Nature of Contract

Contract- Meaning and Essentials

Objective

After going through this lesson, you shall be able to understand the following concepts:

Introduction to Law

  Let us have a look at the following picture. 

What comes to our mind when we hear the word ‘law’? Well, we usually associate a courtroom scene, with a judge along with a couple of lawyers, a victim in the victim box, a statue of a blindfolded lady holding scales of justice and other such scenes with the word 'law'.

However, it should be noted that law is not only restricted to such scenes. The word ‘law’ basically stands for the legal rules and regulations that bind a society. These rules and regulations are framed by a country’s government to govern the conduct of its citizens. This ensures peace and harmony in the country. Anyone who violates these rules and regulations is entitled to punishment by the law.
Let’s quickly have a glance at the formal definition of law.



 What is the Need to Study Law?

Do we actually need to study law? Is it so much necessary? Besides being a mandatory subject in the exam of CPT, does the knowledge of law serve any purpose in our real life? Let me share my experience with you all.

One cloudy Sunday, I thought of going for a long bike ride. So, I took out my bike and went off. The weather was so pleasant and I was really enjoying the ride. All of a sudden, a traffic policeman stopped me and asked me for my driving licence. I was petrified and ended up searching all my pockets but all in vain, since I forgot to carry my licence. Like many others, I also tried to make excuses like I was in a hurry; it won't happen the next time; I was not aware of the fact that I need to carry the licence all the time and blah blah.

Now, what do you think? What must have happened next? Did I escape by stating that I was not aware that one needs to carry licence while driving?

No, I didn’t. I ended up paying a fine of Rs 1,000. So, what is the moral of the story? Yes, law is one of the important subjects and the knowledge of law has immense relevance in real life too.

In fact, it is presumed that all the citizens of a country are aware of the law and any violation, knowingly or unknowingly, is regarded as an offence.

In this regard, there is a Latin proverb that is worth quoting here. It is ‘ignorantia juris non excusat’. It means ignorance of law is no excuse. This is to say that if anyone violates the law, then he or she cannot be exempted by stating that he or she was unaware of the law. In other words, ignorance of law cannot be an excuse in case of violation of law.

 The following diagram explains the Latin and English versions of the proverb.


Introduction to Mercantile Law
Now, let’s move on to the area of our concern, that is, mercantile law. From the name itself, we can infer that this branch of law is related to trade, industry and commerce, that is, commercial aspects of an economy.

Let's have a look at the following diagram to understand the meaning of the terms 'mercantile', 'law' and 'mercantile law'.
      

From the above note, we know that mercantile law embraces commercial transactions. So, we can say that all mercantile parties, such as sole proprietors, partnership firms and Hindu joint families, need to abide by mercantile law for business transactions.

Origin and Growth of Mercantile Law
Let’s trace the origin of mercantile law. It was not much later than 1872 in India when the need to separate mercantile law from the main branch of law was felt. Prior to 1872, all business and trading activities were under the purview of personal laws that govern the society. However, with growing diversification and complexities in the business sphere, the need was felt for a separate branch of law that would focus on commercial transactions. Thus, the Indian Contract Act was enacted in 1872. Since then, this act has been governing modern-day commercial operations.

The Indian Contract Act, 1872 contains the law related to a contract. The general law of contract relates to the essentials of a valid contract, the rules for the performance and discharge of the contract and the remedies available in case of breach of contract. The Act is applicable to the whole of India, except for the state of Jammu and Kashmir.

Scope of Mercantile Law

Mercantile law is fairly wide in scope; it includes all the rules and regulations that are used to regulate mercantile transactions. The following laws are included in mercantile law:
  Law of Contract - Introduction
In the above section, we read the term ‘contract’ in the Indian Contract Act, 1872. Now, let’s ask ourselves what actually a contract is. It is basically an agreement between two or more parties that defines the rights and duties in a transaction. In our daily life, we often enter into a number of contracts.

Now, let us have a look at the pictures given below.


In all the four scenes depicted in the above picture, on person is entering into an agreement with the other. This is because, as shown in the third picture, a person is purchasing mobile recharge coupons. In this way, he is entering into an agreement with the mobile company where he will get the net balance (after tax deductions) on purchasing a coupon of Rs 100. Similarly, in the second picture, a person is hiring a taxi; here, he is accepting the terms and conditions of the taxi company.

Nowadays, with the advent of online shopping venues, the scope for the definition of contract has widened. We sell and purchase various things through online shopping portals. When we incur such transactions, we automatically enter into a contract with the online shopping company. this has been presented in the diagram given below.




Let’s now look at the formal definition of contract in the diagram given below.


What is Agreement?
As learnt in the note provided above, an agreement is a promise that is mutually made by two parties to each other. The dictionary meaning of an agreement is ‘harmony or accordance in opinion’. For instance, if I offer to pay you Rs 10,000 in exchange of your X-Box and you agree to it, then it is said to be an agreement between you and me. It should be noted that in this case, if either of us (i.e. either you or me) does not accept this offer, then it will not be regarded as an agreement.

The following diagram presents the situation when an offer becomes an agreement.

  

Now, let us have a look at the definitions of promise and agreement given by the Indian Contract Act, 1872.


Enforceability of Agreement
Now, let’s understand the concept of enforceability. By the word 'enforceability', we mean that there must be a valid reason for filing a case in the court if the agreed terms and promises are broken. For instance, in the above example, if I take your X-Box and do not pay you Rs 10,000 (or pay you less), then you have the right to sue me in the court. So, you see here you have a valid reason to drag me to the court. On the other hand, suppose I promise to throw you a party if I crack the CPC exam and do not do so if I crack the exam, then in this case, you cannot sue me. This is because such a promise is a personal agreement and is non-commercial in nature.

The types of agreements are diagrammatically presented below.


Now, let us sum up our learning through the diagram given below.



Difference between Agreement and Contract
 

Basis of Difference	Agreement	Contract
Composed of	Offer and its acceptance	Agreement and enforceability by law
Legal obligation	May not b…