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MERCANTILE AND

COMMERCIAL LAW

INTRODUCTION

Law in legal sense means those rules and


principles that govern and regulate social conduct
and the observance of which can be enforced in
courts.

According to Salmond Law is the body of


principles recognized and applied by the state in
the administration of justice

The object of law is maintaining order that men


are enabled to look ahead with some sort of
security as to the future

Need for knowledge of Law: Ignorantia juris


not Excusat

Mercantile Law is that branch of law which


deals with the rights and obligations of
mercantile persons arising out of mercantile
transactions in respect of mercantile property.

Mercantile Law, in turn, is founded on law of


contracts. Ex: the laws of agency, surety ship,
sale of goods, negotiable instruments,
partnership, etc., are only specialized fields of
contracts.

Sources of Mercantile Law

English Mercantile Law which has its source


in Common Law of England as modified and
supplemented by Equity and Statute law.
Statute Law like the Contract Act 1872 the
Sale of Goods Act 1930 etc.
Judicial Decisions
Customs and Usages

Definition of Contract

Every promise and every set of promises, forming


the consideration for each other is an agreement. [sec
2(e)]
Agreement enforceable by law is a contract. [sec
2(h)]
According to Salmond Contract is an agreement
creating and defining obligations between the
parties.
According to Pollock every agreement and promise
enforceable at law is a contract

Agreement implies consent of parties (consensus


ad idem) and becomes a contract when it creates a
legal tie (vinculum juris).

Contract = Agreement + enforceability at law. Thus,


all contracts are agreements but all agreements are
not necessarily contracts.

SEC 10: All agreements are contracts if they are


made by the free consent of parties, competent to
contract for a lawful consideration and with a lawful
object and are not hereby expressly declared to be
void.

Essential
Requirements of a
Valid Contract

Offer and its acceptance


Free consents of both parties
Parties should be competent to contract
Mutual and lawful consideration for
agreement
Objects should be lawful
Should be enforceable by law. Hence,
intention should be to create legal
relationship
Agreements not declared to be void
Certainty and possibility of performance

Offer and its Acceptance

Definite offer by one person to another with an


intent to create a legal tie (Vinculum Juries) and its
unqualified acceptance by the other person to whom
it is made is fundamental to all contracts.

When one person signifies to another his


willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a proposal
[ Sec 2 (a)].

Illustration
A asks B Will you purchase my car for
Rs. 5000/-?
Offer may be express or implied;
specific or general

Illustration 1
A asks B in a letter whether he will buy his
house for Rs. 1 Lakh.
Illustration 2
A transport company running a route bus in
a specific route.
Illustration 3
A advertises in a newspaper offering Rs.
50/- to anyone who returns his lost dog


1.
2.
3.

Legal rules as to offer


It must be intended to create legal relations
It must be certain
It must be distinguished from
(a) A declaration of intention
(b) Invitation to make offer
(c) A statement of price

4.
5.
6.

It must be communicated to the offeree


Must be made with a view to obtaining the assent
of the offeree
Must not contain a term the non compliance of
which would amount to acceptance

Lapse of Offer
An offer lapses
1.
By communication of termination of offer
2.
By lapse of specified or reasonable time
3.
By death or insanity of the offerer
4.
By counter offer
5.
By not being accepted according to the
prescribed or usual mode.
6.
By non-fulfillment of a condition precedent.

Acceptance
Rules as to acceptance:
1.
Must be absolute and unqualified
2.
Must be communicated
3.
Must be according to the prescribed or usual
mode
4.
Given within prescribed of reasonable time
5.
Acceptance should follow offer
6.
Accepted by the offeree
7.
Given before offer lapses

Communication of Offer,
Acceptance and Revocation

The offer, its acceptance and the revocation


of either have to communicated to the
concerned persons

The communication of an offer is complete


when it comes to the knowledge of the
person to whom it is made

The communication of acceptance is complete as


against the proposer when it is put in a course of
transmission to him so as to be out of the power of
the acceptor and as against the acceptor when it
comes to the knowledge of the proposer.

The communication of revocation is complete as


against the person who makes it when it is put into
course of transmission to the person to whom it is
made so as to be out of the power of the person
who makes it and as against the person to whom it
is made when it comes to his knowledge.

Illustrations
1. A proposes, by letter, to sell a house to B
at Rs. 1 Lakh.
2. B accepts As proposal by a letter sent by
post.
3. A revokes his proposal by telegram.
4. B revokes his acceptance by telegram.

Important Case Laws

General offer and communication of acceptance.


