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COMMERCIAL LAW Law: Law is the body of principles recognized and applied by the State (Salmond) Commercial Law: Legal rules that 1. determine the rights and duties of parties engaged in trade and commerce 2. govern disputes arising out of ordinary transactions of buyers and sellers and 3. settle issues concerned in the affreightment, banking, insurance etc.
Mercantile Law: Body of laws that deals with customs and practices of local and international commerce. Not a separate body of law but a legal code that governs operations of banks and business of all kinds, it covers agreements, contracts, copyrights, franchising, insurance, licensing, patents, shipping, transport and trademarks. It is found in the subjects Banking, Commerce, Credit, Finance, Corporate, Commercial and General Law.
Law of Contracts (Unit: I) This lesson deals with:1. 2. 3. 4. 5. Definition of Agreement and Contract Essentials of a Valid Contract Performance and discharge of a Contract Breach of a Contract and remedies therefor Quasi Contracts
1. Definition of Agreement and Contract Offer and Promise: A person is said to have made a proposal when he ‘signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that of the other to such act or abstinence. (Sec.2a) The person making an offer is called Promisor, Offeror, Proposer and the person to whom it is made is called the Promisee, Offeree or Proposee. If the offer is accepted by the Offeree, he is called the Acceptor. The offer may be express words spoken or written. Ex: Express Offer: Advertisement for the lost dog. Implied Offer: It is an offer from the conduct of the parties. Ex: A transport company’s bus which takes passengers for a price (ticket) General offer: To everybody; Specific offer: To a specific person.
What constitutes an offer? The rules for an offer are:-
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1. 2. 3. 4.
Intention on the part of the offeror to be bound by it. Offeror must make the offer to get offeree’s assent. Offer must be definite. Offer must be communicated to the offeree.
The steps involved from Proposal to Contract are given below:Proposal + Acceptance = Promise Promise + Consideration = Agreement Agreement + Enforceability by Law = Contract Contract + No legal obligation – Social Contract or Agreement
Ex: Balfor vs. Balfor: Mr. Balfor promised to give his wife £13 every month. After a few months, he failed to keep his promise. The wife could not recover the money because it is a social agreement (without any legal intention to enforce). a) Def. of Agreement (Sec. 2e): Every promise and every set of promises, forming the consideration for each other is called an Agreement. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise. Agreements can be classified as: (i) Valid (Enforceable by law), (ii) Void (Not enforceable by law); (iii) Voidable (Enforceable by law at the option of one or more of the parties thereto but not at the option of the others); (iv) Unenforceable (Void in law but incapable of proof because of some technical defect) and (v) Illegal (It is something against law itself and is void ab initio). Essence of an agreement is consensus ad idem (agreeing in the same sense and on the same thing) (b). Def. of Contract: (Sec. 2h) An agreement enforceable by law is a Contract. A Contract is an agreement made between two or more parties enforceable in law. A Contract is an agreement creating and defining obligations between the parties. A social contract does not give rise to legal consequences. The law relating to contracts is contained in the Indian Contract Act, 1872. The Law of Contracts determines the circumstances in which promises made by the parties to a contract shall be legally binding on them.
2. Essentials of a Valid Contract: 1. There must be a valid agreement involving 2 parties, one party making an offer and the other party accepting it. 2. The parties must intend to create legal relationship.
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3. The parties must be capable of entering into an agreement as regards age and understanding i.e., competent to contract. 4. Agreement must be supported by consideration on both sides. 5. The consent of the parties must be free and genuine. 6. The object of the agreement must be lawful. 7. Terms must be certain & capable of performance. 8. Agreement must not have been expressly declared as void.
