Business & Labor Laws Solved Assignment

Define consideration, state the exceptions to the general rule of law in Pakistan that an agreement made without consideration is void?  Can agreements be valid without consideration?

Answer      

CONSIDERATION

When at the desire of the promisor, the promisee or any other person, has done or has abstained from doing something, such act or abstinence is called a consideration for the promisee.

For example “A” agrees to sell his house to “B” for Rs. 50,000/-.  Here “B’s promise to pay the sum of Rs. 50,000/- is the consideration for “A’s promise to sell the house and A’s promise to sell the house is the consideration for B’s promise to pay Rs. 50,000/-.
The agreement must be for lawful consideration and with a lawful object.

• Consideration is said to be unlawful -
• when it is forbidden by law;

when it is of such a nature that if permitted it would defeat the provisions of any law; or

• it is fraudulent; or
• it involves an injury to the person or property of another; or
• the court regards it as immoral or opposed to public policy.

No action can be brought on a contract which is prohibited by the general law or a statute;
For example “A” and “B” enter into an agreement for the division among them of gains acquired or to be acquired by them by FRAUD.  The agreement is void as its object is unlawful.
EXCEPTIONS TO THE GENERAL RULE OF LAW IN PAKISTAN THAT AN AGREEMENT MADE WITHOUT CONSIDERATION IS VOID
The law governing the contracts in Pakistan is contained in the Contract Act, 1872.  A contract may be defined as an agreement which is enforceable at law and every promise, constituting an offer and its acceptance, is an agreement. For validity of an agreement, consideration is always necessary.  Wherein an agreement, consideration is not present, the agreement is void.

“A” promises for no consideration to give to “B” Rs. 2000/-.  This is a void agreement.

But an agreement without consideration can be treated as a contract.-
When it is expressed in writing and registered under the law of registration of documents and is made on account of natural love and affection between parties standing in near relations to each other:

“A” for his natural love and affection, promises to give his son “B”, Rs. 2000.  “A” puts his promise to “B” in writing and registers it.  This is a  contract.

When it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor was compellable to do:

“A” supports “B’s infant son.  “B” promises to pay “A’s expenses on doing so.  This is a contract.

When it is a promise made in writing and signed by the person to be charged therewith, to pay wholly or in part, a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

“A” owes “B” Rs. 2,000/-, the debt is barred by Limitation Act.  A signs a written promise to pay “B” Rs. 1000/- on account of the debt.  This is a promise.

Explanation (2) to section 25 provides that an agreement to which consent of the promisor is freely given is not void merely because the consideration is inadequate. 

“A” agrees to sell a house worth Rs. 20,000/- for Rs. 500/-.  A’s consent to the agreement was freely given.  The agreement is a contract notwithstanding the inadequacy of consideration.

But the inadequacy of consideration may be taken into account by the court in determining the question whether consent of the promisor was freely obtained.

Distinguish between a “condition” and “warranty”?  Can a buyer treat the breach of condition as a breach of warranty only?  If so what will be his/her rights in such a case?

Answer

The law governing the contracts of sales of goods in Pakistan is contained in the Sale of Goods Act, 1930.  A contract of sales of goods is a contract in accordance to which the seller either transfers or agrees to transfer the property in goods to the buyer for a price.

  “CONDITION” AND “WARRANTY”

In every contract of sale of goods there are stipulations (statements or promises made by parties to a contract) made with reference to goods which are the subject matter thereof.  Such stipulations which are the subject matter of a contract, may be classified as “condition” or “warranty”.
If stipulation forms are the very basis of the contract, or is essential to the main purposes of the contract, it is known as a condition. If, however, the stipulation though not essential to the main purpose of the contract is collateral to the main purpose of the contract, that is to say, is a subsidiary promise, it is known as a warranty.
Whether a stipulation in a contract of sale is a condition or warranty depends, in each case, upon the construction of the contract. No special form of words is necessary to create a warranty or a condition; a stipulation my be a condition though called a warranty in the contract; the Court will determine this for itself from the intention of the parties, which is to be gathered from the terms of the contract. All through the Act, the distinction between condition and warranty is clearly drawn.
CAN A BUYER TREAT THE BREACH OF CONDITION AS A BREACH OF WARRANTY ONLY - RIGHTS IN SUCH A CASE
The effect of a breach of condition is to give the aggrieved party a right to treat  the contract as repudiated; whereas in the case of a breach of warranty he cannot reject the goods or to treat the contract as repudiated, but all that he is entitled to claim, is  damages.
When there is a breach of a contract on the part of the seller, the buyer is not bound to reject the goods but has an option; he may either reject the goods, or may elect to treat the breach of condition as breach of warranty, accept the goods and claim only damages (Section 13). But in cases where the buyer has accepted the goods or part thereof or where the contract is for specific goods the property in which has passed to the buyer the breach of a condition by the seller will be treated as a breach of warranty and the buyer cannot exercise the right to reject the goods or to treat the contracts repudiated.

