BUSINESS LAW

Assignment no. 2

Question no.1:
In the light of essentials of contract of
bailment examine whether the following transaction
constitute a contract of bailment
1- A parked his car at parking space, lock it and keep the keys with himself? 
2- Does depositing of ornaments in a bank locker considered as a contract of
bailment?
3- Does delivering a car to mechanic for repair purposes constitute a contract
of bailment?
 
Answer:
Contract of Bailment:
The bailment is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose is
accomplished, be returned or otherwise disposed of according to the
directions of the person delivering them.
The word “Bailment” is derived from a French word “Bailler” which
means to deliver. The analysis of the above law also reveals that if a
person already having had possession of the goods of another, contracts
to hold them as a bailee, he thereby becomes the bailee, and the owner
becomes the bailor of such goods, although they may not have been
delivered by way of bailment.
Example:
Asim lends a laptop to Ahmad to be returned after the
examination. There is a contract of bailment between Asim and Ahmad.
Essential Elements Of Bailment:
Contract:
A bailment is usually created by contract between the bailor and
the bailee. It may be gratuitous i.e. without consideration or non-
gratuitous i.e. with consideration. The agreement may be express or
implied. In case of finder of goods the bailment is implied by law.
Delivery of goods:
A bailment involves delivery of goods by bailor to bailee. In this
connection, the following points may be noted:
 Actual delivery is when goods are physically transferred by one
person to another.
 The possession of goods is transferred to the bailee without
actually handing over the goods physically.
Purpose:
The delivery of goods from bailor to bailee must be for some
purpose such as personal service, safe custody, some work to be done
upon or transportation.
Return of specific goods:
In contract of bailment the goods are either returned or disposed
of as per the instructions of bailor after the purpose is achieved.
Example for essential elements of bailment:
Salman delivers a piece of cloth to Sikandar, a tailor, to be stitched into a
suit. There is a contract of bailment between Salman and Sikandar.
 It was an express agreement with consideration as Salman has to
pay stitching cost.
 The delivery of cloth was voluntary and actual.
 The purpose was to stitch the cloth into a suit.
 After the stitching, the suit will be returned by Sikandar to Salman.

1:A parked his car at parking space, lock it and keep the keys
with himself?
Answer: No, Mere custody of goods does not mean possession. For a
bailment to exist the bailor must give possession of the bailed property
and the bailee must expect it.
2: Does depositing of ornaments in a bank locker considered as a
contract of bailment?
Answer: Depositing ornaments in a bank locker is not bailment, because
ornaments are kept in a locker whose key are still with the owner and not
with the bank. The ornaments are in possession of the owner though kept
in a locker at a bank.
3: Does delivering a car to mechanic for repair purposes
constitute a contract of bailment?
Answer: Yes, delivering a car to mechanic for repair purposes
constitutes a contract of bailment because it shows the actual delivery of
good by physically transfer of a car to mechanic.

Question no. 2:
It is important to pass the ownership
from seller to buyer in sale of goods Act- Why ?
Answer:
Law Of Sales Of Goods :
Sale of Goods Act:
Sale of Goods Act 1930 is a Mercantile Law. The Sale of
Goods Act is a kind of Contract Act. It came into existence on 1 July 1930.
This act contains 66 sections and extends to the whole of Pakistan.
Contract of Sale of Goods:
Definition:
According section 4(1):
“A contract of goods is a contract whereby the
seller transfers or agrees to transfer the property to goods to the buyer
for a price.”
There may be a contract of sale between one part-owner and another. A
contract of sale may be absolute or conditional. The term ‘contract of
sale’ is a generic term and includes both a sale and an agreement to
sell.Sale and agreement to sell: when under a contract of sale, the
property in the goods is transferred from the seller to the buyer, the
contract is called a ‘sale’, but where the transfer of the property in the
goods is to take place at a future time or subject to some conditions
thereafter to be fulfilled, the contract is called an ‘agreement to sell’.An
agreement to sell becomes a sale when time elapses or the conditions,
subject to which the property in the goods is to be transferred are
fulfilled.
Essentials of a Contract of Sale:
1: Two Parties (Buyer and Seller):
There must be 2 distinct parties i.e. a buyer and a seller, to
affect a contract of sale and they must be competent to contract. ‘Buyer’
means a person who buys or agrees to buy goods. Seller’ means a person
who sells or agrees to sell goods. One person cannot act as a buyer and
seller because a person cannot buy his own goods and similarly a person
cannot sell his goods to himself.

