Page 12 - DMGT102_MERCANTILE_LAWS_I

Mercantile Laws-I

Notes 4. Mortgage and charges of properties by a company.
5. Documents coming within the purview of the Registration Act, 1908.
An implied contract may be implied in fact or implied in law. Contracts implied in fact and
contracts implied in law are not really contracts at all. They are remedies devised by the courts.
Courts apply them when the legal requirements of Indian Contract Act, 1872 for contract
formation do not exist, but it would be grossly unjust to permit one party to benefit – without

paying – from what he received from the other.
A contract implied at law, also called a quasi-contract, is an obligation imposed by a court to
do justice between the parties even though they never exchanged, or intended to exchange,
promises. In this instance, a court implies a contract to prevent one party’s unjust enrichment at
the other’s expense.

1.3.2 Formal and Informal Contracts

A formal contract is one to which the law gives special effect because of the formalities or the
special language used in creating it. The best example of formal contracts is negotiable instruments,
such as cheques. Informal contracts are those for which the law does not require a particular set
of formalities or special language. Sometimes informal contracts are called ‘simple’ contracts.

1.3.3 Classification According to Validity

Contracts may be classified according to their validity as (i) Valid, (ii) Voidable, (iii) Void,
(iv) Unenforceable (v) illegal.
A contract to constitute a valid contract must have all the essential elements discussed earliers.
A voidable contract is one which may be repudiated (i.e., avoided) at the will of one or more of
the parties, but not by others. Until it is so repudiated it remains valid and binding. It is affected

by a flaw (e.g., misrepresentation, fraud, coercion, undue influence), and the presence of any of

these defects enables the party aggrieved to take steps to repudiate the contract. It shows that the
consent of the party, who has the discretion to repudiate, was not free.

Example: A, a man enfeebled by disease or age, is induced by B’s influence over him, as
his medical attendant to agree to pay B an unreasonable sum for his professional services. A can
avoid the contract. A’s consent is not free; it is affected by undue influence employed by B. A can

take steps to set the contract aside.
If the party entitled to avoid the contract fails to do so within a reasonable time, he will be
estopped from avoiding it if the other party has altered his position to his prejudice or a third
party has acquired some rights in a bona fi de manner.

Example: A purchased certain goods from B by making a misrepresentation of some facts.
Later B comes to know about the representation made by A. However, B does not, within a
reasonable time, repudiate the contract. A sells those goods to C, a bona fi de purchase for value.
C’s title shall be a good title.

An agreement which is not enforceable by either of the parties to it is void ab initio such an
agreement is without any legal effect. Under s.11, an agreement with a minor is void. Sometimes,
a contract is valid at the time of formation, but may become void afterwards.

Example: A contracts to take indigo for B to a foreign port. A’s government afterwards
declares war against the country in which the port is situated. The contract becomes void when
war is declared.

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