Commercial law

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LAW
Rule made by authority for the proper regulation of a community, society or for the proper conduct of life. Branches of law international law, constitutional law, criminal law,merchantile law or business law.

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Mercantile law
It is that branch of law which is related to trade , industry, commerce. Laws related to contracts, sales of goods act, partnership act, companies act, negotiable instruments, arbitration act.

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Sources of law
English mercantile law The statute law Judicial decisions or case law Customs and usages.

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Law of contract

It is the foundation upon which the superstructure of modern business is built. The law of contract was enacted which lays down the rules and regulations related to promises: their formation, their performance, and their enforceability.

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Indian contract Act 1872

The

law of contract in India is contained in the Indian contract act 1872.

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Definition of contract
According to Section 2(h) of Indian contract Act An agreement enforceable by law is a contract Contract consists of 2 elements An agreement Legal obligation ( duty enforceable by law)

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Agreement
According to sec 2(e) every promise and every set of promises, forming the consideration for each other is an agreement. Promise is an agreement . Characteristics. Plurality of persons Consensus ad- idem

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Promise
According to sec 2(b)when the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. A proposal when accepted becomes promise. Agreement = offer + acceptance

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Characteristics of Agreement
Plurality of persons there must be two or more persons to make an agreement. Consensus ad- idem-Both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time.

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Legal Obligation

An agreement to become a contract must give rise to a legal obligation i.e a duty enforceable by law, it is a contract Therefore all contract are agreements but all agreements are not contract.

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Essential Elements of a valid Contract

Offer and acceptance Intention to create a legal relationship Lawful consideration Capacity of parties Free consent Lawful object Writing and registration Certainty Possibility of performance Not expressly declared void
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Classification of contract
From

the point of view of enforceability

Valid contract Void able contract Void contract Void agreement Unenforceable contract Illegal or unlawful contract

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Valid contract
A valid contract is an agreement enforceable by law.. It contains all the essential elements of the valid contract. Void able contract an agreement which is enforceable by law at the option of one or more parties but not at the option of other or others. Consent has been obtained by coercion, undue influence ,misrepresentation, fraud.

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Void contract
A useless contract which has no legal effects at all. Void agreement an agreement not enforceable by law is void. it does not give rise to any legal obligations. It is void ab initio.

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Unenforceable contract

It is valid in itself but not capable of being enforced because of some technical defects. Illegal or unlawful contract illegal means contrary to law. it is forbidden by law,fradulent,involves injury to person, immoral, opposed to public policy.
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Mode of creation

Express contract Implied contract Constructive or quasi contract

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Extent of execution

Executed contract

Executory contract

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Offer and acceptance

Offer means a proposal made by one party to enter into a legally binding agreement with him. The person making the offer is known as the offeror,proposer,promisor,and the person to whom it is made is called offeree or proposee. When the offeree accepts the offer, he is called the acceptor or promisee.[ sec 2(c)].

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2 types of offer

Express offer It is made by express words, spoken,written.

Implied offer An offer may be implied from the conduct of the parties .

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Legal rules regarding valid offer

An offer may be express or implied. An offer must contemplate to give rise to legal consequences and be capable of creating legal relations. The terms of offer must be certain and not vague. An invitation to offer is not an offer. An offer may be specific or general. An offer must be communicated to the offeree. An offer should not contain a term the non- compliance of which would amount to acceptance. An offer can be made subject to any terms and conditions. Two identical cross offers do not make a contract.

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ACCEPTANCE
Sec 2 (b) a proposal when accepted becomes a promise and defines acceptance as when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Acceptance may be expressed or implied.

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Legal rules regarding a valid Acceptance

Acceptance must be given only by the person to whom the offer is made. Acceptance must be absolute and unqualified. Acceptance must be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. Acceptance must be communicated by the acceptor. Acceptance must be given within a reasonable time and before the offer lapses. Acceptance must succeed the offer. Rejected offers can be accepted only if renewed.

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Consideration

Sec 2 (d) When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.
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Legal Rules as to Consideration

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 must be something of value.

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Exceptions to the rule NO CONSIDERATION NO CONTRACT

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Agreement made on account of natural love and affection. sec25(1) agreement to compensate for past voluntary services. sec25(2) Agreement to pay a time barred debt. sec25(3) Completed gift. Contract of agency Remission by the promisee, of performance of the promise. Sec (63) Contribution to charity.

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Capacity to contract
Capacity

means competence of the parties to enter into a valid contract. to Sec.10, an agreement becomes a contract if it is entered into between the parties who are competent to contract.

