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MERCANTILE LAW
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BASIC CONCEPTS Applicability: This Act extends to the whole of India, except the State of Jammu and Kashmir. This Act comes into force w.e.f. 1-9-1872. This Act is not a complete law on all types of contract. It lays down the general principles of
contract law.
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WHAT IS CONTRACT?
1.1.1 Introduction
In our day to day life, we enter into a number of contracts without realizing that we are entering into a contract. For example, when we purchase some goods from the market, we enter into The Contract of Sale of Goods. In the same way, when we leave our vehicle at a workshop for repair, we enter into The Contract of Bailment etc. Now the question arises what is Contract?
What is Contract?
A Contract is an agreement enforceable by law. Sec. 2(h)
What is Agreement? Every promise and every set of promises, forming a consideration for each other is
Agreement. Sec. 2 (e)
What is Promise? 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. Sec. 2 (b) In short, we can say that for a promise, there must be two things: first offer by one party and second acceptance by the other party. If this promise contains consideration for each other, it will become agreement and if this agreement is enforceable by law, it will become contract.
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All agreements are contracts, if they are made 1. By free consent of the parties, competent to contract, 2. For a lawful consideration, 3. With a lawful object, and 4. Not hereby expressly declared to be void.
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1) Offer and Acceptance: Every contract involves two partiesone making the offer and the other accepting it. Thus, offer and acceptance are essential for every contract. For example: Suppose Mr. A tells to Mr. B, I offer you to buy my car for Rs.50, 000. But Mr. B does not accept the offer. In this case, there will be no contract, as there is the absence of acceptance. 2) Intention to Create Legal Relationship: Besides offer and acceptance, both the parties must have an intention to go to court, if the other party does not meet his promise. Normally, in social agreements, there is no intention to go to court. But in a commercial agreement, there is always an intention to go to court.
Balfour vs. Balfour, 1919 Facts of the Case: Mr. A promised to pay his wife 30 every month as household allowance. Later, the husband failed to pay the amount. Decision in the Case: Held, the wife could not claim, as there was no intention to create legal obligation and therefore it is not enforceable by law. 3) Lawful Consideration: Lawful consideration is the essential element of a contract. It is a
general rule, No consideration, No contract. Consideration means something in return, i.e. both parties must get something in return for the promise. For example: Mr. A agrees to sell his watch to B for Rs. 500. For Mr. B, watch is one consideration and for A, Rs. 500 is one consideration. Essential for a Valid Contract Offer and Acceptance Intention to Create Legal Relationship Lawful Consideration Capacity to Contract Free Consent Lawful Object Agreement not expressly declared void
Possibility of Performance Legal Formalities
1. 2. 3. 4. 5. 6. 7. 8. 9.
4) Capacity to Contract: In a contract, both the parties (i.e. offerer and acceptor) must be
capable of entering into a contract. Section 11 clearly lays down that the following parties are capable of entering into a contract: a. A major, b. A man of sound mind, and
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6) Lawful Object: The object of the contract must be lawful. It must not befraudulent, unlawful, immoral or opposed to public policy [Sec. 23]. For example: Mr. A agrees to give Rs. 1,00,000 to Mr. B on the condition that Mr. B murders Mr. C. In this case, the object of the agreement is unlawful, therefore it will not be enforceable by law and hence, there will be no contract. 7) Agreement not expressly declared void: The agreement must not be declared void by the law in force. There are a large number of agreements, which have expressly been declared void as these are not in public interest. For example: wagering agreements, agreements in the restraint of marriage, etc. 8) Possibility of Performance: The agreement must be to do the act whose performance is possible. The agreement to do an act whose performance is impossible is not enforceable by law. For Example: Mr. A agrees to give Rs. 1,000 to Mr. B provided B makes dead man alive. In this case, the agreement between A and B, is void. 9) Legal Formalities: In some cases, where the law specially requires an agreement to be in writing or registered or attested, the agreement must be so, otherwise it shall not be enforceable. For example, a promise to pay a time-barred debt must be in writing.
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TYPES OF CONTRACTS
of B. On the Basis of C.On the Basis of D.On the Basis of Validity Execution Formalities 1.Valid Contract 1. Bilateral 1. Formal ContractsContractsImplied/Tacit Contract 2.Void Contract a. Executed Contract a. Contracts of Quasi Contract 3.Void-ab-initio Records Agreement b. Executory Contract b. Contract E-Commerce Contract 4.Voidable Contract under Seal -5.Unenforceable 2. Unilateral 2. Simple 6.Contract Contracts Contracts -Illegal Contract
When we enter into a bus without asking the bus-conductor any question, we enter into an implied contract. Withdrawal of cash from ATM
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For example, if Mr. A leaves his goods at Mr. Bs shop by mistake, then it is for Mr. B to return the goods or to compensate the price. In fact, these contracts depend on the principle that nobody will be allowed to become rich at the expenses of the other. 4. EContract: An e-contract is one, which is entered into between two parties via the internet.
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1. Bilateral Contract: Bilateral contracts are contracts in which both the parties either have performed their obligations or have to perform their obligations. These are of the following two types a. Executed Contract: An executed contract is a contract in which both the parties have performed their obligations. For example, if Mr. A agrees to sell his car to Mr. B for Rs. 100000, the contract will be executed if A has given car to B and B has given the agreed amount to A. b. Executory Contract An executory contract is a contract, in which neither of the parties has performed their obligations. In the above example, the contract will be Executory, if neither A has given the car to B nor B has given one amount to Mr. A. 2. Unilateral Contracts: Where only one of the parties to the contract has performed its obligation, it is called unilateral contract. These contracts are known as Partly executed and partly executory contract. In the above example, if A had transferred his car to B, but B does not give the sum to A, the contract will be called partly executed and partly executory contract.