IMPLIED CONDITIONS AND WARRANTIES

 In every contract of sale

• There is an implied condition as to seller’s title, that is, the seller has a right to sell the thing as it is and has the right to pass the property in the thing to the buyer.
• In case of an agreement to sell, there is an implied condition that he will have  right to sell the goods at the time when the property is to pass.
• there is an implied warranty that the buyer shall have and enjoy quiet possession of goods i.e. nobody shall interfere with the possession of goods by reason of want of title of the seller.
• there is an implied warranty that the goods are free from any charge or encumbrance.

IMPLIED CONDITION AS TO QUALITY OR FITNESS

There is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. But this rule is subject to certain exceptions:

• Generally the rule “caveat emptier” (buyer  beware) applied when a buyer buys specific article, but where the buyer orders goods to be supplied and trusts the judgment of the seller to select the goods which shall be applicable for the purpose for which they are intended, which is known to both the parties, there is an implied condition that they are fit for that purpose. It  must be shown -

that the goods were required for a particular purpose of which the seller was aware;

• the buyer relief on the seller’s skill or judgment; and
• it was the seller’s business to the supply such goods.
• When goods are bought by description from a seller who deals in the particular goods (the seller must be dealing in the particular kind of goods) it is always an implied condition that the goods shall be of a merchant able quality. The term that the goods shall be “merchant-able quality” is answered when they do not differ from the normal quality of described goods. But when the buyer has examined the goods, the condition is not applicable as far as defects which the examination would have revealed.
• An implied warranty or condition as to fitness for a particular purpose may be established by providing a usage of trade.
• When the parties choose to agree that there shall be certain warranties or conditions, the order warranties or conditions implied by various sections if inconsistent with the express warranties or conditions will not apply.

Part One: Define partnership, stating its essential features.  What is the effect of non-registration of a firm under Partnership Act?

Answer    

PARTNERSHIP

The law which regulates the partnership business in Pakistan is known as the Partnership Act, 1932 and defines “Partnership” as 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.
Under the law, there cannot be more than 10 partners in banking business and more than 20 partners in any other business.  For those professions, however which are debarred from doing business in the form of a limited company, such as Physicians, attorneys and the accountants, this maximum limit does not apply.

KINDS OF PARTNERSHIPS

• 
  

  Partnership at will

• In this form the partners are free to dissolve the partnership whenever they desire.
• 
  

  Particular Partnership

• It is a partnership created for any particular adventure or undertaking.  Partnership created for a single undertaking (usually of a short duration) is also known as Joint Venture.

ESSENTIAL FEATURES

The following are essential elements of a partnership business:

• There must be an agreement between the parties concerned.  Though it may be written or implied one.
• There must be a business, which means and includes any trade, profession or vocation.
• It must be carried on by all or some of the partners for the benefit of all of them.
• It must be carried on for the purpose of earning profits which would be divided amongst the partners, in the agreed way or ratio.

EFFECT OF NON-REGISTRATION OF A FIRM UNDER PARTNERSHIP ACT

When there is no agreement between the partners, the rights and duties of the partnership are determined by the following provisions of the Partnership Act:

• No partner has the right to a salary.
• No interest is to be allowed on capital or drawings.
• Interest at the rate of 6% will be allowed on a partner’s loan to the firm.
• Profits and losses will be shared equally.

Describe the procedure for the incorporation of a private limited company under the provisions of the Companies Ordinance, 1984.