According

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Capacity to contract

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Capacity of parties

Acc to Sec (11) every person is competent to contract who is of age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified contracting by any law to which he is subject.

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 i.e

According to Sec.11, every person is competent to contract who (a)Is of the age of majority according to the law to which he is subject. (b)Is of sound mind, and (c)Is not disqualified from contracting by any law to which he is subject.
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Minors

According

to Sec.3 of the Indian Majority Act, 1875, a minor is a person who has not completed eighteen years of age..

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Minors agreements

1. 2.

3.

The position of a minor as regards his agreements may be summed up as underAn agreement by a minor is void and inoperative as against him. Beneficial agreements are valid contracts. No ratification on attaining the age of majority.
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4. If he has received any benefit under a void agreement, he cannot be asked to compensate or pay for it. 5. He can always plead minority. 6. There can be no specific performance of the agreement entered into by him as they are void ab initio. 7. He cannot enter into a contract of partnership , but he may be admitted to the benefits of an already existing partnership with the consent of the other partners.
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8. He cannot be adjudged insolvent. 9. He is liable for necessaries supplied or necessary services rendered to him or anyone whom he is legally bound to support. 10. He can be an agent. 11. His parents / guardian are / is not liable for the contract entered into by him.
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Persons of Unsound Mind

Sec.12 lays down a test of soundness of mind and states that: A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

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According to this section the person entering into the contract must be a person who understands what he is doing and is able to form a rational judgment as to whether what he is about to do is of his interest or not.

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person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
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Disqualified Persons
Alien An alien is a person who is citizen of foreign country. He may be (i) An alien friend He is the person whose state is at peace with the Republic of India.
1.

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(ii) Alien Enemy he is the person whose country is at war with India. Contracts with an alien enemy may be studied under two heads, namely(a) Contracts during the war, and

(b) Contracts made before the war.

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2. Foreign sovereigns, their diplomatic staff and accredited representatives of foreign states.

They have some special privileges and generally cannot be sued unless they of their own submit to the jurisdiction of our law courts. They can enter into contracts and enforce those contracts in our courts. They cannot be proceeded against in Indian court without the sanction of central government.

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3. Corporations
A company /corporation is an artificial person created by law. As regards a corporation formed under the Companies Act, 1956, its contractual capacity is regulated by the terms of its MOA and the provisions of the companies Act. If it exceeds its powers, then such activities are void. It cannot enter into contracts of personal nature as it is an artificial person & not a natural person. Eg : marriage.

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4.Convicts
A

convict when undergoing imprisonment is incapable of entering into a contract. incapacity of contract comes to an end when the period of sentence expires .

This

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5.Insolvent

An adjudged insolvent (before an order of discharge) is competent to enter into certain types of contract i.e he can incur debts, purchase property,but cannot sell his property which vests in the official receiver.

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Free consent

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Consent
Acc to sec 13 consent can be defined as two or more persons are said to consent when they agree upon the same thing in the same thing in the same sense. Consent means identity of minds or consensus ad- idem.

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Free consent
According to sec 14 consent is said to be free when it is not caused by : Coercion (sec15) Undue influence (sec16) Misrepresentation (sec18) Fraud (sec17) Mistake (sec 20,21.22)

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Coercion

Coercion is the committing or threatening to commit, any act forbidden by the Indian penal code or the unlawful detaining or threatening to detain, any property, to the prejudice of any person, with the intention of causing any person to enter into an agreement .

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Effect

A contract made by coercion is voidable at the option of the party whose consent was so caused. (sec 19).

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Undue influence
Acc. To sec 16 (1) a contract is said to be induced by undue influence where: i) the relationship subsisting between the parties are such that one of the party is in a position to dominate the will of others ii)he uses the position to obtain unfair advantage over the other.

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Acc to sec 16 ( 2) a person is deemed to be in a position to dominate the will of others : a) where he holds the real or apparent authority. b) where he stands in a fiduciary relation to the other . C) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age , illness, mental or bodily distress eg. Old illeterate person.

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Presumption of undue influence

undue influence is presumed to exist under he circumstances mentioned above acc to the above three clauses eg master and servant there is no need of providing the use of undue influence by the party whose consent was so caused. Status of parties is enough to prove the existence of undue influence.
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There is no presumption of undue influence in the following cases Husband and wife grandson and grandfather Landlord and tenant Creditor and debtor In these cases undue influence will have t be proved .

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Effect of undue influence

A contract made by undue influence is voidable at the option of the party whose consent was so caused. (sec 19).

