Page 9 - DMGT102_MERCANTILE_LAWS_I

Unit 1: Law of Contract

Fourthly, business law has social objectives too. The anti-competition laws, the pollution control Notes
laws, etc., are some of the examples. Further, laws concerning regulation of essential commodities
and prevention of food adulteration in the interest of the consumers go a long way in serving
social objectives.
Lastly, business laws aim to prevent concentration of economic power and help in the adjustment
of claims of individuals against each other.

1.1.2 Sources of Indian Business Law

The sources of Indian mercantile law are:

1. Statutes such as the Indian Contract Act, 1872, the Sale of Goods Act, 1930, the Partnership
Act 1932, the Negotiable Instruments Act, 1881, the Insurance Act, 1938.
2. Common law: In the absence of a legal provision on a subject, the Indian courts apply
English Common Law. Even in interpreting Indian law, the Indian courts refer to English
decisions.
3. Custom and usages: The Indian business customs and trade usages, unless excluded by a
statute, are allowed to govern business transactions. The Negotiable Instruments Act, 1881,
has not excluded the trade usage of ‘hundis’ as negotiable instruments.

4. Precedents: Courts make law too. Their main contribution comes in the form of decisions
in law suits. The cases decided by the Supreme Court and other courts have served as
precedents to follow by the lower courts.

5. Justice, equity and good conscience: The equitable principles of law developed by the
English ‘equity’ courts are the guiding force behind most of the Indian statutes on business
laws. Also as and when necessary, the Indian courts make use of these principles of equity
in interpreting the Indian law.

1.2 Contracts

A contract is an agreement, enforceable by law, made between at least two parties by which
rights are acquired by one and obligations are created on the part of another. If the party, which
had agreed to do something, fails to do that, then the other party has a remedy.

Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to
Bangalore on 10 January. The Airlines is under an obligation to take X from Mumbai to 10
January. In case the Airlines fail to fulfil its promise, X has a remedy against it. Thus, X has a

right against the Airlines to be taken from Mumbai to Bangalore on 10 January.
A corresponding duty is imposed on the Airlines. As there is a breach of promise by the promisor
(the Airlines), the other party to the contract (i.e., X) has a legal remedy.

Privity of Contract

As a contract is entered into by two or more persons thereby creating rights and obligations for
them, it is a party to the contract only who can enforce his rights as against the other party (i.e.,
the promisor). The basic principle underlying law of contracts is that a stranger to a contract
cannot maintain a suit for a remedy. The law entitles only those who are parties to the contract

to file suits for exercising their rights. This is known as ‘privity of contract’. This rule can be
traced to the fact that the law of contracts creates jus in personam as distinguished from jus in rem.
Therefore, a stranger to a contract cannot maintain a suit.

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