UNIT V COMMERCIAL LAW

THE INDIAN CONTRACT ACT 1872

Definition of contract, essentials elements and types of a contract, Formation of a
contract,performance of contracts, breach of contract and its remedies, Quasi
contracts - Contract Of Agency: Nature of agency, Creation and types of agents,
Authority and liability of Agent and principal: Rights and duties of principal and
agents, termination of agency.
THE SALE OF GOODS ACT 1930
Nature of Sales contract, Documents of title, risk of loss, Guarantees and
Warranties, performance of sales contracts, conditional sales and rights of an
unpaid seller - Negotiable Instruments Act 1881: Nature and requisites of
negotiable instruments. Types of negotiable instruments, liability ofparties, holder
in due course, special rules for Cheque and drafts, discharge of negotiable
instruments.

Contract
Contract is an agreement made between
two or more parties which the law will
enforce. It has two elements.
1. Agreement
2. It is enforceable by law
Agreement = offer + Acceptance
Contract = Agreement + Enforceability by
law

The essential Elements of Valid

Contract
1. Offer & acceptance Offer must be definite
acceptance of offer must be absolute and
unconditional
2. Intention to create legal relationship When
the two parties enter in to an agreement, their
intention must be to create legal relationship.
3. Lawful consideration It means something in
return.
4. Capacity of parties - competency must be
capable of entering into the contract. Ie, sound
mind, major.

The essential Elements of Valid

Contract
5. Free and genuine consent There must be a
free and genuine consent of the parties to the
agreement
6. Lawful object Object must not be illegal,
immoral, opposed to policy
7. Agreement not declared void - Must not have
been declared void by law in force in the country
8. Certainty and possibility of performance
The agreement must be certain and not vague
9. Legal formalities Contract should be made in
writing or in the presence of witness or registered.

Formation Of Contract
The requirements for formation
of contract are 1.agreement and
2.consideration. There is sometimes
said to be a third element, namely, 3.
intention to create legal obligation .

Agreement
Consideration

Legal Obligation

Classification of
contracts
Legal
Effects

1. Valid Contract
2. Void Contract
3. Voidable
contract
4. Unenforceable
contract
5. Illegal

Performa
nce

1. Unilateral
Contract
2. Bilateral
contract
3. Executed
contract

Formation

1. Express
Contract
2. Implied
contract
3. Quasi contrac

Classification based on legal

effects
Valid Contract
An
agreement
becomes a valid
contract when it
fulfils
all
the
essentials
of
a
contract as laid
down in section 10.

Example
Sophi offers Arun to sell his house for
Rs 3 Lakhs. Balu agrees to buy the
house for this price. It is a valid
contract.

Classification based on legal

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

Classification based on legal

effects
Voidable contract
An agreement
which
is
enforceable by law
at the opinion of
one but not at the
opinion of the other
or the others is a
voidable contract.

Example
If the consent (sanction) of the party
was caused by coercion(compulsion)
the contract is enforceable at the
option of the party whose consent
was not free.

Classification based on legal

effects
Unenforceable
contract

An
unenforceable contract
is one which cannot be
enforced in a court of
law because of some
technical defects such
as absence of writing,
time barred, want of
stamps etc.

Example
When the promissory note is under
stamped, the agreement therein
becomes unenforceable because of
that technical defect.

Promissory Note - A financial

instrument that contains a written
promise by one party to pay another
party a definite sum of money.

Classification based on legal

effects
Illegal Contract
An
illegal
agreement is one
which criminal in
nature or which is
immoral or which is
against
public
policy.

Example
A contract to commit dacoit is an
illegal contract.

Dacoit is a term used by the Indian

police forces to classify criminals.

Classification based on
Performance
Unilateral contract A
unilateral contract is one
in which only one party
has to fulfill his obligation
at
the
time
of
the
formation of the contract
and
the
other
party
having
fulfilled
his
obligation at the time of
the contract or before
contract
comes
into
existence.

Example
Amina permits a coolie to put his
luggage to a carriage. The contract
comes into existence as soon as the
coolie place the luggage. So Amina
has only to fulfill his part.

Classification based on
Performance
Bilateral Contract
A bilateral contract is
one in which the
obligation on the part
of both the parties to
the
contract
are
outstanding at the
time of the contract.

Example
Athulya promises to paint a picture in
return for which Saranya promises to
Rs 1000.

Classification based on
Performance
Executed
Contract If both
parties
of
a
contract
have
performed
their
respective
obligation, contract
is known as an
executed contract.

Example
Amal contracts with Bessy to buy a
house for Rs 1,00,000. Amal paid Rs.
1,00,000 to Bessy. Bessy executed
the sale deed and delivered its
possession.

Classification based on
Performance
Executory contract
An executory contract
is one in which both
parties have not yet
performed
their
obligations
either
wholly or in which
there
remains
something to be done
on both sides.

Example
Rahul agrees to paint a picture for
Rejith for Rs. 500. Rahul has not
painted the picture and Rejith has
not paid the price also.

Classification based on
Formation
Express contract
If the terms of a
contract
are
expressly
agreed
upon (whether orally
or in writing) at the
time of the formation
of the contract, the
contract is said to be
an express contract.

