Summary of Commercial law (AK Sen)

Md Tanjil hossen
Islamic university, Bangladesh
Books 1(Law of contract)

Definition of law
Law is a system of rules created and enforced through social or governmental institutions to regulate
behavior. Law is the command of the sovereign. It means
1) Law has its source in sovereign authority
2) Law is accompanied by sanctions.
3) The command to be a law should be compel a course of conduct.
According to Holland, Law is “a rule of external human action enforced by the sovereign political authority.”

What is Business Law?

Business Law is also known as Commercial law or corporate law, is the body of law that applies to the rights,
relations, and conduct of persons and businesses engaged in commerce, merchandising, trade, and sales.
It is often considered to be a branch of civil law and deals with issues of both private law and public law.

What is Contract Law?

Contract law is the body of law that relates to making and enforcing agreements. A contract is an agreement
that a party can turn to a court to enforce. Contract law is the area of law that governs making contracts,
carrying them out and fashioning a fair remedy when there’s a breach.

Definition of contract
Contract, in the simplest definition, a promise enforceable by law. The promise may be to do something or to
refrain from doing something.

Section 2(h) of the Indian Contract Act provides that, "An Agreement enforceable by law is a contract".
Therefore in a contract there must be
(1) an agreement and
(2) the agreement must be enforceable by law.

The essential element of contract.

An agreement becomes enforceable by law when it fulfils certain conditions. These conditions which can be
called the Essential elements of a contract are explain below:
1. Offer and Acceptance: There must be a lawful offer by one party and a lawful acceptance by the other
party or parties.
2. Intention to create Legal Relationship: 'There must be an intention (among the parties) that the
agreement shall result in or create legal relations. An agreement to diner at a friend's house is not an
agreement intended to create legal relations and is not a contract. But an agreement to buy and sell goods or,
is agreements intended to create some legal relationship and are therefore contracts.
3. Lawful Consideration: An agreement is legally enforceable only when each of the parties to it gives
something and gets something. An agreement to do something for nothing is usually not enforceable by law.
The something given or obtained is called consideration.
4. Capacity of Parties: The parties to an agreement must be legally capable of entering into an agreement,
otherwise it cannot be enforced by a court of law. Mad, immature drunkenness isn’t capable of contract.

5. Free Consent: In order to be enforceable, an agreement must be based on the free consent of all the
parties. Under Sec. 14, the consent is said to be free, when it is not induced by any of the following:- (i)
coercion, (ii) misrepresentation, (iii) fraud, (iv) undue influence, or (v) mistake.

6. Legality of the Object: The object for which the agreement has been. entered into. must not be illegal, or
immoral or opposed to public policy.

7. Certainty: The agreement must not be vague. It must be possible to ascertain the meaning of the
agreement, for otherwise it cannot be enforced.
8. Possibility of Performance: The agreement must be capable of being performed. A promise to do an
impossible thing cannot be enforced.

9. Void Agreements: An agreement so made must not have been expressly declared to be void.
10. Writing. Registration and Legal Formalities: An oral. contract is a perfectly good contract, except. in
those cases where writing and/or registration is required by some statute.

Conclusion
The elements .mentioned above must all be present. If any one of them is absent, the agreement does not
become a contract. An agreement which fulfils all the essential elements is enforceable by law and is called a
contract. From this it follows that, every contract is an agreement but all agreements are not contracts.

Ans of exercises
1. Explain the essential elements of a contracts
Ans: Written above
2. Define contract, State the essential elements of contract.
Ans: Written above
3. “All agreement are not contract but all contract are agreement” Discuss the statement explaining essential
element of valid contract.
Ans:
All Contracts are Agreements
All Contracts are agreements as for the formation of a contract, an agreement is always necessary. There
cannot be a contract where there is no agreement. Without an agreement, a contract cannot be formed.
Therefore, All Contracts are Agreements.
All Agreements are not Contracts
Only those agreements become contract which gives rise to a legal obligation. If no legal duty is enforceable
by an agreement, it can never be a contract. And hence agreement is a broader term than Contract.
When Agreement becomes Contract
An agreement is regarded as a contract when it is enforceable by law. The conditions of enforceability are
stated in S. 10. Section 10 of Indian Contract Act, 1872 provides, “All agreements are contracts if they are
made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful
object and not hereby declared to be void."
After reading sec. 10 of the Indian Contract Act, we can get the idea of when an agreement becomes a
contract.
As per section 10 of the contract act, here, all the agreements are contracts if they are made by;
1. Free consent: an agreement must be based on the free consent of all the parties
2. Competent Parties: The parties to an agreement must be legally capable of entering into an agreement,
the should be.
3. Lawful Consideration and Object: The objective and consideration must be lawful.
4. Not expressly declared to be void: The agreement must not expressly declared to be void.