Answer

Securities and Exchange Commission of Pakistan (formerly Corporate Law Authority), a body corporate, is exercising and performing such powers and functions as are conferred on it by or under the Companies Ordinance, 1984. The following are the requirements for incorporation of a company limited by shares under the Companies Ordinance, 1984:

AVAILABILITY OF NAME

The first step is to seek the availability of name.  A person may apply along with a fee of Rs. 200/- to the Company Registration Office, Securities and Exchange Commission of Pakistan.  He may propose one or more names according to his priority.  The name should not be inappropriate, deceptive, or designed to exploit or offend the religious susceptibilities of the people.  It should not have close resemblance with the name of any existing company.

MODE OF FORMING A COMPANY

Any seven or more persons associated for any lawful purpose may, by subscribing their names to a memorandum of association and complying with the requirements of the Companies Ordinance in respect of registration, form a public company and any two or more persons so associated may, in like manner, form a private company.

DOCUMENTS FOR REGISTRATION

The following documents are required to be submitted with the concerned Registrar for registration of a private limited company.

• 
  

  Memorandum and Articles of Association

• Four printed copies of Memorandum and Articles of Association duly signed by each subscriber in the presence of at least one witness.  One copy should be affixed with special adhesive stamps at the rates prescribed under the Stamp Act, 1899.
• 
  

  Form-I

Declaration of compliance with the requirements of the section 30(2) of the Companies Ordinance, 1984 signed by

• an advocate, entitled to appear before any High Court in Pakistan or the Supreme Court: or
• a member of the ICAP or the ICMAP practicing in Pakistan; or
• a person named in the Articles as a Director or other officer.
• 
  

  Form 21

• Notice of situation of registered office of the company. (section 142)
• 
  

  Particulars of Directors and Officers

• including the Chief Executive, Managing Agents, Secretary, Chief Accountant, Auditor and Legal Advisor, etc. (Section 205)
• 
  

  Registration/Filing Fee

• A copy of the original treasury challan on account of registration and filing fee deposited in the Banks in the account of the SECP at the rates as prescribed by it, according to the authorized capital of the company.
• 
  

  Power of Attorney

• The promoters have to execute a Power of Attorney in favor of one of the subscribers or any consultant/adviser to make amendments/alterations in the Memorandum and Articles of Association if found defective by the Registrar.  He will also be authorized to file the papers and collect the certificate of incorporation.  The Power of Attorney must be on a Non-Judicial stamp paper and duly attested by a Notary Public.

Describe the procedure for incorporation of a public company limited by shares.

Answer

DOCUMENTS FOR THE REGISTRATION OF A PUBLIC COMPANY

Apart from the documents mentioned for registration of a private company, the following additional documents are required to be filed for registration of a public company.

• 
  

  Form- 27

• List of persons consenting to act as directors.
• 
  

  Form 28

• 
  

  Consent to act as Directors/Chief Executive.

REQUIREMENTS AFTER INCORPORATION

PRIVATE COMPANIES

• Private companies may commence business from the date of incorporation.
• In case of increase in paid up capital, a circular under section 86(3) of the Companies Ordinance shall be issued to all the members and one copy thereof filed with the Registrar concerned and thereafter; Form “3” to be filed within 30 days of the allotment of shares.
• First annual general meeting is required to be held within eighteen months from the date of incorporation under section 158 and consequently  Form “A” to be filed with the Registrar concerned within 30 days.
• First election of directors to be held at the first annual general meeting and the next after every three years.
• Subsequent annual general meetings are required to be held once at least in every calendar year, within a period of six months following close of the financial year and not more than fifteen months after holding the last preceding AGM under section 158 and Form “A” to be filed within 30 days.
• Any appointment/change in the Directors, Chief Executive, Auditors, Chief Accountant is required to be notified to the Registrar concerned on Form 29 within 14 days of the said appointment/change.