Essential elements of Contract (in brief): 1. 2. 3. 4. 5. 6. 7. 8. Proposal, Offer & acceptance Consideration (Lawful consideration) Capacity to contract (by competent parties ) Free consent Legality of Object Performance of Contract Remedies for breach of contract Quasi Contracts
1. Offer and acceptance: When an offer (proposal) is made and it is accepted by the other, it becomes a promise. When a promise has some legal consideration, it becomes an agreement and when an agreement becomes enforceable by law, it becomes a valid contract. Legal Rules for Offer: Offer must be such as capable of being accepted giving rise to legal relationship Terms of offer must be definite. Offer must be specific as distinct from an announcement or a general invitation Offer must be communicated Offer must be made with a view to getting an assent Offer should not contain a term whereby no response would be deemed acceptance. A statement of price is not an offer Tenders are called for to receive a) definite offer b) standing offer Cross offers: do not constitute offer and acceptance Legal rules for Acceptance: Acceptance must be unqualified and absolute
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It must be communicated to the offeror It must be in the mode prescribed or in usual or reasonable mode It must be given within a reasonable time It does not precede an offer It must show an intention on the part of the acceptor to fulfill the terms of offer It must be given before the offer lapses COMMUNICATION OF OFFER, ACCEPTANCE & REVOCATION (Sec 3) This is made by any act or omission of the parties concerned, intending to communicate such proposals. The communication is complete when it reaches the addressee. The concerned communicator can revoke the offer / acceptance only before it reaches the other party. He is otherwise bound by it (Sec 4 ) Sec 5 & 6 deal with such revocation cases.
2. Consideration: It means something in return (price or a benefit to the promisor or detriment to promisee).
Def. of Consideration (Sec.2(d)): When at the desire of the promisor, the promisee has done or abstained from doing something. (Ex A promises a loan of Rs.20,000 to B in return for paying back the loan with a definite interest in a year) such an act is called consideration for the promise. Legal rules to consideration: It is essential to support every contract. It must move at the desire of promisor. It may be an act, abstinence or forbearance or a return promise It may be past, present or future. It need not be adequate. It must be real. It must not be illegal, immoral or opposed to the public policy An agreement made without consideration is void (Sec.25) Exceptions : Love & affection and registered deed; compensation for voluntary services, promise to pay a time-barred debt.
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Some examples: A promises a subscription to National Defense Fund a sum of Rs.10,000. But he failed to pay. (No legal remedy because it is a social contract). A sells his car valued at Rs.2 lakhs for Rs.20,000 only as he is in need of urgent money. Afterwards he seeks to set aside the sale for inadequacy of consideration (He does not succeed).
3. Capacity to Contract: Every person is competent to contract who is of the age of majority according to the law to which he is subject and is of sound mind and is not disqualified from contracting by any law to which he is subject. Following persons are incompetent to contract (Sec.11):(a) Minors; (ii) persons of Unsound Mind (Lunatics; Idiots; Drunken or intoxicated persons); and (iii) Persons disqualified by law to which they are subject (like Alien Enemies). (a) Minor (Sec. 3 of Indian Majority Act 1875): A minor is a person who has not completed 18 years of age. It will be 21 years if (i) when a guardian of a minor or his property is appointed under Gaurdians and Wards Act, 1890; (ii) When the superintendence of a minor’s property is assumed by a Court of Wards. Law protects minors and preserves their rights and properties. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Rules pertaining to Minors:An agreement with a minor is void (Mohri Bibi vs. Dharam Das case). A minor can be a promisee or a beneficiary. He cannot be asked to pay compensation. He can always plead minority. There can not be specific performance of the agreements with minors as they are void ab initio. He cannot enter into a contract of partnership. He cannot be adjudicated insolvent. He is liable to pay for necessaries. He can be an agent. He binds the principal by his acts without himself being personally liable. His parents/guardian not personally liable for his acts. A minor is not liable in a tort (a civil wrong), out of a contract. PERSONS OF UNSOUND MIND: (Sec 12) A person is said to be of sound mind for the purpose of making a contract , if, at the time he makes it, he is capable of understanding it and of forming a rational judgment as to its effect on his interests. A lunatic is mentally deranged. He can contract when he is of sound mind. An idiot is one who has completely lost his mental powers. An agreement of an idiot is void. A drunken or intoxicated person suffers from temporary incapacity to contract. His position is like that of a lunatic.
