MERCANTILE LAW

UNIT 1
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MEANING OF LAW
Law is a set of rules that are created and
are enforceable by social or governmental institutions to
regulate behaviour.
The term “Law’ denotes different kinds of rules and
Principles. Law is an instrument which regulates human
conduct/behaviour.
Definition: Salmond: - “the law may be defined as the
body of principles recognized and applied by the state in
the administration of Justice.
WHAT IS MERCANTILE LAW ?
MERCANTILE LAW; THE BODY OF RULES AND PRINCIPLES
DETERMINING THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO
COMMERCIAL TRANSACTIONS.

A MERCANTILE PERSON MAY BE A SINGLE INDIVIDUAL,

PATERNERSHIP OR JOINT STOCK COMPANY.

THE TERM “MERCANTILE LAW” IS ALSO USED TO DENOTE THE

AGGREGATE BODY OF THOSE LEGAL RULES WHICH ARE
CONNECTED WITH TRADE , INDUSTRY AND COMMERCE.
NATURE OF
CONTRACT
NATURE OF CONTRACT
❖ CONTRACT : “ Every agreement and promise
enforceable at law is a contract”.

❖ According to Salmond : “an agreement creating

and defining obligations between the parties”.

❖ Agreement and its enforceability.

“Agreement = Offer + Acceptance”.

❖ Consensus ad idem : This means that the parties

entering an agreement must have agreed about the
subject-matter of the agreement in the same sense
and at the same time.
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ESSENTIAL ELEMENTS OF A VALID
CONTRACT
1. OFFER AND ACCEPTANCE : There must be two parties in an agreement
(the one who offer and the other party who accepting it).
2. INTENTION TO CREATE LEGAL RELATIONSHIP: When two
parties enter into an agreement their intentions must cerate a legal
relationship.
3. LAWFUL CONSIDEARTION : Means ‘ an advantage or benefit moving
from one party to the other’ and ‘something in return’.
4. CAPACITY OF PARTIES – COMPETENCY : The parties entering in
the agreement must be capable of making an agreement or contract. (Ex. Is of
sound mind , is a major).
5. FREE AND GENUINE CONSENT : It is essential to create a contract that
must be of free and genuine consent of the parties to the agreement. (same mind
set).
 CONTINUATION
6. LAWFUL OBJECT : The objective of the contract must be
lawful ( not illegal or immoral).
7. AGREEMENT NOT DECLARED VOID : The agreement
signed should not the forced as void in the law of that country.
8.CERTAINTY AND POSSIBILITY OF PROFORMANCE :
Every agreement must be certain and not vague or indefinite.
9. LEGAL FORMALITIES : A contract may be made by words
spoken or written and the one which is written should be
registered.
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CLASSIFICATION OF CONTRACTS
1. CLASSIFICATION ACCORDING TO VALIDITY : An agreement or a
contract becomes a valid one when all the elements are presents in them. If
one or more elements are not matching then the agreement become void,
illegal or unenforceable.
VOID AGREEMENT : not enforceable by law
VOID CONTRACT : depends on the situation.

2. CLASSIFICATION ACCORDING TO FORMATION : (express

contract or implied contract ).
QUASI – CONTRACT : Unlike traditional contracts, which arise from
mutual agreement, quasi contracts are imposed by law to ensure fairness
and prevent one party from unfairly benefiting without compensating the
other.
E-COMMERCE CONTRACT : An agreement which is entered via
internet.
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CONTINUATION
3. CLASSIFICATION ACCORDING TO PERFORMANCE :
EXECUTED CONTRACT : a legally binding agreement that has
been fully performed by all parties involved. This means that all
obligations outlined in the contract have been fulfilled. Essentially, it's
a contract where both sides have done what they agreed to do. ( EX :
A & B entering a contract stating has A will bake some cookies for
B and B will pay him a price of Rs.200/- when both the obligation
are performed its an executed contract).
EXECUTORY CONTRACT : a legal agreement where both parties
still have significant obligations to fulfil. ( Ex; the contract is
executory if both the parties have not completed their promises , if its
yet to be performed)
UNILATERAL OR ONE-SIDED CONTRACT : A contract in which
only one party has fulfilled his obligation at the time of the formation
of the contract.
 OFFER AND
ACCEPTANCE
 OFFER AND ACCEPTANCE? 11
(MEANING)
✔ Offer and Acceptance are fundamental concepts. An offer is a
proposal made by one party (the offeror) to another (the offeree),
expressing a willingness to enter into a legally binding agreement on
specific terms.
✔ Acceptance is the offeree's unqualified agreement to the terms of the
offer, creating a binding contract.
✔ Essentially, a contract is formed when a valid offer is met with a valid
acceptance.
✔ The person offer the agreement is called as (Offeror, Proposer, or
Promisor).
✔ And the party accepting the offer is called as (Offeree, Promisee, or
Acceptor)
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LEGAL RULES AS TO OFFER:

