Mercantile Law

Law of Contract

Law of contract lays down legal rules relating

to promises, their formation, performance and
enforcement

According to Salmond, A contract is an

agreement, creating and defining the
obligations between parties

According to section 2(h) of Indian Contract

Act 1872, An agreement enforceable by law
is a contract

Proposal
When one person signifies to another, his
willingness to do or to abstain from doing
anything, with a view to obtain the assent of
that other, either to such act or abstinence,
then he is said to make a proposal

Promise
A proposal when accepted becomes promise

Promisor- Person making proposal

Promisee- Person accepting proposal

Agreement
Every promise or set of promises forming the
consideration for each other is an agreement.

CONTRACT= Agreement + Enforceability at Law

Every contract is an agreement but every
agreement is not a contract

Essentials of valid contract

Lawful offer and acceptance
Intention to create legal relations
Consensus ad idem
Lawful consideration
Competency of parties
Free consent
Coercion
Undue influence
Fraud
Misrepresentation
Mistake

Lawful object
If it is forbidden by law
It is fraudulent
It involves injury to person
Court regard it against public policy

Certainty of meaning
Agreement not declared void
Possibility of performance
Completion of legal formalities

Classification of Contract

Valid Contract
Acc to section 10 of the contract Act, All
agreement are contract if they are made by
the free consent of the parties competent to
contract, for a lawful consideration and with
lawful object and are not expressly declared
void.

Void Contract
A contract which ceases to be enforceable by
law becomes void when it ceases to be
enforceable

Void agreements or agreements void ab-initio

An agreement not enforceable by law is said to
be void

Voidable contract
An agreement which is enforceable by law at
the option of one or more parties thereon but
not at the option of the other or others, is a
voidable contract

Unenforceable contract
Absence of registration, stamp, attestation etc

Illegal agreements- criminal in nature

Express contracts
either oral or written

Implied contracts
The law implies a contract though parties
never intended

Quasi contracts
Such a contract does not arise by virtue of
express or implied between parties but law
recognises a contract under special
circumstances

Executed contracts
Both parties perform their obligations

Executory contract
Where obligations are going to be performed
at some future date

Unilateral contracts
Where one party has performed his obligation
and other party is still going to perform his
part.

Offer and acceptance

When one person signifies to another, his

willingness to do or to abstain from doing
anything, with a view to obtain the assent of
that other, either to such act or abstinence,
then he is said to make a proposal

Essentials of a valid offer

Intention to create legal relations
Terms of offer must be certain and not vague
Offer must be communicated to other parties
An invitation to an offer is not offer

Offer must be made with a view to obtain the

assent of the offeree
Offer should not contain a term, the noncompliance of which would amount to
acceptance
Offer may be conditional
Offer may be express or implied
Offer may be general or specific
Counter offer amounts to rejection of original
offer

Acceptance

When the person to whom the proposal is

made signifies his assent thereto, the proposal
is said to be accepted.

Legal rules for a valid acceptance

Acceptance must be absolute and/or
unconditional
Acceptance must be in the prescribed or usual
mode
Acceptance must follow the offer
Acceptance must be communicated to the
offeror

Acceptance must be given by the party to

whom the offer is made

Acceptance may be express or implied

Acceptance must be given within prescribed

time or within reasonable time

Acceptance must be made before the offer

lapses

Consideration

Consideration means something which is of

some value in the eyes of law.

According to section 2(d) of Indian Contract

Act, When at the desire of the promisor,
the promisee or any other person has done
or abstained from doing or does or abstain
from doing or promises to do or abstain
from doing, something

Essentials of valid consideration

Consideration must move at the desire of the
promisor
Consideration may move from promisee or any
other person
Consideration may be either positive or
negative
Consideration may be past, present or future
Consideration need not be adequate
Consideration must be real
Consideration must be something which the
promisor is not already bound to do.
Consideration must be lawful

No consideration-No
contract-----Exceptions
Agreements made on account of natural
love and affection
Compensation for voluntary services
Promise to pay time barred debt
Completed gifts
Creation of agency
Charity
Guarantee
Remission by the promisee,

Capacity of Parties
Parties must be legal competent to bind
themselves by promises.
Parties incompetent to enter into contract

Minor
An agreement with a minor is void ab initio
No estoppel against a minor
No restitution against minor(A
sumofmoney paid in compensation for
loss or injury)

Minor may enforce beneficial contracts

Ratification of minors agreement is not
allowed
Minors liability for tort(civil wrong)
Minor as a shareholder
Minor as a partner
Minor as an agent
Minor cannot be adjudged as insolvent
Minor and guarantee

Persons for unsound minds

Lunatics
Idiots
Drunkard persons

Persons disqualified by law

Allien/Foreign enemy
Foreign ambassadors
Convicts
Insolvent
Pardanshin ladies
Joint stock company

Free Consent
Two or more persons are said to consent when
they agree upon the same thing.
It is also known as consensus ad idem
Consent is said to be free when it is not caused
by:Coercion
Undue influence
Fraud
Misrepresentation
Mistake

Coercion
It means forcibly compelling a person to enter
into a contract.
Committing or threatening to commit any act
forbidden by IPC
Threating to detain any property
The act of coercion must be done with the
object of inducing other person to enter into
an agreement.
The act of coercion may be initiated by any
person

Undue influence

It means dominating the will of another by

which the exercise of free will and judgment is
prevented.
The strong mind overpower weak mind.
Features
He hold a real authority over the other
He stands in a fiduciary relation to other
He makes a contract with a person whose
mental capacity is temporarily or permanently
affected by reason of age, illness.

Fraud
Fraud include all intentional, willful acts
committed by a person with intention to deceive
another person.
Features
The fraud must have been committed by a party
to the contract
Other party must have been deceived
There must be representation of fact which
must be false
There must be willful concealment of fact
A promise made without any intention of
performing it
Other party must have suffered some loss

Misrepresentation

Misrepresentation is incorrect or false

statement but the inaccuracy is not due to any
desire to deceive the other party.

Features
Positive statement of facts
Representation must be untrue but the person
making it should honestly believe it to be true

Mistake

Mistake may be defined as an erroneous belief concerning

something
Mistake of Indian Law
Ignorance of law is no excuse
Mistake of Foreign Law
Bilateral mistake
Existence of subject matter
Identity of subject matter
Title of subject matter
Quantity or quality of subject matter
Price of the subject matter
Unilateral mistake