Example:
Ahamd sells hi book to Sara for Rs 100. Ahmad is a seller and Sara is
a buyer.
2: Transfer of property:
There must be a transfer of general property as distinguishes
from special property in goods from the seller to the buyer. Property here
means ownership. In a contract of sale, ownership over goods has to be
transferred to the buyer by the seller or there should be an agreement to
transfer the ownership by the seller to the buyer.The property in the
goods means “all ownership rights” of the goods. In a contract of sale, all
the ownership rights of the goods must be transferred by the seller to the
buyer.
Example:
As Ahmad sells his book to Sara for Rs 100, the ownership and the
possession of the book is transferred from Ahmad to Sara.
3: Goods:
There must be some goods which is transferred from
seller to buyer. The goods which form the subject-matter of the
contract of sale must be movable. Transfer of immovable property
is not regulated by the Sale of Goods Act.
According to section 2(7):
“goods means every kind of movable
property other than actionable claims and money; and includes
electricity, water, gas, stock and shares, growing crops, grass and
thing attached to our forming part of the land which are agreed to
be severed before sale or under the contract of sale.”
Example:
As Ahmad sells his book to Sara for Rs100. It is a contract of sale
because here the subject matter i.e a book is a moveable thing.
4: Price:
According to Section 2(10):
Price is an essential ingredient for all transactions of sale and in the
absence of the price or the consideration, the transfer is not regarded as
a sale. The transfer by way of sale must be in exchange for a price. It has
been held that price normally means money. The price can be paid fully in
cash or it can be partly paid and partly promised to be paid in future. The
price can be fixed by the agreement between the parties before the
conveyance of the property.
Example:
Majid sells his mobile to Aslam against Aslam’s profit to give 50 bags
of wheat. It is not a contract.
5: Sale and agreement to sell:
The ‘contract of sale’ is a generic term and includes both sale and
an agreement to sell. The sale is an executed or absolute contract
whereas ‘an agreement to sell’ is an executory contract and implies a
conditional sale.A contract of sale can be made merely by an offer, to buy
or sell goods for a price, followed by acceptance of such an offer.
Interestingly, neither the payment of price nor the delivery of goods is
essential at the time of making the contract of sale unless otherwise
agreed.Subject to the provisions of the law for time being in force, a
contract of sale may be made either orally or in writing, or partly orally
and partly in writing, or may even be implied from the conduct of the
parties.
Example:
Irfan agrees to buy Saeed’s bike for Rs 50000. If his mechanic
approves the bike. It is an agreement to sell.
6: Other Formalities:
A contract of sale is a special type of contract, therefore, to
be valid, it must have all the essential elements of a valid contract, viz.,
free consent, consideration, competency of contracting parties, lawful
object, legal formalities to be completed, etc. A contract of sale will be
invalid if important elements are missing.
Example:
If A agreed to sell his car to B because B forced him to do so by
means of undue influence, this contract of sale is not valid since there is
no free consent on the part of the transferor.

Question no. 3:
Ali (Agent) was employed
by Zahid (Principal) as an office equipment
manager. Zahid expressly instructed Ali not to order
office equipment exceeding the value of Rs1 million.
However Ali ordered a computer from Rafique (Third
party)at the price of Rs 1.2 Million. Upon the delivery
of the computer Zahid refused to pay Rafique.
Scenario 1: whether he may recover the price from Zahid
Scenario 2 : Referring to the above question, Rafique paid a
commission of Rs 50,000 to Ali to thank Ali for having purchased the
computer from Rafique.
What action Mr Zahid may take against Ali?
Answer:
Scenario 1:
Contract of Agency:
Ali( Agent) ordered office equipment of Rs 1.2 Million from
Rafique(Third party) despite having been instructed by Zahid(Principal),
Zahid ordered Ali not to exceeding the value of office equipment of Rs 1
Million.
Creation of Agency:
Firstly, it must be established that there is an agency relationship
between Ali and Zahid. As Ali was employed by Zahid as an office
equipment manager, and Zahid expressly instructed Ali to purchase office
equipment on his behalf, it is assumed that the agent is appointed
expressly in writing or orally by contract so as to avoid uncertainty. It can
be seen that there is an agency relationship between them.
Duties of Agent:
In this case, Zahid is the principal, Ali is the agent and Rafique is the
third party. The legal issue is whether the agent performed his duties or
breached the warranty of authority. One of the duties of an agent is to
follow principal’s instruction. In this case, the instruction of the principal
is that the agent must not to order office equipment exceeding the value
of Rs 1 Millionbut the agent ordered a computer that the price was Rs1.2
Million which was higher than the instructed price from Rafique.
Agency by Ratification:
In this, the Ali did not perform his duty of following the Zahid’s
instructions and made a contract with the Rafique without authority and
the contract was not ratified by the principal(Zahid).But the
principal(Zahid) can ratify the agent’s transaction and accept liability. In
this way, an agency by ratification arises.
Right Of Principal (Zahid):
Ali who has breached the warranty of authority is personally liable
for the loss in the transaction. As the principal expressly instructed the
agent to pay no more than Rs 1 Million for the office equipment, the
agent is liable for the extra Rs 2 Lac incurred in the transaction. There are
two possibilities:
Rafique may recover the Rs 2 Lac fromthe Ali or the Zahid can claim the
Rs 2 Lac from the Ali to pay the Rafique.
Conclusion:
To conclude, the agent (Ali) is liable for the extra expense of Rs 2
Lac incurred in the transaction as he did not perform his duty as an agent
and breached the warranty of authority.
 Scenario 2 :
Answer:
The third party (Rafique) paid a commission of Rs 50000 to the
agent(Ali) to thank him for having purchased the office equipment.
Action taken by Principal(Zahid):
First of all, One of the duties of agent is not to make secret profits so
taking bribes or secret commission by an agent, as it is a breach of the
agent’s fiduciary duties. When an agent has actually received some
money by way of secret commission, the principal may recover such
money from the agent.
Termination of Agency:
The principal may sue the third party where the principal has suffered
any financial loss as a result of the agent taking secret commission.
Termination of agency is the other action that the principal can take.
There are two ways to terminate the contract, by contract of the parties
or by operation of law. If termination of agency is chosen, the agent no
longer has authority to act on behalf of the principal. The third party
needs to be informed for the termination of agency.