Chapter I

Introduction to

B USINESS L AW
By Sayyed Majid / sayyedmajid@live.com
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I NTRODUCTION

I NTRODUCTION

Business law is composed of two words business and law. The word Business literally means to be busy.

In economics it refers to an act, effort, work connected with the production of wealth. It entails (involves) all activities which are carried out to earn profit and satisfy consumer needs i.e. provision of goods and services. It includes manufacturing, trading, banking, and transport etc,

C ONT

whereas the word law means rule of action. It includes rule of all kinds of actions either of nature or manmade.

Law is of two kinds Natural and Positive law. Natural law is also called God made, or divine law and is unchangeable, where as positive law also known as Civil Law, is a law made by man for man.

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It is also known as law of the state, law of the nation or law of the land. It regulates the behavior of men/citizen and is changeable by the need of time. Civil law is divided into a) public and private law. Public law is divided into a) constitutional Law and b) Administrative law, whereas Private law is divided into a) Criminal Law and b) Civil law.

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Thus Business law is that branch of law which deals with the rights and obligation of business person arising out of business transaction in respect of business property. Business law is the part of civil law.
Business law is basically founded on the law of Contract. To understand business law it is necessary to understand the fundamentals of the law of Contract

C ONTRAC T

Fundamentals of the law of Contract

W HAT

IS

C ONTRACT ??

Contract may be defined as an agreement that is enforceable by law. It has two Elements i.e. Agreement and Enforceability.
Agreement: it is a manifestation of mutual assents by two or more parties. It originates from a promise, when one person (also known party) makes a proposal or offer to another person (party) and he accepts, such dealing constitutes a promise and is known as agreement.

1.

E LEMENTS

OF CONTRACT CONT

. Thus, a promise comes to an existence when the party to whom a proposal is made, signifies his assent thereto. In such transaction a person who makes an Offer, Proposal is known as Offerer, Proposer, Or Promisor, and the person who accepts such offer, proposal is known as Acceptor, Offree, Proposee Or Promisee. Therefore contract is an agreement, and agreement is a promise and promise is an accepted proposal. Example: A offer to sell his car to B for $ 8000, B gives his acceptance. It is agreement.

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E LEMENTS

OF CONTRACT CONT

2.

Enforceability: it means that agreement must be enforceable by the law. An agreement is enforceable by the law when it is recognized by the court. In order to be recognized by the court, it must create legal obligations between the parties. It means that if one party does not fulfill the promise, he shall be liable for breach of contract. Thus for the enforceability, the agreement must create legal obligations between the parties.

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E LEMENTS

OF CONTRACT CONT

We know that all agreements do not create legal obligations; therefore, they are not enforceable by the law. Agreements are of Two Kinds i) social agreements and ii) legal agreements.
1.

Social Agreements creates no legal obligations thats why they not enforceable the law e.g. A invites B for dinner. B accepts but does not attend. A cannot sue B for breach or damages as it is a social agreement.

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E LEMENTS
2.

OF CONTRACT CONT

Legal Agreements are enforceable by the law as it creates legal obligations between the parties. e.g. A agrees to sell his car to B for $ 5000. It is business agreement and is legal agreement as it creates legal obligations between the parties and is enforceable by the law. All business agreements are enforceable by the law. Therefore they are contracts. Thus all contracts are agreements but all agreements are not contract.

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E SSENTIALS OF VALID C ONTRACT

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E SSENTIALS

OF

VALID C ONTRACT

A valid contract is binding and enforceable. In a valid contract, all the parties are legally bound to perform the contract. If any one of the parties refuses to perform the contract the other can enforce it through court. To be enforceable the agreement must possess the essentials of a valid contract. Which are given as below

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E SSENTIALS

OF

VALID C ONTRACT

1. Offer and Acceptance 2. Legal obligations 3. Lawful consideration 4. Capacity of parties 5. Free consent 6. Lawful object 7. Writing and registration 8. Certainty of term 9. Possibility of performance 10.Not expressly declared void

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E SSENTIALS
1.

