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 LawEnglish 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 ContractEvery 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 acceptanceFree consents of both partiesParties should be competent to contractMutual and lawful consideration for agreementObjects should be lawfulShould be enforceable by law. Hence, intention should be to create legal relationshipAgreements not declared to be voidCertainty and possibility of performance

Offer and its AcceptanceDefinite 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)].

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

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

Legal rules as to offerIt must be intended to create legal relationsIt must be certainIt must be distinguished from (a) A declaration of intention(b) Invitation to make offer(c) A statement of price

It must be communicated to the offereeMust be made with a view to obtaining the assent of the offereeMust not contain a term the non compliance of which would amount to acceptance

Lapse of OfferAn offer lapses By communication of termination of offerBy lapse of specified or reasonable timeBy death or insanity of the offererBy counter offerBy not being accepted according to the prescribed or usual mode. By non-fulfillment of a condition precedent.

Acceptance Rules as to acceptance:Must be absolute and unqualifiedMust be communicatedMust be according to the prescribed or usual mode Given within prescribed of reasonable timeAcceptance should follow offerAccepted by the offereeGiven before offer lapses

Communication of Offer, Acceptance and RevocationThe 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.

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

Important Case LawsGeneral 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.

AcceptanceImplied 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 PartiesConsensus-ad-idem. Parties agree upon the same thing in the same sense at the same time and that their consent is free and realFree 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 ContractEvery person is competent to contract who Is of the age of majority according to the law to which he is subject, Is of sound mind andIs not disqualified from contracting by any law to which he is subjected.

Accordingly, the following persons are incompetent to contractMinorsPersons of unsound mind andPersons disqualified by any law to which they are subject (insolvents etc)

Minors Agreementsan 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 partnershipHe cannot be adjudged as insolvent

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

Others Alien enemiesForeign sovereigns and accredited representatives of foreign statesCorporations InsolventsConvicts

Important Case LawMinors 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 ConsiderationAn agreement without consideration is voidIt must move at the desire of the promisorIt may move from the promisee or any other personIt may be past present or futureIt need not be adequateIt must be real and not illusoryIt must not be something which the promisor is already legally or contractually bound to doIt must not be illegal, immoral or opposed to public policy.

Exceptions No considerations is required in case of A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor.A written and registered agreement based on natural love and affection.A promise by a debtor to pay a time- barred debt if it is made in writing and signedAn agency A completed gift

Important Case LawsContract 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 ObjectEvery 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 PolicyAgreement to commit a crimeAgreements interfering with administration of justiceAgreement for the sale of public officesAgreements in restraint of marriageMarriage brokerage agreementsAgreements in restraint of tradeAgreements of trading with enemy.

Important Case LawWhen 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

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.

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.

Every agreement in restraint of marriage of any person other than a minor is void [sec 26].

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.

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

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.

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.

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.

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.

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.

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