BOOK I: INTRODUCTION Definition of Law According to Holland, Law is, “a rule of external human action enforced by the sovereign political authority”. From this definition it follows that there are three essential characteristics of law. 1 . Law is a rule relating to the actions of human beings. 2. Law attempts to regulate the external actions of human beings, not their minds. 3. Law is enforced by the State. DEFINITION OF COMMERCIAL LAW The term Commercial Law or Mercantile Law is used to include only the last of the aforesaid subjects, viz., rules relating to industry, trade, and commerce. A commercial suit is defined by the rules of the Calcutta High Court as follows: “Commercial Suits include suits arising out of the ordinary transactions of merchants, bankers, and traders; amongst others those relating to the construction of mercantile documents, export and import of merchandise, affreightment, carriage of goods by land, insurance, banking; mercantile agency and mercantile usages, and debts arising out of such transactions.” MNH, BUS 327, UNIT 01

The scope of commercial law is fairly large The scope of commercial law is fairly large. It includes the laws relating to contract, partnership, negotiable instruments, sale of goods, companies etc. SOURCES OF COMMERCIAL LAW The commercial law is based upon English mercantile law and Indian mercantile usages, modified and adapted by statutes of the Indian legislature and judicial decisions. The sources from which the rules of Indian Commercial Law have been derived are stated below. 1. English Mercantile Law. Many rules of English Mercantile Law have been incorporated into Indian Law through statutes and judicial decisions. English Mercantile Law is itself a mixture of diverse elements. It contains rules originating from the following sources: (i) Maritime usages which developed during the 14th and the 15th centuries among merchants trading in the European ports. These usages are known as Lex Mercatoria (merchant law) (ii) Rules which developed by custom in England and which constitute what is called the English Common Law. (iii) Rules of Roman Law. (iv) Rules of Equity, i.e. rules which were applied by English Courts of Equity in cases where the common law rules were considered harsh and oppressive. (v) Statutes of the British Parliament.

2. Statutes of the Indian Legislatures: The legislature is the main source of law in modem times. In India, the Central and the State legislatures possess law making powers and have exercised their powers extensively. The greater part of Indian commercial law is statutory. 3. Judicial Decisions. Judges:interpret and explain statutes. Rules of equity and good conscience are incorporated into law through judicial decisions. 4. Custom and Usages. A customary rule is binding where it is ancient, reasonable, and not opposed to any statutory rule. A custom becomes legally recognized when it is accepted by a court and is incorporated in a judicial decision. The legal system of Bangladesh has its roots in the laws of British India. Since independence in 1971, statutory law enacted by the Parliament of Bangladesh has been the primary form of legislation. Judge made law continues to be significant in areas such as constitutional law.

BOOK II: THE LAW OF CONTRACT The Law of Contract deals with agreements which can be enforced through courts of law. The Law of Contract is the most important part of commercial law because all commercial transactions start from an agreement between two or more persons. According to Salmond, a contract is “an agreement creating and defining obligations between the parties”. According to Sir William Anson “A contract is an agreement enforceable at law made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others”. THE NATURE OF A CONTRACT An agreement comes into existence whenever two or more persons promise to do or not to do something. “Every promise and every set of promises, forming the consideration for each other, is an agreement.”—Sec. 2(e).

The Essential Elements of a Contract The Essential Elements of a Contract. An agreement becomes enforceable by law when it fulfils certain conditions. 1 . Offer and Acceptance. There must be a lawful offer by one party and a lawful acceptance of the offer by the other party or parties. 2. Legal Relationship. There must be an intention (among the parties) that the agreement shall result in or create legal relations. An agreement to dine at a friend’s house is not an agreement intended to create legal relations and is not a contract 3. Lawful Consideration. Subject to certain exceptions, 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. 4. Capacity. The parties to an agreement must be legally capable of entering into an agreement, otherwise it cannot be enforced by a court of law. Want of capacity arises from minority, lunacy, idiocy. drunkenness, and similar other factors. 5. Free Consent. In order to be enforceable, an agreement must be based on the free consent of all the parties. There is absence of genuine consent if the agreement is induced by coercion, undue influence, mistake, misrepresentation, and fraud.

7. Certainty: Must not be vague 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: Must not be vague 8. Possibility of performance: Capability to perform 9. Void agreement: must not declared to be void. Agreement which are expressly declared to be void are: In restraint to marriage (26) In restraint of trade(27) In restraint of proceedings (28) Having uncertain meaning (29) Wagering agreement (30) 10. Writing, Registration and Legal Formalities . A contract may be oral. But the law lays down certain special cases where the agreement, to be valid, must be in writing and registered, e.g. sale of immovable property.

Some definition I. Method of formation Express Contract Implied Contract Quasi Contract (situation base) II. The Time of performance Executed Contract (now) Executory (later) III The Parties of the Contract Bilateral Contract Unilateral (depends on other party) IV Legality or Validity of the Contract Contract can be classified Valid Void Voidable Illegal Unenforceable

Chapter 2: OFFER AND ACCEPTANCE 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). “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). 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”.

Rules regarding offer: The Contract Act contains various rules regarding offers or proposals. 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 : 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. 2. An offer may be made to a definite person; to some definite class of persons; or to the world at large. 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 3. The terms of the offer must be certain, definite, unambiguous and not vague. A says to B “I will give you some money if you work”. This is not an offer 'which can be accepted, because the amount of money to be paid is not certain.