1. Offer must be such as in law is capable of 4. Offer must be communicated.

being accepted and giving rise to legal 5. Offer must be made with a view to
relationship. obtaining the assent.
2. Terms of offer must be definite, 6. Offer should not contain a term the
unambiguous and certain and not loose non-compliance of which may be assumed
and vague. to amount acceptance.
3. An offer may be distinguished and an 7. A statement of price is not an offer
announcement :
▪ A declaration of intention and an
announcement. (Auctions)
▪ An invitation to make an offer or do business.
( Ads, catalogues, sale offers Etc..,)
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TENDERS ?
“A tender is an official offer or bid to carry out a
project, deliver products, or render services at a given
cost and within a predetermined window of time.”
1. TENDER AS A DEFINITE OFFER
2. TENDER AS A STANDING OFFER
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LEGAL RULES AS TO ACCEPTANCE

1. It must be absolute and 6. It must show an intention on

unqualified ., it must conform the part of the acceptor to fulfil
with the offer. terms of the promise.
2. It must be communicated to 7. It must be given by the party
the offeror. or parties to whom the offer is
3. It must be according to the made.
mode prescribed or usual and 8. It must be given before the
reasonable mode. offer lapse or before the offer is
4. It must be given within a withdrawn.
reasonable time. 9. It cannot be implied from
5. It cannot precede an offer. silence.
 COMMUNICATION OF OFFER , 15
ACCEPTANCE AND REVOCATION
❖ An offer , its acceptance and their revocation to be completer
must be communicated between the parties.

❖ REVOCATION : Revocation generally refers to the

“withdrawal” of an offer or “taking back” or “recalling”. It's
the act of cancelling or annulling something, like a proposal,
acceptance, or even a contract itself.
❖ Mode of communication : The communication of offer,
acceptance and revocation may be communicated by words
spoken or written, or by conduct.
❖ Example : Installing an vending machine in a public place is
an offer and a person using it is acceptance and later turning it
off is revocation .
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When is communication complete ?

1. Communication of offer is completed when the
subject matter of the offer comes to the knowledge
of the person to whom it is made.

2. Communication of acceptance is completed when

the acceptors expresses his or her obligation and
when it comes to the knowledge of the proposer.

3. Communication of revocation is completed when

anyone party is willing to recall or withdraw the
contract and its done when it comes to the
knowledge of the other party.
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1. Time for revocation of offer and Acceptance.

2. Loss of letter of acceptance in postal transit
3. Contracts over telephone or telex or oral
communication.
4. When does an offer comes to an end ?
➔ By communication of notice of revocation by offeror
at any time before its acceptance.
➔ By lapse of time if it is not accepted within the
prescribed time .
➔ By non- fulfilment by the offeree of a condition.
CONSIDERATION
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CONSIDERATION ?
● In Mercantile law, It refers to something of value
exchanged between parties, acting as the "price" for
a promise. This exchange can be a benefit received, a
detriment suffered, or a promise to do or not do
something. Without valid consideration, a contract is
generally unenforceable.
● Consideration is a technical term used in the sense of
quid pro quo. (Something in return)
● Ex Scenario : Sale of goods - (A buyer agrees to pay
Rs.50,000 for a laptop from a seller ) consideration of
buyer is making payment for the laptop and seller
consideration is selling laptop and at the end both are
getting benefited.
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LEGAL RULES AS TO CONSIDERATION

1. It must move at the desire of the promisor

2. It may move from the promisee or any other person
3. It may be an act, abstinence or forbearance or a return
promise.
4. It may be past present or future.
5. It need not be adequate
6. It must be real and not illusory
7. It must be something which the promisor is not already
bound to do.
8. It must not be illegal, immoral or opposed to public policy.
 21
STRANGER TO CONTRACT
Doctrine of Privity of Contract : The doctrine of privity
of contract is a legal principle stating that only parties to a
contract can sue or be sued under it. This means that a third
party, who is not part of the contract, generally cannot
enforce its terms or be held liable for its obligations, even if
the contract was intended to benefit them.