PUBLIC COMPANIES

• Public companies may not commence business unless commencement of business certificate is obtained from the Registrar concerned under section 146.
• Statutory meeting is required to be held under section 157 within a period of not less than three months, not more than six months, from the date at which the company is entitled to commence business.  A statutory report is required to be forwarded to the members and five copies thereof certified in the prescribed manner delivered to the Registrar, at least 21 days before the date of Statutory Meeting.
• First audited accounts are required to be laid in the first annual general meeting to be held within 18 months from the date of incorporation.  Five copies of the accounts signed in the prescribed manner and an annual return in Form “A” to be filed to the Registrar concerned within 30 days of the date of AGM.
• Subsequent AGMs shall be held and audited accounts presented therein within a period of six months of the closing of financial year and not more than fifteen months of preceding AGM.
• For election of directors, the procedure laid down for private companies in the above paragraph is also applicable for public companies.
• Any change in the personnel of directors/chief executive, auditors, secretary, chief accountant, legal adviser as mentioned above for the private companies.
• In case of increase in paid up capital as procedure laid down for private companies.

What are the specific requirements of law in regard to the particulars, which must be contained in the prospectus of a public limited company?

Answer     

A prospectus is any prospectus, notice, circular, advertisement or other invitation, offering to the public for subscription or purchase of any shares or debentures, of a company. “Public”, however, is not restricted to the public at large, but includes any well-defined class of the public.  But a distribution to a limited number of people selected by the company is not an issue to the public.  A prospectus may be issued by or on behalf of company or by or on behalf of any person engaged or interested in the formation of a company.
The prospectus is the very foundation of a company’s edifice. It is on the basis of the statements made in the prospectus that the public takes shares or debentures of the company. Therefore the object of the law governing company prospectuses is to require the company to provide in the prospectus certain information to enable the prospective investor to decide whether or not to subscribe for the company’s shares or debentures. Under section 53 of the Companies Ordinance, 1984 every prospectus issued by or on behalf of a company, or by or on behalf of any person who has been engaged or interested in the formation of a company shall state the following matters:-
Who are the directors and what benefit they get as such;

1. Profit made by the promoters;
2. Capital required by the company in cash;
3. Past financial records of the company;
4. Preliminary contracts, commission preliminary expenses;
5. Voting and dividend rights of each class of shares.

Every prospectus of a company, when issued by a company before it commences its business, must stated:-

1. The contents of the memorandum its signatories, founders, shares and the number of redeemable preference shares intended to be issued;
2. Director’s qualifications and remuneration;
3. Names of directors, Chief Executive and managing agents, and the remuneration payable to Chief Executive, managers and managing agents;
4. The minimum subscription on which the directors may proceed to allotment;
5. Shares and debentures issued within three previous years as paid up in full or in part otherwise than in cash, and the consideration therefore;
6. Where the issue of shares or debentures is underwritten, the names of the underwriters with the opinion of the directors that the underwriters resources are sufficient to discharge their underwriting obligations;
7. The name and addresses of vendors of property who are to be paid out of the proceeds of the issue, and price of the same. If any such property has been transferred by sale within two years preceding the issue of the prospectus, the amount paid by the purchaser at such transfer shall be mentioned. If such property is a business, the profits accruing from such business during each of the three years preceding the issues of the prospectus or during each year of the business less than three years, shall have to be mentioned;
8. Commission for placing shares or debentures paid during two previous years, and discount in respect of the shares issued;
9. Estimated amount of preliminary expenses;
10. The amount paid to promoters within two previous years, and the consideration for the payment;
11. Date of, and parties to, all material contracts, including contracts relating to purchase of property mentioned in (7) above, with the time and place at which such contracts of a copy thereof may be inspected;
12. Names and addresses of auditors;
13. Interest of directors in the promotion of, or in the property proposed to be acquired by the company;
14. The right of voting at meetings of the company conferred by, and the rights in respect of capital and dividends attached to, the several classes (if any) of shares;
15. The nature and extent of restrictions (if any) imposed by the articles upon the members in respect of the right to attend, speak or vote at the company’s meeting, or upon their right to transfer shares, or upon the director’s powers of management; and
16. Where any part of the sums is to be provided out of sources other than share capital, particulars of the amount to be so provided and the sources thereof.

Where a prospectus is published as a newspaper advertisement, it shall not be necessary in the advertisement to specify the contents of the memorandum, or the signatories thereto, and the number of shares subscribed by  them.
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