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Mercantile Laws-I

Notes for themselves and the law will uphold those rights and duties. So long as the parties to a contract
do not transgress some legal provision, they can agree for any terms they like in regard to the
subject matter of their contract and the law will give effect to their contract. Let us illustrate.
A agrees to sell his motorcycle worth ` 15,000 for ` 6,000 only to B. The agreement gives rise to a
legal obligation on the part of A to deliver the motorcycle to B and on the part of B to pay ` 6,000
to A. They may fix any terms as regards time of delivery and that of payment. The payment may

be agreed to be made by installments. Though the motorcycle is worth ` 15,000, it is being sold
for ` 6,000 only. Assuming all the essential elements of a valid contract are present, the contract
is enforceable by law. But many developments in the recent past have affected this freedom to
contract.

Freedom to Contract is a Myth or an Illusion

The freedom of the parties is limited by two factors. There are certain laws for the protection
of the employees, and an employer cannot, therefore, induce his employees to enter into any
contract favourable to the employer. Further, the standard form of contract (with printed terms
and conditions) is in vogue today, and several contracts entered into by laymen are not the result
of individual negotiations. Thus, if a person is in need of electricity, or telephone connection,
it is not possible for him to settle the terms of the agreement with the Electricity Board or the
Telephone Corporation, etc. Each of them have their own printed contracts and the intending
customer has either to accept on those terms, or go without electricity or telephone, as the case
many be. In such a case, since one does not want to go without such necessary services, the
individual is in effect compelled to accept all those standard terms. Thus, absolute freedom of
contract is largely an illusion or mostly a myth.

The freedom to contract has been intervened in three ways, thereby making it a myth. These are:
(i) enactment of laws by the welfare states to protect the interests of those parties to the contract
which have a weak bargaining power, (ii) intervention by the courts, which refuse to enforce,
and even rewrite terms in private contracts in order to protect the real or presumed victims of
one sided or unfair or unconscionable contracts, (iii) widespread adoption of ‘form contracting’
by business.
Additional terms implied into the contract. In general, the contents of a contract are determined
by agreement between the parties. Nevertheless, there are various circumstances in which
additional terms may be supplied into the agreement. These additional terms may be implied
by (i) custom (ii) courts (iii) statute. (i) A contract must always be examined in the light of its
surrounding commercial context. The terms of a contract may have been negotiated against the
background of the custom of a particular locality or trade. The parties automatically assume that
their contract will be subject to such customs and so do not deal specifi cally with the matter in
the contract. (ii) The courts will be prepared to imply a term into a contract in order to give effect
to the obvious intention of the parties. Sometimes the point at issue has been overlooked or the
parties have failed to express their intention clearly. In these circumstances, the court will supply

terms in the interests of ‘business efficacy’ so that the contract makes commercial common sense.
Certain standard terms have been implied by the common law in a number of business contracts.
The courts will imply a term into a lease of furnished house that it will be reasonably fi t for
habitation at the start of the tenancy. A contract of employment is subject to a number of implied
terms. An employer is under a legal duty to provide a safe system of work for his employees,
while an employee is under a duty to obey legitimate orders and show good faith towards his
employer. By implying a term into the contract, the court is imposing reasonable obligations
which the parties would have no doubt included in their agreement, if they had troubled to
think about the matter. These implied terms may be excluded by express agreement between the
parties. (iii) By statute. A term may be implied in a contract by an Act of Parliament. In many
cases, these implied terms which began life among the customs of merchants, were recognized

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