EXCEPTIONS :
1. A trust or charge
2. Marriage settlement , Partition or other family
arrangements.
3. Acknowledgement or estoppel.
4. Assignment of a contract.
5. Contracts entered into through an agent.
6. Covenants running with the land.
“A CONTRACT WITHOUT
CONSIDERATION IS VOID -
EXCEPTIONS”
1. LOVE AND AFFECTION .
2. COMPENSATION FOR
VOLUNTARY SERVICES.
3. PROMISE TO PAY A TIME -
BARRED DEBT.
4. COMPLETED GIFT
5. AGENCY
6. CHARITABLE SUBSCRIPTION.
CAPACITY TO
CONTRACT
 1. MINORS
➔ According to the law ‘Minor is a person who has
not completed eighteen years of age’.
➔ The very first rule is that the law protects minors
against their own inexperience and against the
possible improper designs of those more
experienced.
➔ The second rule is that, in pursuing the above
object the law should not cause unnecessary
hardship to persons who deal with minors.
➔ MINOR’S AGREEMENTS : an agreement with
or by a minor party is void and inoperative (from
the beginning).
 2. PERSONS OF UNSOUND 25

MIND
★ A person of unsound mind is generally not competent
to enter into a contract. To be considered of sound
mind for a contract, an individual must be capable of
understanding the contract and forming a rational
judgment about its effects on their interests at the time
of making the agreement.
★ A person , who is usually of unsound mind but
occasionally of sound mind. May make a contract
when he is of sound mind.
★ A person , who is usually of sound mind but
occasionally of unsound mind. May not make a
contract when he is of unsound mind.
★ Contracts of persons of unsound mind (Lunatics,
Idiots, Drunken or intoxicated persons)
★ Agreements entered into by persons of unsound mind
are void.
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3. OTHER PERSONS
★ ALIEN ENEMIES : (the subject of a foreign state)
he may be an alien friend or an alien enemy.
★ Contracts with alien friend is when both the part
countries are at peace with republic of india.
★ Contracts with alien enemy is contracts during the
war and contracts made before the war.
★ Foreign sovereigns and accredited
representatives of foreign state.
★ Corporations
★ Insolvents and Convicts (when undergoing an
imprisonment)
FREE CONSENT
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MEANING :
★ An agreement made between two parties for the
same purpose with the Union of thoughts. It is
under the principle of consensus-ad-idem.
★ In contract law, a "free contract" means an
agreement where both parties enter into it willingly
and without any undue influence, coercion, fraud,
misrepresentation, or mistake. Essentially, it means
each party has freely and knowingly consented to
the terms of the contract.
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1. COERCION
● Coercion refers to the use of force, threats, or
intimidation to compel someone to enter into a
contract or agreement against their will. It
undermines the principle of free consent, making
the resulting contract voidable at the option of the
coerced party.
● Coercion is the act or process of persuading someone
forcefully to do something that they do not want to do.
● EXAMPLE : Threatening to harm a person's family if
they don't sign a contract.
Using financial pressure or exploiting someone's
vulnerable situation to force them into an agreement.
2. UNDUE INFLUENCE
Undue influence occurs when one party in a contract has a
dominant position over the other and uses that position to gain
an unfair advantage, essentially undermining the other party's
free will in the agreement.
● Contracts influenced by undue influence are generally
considered voidable, meaning the affected party can choose to
uphold or cancel the contract.
● When one party holds a real or apparent authority over the
other party e.g.. The relationship between master and servant ,
doctor and patient.

EXAMPLE :
● A lawyer influencing a client to enter a contract that benefits
the lawyer, not the client, especially if the client is vulnerable.
● A person in a position of authority taking advantage of their
subordinate to secure a contract on unfair terms.
CONTRACT WITH PARDANASHIN 31
WOMEN
A contract with a pardanashin woman, meaning a woman who observes
strict seclusion (Alone or Isolated), requires extra safeguards due to the
presumption of undue influence. The law aims to protect these women
from exploitation, given their limited exposure to the outside world and
potential lack of understanding of contractual terms.
● Contracts with pardanashin women are presumed to be entered into
under undue influence.
● This means the other party must prove the woman's consent was freely
given, and she understood the terms of the contract.

A contract with a pardanashin woman is valid only if the other party can
demonstrate that the woman entered into it with full understanding and
free will, despite the presumption of undue influence.
 32

DIFFERENCE BETWEEN COERCION AND

UNDUE INFLUENCE
MISREPRESENTATION 33

A misrepresentation is a false statement of a material

fact made by one party which affects the other party's
decision in agreeing to a contract. If the
misrepresentation is discovered, the contract can be
declared void.
This also includes non-disclosure of a material fact or
facts without any intent to deceive the other party.