When the above-required elements are fulfilled then the agreement can be enforceable and becomes a
contract.
Offer and Acceptance
Proposal,
An "offer" involves the making of a "proposal". The term proposal is defined in the Contract Act as follows:
"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).

Offer
A proposal is also called an offer. The promisor or the person making the offer is called the offeror. The
person to whom the offer is made is called the offeree.

Promise and Acceptance

"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).
"The person making the proposal is called the 'promisor' and the person accepting the proposal is called the
'promisee'." -Sec. 2(c).

Example of offer and acceptance :

(I) Specific offer: X offers to sell his motor car to Y at the price of Rs. 5000. This is a proposal. X is the
promisor or the offeror. Y is the offeree. If Y agrees to buy the car at the price stated; Y becomes the
promisee or the acceptor. There is a contract.

(ii) Specific Offer : P puts up a notice offering to pay a reward of Rs. 5 to any student who' finds out and
returns a book lost in the college. Q a student, reads the notice and then finds and brings
the book to P p's notice is an offer and Q is the acceptor. There is a contract.
(iii) General Offer: transport company runs tramway cars along the streets. This is an offer by the company
to carry passengers at the scheduled fares. The offer is accepled when a passenger gets up on a tram with the
intention of becoming a passenger.

Offer
Rules regarding offer
The .contract Act contains various rules regarding offer or proposal. They can be summed
up as follows :
1. An offer may be express or may be implied from the circumstances : An offer may be
made in two ways : (i) by words, spoken or written and (ii) by conduct.
When an offer is made by stating so in words or in writing, it is called an Express offer. When an offer is
implied from the conduct of a person, it is called an Implied offer. "In so far as the proposal or acceptance of
any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is
made otherwise than in words, the promise is said to be implied"-Sec. 9.
Examples (i)) mentioned above, are cases of express offer. Example (jji) is a case of an implied offer.

2. An offer may be made to a definite person; to some definite class of persons; or to the world at
large : An offer made to a definite person or a definite class of person is called a Specific offer. An offer sent
to all persons (or the world at large) is called a General offer.
Example (i) is an offer to a definite person; example (ii) is an offer to a definite class of persons; and example (iii) is an
offer to the world at large.

3. Legal relationship is required: The offer must be one which is capable of creating a legal relationship. A
social party Or an invitation to play cards is not a legal relationship. Therefore, an offer to such an affair does
not lead to a binding contract.

4. The terms of the offer must be certain, definite, unambiguous and not vague: X says to Y, "I will give
some money if you marry Z ". This is not an offer which can be accepted because the amount of money to be
paid is not certain.

5. A mere statement of intention is not an offer : A distinction is usually made, between an "offer" and "a
statement of intention". Price-lists and catalogues, newspaper advertisement and enquiries for customers are
merely statements of intention. They ate not regarded as offers but as invitation to others to made offers.

6. An offer must be communicated to the offeree: A person cannot accept an offer unless he knows of the
existence of the offer. P offers a reward to anyone who returns his lost dog. Q finding the dog brings it to P
without having heard of the offer. Held, he was not entitled to the reward.

7. An offer may be conditional: An offer may be made subject to conditions. In such cases, the conditions
must be clearly communicated to the offeree. If a person accepts an offer without knowledge of the
conditions, the offeror cannot claim fulfilment of the conditions.

8. Printed Contracts: Printed Contracts often contain a large number of terms and conditions which exclude
liability under the contract.

