduct induces a third person to believe that a
particular person is his agent
• Agency by necessity gives an authority to a person to act as an agent for another without his consent in
case of emergency in the interest of the principal
• Agency by ratification, i.e., a person does some act on behalf of another without authority and his
act is approved by the latter.
• Agency by operation of law, i.e., where an agency contract is assumed by law, e.g., by law in
partnership all the partners are considered agent of the firm. 25

26. DUTIES OF AGENT
• Duty to follow directions of the principal
• Duty to work with skills and care
• Duty to submit business accounts to the principal
• Duty to communicate for further instructions in of difficulty
• Duty to protect the interest of legal representatives in case of death of the principal
• Duty to return benefit in case the agent conduct the agemcu business in his own name
• Duty not to delegate authority
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27. RIGHTS OF AGENT
• Right to retain money to cover his commission/remuneration and expenses incurred to conducty
agency business.
• Right of lien i.e., retain goods or any other property of the principal until the amount due to him
is not paid.
• Right to be indemnified for lawful acts done by him in exercise of authority conferred upon him.
• Right to compensation, i.e., be compensated for injuries suffered by him due to negligence of the
principal
• Right of stoppage of goods in transit when he buys the goods with his own money and the
principal becomes insolvent.
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28. DUTIES OF PRINCIPAL
• Duty to pay remuneration to the agent
• Duty to indemnify for lawful acts
• Duty to indemnify for acts in good faith
• Duty to indemnify for injury
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29. RIGHTS OF PRINCIPAL
• Rights to recover damages suffered by him due to negligence of the agent
• Right to obtain benefit that is earned by agent from the agency business
• Right to refuse to indemnify where the agent has acted as the principal himself and not as agent
and suffered losses.
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30. TERMINATION OF AGENCY
• The agency can be terminated by mutual agreement
• Revocation by principal before the agent has exercised his authority
• Revocation by agent as no one can compelled to work as an agent
• Completion of the business of agency
• Expiry of time provided the agent is appointed for a specific period of times
• Death of principal or agent
• Insanity of principal or agent
• Insolvency of principal
• Destruction of the subject matter of the contract of agency
• Becoming an alien enemy, i.e., if the principal and agent are nationals of two different countries and a
war breaks out between the countries.
• Change of law i.e., new contract makes the performance of contract illegal.
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31. CONTRACT OF GUARANTEE
• A contract of guarantee is a contract to perform the promise or discharge the liability of a third
person in caser of his default.
• The person who gives the guarantee is called the surety or guarantor. The person to whom the
guarantee is given is called the creditor. The person in respect of whose default the guarantee is
given is called principal debtor.
• Essentials of a Contract of Guarantee
• Tripartite Contract i.e., three parties are involved (principal debtor creditor and surety.
• Contract must be supported by consideration. A consideration received by the principal debtor is the
consideration for the surety.
• If the consent of surety is obtained by misrepresentation, the surety will be discharged from the
liability.
• If the creditor conceals the material facts of contract from surety, and thus obtain the consent, the
contract will be invalided.
• The liability of principal debtor is primary and the liability of surety is secondary.
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32. DISCHARGE OF SURETY FROM LIABILITY
• A specific guarantee can be revoked by the notice if it has not been acted upon.
• Death of surety
• Change in terms of contract by principal debtor and creditor without the consent of surety
• The surety is discharged by any contract between creditor and principal debtor by which principal
debtor is released
• When the creditor, without the consent of surety, makes a promise with principal debtor to give
more time to perform the liability or not to sue them, the surety is discharged form his liability.
• If the creditor, without the consent of surety, loses the security given by the principal debtor
against the debt, the surety is discharged.
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33. CONTRACT OF SALE OF GOODS
• A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price.
• Essentials of a Contract of Sale
• All the basic requirements of a contract must be fulfilled
• There must be buyer and seller
• There must be transfer of ownership of goods
• Only goods can be the subject matter in a contract of sale of goods
• The consideration in a contract of sale must be the price
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34. PERFORMANCE OF CONTRACT OF SALE
• Performance of contract of sale means the performance of duties by the seller and buyer as per
the terms of the contract.
• The parties to the contract must include the terms in the contract regarding time and place of
delivery, modes of delivery, payment of price etc. In the absence of such terms in the contract, the
following rules will apply.
• Seller should deliver the goods and buyer should pay for it simultaneously.
• Goods can be deliver to both buyer or his agent.
• The seller is not bound to deliver the goods to the buyer unless the buyer applies for delivery.
• The goods must be delivered at the place at which they are at the time of sale.
• The goods must be delivered within the reasonable time
• The expenses of putting the goods into deliverable state shall be borne by the seller.
• In case of wrong delivery, the buyer can reject the goods.
• The buyer is deemed to have accepted the goods when after the lapse of a reasonable time, he retains
the goods without intimating the seller that he has rejected them
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35. UNPAID SELLER
• Unpaid seller is a person who:
• Sold the goods on cash basis and price is due but not paid
• Sold the goods on credit and the credit period is expired but he has not been paid
• Received partial payment and the remaining payment is due
• Received the payment through cheque and that cheque has dishonored
• Rights of Unpaid Seller:
• Right of lien i.e., the right to retain the possession of goods until the full price is received (applied
when goods are sold on cash basis.
• Right of stoppage, i.e., right of stopping the goods in transit and to take possession until the price is
paid (applied when buyer becomes insolvent.
• Suit for price. i.e., when buyer possess the goods and refuse to pay the price according to the terms of
the contract.
• Suit for damages, i.e., when buyer refuses to accept and pay for the goods, the seller may sue him for
damages for non acceptance . 35