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Others: Alien enemies, foreign sovereigns/ diplomats, corporations, insolvents, convicts. Sec. 13 Two or more persons are said to consent when they agree upon the same thing in the same sense. Se c 10 says all agreements are contracts if they are made by free will of parties 4. Free Consent: Consent means the act of assenting to an offer (Sec. 13 & 14). Consent is said to be free when it is not caused by:1. Coercion (Sec. 15) 2. Undue Influence (Sec. 16) 3. Fraud (Sec. 17) 4. Misrepresentation (Sec. 18) 5. Mistake (Sec. 20,21,22) 1. Coercion: When a person is compelled to enter into a contract, by the use of force, by the other party under a threat, coercion is said to be employed. Ex: A gave a promissory note to B under pistol point. A’s consent to B is not free. Hence the contract is voidable at the option of A. Threatening suicide is a coercive measure. 2. Undue Influence: A contract is said to be induced by ‘undue influence’ when the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses the position to obtain an unfair advantage over the other. (landlord & tenant, creditor & debtor, husband & wife – no and parent & child, guardian & ward, trustee & beneficiary, religious advisor & disciple, doctor & patient, solicitor & client and fiancé & fiancée - yes ) Ex: A spiritual Guru induced his devotee to gift him the whole of his property in return of a promise of salvation of the devotee. Consent of devotee was given under undue influence (Mannu Singh vs. Umadat Pandey) Burden of proof is with the influencer 3. Fraud: (Sec 17) It refers to false representation, concealment of fact, promise made without an intention to perform, any fraudulent act or omission of an act with an intension to deceive. It may be done by a party to contract, his agent or with his connivance, to deceive and induce a person to enter into contract. A contract induced by fraud is voidable at the option of party he defrauded. He can rescind the contract. Ex: (i): A Co. issued prospectus by giving false information. (ii): A purchases goods from B by making misrepresentation. (iii) A sells the goods to X before B avoids the contract. B loses the right to avoid the contract.
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Essential elements of fraud: There must be an assertion or representation and it must be false. The representation must relate to a material fact that exists now or existed in the past. The representation must have been made before conclusion of the contract and done to induce the other party to contract. The statement must have been made with the knowledge of falsity etc. The other party relied on the information and was induced to contract.
4. Misrepresentation and Fraud: It is a misstatement 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 exists when a false representation is made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly not caring whether it is true or false, and (iv)the maker intends the other party to act upon it. It also exists when there is a concealment of material fact. Sometimes, if the representations could have been read by a prudent man the truth could have been found, the contract may not be treated as voidable. Similarly, if the goods were contracted by others, the contract cannot be rescinded. 5. Mistake: Mistake is an erroneous belief about something. It may be about subject matter’s existence, its identity, its quality, quality or its title or ownership. It could be a (i) Mistake of law (ignorance of own law is no excuse and mistake of foreign law is treated as mistake of fact); (ii) Mistake of fact (Bilateral – Both parties- contract is void, or Unilateral – Only one party-not voidable). Ex:- A offers to sell his house to B for an intended sum of Rs.1,44,000. By mistake he makes an offer in writing for Rs.1,40,000. He cannot plead mistake as a defense.
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5. Legality of Object ( Sec 23 ): Object means purpose or design. In some cases, consideration could be lawful but object unlawful. An agreement is a contract if it is made for a lawful consideration and with a lawful object (Sec.10). Every agreement of which the object or consideration is unlawful is void. The consideration or object is unlawful if it is (i) forbidden by law; (ii) if permitted, would defeat the provisions of law (iii) fraudulent; (iv) implies injury to the person or property of another; (v) immoral; or (vi) opposed to public policy. Ex:- (i) For Trading with enemy; (ii) Object which interferes with court of justice; (iii) For promoting prostitution; (iv) In restraint of marriage; and (v) Opposed to public policy. Sec 24 Agreements void, if the consideration and object are unlawful in part. An agreement is said to be opposed to public policy when it is harmful to public welfare. Public policy is that principle of law which holds that no subject can lawfully do that which has a mischievous tendency to be injurious to the interests of public, or which is against public good or public welfare. Ex: Agreements of trade with enemy, agreements to do a crime, agreements that interfere with administration of justice, agreements in restraint of legal proceedings such as enforcement of justice, limitation, trafficking in public offices, titles, agreements tending to create interest opposed to duty, agreements restricting personal liberty and parental rights, agreements restraining marriage, trade, marital duties, agreements to defraud creditors and trade and service contracts.