IN DETAIL

Expression of the term of agreement that is Offer and acceptance: for an agreement there must a lawful offer by one party and acceptance by the other party. By law means that the offer must fulfill the requirements of Contract law. Example: A offers to sell his bicycle for Afs. 2000. if B accepts this offer, there is an acceptance.

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E SSENTIALS C ONT

Certain points must be considered regarding offer and acceptance. The offer made must be communicated to the offeree, and it must be accepted either by words or by conduct, and the acceptance must be communicated to the offeror. Mere mental intention to accept is not sufficient.

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E SSENTIALS C ONT

2.

Legal Obligations: the parties to an agreement must create legal obligations. It means that if one party does not fulfill his promise, he shall be liable for breach of contract. Example: A offers to sell his watch to B for Afs. 300. B accepts to buy, it is a contract it creates legal obligations.

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E SSENTIALS C ONT

3.

Lawful Considerations: Consideration is the price paid by one party for the promise of the other party. An agreement is enforceable only when both parties give and take something. That something given or taken is called consideration. Example: A agrees to sell his house to B for $ 30000. $ 30000 is consideration for A. And house is consideration for B.

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E SSENTIALS C ONT
4.

Capacity of parties: an agreement is valid and enforceable if made by parties who are legally competent to contract. To be competent parties must be of age of majority, having sound mind and not disqualified from contracting by the law.
Example: M a person of unsound mind agrees to sell his house for Afs. 100000. it is not a valid as M is incompetent to enter into contract by the law.

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E SSENTIALS C ONT
5.

Free consent: for a valid contract it is essential that the consent of the parties must be free. Consent is free when it is not taken by coercion, undue influence, fraud, misrepresentation or mistake.
Example: A compels B to enter into a contract at gunpoint. A contract made in this way is void as it is without free consent.

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E SSENTIALS C ONT
6.

Lawful object: it is necessary that agreement is made for a lawful object. The object of agreement must not be fraudulent, illegal, immoral or opposed to public policy, involving injury to the person or property of another. Every agreement with unlawful object or consideration is illegal and therefore void. Example: A hires a house for gambling. The object of agreement is unlawful. So agreement is illegal and void.

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E SSENTIALS C ONT
7.

Writing and registration: a contract may be oral or in writing. It is preferable that the contract be in writing because it is easy to prove in court. If required by the law particular contact must be in writing, signed, attested by witnesses and revered e.g. the contract of sale or mortgage.
Example: A verbally promises to sell his book to Y for Afs. 200. it is valid because the law does not require such contracts to be in writing.

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E SSENTIALS C ONT

H verbally promises to sell his house to Z. it is not valid because the law requires such contracts to be in writing.

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E SSENTIALS C ONT
8.

Certainty of terms: the terms of an agreement must be clear, complete and certain. If the terms are uncertain the agreement is void.
Example: A promises to sell 20 books to Y without specifying their titles. The agreement is void because the terms are not clear.

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E SSENTIALS C ONT
9.

Possibility of performance: a valid contract must be capable of being performed. An agreement to do impossible act is void. If the act is physically or legally impossible to perform the agreement cannot be enforced by law.
Example: A agrees with B to discover a treasure by magic, the agreement is not enforceable.

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E SSENTIALS C ONT
10.

Not expressly declared void: the agreement must not be one of those agreement which have been expressly declared to be void by the law. Certain agreements which have been expressly declared to be void . E.g. agreement in restrain of trade etc.
Example: A promises to close his business on the promise of B to pay him Afs. 2 lac is void. Because it is in restrain of trade.

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E SSENTIALS C ONT
Example: K promises to promises to pay $ 2000 to L if Afghanistan wins the match with India. The agreement is void being wagering agreement.

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T HANKS
S AYYED M AJID