4. A mere statement of intention is not an offer 4. A mere statement of intention is not an offer. Price lists and catalogues, and enquiries for customers are merely statements of intention. They are not regarded as offers but as invitation to others to make offers. But: Intention to sell Quotations of prices Advertisement Catalogue Time-table Question and Reply Auction 5. An offer must be communicated to the offeree. A person cannot accept an offer unless he knows of the existence of the offer. A offers a reward to anyone who returns his lost dog. B finding the dog brings it to A without having heard of the offer.

6. An offer may be conditional 6. An offer may be conditional. An offer may be made subject to certain 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 fulfillment of the conditions. Examples: Strict enforcement (small font conditions) Strict enforcement (see back for conditions) No reasonable notice (not written) Against public interest (only 15% IF LOST) Unreasonable (only small percentage)

How is an offer to be communicated How is an offer to be communicated ? An offer may be communicated to the offeree or offerees by word of mouth, by writing, 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 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.” Section 4 states : “The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.”

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 only 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.

The acceptance of an offer to be legally effective must satisfy the following requirements : I. It must be an absolute and unqualified acceptance of all the terms of the offer.—Sec. 7(1). 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. 2. Conditional Acceptance The offeree may express his acceptance by word of mouth or by post or telegram. These are the usual methods of communicating acceptance to the offeror. 3. Contracts subject to condition 4. Clarification

5. The acceptance must be expressed in some usual or reasonable manner 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). Like: Oral or by writing Conduct (if taken, then acceptance) Conduct (even after death) 6. Mental acceptance or uncommunicated assent does not result in a contract Silent and did nothing

7. The mode of acceptance Where the promisor prescribes a particular mode of acceptance, the offeree must follow that particular mode of acceptance. For example if the offeror says, “acceptance to be sent by telegram”, the offeree must send a telegram. 8. Time of Acceptance: Duration 9. When acceptance is complete 10. Before offer! 11 The acceptance must be made while the offer is in force COMMUNICATION OF OFFER AND ACCEPTANCE Offer and Acceptance by post Offer and Acceptance through telephone Microphone

REVOCATION An offer comes to an end and is no longer open to acceptance under the following circumstances 1. By notice 2. By lapse of time 3. After expiry of reasonable time 4. By failure of a condition precedent 5. By death or insanity 6. Counter offer 7. By refusal

Chapter 4: CONSIDERATION Consideration is an essential element of a contract. An agreement is not valid as a contract unless each party to the agreement gets something. This “something’ is called consideration. In the English case, consideration was defined “some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.” Section 2(d) of the Contract Act defines consideration as follows:“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstained from doing, something, such act or abstinence or promise is called a consideration for the promise.”

Types of consideration are as follows : 1 . Past consideration—When the consideration of one party was given before the date of the promise, it is said to be past. Suppose that A does some work for B in the month of January. In February B promises to compensate him. The consideration of A is past consideration. Under English law past consideration is no consideration and a contract based on past consideration is void. But under Bangladeshi law a past consideration is good consideration because the definition of consideration in Section 2(d) includes the words “has done*or abstained from doing.” 2. Present consideration—Consideration which moves simultaneously with the promise is called Present Consideration or Executed Consideration. A buys an article from a shop and pays the price immediately. The consideration moving from A is present or executed consideration

Rules regarding Consideration. 3. Future consideration—When the consideration is to move at a future date it is called Future Consideration or Executory Consideration. In a contract the consideration may be executory on both sides. A promise may support a promise. Thus a promise to pay money at a future date for goods to be delivered at a future date is a valid contract. Rules regarding Consideration. The following general rules may laid down regarding consideration : 1. Desire (or request) of the promisor is essential. The act done or detriment suffered by the promisee must have been done or suffered at the desire of the promisor. An act done without any request is a voluntary act and does not come within the definition of consideration. 2. The consideration must be real. The consideration must have some value in the eye of law. It must not be sham or illusory. 3. Public duty 4. Promise to a stranger 5. Consideration need not be adequate. Section 25 (explanation2) provides that, “An agreement to which the consent of the party is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given.”

6. The consideration must not be illegal, immoral, or opposed to public policy. If either the consideration or the object of the agreement is illegal, the agreement cannot be enforced. The same principle applies if the consideration is immoral or opposed to public policy 7. The consideration may be present , past, or future. This follows from the definition of consideration given in the Act. 8. Consideration may move from the promisee or from any other person. A person granted some properties to his wife C directing her at the same time to pay an annual allowance to his brother R, C also entered into an agreement with R promising to pay the allowance to R. This agreement can be enforced by R even though no part of the consideration received by C moved from R. 9. So sum up, good consideration: Desire Real Reasonable Not illegal, immoral, or opposed to public policy Present , past, or future From the promisee or any person

NO CONSIDERATION NO CONTRACT Consideration is essential for the validity of a contract. “A promise without consideration is a gift; one made for a consideration is a bargain”.—Salmond and Winfield ,Law of Contracts. “A bargain without consideration is a contradiction in terms and cannot exist.”—Lord Loughborough. An agreement without consideration is valid under Section 25(1) only if the following requirements are complied with : (i) The agreement is made by a written document. (ii) The document is registered according to the law relating to registration in force at the time. (iii) The agreement is made on account of natural love and affection. (iv) The parties to the agreement stand in a near relation to each other. Exceptions: Natural love and affection Voluntary Compensation Time -barred debt Agency Completed gift