[Carlill v. Carbolic Smoke Ball Co., (1893) QB 256]
Offer to be definite, unambiguous and certain and
not loose and vague [Gerald v. Gould (1970) 1 QB
275]. A husband on leaving his wife promise to pay
15 Pounds a week so long he can manage it
Offer must be communicated [Lalman v. Gauri Dutt
(1913) 11 All LJ 489] Servant found the nephew
without knowing the reward announced for finding.

Acceptance

Implied acceptance. [V. Rao v. A. Rao


(1916) 30 Mad 509] widows promise to
settle certain immovable property on her
niece if she stayed with her and the niece
staying with her till her death.
Acceptance of particular offer [Boulten v.
Jones (1857) 2H and N564] Jones takes
over Broklehorst. Supplies to Boulten by
Jones based on the order on Broklehorst

Free Consent of Both Parties

Consensus-ad-idem. Parties agree upon the same


thing in the same sense at the same time and that
their consent is free and real
Free consent:- consent is set to be free when it is
not caused by
(a) coercion as defined in Sec 15 or
(b) undue influence as defined in Sec 16 or
(c) fraud as defined in Sec 17 or
(d) misrepresentation as defined in Sec 18 or
(e) mistake as per provisions of Sec 20, 21 & 22

Coercion is committing or threatening to


commit any act forbidden by IPC or
unlawful detaining or threatening to detain
any property to the prejudice of any person
with an intent to make that person to enter
into an agreement.

A threat to commit suicide is coercion.

Undue Influence means use of the position to


dominate the will of the other to obtain an
unfair advantage.

The following relationships give rise to


presumption of undue influence- Parent and

child; Trustee and beneficiary; Religious guru and


disciple; Guardian and ward; Solicitor and client;
Doctor and patient; Fianc and fiance

No presumption of undue influence in- wife


and husband; landlord and tenant; creditor and
debtor.

Misrepresentation is mis-statement of a material


fact made innocently with an honest belief as to
its truth or non disclosure of a material fact
without any intent to deceive the other party.

Fraud: it exists when it is shown that a false


representation has been made knowingly or
without belief in its truth or recklessly, not caring
whether its true or not and the maker intends the
other party to act upon it. It also exists when there
is a concealment of material fact.

Capacity to Contract

Every person is competent to contract who


(a)
(b)
(c)

Is of the age of majority according to the law


to which he is subject,
Is of sound mind and
Is not disqualified from contracting by any
law to which he is subjected.

Accordingly, the following persons are


incompetent to contract

Minors
Persons of unsound mind and
Persons disqualified by any law to which they
are subject (insolvents etc)


(a)

(b)
(c)
(d)

(e)
(f)

Minors Agreements
an agreement with or by a minor is void and
inoperative of ab initio. [Mohiri Bibi vs. Dharmodas
Ghose (1903) 30 cal 539]
He can be a promisee or a beneficiary [Sharafat Ali
vs. Noor Mohammed (1924) rang 136]
Cannot be ratified by him on attaining the age of
majority.
He cannot be asked to compensate or pay for what
he has received under void contract. However, his
estate will be liable for the necessities supplied to
him.
He cannot be a partner in a partnership
He cannot be adjudged as insolvent


(a)
(b)
(c)

Persons of Unsound mind


A lunatic can enter into a contract when he
is of sound mind (lucid interval)
An agreement by or with idiots is void
The position of a drunken or intoxicated
person is similar to that of a lunatic and
suffers from only temporary incapacity.


(a)
(b)
(c)
(d)
(e)

Others
Alien enemies
Foreign sovereigns and accredited
representatives of foreign states
Corporations
Insolvents
Convicts

Important Case Law

Minors contract void [ Mohiri Bibi v.


Dharmodas Ghose (1903) 30 Cal 539]
Money lent to a minor based on a mortgage
created by the minor.

Consideration

When a party to an agreement promises to


do something he must get something in
return. This something is defined as
consideration.

Example:- A agrees to sell his car to B for


Rs. 10,000. Car is the consideration for B
and price is the Consideration for A.

Legal rules as to Consideration

An agreement without consideration is void


It must move at the desire of the promisor
It may move from the promisee or any other
person
It may be past present or future
It need not be adequate
It must be real and not illusory
It must not be something which the promisor
is already legally or contractually bound to do
It must not be illegal, immoral or opposed to
public policy.

Exceptions

No considerations is required in case of


(a) A promise to compensate, wholly or in part, a
person who has already voluntarily done
something for the promisor.
(b) A written and registered agreement based on
natural love and affection.
(c) A promise by a debtor to pay a time- barred
debt if it is made in writing and signed
(d) An agency
(e) A completed gift

Important Case Laws

Contract without consideration void [Abdul Aziz


v. Masum Ali (1914) 36 All 268] promise to
donate a sum (Rs. 500) for rebuilding a mosque.
Held not enforceable.