Acceptance
Who can accept?
An offer can be accepted only by the person or persons for whom the offer is intended. An offer made to a
particular person can only be accepted by him because he is the pnly person intended to accept. An offer
made to a class of persons can be accepted by any member of that class. An'offer made to the world at large
can be accepted by any person whatsoever.

Rules regarding acceptance

The acceptance of an offer to be legally effective must satisfy the following requirements.

1. It must be an absolute and unqualified acceptance of all the terms of the offer.-Sec 7( I):If there is
any variation, even on an unimportant point, between the terms of the offer and the terms of the acceptance,
there is no contract.
Examples: (i) AI offered land to N at £280. N replied accepting and enclosing, £80, and promising to pay the balance by
monthly instalments of £50. Held, there was no contract, as there was no unqualified acceptance.

2. Conditional Acceptance: In accordance with English law as well as with the terms of the Contract Act, an
acceptance with a variation is no acceptance; it is simply a counter-proposal. which must be accepted by the
original promisor before a contract is made. X offered to sell his house for Rs. 12,00q. Y said, "accepted for
Rs. 10,000." This is not an acceptance but a counter offer or counter proposal.
but an acceptance is not called 'conditional' if an immaterial term is added or if there occurs any
misunderstanding between the parties for the interpretation of collateral terms.

3. Contracts subject to condition : There are cases where an "immediate binding contract is formed
although some of the parties' rights and obligations may be dependent upon the happening of a particular
event. For example, the agreement may contain such a term as 'subject to the purchaser's solicitors approving
the title.

4. Clarification : The seeking clarification of offer neither amounts to the acceptance of the offer nor to the
making of a counter offer.

5. The acceptance· must be expressed in some usual or reasonable manlier :-Sec 7(2). The offeree may
express his acceptance by word of mouth, telephone, telegram or by post. These are the usual methods of
communicating acceptance to the offeror.
An offer may also be accepted by conduct. If the offeree does what the offeror wants him to do, there is
acceptance of the offer by conduct..

6. Mental acceptance or uncommunicated assent does not result in a contract: No contract is formed if
the offeree remains silent and does nothing to show that he has accepted the offer. Acceptance must be
communicated to the offeror or shown by conduct.

7. The mode of acceptance: Where the promisor prescribes a particular mode of acceptance, the offeree
must follow the partiClrlar mode of acceptance. For example, 'if the offeror says, "acceptance to be sent by
telegram", the offeree must send a telegram. If the offeree fails to follow the prescribed mode of acceptance,
the proposer may, within a reasonable time after the acceptance is communicated to him, insist that the
proposal be accepted in the prescribed manner and not otherwise. But if the proposer does not insist upon it,
he accepts the acceptance as actually communicated.-Sec 7(2).
Example: X offers to buy a certain quantity of coal from Y at a certain price and asks Y to send a telegram if he accepts,
Y writes a letter accepting the offer. X may insist on a telegram from Y; but if X does not so insist, the acceptance is
good.

8. Time of Acceptance: It the offeror prescribes a time, the acceptance must be done within that time. If no
time is prescribed the acceptance must be done within reasonable time. What is 'reasonable' depends on the
facts of the case .

9. When acceptance is complete : Section 4 of the Contract Act lays down that the communication of an
acceptance is. Complete, as against the proposer, when It IS put in a course of transmissio~ 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.
 Examples: (i) A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is
complete when B receives the letter.

Communication of offer and acceptance.

Section 3 of the Contract Act states as follows: The communication of proposals, the acceptance of
proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act
or omission of the party proposing, accepting or revoking by which he intends to communicate such
proposal, acceptance or revocation or which has the effect of communicating it.

How is an Offer to be Communicated?

An offer may be communicated to the offeree or offerees by word of mouth, by writillg or by conduct. A
written offer may be contained in a letter or a telegram. A circular or advertisement or a notice may be
written in such a language that it amounts to an offer. A tramway car and a bus going along a street and
picking up passengers are examples of offers by conduct.
Section 4 states : "The communication of a proposal is complete when it comes to the knowledge of the
person to whom it is made,"

How is an acceptance to be communicated?