All Contracts are Agreements, but all Agreements are not Contracts The various agreements may be classified into two categories: Agreement not enforceable by law: Any essential of a valid contract is not available Agreement enforceable by law: All essentials of a valid contract are available
Conclusion: Thus we see that an agreement may be or may not be enforceable by law, and so all agreements are not contracts. Only those agreements are contracts, which are enforceable by law. In short,
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Hence, we can conclude All contracts are agreements, but all agreements are not contracts.
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Basis Section
Definition
A Contract which ceases to be An agreement which is enforceable by enforceable by Law becomes void, Law at the option of one or more of the when it ceases to be Enforceable. parties, but not at the option of the other or others, is a voidable contract. A void contract is not at all enforceable. A voidable contract is enforceable at the option of the aggrieved party. In this case, if the third party is working in good faith, it will acquire a better title, before the contract is avoided. In this case, compensation can be claimed by the aggrieved party.
Enforceability
Title of third In this case, the third party will not party acquire a good title, even if he is working in good faith. Compensation In this case, no compensation will be allowed due to non-performance of the contract. For example, Mr. A agrees to sell his scooter to Mr. B on 30 Jan., but unfortunately on 27 Jan. the scooter catches fire and turns into ashes. In this case, Mr. B cannot file any suit against
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In this case, any party who has received any benefit must restore it to the aggrieved party when the contract is declared void.
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Basis Section
Definition
An agreement not enforceable It is an agreement which law forbids by law to be made, Void agreement may or may All Illegal agreements are always not be Illegal. Void. Collateral Collateral transactions can be Collateral transactions are also illegal enforced and remains valid and hence cannot be enforced No punishment agreement. for Void Punishment for Illegal agreement,
Scope
Void-ab-intio
Valid contracts may Illegal agreements are void from the subsequently become void. very beginning.
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A void agreement is one which is a. Valid but not enforceable b. Enforceable at the option of both the parties c. Enforceable at the option of one party d. Not enforceable in a court of law 4. An agreement which is enforceable by law at the option of one or more of the parties thereon but not at the option of the other or others is a a. Valid Contract b. Void Contract c. Voidable Contract d. Illegal Contract 5. Which of the following statements is true a. An agreement enforceable by law is a contract b. An agreement is an accepted proposal c. Both (a) and (b) d. None of these 6. A voidable contract is one which a. Can be enforced at the option of aggrieved party b. Can be enforced at the option of both the parties c. Cannot be enforced in a court of law d. Courts prohibit 7. Agreement-the meaning of which is uncertain is a. Valid b. Void c. Voidable d. Illegal 8. A ___________ agreement is one, which is enforceable at the option of one party. a. Voidable b. Void c. Valid d. Illegal 9. In case of illegal agreements, the collateral agreements are ________. a. Voidable b. Void c. Valid d. Cant be said 10. Implied contract, even if not in writing or express words, is perfectly ________if other Conditions are satisfied. a. Void b. Valid c. Voidable d. Illegal 11. Mr.J invited all his close friends for a dinner on the occasion of the successful completion of his research. He wanted to take good care of his friends and accordingly be arranged a very lavish dinner in a star hotel. On the day, to his shock and surprise the friends could not turn up to the dinner, consequently all the dishes and money were wasted. He was terribly disappointed. In the above situation which of the following remedies is/are available to Mr. J for the loss caused to him? a. Mr. J can file a suit against his friends for not attending to the dinner b. Mr. J cannot have any remedy
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c. Mr. J can recover the expenses incurred for the arrangements from his friends d. Mr. J can file a suit for the special damages Match the following: i. Void Contract a. In cases of this collateral agreement are void ii. Voidable Contract b. Not enforceable in a court of law iii. Illegal Contract c. An agreement enforceable by law at the option of one more of the parties thereon but not at the option of the other or others iv. Valid Contract d. Enforceable at the option of both the parties a. (i) (B) b. (ii) (C) c. (iii) (A) d. (iv)(D) Match the following: i. Executed Contract a. Contract in which only one party has to perform his promise ii. Executory Contract b. Consideration for the promise in a contract is already given iii. Unilateral Contract c. Promise in a contract is outstanding on part of both the parties iv. Bilateral Contract d. Reciprocal promises are to be performed in future a. (i) (B) b. (ii) (D) c. (iii) (A) d. (iv)(C) Which of the following statement is true? a. An agreement enforceable by law is a contract b. An agreement is an accepted proposal c. An agreement can only consist of an offer d. An agreement can only consist of an acceptance The Indian Contracts Act, 1872 applies to the ____________ a. Whole of India including Jammu b. Whole of India excluding Jammu c. Whole of India including Kashmir d. Whole of India excluding Kashmir Which of the following statements are not correct? a. Right of one party is the obligation of another party b. Every contract is an agreement, but every agreement is not contract c. Quantum meruit means void from the beginning d. Social agreements are legally enforceable Match the following: i. Agreement a. Contract ii. Agreement enforceable by law b. Void ab initio iii. Agreement not enforceable by law c. Offer + Acceptance iv. Illegal contract d. Void contract a. (i) (C) b. (ii) (A) c. (iii) (D) d. (iv)(B) Match the following: i. Voidable Contract A. Obligation created by law ii. Express Contract B. Both parties due to perform their obligation iii. Quasi Contact C. Terms are stated in writing
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