Example : 1. A real estate agent falsely claims a

property has no known defects.
2. A party making a false statement about their authority
to enter into a contract.
3. A seller of a car falsely claims it has low mileage and
is in excellent condition, when it has actually been in a
major accident and has significant mechanical issues.
 34
Requirements of misrepresentation :
● A false statement of fact (not opinion or puffery).
● The statement must be material, meaning it must be
significant enough to influence the other party's decision.
● The statement must be relied upon by the other party.

Consequences of misrepresentation :
● Avoid or Rescind (no longer valid) the contract.
● Accept the contract but insist that he should be
placed in the position where he would have been if
the representation made was true.
Loss of right of rescission :
● If he , after becoming aware of the
misrepresentation or fraud , takes a benefit under
the contract or in some other way affirms it
● if restitutio in integrum of the parties is possible.
● if a third party has acquired rights in the subject
matter of the contract in good faith and value.
FRAUD
❖ Fraud, as used in business law, is the deliberate use
of disinformation by one party to convince another to
sign a contract or agreement, frequently with the
effect of financial or other harm.
❖ In order to obtain an unfair advantage or deny
someone their rights, it involves lying,
misrepresenting, or hiding information.
EXAMPLE : 1. A business owner hides the fact that their
company is on the verge of bankruptcy while trying to sell
it to an unsuspecting buyer.
2. A company offers a service guarantee that it has no
intention of honoring, using it as a marketing tactic to
attract customers.
ESSENTIAL ELEMENTS OF 36

FRAUD
1. There must be a representation or assertion and it must be false.
2. The representation must relate to a material fact which exist now
or existed in the past.
3. The representation must been made before the conclusion of the
contract with the intention of inducing the other party to act upon
it.
4. The representation or statement must been made with a knowledge
of its falsity or without belief in its truth or recklessly , not caring
whether it is true or false.
5. The other party must have been induced to act upon the
representation or assertion.
6. The other party must have been relied upon the representation
and must have been deceived.
7. The other party , acting on the representation or assertion must
have subsequently sufferers some loss.
37
 MISTAKE
A mistake can render a contract void or voidable, depending on the
nature and circumstances of the mistake. Mistakes can be
categorized as either mistakes of fact or mistakes of law, and further
divided into bilateral (both parties mistaken) or unilateral (one party
mistaken).

EXAMPLE :
Bilateral Mistake:
Both parties believe a painting is an original Van Gogh, but it is later
discovered to be a forgery.
Unilateral Mistake:
A buyer mistakenly believes a property has a specific zoning
designation, while the seller knows it doesn't, but doesn't disclose the
information
Mistakes of Fact: 39

Bilateral Mistake:
When both parties to a contract are mistaken about
a fundamental fact essential to the agreement, the
contract is generally void. For example, if both parties
believe a specific piece of land contains valuable
minerals, but it is later discovered that it does not, the
contract could be void.
Unilateral Mistake:
When only one party is mistaken about a material
fact, the contract is usually valid. However, exceptions
exist where the mistake is induced by fraud or
misrepresentation by the other party, or if the other
party knows or should have known about the mistake.
1. BILATERAL MISTAKE 40

● The mistake must be mutual : A mutual mistake

(a bilateral mistake) occurs when both parties to an
agreement are mistaken about the same material fact.
This mistake must be about a fundamental aspect of the
contract, and it renders the agreement voidable (it can
be cancelled)
● The mistake must relate to a matter of fact
essential to the agreement : This means the
mistake must relate to a fundamental aspect of the
contract, and if the truth had been known, the
agreement would not have been made.
Various Cases :
● Mistake as to the subject-matter.
● Mistake as to the possibility of performing the
contract. (Physical impossibility and Legal
impossibility)
2. UNILATERAL MISTAKE 41

Mistakes as to the identity Mistakes as to the nature

of the person contracted of contract : Especially a
with : This occurs when one party unilateral mistake about the contract's
is mistaken about the identity of the very nature or the identity of the other
other party they are contracting with, party, can render the contract void.
believing them to be someone else. This occurs when one party is mistaken
The contract may be void if the
about the fundamental nature of the
mistake is fundamental to the
agreement and the identity of the agreement they are entering into, or
other party is crucial to the contract's who they are contracting with.
formation. Examples:
Example:
● A seller believes they are dealing
with a reputable company but is Imagine an illiterate person who signs
actually dealing with a fraudster. a document believing it's for a
● A buyer pays for goods with a donation, but it's actually a contract to
check from a fake account after sell their property. If this mistake is due
being misled about the identity of to misrepresentation or fraud, the
the seller. contract might be voidable.