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Misrepresentation
Acc to sec (18 ) Misrepresentation means and includes The positive assertion in a manner not warranted by the information of the person making it of that which is not true , though he believes to be true . Any breach of duty which ,without an intent to deceive ,gains an advantage to the person committing it or anyone claming under him by misleading another to his prejudice or to the prejudice of anyone claming under him. Causing however innocently a party to an agreement to make a mistake as to the substance of the thing which he is subject to the agreement.

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Misrepresentation occurs in 3 cases

Positive assertion of unwanted statements of material facts believing them to be true. Breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice. Causing mistake about subject mater innocently.

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Effects of misrepresentation
Aggrieved party has two alternatives He can rescind the contract accept the contract but insist that he shall be placed in the position in which he would have been if the representation made had been true.

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Fraud
Fraud means all acts committed by a person knowingly, without belief in its true, recklessly and the maker intended the other party to act upon it. Concealment of material fact. Acc. To sec (17)fraud means and includes any of the following facts committed by a party to a contract ,or by his agent with intent to deceive or to induce person to enter into a contract.

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Elements

The representation that a fact is true when it is not true by one who does not believe it to be true. The active concealment of the fact by a person who has knowledge or believe of the fact. A promise made without any intention of performing. Any other act fitted to deceive. Any such act or omission as the law specially declares to be fraudulent.
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Effects of fraud
He can rescind the contract. He can ask for restitution. The party can also for damages. because it is wrong from civil point of view.

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Mistake
It is an erroneous belief concerning something. It is of 2 types 1. Mistake of law. Mistake of law of country. Mistake of foreign country. 2. Mistake of fact.

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Mistake of law of country. Ignorance of law is of no excuse. Mistake of foreign country. Is mistake of fact. mistake of fact is of 2 types Bilateral and unilateral Bilateral means i) both the parties must be under a mistake ii) mistake must relate to some fact and not to judgment or opinion . Agreement is void in case of bilateral mistake.

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PERFORMANCE OF CONTRACT

Means of their respective legal obligations created under the contract by both the promisor and the promisee.

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Rules as to performance
Who can demand the performance Promisee Third party cannot demand performance.

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By whom contracts must be performed

Promisor himself Promisor or his agent By the legal representatives Performance by a third person.

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Time and place of performance

Within a reasonable time During usual hours of business. In the manner prescribed by promisee.

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Discharge of contract

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contract is said to be discharged ,terminated when the rights and obligations created by it comes to an end.

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Contract is terminated in the following forms: I )By performance Actual Attempted II) BY supervening impossibility Impossibility at the time of the contract Subsequent or supervening impossibility

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III )Mutual agreement Novation when a new contract is substituted for an existing contract either between the same parties or between different parties. Alteration when one or more of the terms of contract are changed . Parties does not change. Rescission when both the parties to a contract agree to put an end to the contract without performing it. It is rescinded by mutual agreement.

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 Remission

when a party to contract accepts lesser performance what it was contracted for from other party. Waiver Merger IV) By lapse of time V) By operation of law. Death Insolvency Merger Material alteration.
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VI) Breach of contract Actual breach Anticipatory breach

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Remedies for breach of contract

Rescission of contract Suit for damages Suit upon Quantum meruit Suit for specific performance of contract Suit for injunction

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Rescission of contract

When a contract is broken by one party the other party may sue to treat the contract as rescinded and refuse further performance. In such case he is absolved of all his obligations under the contract.

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Suit for damages

Damages are monetary compensations given to the injured party by the court for the loss or injury suffered by him by the breach of contract. Ordinary damages- when a contract is broken and the injured party recover the damages as naturally and directly from the breach of contract.

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Special damages damages arising other than the breach of contract may be recovered if the special losses have occurred because of some special circumstances held. But the loss should be Brought to the notice of the other party.

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Vindictive or exemplary damages

Damages for the breach of contract are given by the punishment so this has no place in the law of contract but in certain cases court can award punitive punishment eg. Breach of promise to marry.

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Nominal damages

Where the party has not suffered any loss by the breach of contract the damages recovered by are very nominal eg very small a rupee.

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Damages for the loss of reputation

These are non recoverable but the exemption lies in case of a banker dishonor of cheque it is recoverable if the other party is a tradesman.

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Damages for inconvenience and discomfort

These can be recovered.

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Mitigation of damages

He cannot claim compensation for loss which is really due not to the breach but due to his own neglect to mitigate the loss after breach

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Difficulty of assessment

Damages which are incapable to be estimated cannot be recovered but that does not mean the aggrieved party is not liable for the compensation the court should do its best to estimate the same.

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Damages agreed upon in advance

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