36. NEGOTIABLE INSTRUMENTS
• ‘Negotiable means transferable by delivery whereas ‘instrument’ means a written document
which creates a right in favor of some person
• Negotiable instruments entitles a person to a sum of money mentioned in it and which is freely
transferable from one person to another (Example: Cheque)
• Characteristics
• Negotiable instruments are freely transferable
• A holder of negotiable instruments can recover the money from the person liable on the instruments
and can sue the person in case of dishonor.
• A negotiable instrument contains an unconditional promise to pay a certain amount to the holder
• It is presumed that negotiable instruments will be presented for payment within reasonable time.
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37. CHEQUE
• A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand.
• Essential of a Cheque
• In writing
• Unconditional order
• Signed by drawer
• Payment on Demand
• Certain Sum
• Payable to Bearer
• Types of a Cheque
• Open/Bearer Cheque
• Cross Cheque
• Order Cheque 37

38. PARTNERSHIP
• Partnership is the relation between persons who have agreed to share the profits of a business
carried on by all or any one of them acting for all.
• Characteristics of Partnership
• A partnership has no separate legal entity apart from its members.
• A partnership is formed as a result of a agreement. All the conditions relating to the contract must be
satisfied.
• The number of partnership should be between 2 and 20. Though, in some cases it can be more than 20.
• The purpose of partnership should be running a certain business
• The must be distribution of profit as per the agreement.
• Each partner acts as the agent of other partners
• There is unlimited liabilities of all the partners.
• A partnership continues as long as the partners are willing to run the business.
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39. KINDS OF PARTNERSHIP
• Partnership at Will
• No duration is identified in the agreement
• Any partner can terminate it by giving the notice of termination
• Particular Partnership
• A particular business is specified in the agreement
• Dissolve immediately after the completion of particular business.
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40. FORMATION OF A PARTNERSHIP
• A partnership is formed through an agreement either oral or written
• A written agreement is known as partnership deed and it normally contains following provisions:
• Name of the firm
• The firm name should not identical to the name of an existing firm.
• It should not consist of such words which indicate its association with Federal Government, Provincial
Government or any other public organization
• Name and addresses of all partners
• The nature of the business of the firm and the places where the business will be carried on.
• The amount of capital invested by each partner and ratio of sharing profit and loss
• The rate of interest related to capital, loan and drawing
• The rights duties and liabilities of each partner
• The duration of the partnership
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41. REGISTRATION OF A PARTNERSHIP
• Submission of application (to Registrar of Firm) containing details as per partnership deed
• Registrar of Firms issue certificate of registration after entering firms name in the Register of
Firms.
• A person who provide false information to the Registrar shall be punishable with imprisonment or
with fine or both
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42. RIGHTS OF PARTNERS
• Right to take part in the business , express his opinion and give consent
• Right to inspect books of accounts
• Right to share profits
• Right to receive interest on invested capital according to the terms of the contract.
• Right to receive interest on loan given to the firm according to the terms of the contract.
• Right to indemnified in respect of payment made and liability incurred by him in ordinary
conduct of the business
• Right to act in emergency to protect the firm form loss and to bind other partners for the action
taken by him
• Right to retire
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43. DUTIES OF PARTNERS
• Duty to carry on business of the firm for common benefit
• Duty to be just and faithful to the other partners
• Duty to render accounts and provide other information to co-partners
• Duty to indemnify the firm for any loss caused to it by his conduct of the business of the firm;
however, if he acts bona-fide, the loss will be borne by the firm.
• Duty to use his skill and knowledge for the benefit of the firm
• Duty to use firms property for firm
• Duty to share losses
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44. DISSOLUTION OF A FIRM
• Dissolution by mutual agreement of all partners
• Compulsory dissolution
• When partners declared insolvent
• When partnership business becomes illegal
• Dissolution by notice given by an partner
• Dissolution by court
• When a partner became insane
• When any partner commits breach of agreement regarding the management of the business
• When any partner transfers whole of his interest in the firm to a third party without the consent of other
partners.
• Continuous losses
• Just and equitable 44

45. CONSEQUENCES OF DISSOLUTIONS
• Partners continue to be liable to third parties until the public notice of dissolution
• Property will be sold out and the amount will be distributed among partners after settlement of
debts and liabilities
• Every partner can retain the other partner from carrying out similar business in the name of the
firm
• The goodwill shall be included in the assets will be sold along with other assets or separately
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46. LIMITED LIABILITY PARTNERSHIP
• Limited liability partnership is that partnership which is registered under Limited Liability
Partnership Act 2017.
• Characteristics
• Separate Legal Personality
• To sue and be sued
• To acquire, own and sell property
• Perpetual Succession
• Member of Partners: At lease one
• Liability of Partners is normally limited. However if a partner defraud any other person, the liability
will be unlimited for all debts and liabilities.
• The right of a partner to share profit and losses is transferable
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