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Mercantile Law: Body of laws that deals with customs and practices of local and international commerce. Not a separate body of law but a legal code that governs operations of banks and business of all kinds, it covers agreements, contracts, copyrights, franchising, insurance, licensing, patents, shipping, transport and trademarks. It is found in the subjects Banking, Commerce, Credit, Finance, Corporate, Commercial and General Law.
Law of Contracts (Unit: I) This lesson deals with:1. 2. 3. 4. 5. Definition of Agreement and Contract Essentials of a Valid Contract Performance and discharge of a Contract Breach of a Contract and remedies therefor Quasi Contracts
1. Definition of Agreement and Contract Offer and Promise: A person is said to have made a proposal when he ‘signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that of the other to such act or abstinence. (Sec.2a) The person making an offer is called Promisor, Offeror, Proposer and the person to whom it is made is called the Promisee, Offeree or Proposee. If the offer is accepted by the Offeree, he is called the Acceptor. The offer may be express words spoken or written. Ex: Express Offer: Advertisement for the lost dog. Implied Offer: It is an offer from the conduct of the parties. Ex: A transport company’s bus which takes passengers for a price (ticket) General offer: To everybody; Specific offer: To a specific person.
What constitutes an offer? The rules for an offer are:-
1
1. 2. 3. 4.
Intention on the part of the offeror to be bound by it. Offeror must make the offer to get offeree’s assent. Offer must be definite. Offer must be communicated to the offeree.
The steps involved from Proposal to Contract are given below:Proposal + Acceptance = Promise Promise + Consideration = Agreement Agreement + Enforceability by Law = Contract Contract + No legal obligation – Social Contract or Agreement
Ex: Balfor vs. Balfor: Mr. Balfor promised to give his wife £13 every month. After a few months, he failed to keep his promise. The wife could not recover the money because it is a social agreement (without any legal intention to enforce). a) Def. of Agreement (Sec. 2e): Every promise and every set of promises, forming the consideration for each other is called an Agreement. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise. Agreements can be classified as: (i) Valid (Enforceable by law), (ii) Void (Not enforceable by law); (iii) Voidable (Enforceable by law at the option of one or more of the parties thereto but not at the option of the others); (iv) Unenforceable (Void in law but incapable of proof because of some technical defect) and (v) Illegal (It is something against law itself and is void ab initio). Essence of an agreement is consensus ad idem (agreeing in the same sense and on the same thing) (b). Def. of Contract: (Sec. 2h) An agreement enforceable by law is a Contract. A Contract is an agreement made between two or more parties enforceable in law. A Contract is an agreement creating and defining obligations between the parties. A social contract does not give rise to legal consequences. The law relating to contracts is contained in the Indian Contract Act, 1872. The Law of Contracts determines the circumstances in which promises made by the parties to a contract shall be legally binding on them.
2. Essentials of a Valid Contract: 1. There must be a valid agreement involving 2 parties, one party making an offer and the other party accepting it. 2. The parties must intend to create legal relationship.
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3. The parties must be capable of entering into an agreement as regards age and understanding i.e., competent to contract. 4. Agreement must be supported by consideration on both sides. 5. The consent of the parties must be free and genuine. 6. The object of the agreement must be lawful. 7. Terms must be certain & capable of performance. 8. Agreement must not have been expressly declared as void.
