11 APRIL 2017

Question number 01: Explain with examples,

disqualified persons.

Following are the persons who are disqualified from

contracting:

JOINT STOCK COMPANY: Joint stock company cannot

enter into contract outside the powers given to it by its
memorandum of association or by the provisions of the
company ordinance.
Example: ABC Co. makes an agreement with L to sell
some property which the company is not authorized by its
memorandum of association, an agreement is void.

INSOLVENT PERSON: An insolvent person cannot enter

into a contract with anyone regarding his property, which
will be in the control of official receiver. After the order of
discharge, he can enter into a contract.
Example: A, an insolvent promise to sell his car to B. this
agreement is void.

DIMPLOMAT/FOREIGN AGENT: The diplomatic agent

means the staff of the diplomatic mission of a particular
state in Pakistan. No proceeding in any court shall lie
against a diplomatic agent except in case relating to:
1. Any private immovable property situated in Pakistan.
2. Acting as an executor, administrator and heir as a
private person.
Example: A, a diplomat got a house on rent from M on
behalf if the state to which he belongs to. M sued for
recovery of arrears of rent. It was held no action could
be brought against him.

ALIEN ENEMY: An alien means citizen of a foreign

country. An alien whose country is at peace with Pakistan
is an alien friend. A contract with an alien friend is valid.
 An alien whose country is at war with Pakistan is an alien
enemy. A contract with an alien enemy is illegal.
Example: B contracts to buy goods with Y, a citizen of
India without the permission of Pakistani Government. It is
illegal and void.

CONVICT: A convict is a person who has been imprisoned

by a court of law. During the period of sentence, he/she is
incapable of entering into contract.
Example: Q during his imprisonment enters in to an
agreement with R to sell his land. The agreement is void.

Question number 02: Explain with examples and

exceptions of void agreement.

VOID AGREEMENT: An agreement not enforceable by law is a

void agreement. A void agreement does not give rise to any
legal consequences and is void ab-initio from the beginning.

AGREEMENTS THAT ARE DECLARED VOID:

Agreement in restraint of marriage: Every agreement
in restraint of the marriage of any person, other than a
minor is void (Sec 26). Every person has a right to get
married and that too has a right to exercise his choice.
Any restraint or interference with the freedom of choice in
marriage is illegal However, this does not apply to a minor
who can be restrained till he attains majority.

Example: Mr. Chips agrees with Miss. Sophie that she will
not marry with Mr. Sam. It is a void agreement
AGREEMENT IN RESTRAINT OF TRADE: every
agreement by which anyone is restrained from exercising
a lawful profession, trade or business of any kind, is to
that extent void. An agreement that interferes with a
persons right to engage in any lawful occupation is called
an agreement in restraint of lawful businesses.
 Example: Mr. Adeel a publisher offers Rs.1 lac to Miss.
Hina not to deal in this business. Miss. Hina accepts the
agreement is void. Mr. Adeel cannot enforce her for agreement.
AGREEMENT IN RESTRAINT OF LEGAL
PROCEEDINGS: every agreement by which any party
thereto is restricted absolutely from enforcing his right
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.

Example: B gives 1 lac as loan to H for 1 year and agrees

that if H fails to return loan, B must sue within 2 years
otherwise H will not be liable. The agreement is void.

UNCERTAIN AGREEMENTS: Agreements whose meaning

is not certain or capable of being made certain, are void.
The terms of agreement must be made clear, complete
and certain.

Example: A possess cows and horses. A agrees to sell one

of his animal to B. It is not clear which animal he wants to
sell. This agreement is void as the kind of animal is not
certain.

WAGERING AGREEMENTS: Wager means bet. A wager is

an agreement to pay money or moneys worth on the
happening or non-happening of a future event. The parties
should have no interest in the agreement other than the
betting amount.

Example: S and U agrees that if it rains today, S will pay

U 1000Rs. And if it doesnt rain, U will pay S 1000Rs. It is a
wagering agreement.

AGREEMENT ON IMPOSSIBLE EVENTS: Contingent

agreement 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 of formation.

Example: A agrees to pay B Rs10000 if B marries As

daughter, C. C was dead at the time of the agreement.
The agreement is void.

AGREEMENT TO DO IMPOSSIBLE ACTS: An agreement

to do an impossible act is void itself.

Example: K agrees to bring back As dead daughter by

magic. This agreement is void.

EXCEPTIONS TO THE VOID AGREEMENT:

EXCEPTIONS TO AGREEMENTS IN RESTRAINT OF

TRADE:

Sale of goodwill: the seller of the goodwill of a

business may agree with the buyer on the conditions
such as, he can be restrained from carrying on a
similar business or the restraint will continue till the
buyer carries on business. Example: A sells his
bakery to B with goodwill of Rs. 1 lac and agrees not
to carry on bakery in the entire country. It is
unreasonable and so is void.

EXCEPTIONS TO AGREEMENT IN RESTRAINT OF

LEGAL PROCEEDINGS:

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 courts decision.

Example: A sells 800 clocks to B. they agree that

any dispute will be referred for arbitration and not to
the court. It is valid agreement. OR. A sells sports
goods from Sialkot to B at Lahore. In case of dispute
they can sue in the Sialkots court or Lahores court.
But they agree that they will sue in Lahores court.
The agreement is valid.

EXCEPTIONS TO WAGERING AGREEMENT:

Suit for Recovery: No suit can be filed in a court of

law to recover the sum of money paid or payable of
any void agreement.

Collateral Agreement: All agreements knowingly

made to further or assist the entering into carrying
out or to secure the performance of any wagering
agreement are also void.

Question number 03: Differentiate between

Void agreement and Illegal agreement

Indemnity and Guarantee

VOID AGREEMENT AND ILLEGAL AGREEMENT

 VOID AGREEMENT ILLEGAL AGREEMENT

An agreement, which lacks An agreement whose creation

legal enforceability is void is forbidden by the court of law
agreement. is an illegal agreement.

An agreement becomes void An illegal agreement is void ab

when it loses its enforceability inito. Void from the very
by law. beginning.

A void agreement is not An illegal agreement is

punishable. punishable.

The object of void agreement is The object of illegal agreement

not illegal. is illegal.

In void agreement the money In illegal agreement the money

received must be returned to paid cannot be claimed back.
the other party.

A collateral agreement to a A collateral agreement to an

void agreement is enforceable. illegal agreement is not
enforceable.

INDEMNITY AND GUARANTEE

INDEMNITY GUARANTEE

NUMBER OF PARTIES

In a contract of indemnity, In a contract of guarantee,

there are two parties there are three parties,
indemnifier and indemnity creditor, principal debtor and
holder surety.

NUMBER OF CONTRACT

In indemnity there is one In guarantee there are 3

contract between indemnifier contracts. Debtor, creditor and
and indemnified. principal debtor.

NATURE OF LIABILITY

The liability of indemnifier is The liability of surety is

primary and independent. secondary. Surety is liable if
principal debtor fails to
perform his promise.

REQUEST

In a contract of indemnity the In a contract of guarantee the

indemnifier promises without surety gives the guarantee on
the request of the debtor the request of debtor

PURPOSE

A contract of indemnity is for A contract of guarantee is for

reimbursement of loss security of a debt or
performance of promise.