Offer and Acceptance by Post: An offer may be made by post. An offer may also be accepted by post, if
there is no other mode of acceptance, specially prescribed by the' proposer. When a proposal is made through
the post, the post office is the agent of the proposer. Therefore a letter of acceptance duly addressed and
posted is sufficient acceptance even though the letter does not actually reach the proposer. The letter must
however, be correctly addressed. The letter must be actually posted. It is not enough to give it to somebody to
post.
Example: (i) G applied for shares in a company. A letter of allotment was posted but the letter did not reach G. Held
there was a binding contract and G was a shareholder of the company.

Offer and Acceptance through Telephone: Offer and acceptance can be communicated through the
telephone. But there are certain rules regarding oral communication. It has been held that the offer and
acceptance must be audible. Heard and understood.

Microphone: There was an auction sale of plots of land. The terms, including certain restrictive conditions,
were announced by a microphone. The Supreme Court held, "Microphones have not yet acquired notoriety as
carriers of binding representations. Promises held out over loudspeakers are often c1aptraps of politics."

STANDING CONTRACT AND OPEN PROPOSALS

Contracts for the supply of goods over a period of time are some times so worded that the buyer has
an option as regards the quantity to be purchased and the time of purchase. Such contracts are called
"Standing Contracts" or "Open Proposals".
Examples :
P signed a tender addressad to the London County Council, agreeing, on acceptance, to supply. all
the goods specified in the schedule, to the extent ordered. iIle tender was accepted but the L. C. C.
did not order any goods. Held, the L. C. C. was not bound to order any goods, but if it did so, P was
bound to deliver the goods as and when ordered. Percival Ltd. v, L.CC'
In such cases as above. a contract comes into existence when a definite quantity is ordered.

Revocation
Revocation of an Offer. When does an Offer Lapse?
An offer comes to an end, and is no longer open to acceptance under the following circumstances,-
Sec 6.
1. By notice: If the offeror gives notice of revocation to the other party, For example:
expressly withdraws the offer, and the offer comes to an end, An offer may be revoked any
time before acceptance, but not afterwards. Once an offer is accepted there is a binding
contract. The acceptance of an offer becomes binding on the offeror as soon as the
 acceptance is put in course of communication.
2. By lapse of time: When the proposer prescribes a time within which the proposal must be
accepted, the proposal lapses as soon as the time expires.
3. After expiry of reasonable time: If no time has been prescribed, the proposal lapses after
the expiry of a reasonable time. What is reasonable time will depend on the circumstances of
the case.
4. By failure of a condition precedent: An offer lapses by the failure of the acceptor to fulfil a
condition precedent to acceptance, where such a condition has been prescribed.
5. By death or insanity: An offer lapses by the death or insanity of the proposer, if the fact of
his death or insanity comes to the knowledge of the acceptor before acceptance.
6. Counter Offer: When a counter offer is given, the original offer lapse.
7. By refusal: A proposal once refused is dead and cannot be revived by its subsequent
acceptance.

Revocation of Acceptance
Section 5 of the Contract Act provides that an acceptance can be revoked any time before the
acceptance comes to the knowledge of the proposer but not afterwards.
Example: P proposes, by a letter sent by post, to sell his house to Q. Q accepts the proposal by a letter sent
by post. Q may revoke his acceptance any. time before the letter communicating it reaches P but not
afterwards.

The English law on this point is different. Under English law an acceptance is irrevocable once it is
put in course of communication to the offeror. Thus in the above example Q could not have revoked
the acceptance once he had posted the letter of acceptance.

Communication of Revocation
According to Section 3 of the Act. the revocation of a proposal or an acceptance is deemed to be
made by any act or omission of the party by which he intends to communicate such revocation, or
which has the effect of communicating it.

According to Section 4 of the Act, the communication of revocation is complete as against the
person who makes it, when it is put into a 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; as against the person to whom it is made,
when it comes to his knowledge.
Examples:
(i) P makes a proposal to Q. Q sends a letter of acceptance. Subsequently Q revokes his acceptance
by telegram. Q's revocation is complete, as against Q when the telegram is despatched, and as
against P when it reaches him.

(ii) A revokes his proposal by telegram. The revocation is complete as against A when the telegram
is despatched. Jt is complete as against B when B receives it. B revokes his acceptance by telegram.
B's revocation is complete as against B when the telegram is despatched, and as against A when it
reaches him.