Essential elements of Contract (in brief): 1. 2. 3. 4. 5. 6. 7. 8. Proposal, Offer & acceptance Consideration (Lawful consideration) Capacity to contract (by competent parties ) Free consent Legality of Object Performance of Contract Remedies for breach of contract Quasi Contracts
1. Offer and acceptance: When an offer (proposal) is made and it is accepted by the other, it becomes a promise. When a promise has some legal consideration, it becomes an agreement and when an agreement becomes enforceable by law, it becomes a valid contract. Legal Rules for Offer: Offer must be such as capable of being accepted giving rise to legal relationship Terms of offer must be definite. Offer must be specific as distinct from an announcement or a general invitation Offer must be communicated Offer must be made with a view to getting an assent Offer should not contain a term whereby no response would be deemed acceptance. A statement of price is not an offer Tenders are called for to receive a) definite offer b) standing offer Cross offers: do not constitute offer and acceptance Legal rules for Acceptance: Acceptance must be unqualified and absolute
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It must be communicated to the offeror It must be in the mode prescribed or in usual or reasonable mode It must be given within a reasonable time It does not precede an offer It must show an intention on the part of the acceptor to fulfill the terms of offer It must be given before the offer lapses COMMUNICATION OF OFFER, ACCEPTANCE & REVOCATION (Sec 3) This is made by any act or omission of the parties concerned, intending to communicate such proposals. The communication is complete when it reaches the addressee. The concerned communicator can revoke the offer / acceptance only before it reaches the other party. He is otherwise bound by it (Sec 4 ) Sec 5 & 6 deal with such revocation cases.
2. Consideration: It means something in return (price or a benefit to the promisor or detriment to promisee).
Def. of Consideration (Sec.2(d)): When at the desire of the promisor, the promisee has done or abstained from doing something. (Ex A promises a loan of Rs.20,000 to B in return for paying back the loan with a definite interest in a year) such an act is called consideration for the promise. Legal rules to consideration: It is essential to support every contract. It must move at the desire of promisor. It may be an act, abstinence or forbearance or a return promise It may be past, present or future. It need not be adequate. It must be real. It must not be illegal, immoral or opposed to the public policy An agreement made without consideration is void (Sec.25) Exceptions : Love & affection and registered deed; compensation for voluntary services, promise to pay a time-barred debt.
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Some examples: A promises a subscription to National Defense Fund a sum of Rs.10,000. But he failed to pay. (No legal remedy because it is a social contract). A sells his car valued at Rs.2 lakhs for Rs.20,000 only as he is in need of urgent money. Afterwards he seeks to set aside the sale for inadequacy of consideration (He does not succeed).
3. Capacity to Contract: Every person is competent to contract who is of the age of majority according to the law to which he is subject and is of sound mind and is not disqualified from contracting by any law to which he is subject. Following persons are incompetent to contract (Sec.11):(a) Minors; (ii) persons of Unsound Mind (Lunatics; Idiots; Drunken or intoxicated persons); and (iii) Persons disqualified by law to which they are subject (like Alien Enemies). (a) Minor (Sec. 3 of Indian Majority Act 1875): A minor is a person who has not completed 18 years of age. It will be 21 years if (i) when a guardian of a minor or his property is appointed under Gaurdians and Wards Act, 1890; (ii) When the superintendence of a minor’s property is assumed by a Court of Wards. Law protects minors and preserves their rights and properties. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Rules pertaining to Minors:An agreement with a minor is void (Mohri Bibi vs. Dharam Das case). A minor can be a promisee or a beneficiary. He cannot be asked to pay compensation. He can always plead minority. There can not be specific performance of the agreements with minors as they are void ab initio. He cannot enter into a contract of partnership. He cannot be adjudicated insolvent. He is liable to pay for necessaries. He can be an agent. He binds the principal by his acts without himself being personally liable. His parents/guardian not personally liable for his acts. A minor is not liable in a tort (a civil wrong), out of a contract. PERSONS OF UNSOUND MIND: (Sec 12) A person is said to be of sound mind for the purpose of making a contract , if, at the time he makes it, he is capable of understanding it and of forming a rational judgment as to its effect on his interests. A lunatic is mentally deranged. He can contract when he is of sound mind. An idiot is one who has completely lost his mental powers. An agreement of an idiot is void. A drunken or intoxicated person suffers from temporary incapacity to contract. His position is like that of a lunatic.