Example
Collin writes to Aby I am willing to
sell my car to you for Rs 50,000.
Aby accepts Collins offer by another
letter.

Classification based on
Formation
Implied contract

An
implied
contract
is
one
which is inferred
from the act or
conduct
of
the
parties or course of
dealings between
them.

Example
Diljith gets into a public bus. Then he
enters into an implied contract with
the authorities of the bus that he
wishes to travel in the bus.

Classification based on
Formation
Quasi Contract Under
certain
circumstances,
law itself creates legal
rights and obligations
against
the
parties.
These obligations are
known
as
quasi
contracts. It is created
by law and it only
resembles a contract.
.

Example
Aiju , a trademan leaves goods at
Sajids house by mistake. Suppose
Sajid treats the goods as his own,
then Sajid is bound to pay to Aiju a
reasonable price for the goods.

 OFFER - According to Sec.2(a), when a person made a

proposal, when he signify (indicate) to another his willingness
to do or to abstain (withdraw) from doing something.

CONSENSUS - AD IDEMAccording to Sec.13, meeting of minds or identity of

minds or receiving the same thing in same sense at
same time.
Synonyms - meeting of the minds when two
parties are in an agreement (contract) both
have the same understanding of the terms of
the agreement.

TYPES OF OFFER

Express offer
Implied offer
Specific offer
General offer
Cross offer
Counter offer
Standing offer

Express offer - When offer is given to

another person either in writing or in oral.

Implied offer - When offer is given to

another person neither in writing nor in oral.

Specific offer - When offer is given to a

specific person.

General offer - When offer is given to

entire world at a large.

Cross offer - When both the persons

are making identical offers to each other
in ignorance of others offer.

Counter

offer

- When both the

persons are making offers to each other

which are not identical in ignorance of
others offer.

Standing offer - An offer which

remains continuously enforceable for a
certain period of time.

LEGAL RULES FOR OFFER

Offer must be given with an intention to
create a legal relationship.
Offer must be definite.
There is a clear cut difference between
offer, invitation to offer, invitation to sale.
Offer must be communicated.
Mere statement of price is not an offer.

CONSIDERATIO
N

When a party to an agreement promises to

do something he/she must get something
in return .This something is defined as
consideration.

LEGAL

RULES

For CONSIDERATION

1)It must move at the desire of the

promisor.
2)It may move by the promisee .
3)It must be past ,present or future .
4)It need not be adequate .
5)It must be real .
6)It must not be illegal , immoral or
opposed to public policy .

Capacity to
contract
Following are the condition for a
person to enter into contract
He must be major
He must have sound mind
He must not be disqualified by
any other law.

Void agreement.
An agreement not enforceable by law is
said to be void.
Void Contract and Quasi contract.
Void Contract A contract which ceases
to be enforceable by law becomes void
Quasi contract A quasi contract is
not a contract at all. A contract is
intentionally entered into by the parties.

By whom must contracts be performed?

1.
2.
3.
4.
5.

Promisor himself.
Agent
Legal representatives.
Third person.
Joint promisors.

QUASI CONTRACTS

What Are Quasi Contracts?

Quasi means almost or
apparently but not really or as
if it were
A quasi contract is a contract
that exists by order of a court,
not by agreement of the parties
Courts create quasi contracts to
avoid the unjust enrichment of a
party in a dispute over payment

INTRODUCTION

Most common of all the commercial

contracts
Came into force on 1st JULY,1930.
Are subject to the general legal principles
applicable to all the contracts such as,
offer & its acceptance, consideration.

ESSENTIALS OF VALID SALE

CONTRACT
Two parties:

There must be 2 distinct parties i.e., a buyer and a seller

Goods:

Goods which form the subject matter of the contract of sale

must be movable.

Price:

The consideration for the contract of sale, called price, must

be money

Essential elements of a valid contract:

A contract is made by an offer to buy or sell goods
for a price and the acceptance of such offer.
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SALE AND AGREEMENT TO SELL

Property in the goods is transferred from
the seller to the buyer- sale
Transfer of the property in the goods is to
be taken place at some future date or after
fulfillment of some condition,
-AGREEMENT TO SALE

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SALE AND AGREEMENT TO SELL

Sale
1.
2.
3.
4.

Ownership is with the

buyer
Executed contract
Sue for price, in case of
breach
Goods lost by accident
then loss falls on the
buyer.

Agreement to sell
1. Ownership is with the
seller
2. Executory contract
3. Sue for damages only, in
case of breach
4. Goods lost by accident
then loss falls on the
Seller.

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CONDITION AND WARRANTY

Condition
1.

Its is a term in contract

which is essential.

2.

When condition
breaches?

3.

Breach of condition can

be breach of warranty

Warranty

1. Its a term in contract

which is collateral.
2. When warranty
breaches?
3. Breach of warranty
cannot be breach of
condition.
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EXPRESS AND IMPLIED CONDITIONS

AND WARRANTIES
Condition or warranty may be
expressed
Express condition and warranty are
expressly provided in the contract.
Implied Condition or warranty are
provided by the law.
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WHO IS AN UNPAID SELLER

A seller of goods is deemed to be an
unpaid seller: When the whole of the price has not been
paid or tendered
When any negotiable instrument is
dishonoured
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