Page 10 - DMGT102_MERCANTILE_LAWS_I

Mercantile Laws-I

Notes
Example: A is indebted to B. A sells certain goods to C.C gives a promise to A to pay off A’s
debt to B. In case C fails to pay, B has no right to sue C, being a stranger to the contract between
C and A. In other words C is not in privity with B. However, C is in privity with A.
Figure 1.1: Privity of Contract
M M = Manufacturer
Goods ` W = Wholesaler
R = Retailer
W
B = Buyer
Goods ` B is in privity of contract with
R only but not with W and M
R
Goods `
B

Formation of a contract: There are different modes of formation of a contract. It may be made in
writing or by word of mouth, or be inferred from the conduct of the parties or the circumstances
of the case.

Note You should be concerned about contract law because it determines how parties to
the contract will need to keep the promises they make. Although very few contracts ever
end up in court, if the parties to a contract disagree on something and are unable to resolve
the disagreement, they may have to resort to the judicial process.

Task S, a singer, contracts with M, the manager of a theatre, to sing at the latter’s theatre
for two evening in every week during the next two months. M engages to pay her ` 300 for
each evening’s performance. On the seventh evening, S willfully absents herself from the
theatre. M, in consequence, wants to rescind the contract and claim compensation for the
loss suffered by him through the non-fulfi lment of the contract by S. Advise. [Hint. M is
entitled to rescind contract and claim compensation. s.75]

1.3 Classification of Contracts
Contracts may be of different types based on (i) Validity or enforceability, (ii) Mode of formation
and (iii) Performance.

1.3.1 Classification of Contracts According to Formation
A contract may be (a) Made in writing (b) By words spoken and (c) Inferred from the conduct of
the parties or the circumstances of the case. Accordingly, contracts may be classifi ed according
to the mode of formation as express contracts and implied contracts. If the terms of a contract
are expressly agreed upon (whether by words spoken or written) at the time of the formation of

4 LOVELY PROFESSIONAL UNIVERSITY