Kedar Nath v. Gauri Mohammed (1886) 14 Cal


64] though the promise of donation could not be
enforced the court ordered for payment as the
secretary acted on the promise and incurred
expenses.

Legality of the Object

Every agreement of which the object of


consideration is unlawful is void.

The consideration or the object of an


agreement is unlawful if it is forbidden by
law or it is fraudulent or involves or
implies injury to the person or property of
another or the court regards it as immoral
or opposed to public policy (Sec. 23)

Agreement Opposed to Public Policy

Agreement to commit a crime


Agreements interfering with administration of
justice
Agreement for the sale of public offices
Agreements in restraint of marriage
Marriage brokerage agreements
Agreements in restraint of trade
Agreements of trading with enemy.

Important Case Law

When the court regards it as immoral [Pearce v.


Brooks (1866)LR 1 Ex 213]. Coach builders hired out
a carriage to a prostitute knowingly that the same will
be used for attracting clients. Could not recover hire
charges.

When there is no intention to create a legal


relationship contract does not arise [Balfour v.
Balfour (1919) 2 K.B. 571] husband promised to pay
his wife a household allowance of 30 pounds every
month. When separated he failed to pay. The wife
sued. Held no contract and not enforceable.

VOID AGREEMENTS

1.

An agreement not enforceable by law is


said to be void [Sec 2(g)].
The following are void agreements:An agreement wherein both the parties
are under mistake of fact [sec 20].
Illustration:- A agrees to buy from B a
certain horse. But the horse was dead at
the time of agreement without the
knowledge of the parties. The agreement
is void.

A contract is not void by mistake of law


in force in India; but a mistake as to law
not in force in India is void.

A contract is not void merely because one


party is under mistake of fact.

2. Agreement void, if consideration or object is


unlawful. [sec 24]
Illustration:- A, B and C 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 the object is unlawful.

A promises to obtain for b an employment in


govt and B promises to pay RS 1000 to A. The
agreement is void due to unlawful consideration.

3.

Agreement without consideration is


void [sec 25], unless it is in writing and
registered or is a promise to compensate
for something done.
Illustration:- A promises, for no
consideration, to give B Rs 1000- void
agreement.
A supports Bs infant son and B promises
to pay As expenses- valid contract.
A signs a written promise to pay B Rs
500, a time barred debt- valid contract.

4.

Every agreement in restraint of marriage


of any person other than a minor is void
[sec 26].

5.

Agreement in restraint of trade is void.


Exception:- on sale of good will of a
business.
Illustration:- A sells his business to B along
with goodwill with a condition that A shall
not carry competing business within the
same area so long as B carries such business.
Agreement is valid.

6.

Agreement in restraint of legal


proceedings. [sec 28]
Exceptions:- contract to refer to
arbitration of dispute that may arise or
have already arisen.

7.

Uncertain agreement. [sec 29]


Illustration:- A agrees to sell to B a 100
tons of oil. There is nothing to show what
kind of oil is intended. The agreement is
void.
A agrees to sell to B his only horse at
Ramnagar. Agreement not void.

8.

Wagering agreements. [sec 30]


A contract between two parties by which
one promises to pay money or moneys
worth on the happening of some uncertain
event in consideration of the other partys
promise to pay if the event does not
happen is wager.
Illustration:- A and B enter into an
agreement that A shall pay B Rs 100 if it
rains on Monday and that B shall pay A
the same amount if it does not rain.

9.

Agreement to do an impossible act. [sec


56]
Illustration:- A agrees with B to discover
treasure by magic. The contract is void.
A and B contract to marry each other but
before the time fixed for marriage A
becomes insane. The contract becomes
void.

10. Agreement contingent on impossible


events. [sec 36]
Illustration:- A agrees to pay B Rs 1000 if
two straight lines should enclose a space.

11.

Reciprocal promises to do things legal


and also other things illegal. [sec 57]
Illustration:- A and B agree that A shall
sell B a house for Rs 10,000 but if be uses
it as a gambling house he shall pay A Rs
50,000 for it. The first promise to sell the
house for Rs 10,000. The object of the
second promise is to use the house as
gambling house.

12.

Alternative promise one branch being


illegal. [sec 58]
Illustration:- A and B agree that A shall
pay B Rs 1000 for which B shall
afterwards deliver to A either rice or
smuggled opium.

Thank You!!!