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Others: Alien enemies, foreign sovereigns/ diplomats, corporations, insolvents, convicts. Sec. 13 Two or more persons are said to consent when they agree upon the same thing in the same sense. Se c 10 says all agreements are contracts if they are made by free will of parties 4. Free Consent: Consent means the act of assenting to an offer (Sec. 13 & 14). Consent is said to be free when it is not caused by:1. Coercion (Sec. 15) 2. Undue Influence (Sec. 16) 3. Fraud (Sec. 17) 4. Misrepresentation (Sec. 18) 5. Mistake (Sec. 20,21,22) 1. Coercion: When a person is compelled to enter into a contract, by the use of force, by the other party under a threat, coercion is said to be employed. Ex: A gave a promissory note to B under pistol point. A’s consent to B is not free. Hence the contract is voidable at the option of A. Threatening suicide is a coercive measure. 2. Undue Influence: A contract is said to be induced by ‘undue influence’ when the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses the position to obtain an unfair advantage over the other. (landlord & tenant, creditor & debtor, husband & wife – no and parent & child, guardian & ward, trustee & beneficiary, religious advisor & disciple, doctor & patient, solicitor & client and fiancé & fiancée - yes ) Ex: A spiritual Guru induced his devotee to gift him the whole of his property in return of a promise of salvation of the devotee. Consent of devotee was given under undue influence (Mannu Singh vs. Umadat Pandey) Burden of proof is with the influencer 3. Fraud: (Sec 17) It refers to false representation, concealment of fact, promise made without an intention to perform, any fraudulent act or omission of an act with an intension to deceive. It may be done by a party to contract, his agent or with his connivance, to deceive and induce a person to enter into contract. A contract induced by fraud is voidable at the option of party he defrauded. He can rescind the contract. Ex: (i): A Co. issued prospectus by giving false information. (ii): A purchases goods from B by making misrepresentation. (iii) A sells the goods to X before B avoids the contract. B loses the right to avoid the contract.
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Essential elements of fraud: There must be an assertion or representation and it must be false. The representation must relate to a material fact that exists now or existed in the past. The representation must have been made before conclusion of the contract and done to induce the other party to contract. The statement must have been made with the knowledge of falsity etc. The other party relied on the information and was induced to contract.
4. Misrepresentation and Fraud: It is a misstatement 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 exists when a false representation is made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly not caring whether it is true or false, and (iv)the maker intends the other party to act upon it. It also exists when there is a concealment of material fact. Sometimes, if the representations could have been read by a prudent man the truth could have been found, the contract may not be treated as voidable. Similarly, if the goods were contracted by others, the contract cannot be rescinded. 5. Mistake: Mistake is an erroneous belief about something. It may be about subject matter’s existence, its identity, its quality, quality or its title or ownership. It could be a (i) Mistake of law (ignorance of own law is no excuse and mistake of foreign law is treated as mistake of fact); (ii) Mistake of fact (Bilateral – Both parties- contract is void, or Unilateral – Only one party-not voidable). Ex:- A offers to sell his house to B for an intended sum of Rs.1,44,000. By mistake he makes an offer in writing for Rs.1,40,000. He cannot plead mistake as a defense.
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5. Legality of Object ( Sec 23 ): Object means purpose or design. In some cases, consideration could be lawful but object unlawful. An agreement is a contract if it is made for a lawful consideration and with a lawful object (Sec.10). Every agreement of which the object or consideration is unlawful is void. The consideration or object is unlawful if it is (i) forbidden by law; (ii) if permitted, would defeat the provisions of law (iii) fraudulent; (iv) implies injury to the person or property of another; (v) immoral; or (vi) opposed to public policy. Ex:- (i) For Trading with enemy; (ii) Object which interferes with court of justice; (iii) For promoting prostitution; (iv) In restraint of marriage; and (v) Opposed to public policy. Sec 24 Agreements void, if the consideration and object are unlawful in part. An agreement is said to be opposed to public policy when it is harmful to public welfare. Public policy is that principle of law which holds that no subject can lawfully do that which has a mischievous tendency to be injurious to the interests of public, or which is against public good or public welfare. Ex: Agreements of trade with enemy, agreements to do a crime, agreements that interfere with administration of justice, agreements in restraint of legal proceedings such as enforcement of justice, limitation, trafficking in public offices, titles, agreements tending to create interest opposed to duty, agreements restricting personal liberty and parental rights, agreements restraining marriage, trade, marital duties, agreements to defraud creditors and trade and service contracts.
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