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Business Law Notes

Business Law

CHAPTER-1

Introduction to Business Law:

 There are different types of activity in a society. Business is also a part of social activity, regulated by the law. Business refers to the economic activities in which goods and service are supplied in exchange for some payment. It includes buying and selling, manufacturing products, extracting natural resources. Business law is the law concerned with business activity. Business law is an aggregate of those rules, which are connected with trade, commerce and industry. It is also known as commercial or mercantile law. It is the law which provides the different provisions to the commercial community and regulates their activities relating to the trade and commerce. Which includes the law relating to contract, sale of goods, agency, industry, guarantee, insurance and banking, arbitration, foreign investment and technology transfer etc. Business law is not separate discipline, it is a part of civil law, which deals with the right and obligation of business firms that arises from there business activity. There are different laws in which the significant provisions are made to regulate the business related activities, and these laws are known as business law.

According to N.D Kapoor: " Mercantile law is also used to denote the aggregate body of those legal rules which are connected with trade, industry and commerce."

Features of Business Law

i) Regulates industry, trade and commerce.

ii) Regulates every business activity of business community.

iii) It has no watertight demarcation with the other branches of law.

iv) Promotes rights and interest of business community.

v) this is the most important means to create positive environment for the prosperity of business.

With the increasing complexities and technologies of the modern business, the scope of business law is automatically extended.

Importance of Business Law:

The business law leads the prosperity of a country. It regulates......

and affect the business since before the establishment of business firm, while conducting the business and to its final stage. The role of business law is vital in the business sector, but it is guided by the economic policy of the state. A business person must know all the concerned laws. Such laws play vital role for the formation and commencement, running, adapting, establishing, giving dynamism and expansion of the business as well as fulfilling business goals and maintaining social responsibilities. The importance of business law can be viewed on the following grounds:

a) protection of economic right

b) Regulation and Systematization of business

c) Commencement and development of business

d) Enforcement of business Contract

e) Delivery of Justics

( you can consult with your book for the brief explanation of the above points)

Sources of Business Law

A source means an origin or resources or cause or place from where law emanates. The term source of Nepalese business law denotes two meaning. Firstly the place or point from where the law begins and secondly the place from where the rules of business activities get legal authority. The main sources of business law are discussed below:

a) Custom and Usage: The custom is known as particular way of life or behavior. If such behavior is followed continuously by the people in the society, it becomes a customs or usages which are important sources of law. This types of custom should not oppose to statutory law, mortality and public welfare. If there is no legislation, no precedents the matter is to be decided by the custom or usage of that particular.

b) Statutes/ Legislation: The legislatory law come from parliament or law making body of the nation. This types of law is the outcome of demand of people and need of the time. It is made after fulfilling a series of discussion by lawmakers. Now a days most of business activities are regulated by the law made by parliament.

c) Judicial Decision: Judicial decision are known as precedent. Precedent is a judicial decision which contains in itselfs a principle. In other words it is the earlier decision of supreme court which is taken as a rule while deciding the later cases. Where there is no law to deal the problems in such cases the court can make decision in the light of justice and equity such decision are treated as law for that matter. It is the one of the major sources of modern business law.

Other Sources ( this should be included in your answer the difference is that the above are the main sources)

d) English Mercantile law: business law was developed in England. It is the pioneer of business law in the world. Nepal is conjoind influenced by the British rule since year.

e) Professional Opinion of experts: Lawyers and critics may play significant role creating good legal environment. The opinion and explanation made by such professional may give proper instruction and better contribution to the development of law.

f) Business Agreement, Conventions: Conventional law refers to any rule or system of rule agreed upon by the parties to regulate their business conduct. International business organization are more active in national, region and world business nowdays. Examples: ( WTO, SAFTA) . And bilateral agreement between the nations and conventions of business communities are the main sources of national and international business law.

Legal Environment

Legal environment of business refer to the aggregate of  surrounding connected with the law that influence the business activities and business firms. It refers to the aggregate of all types of law, regulation. Acts and precedents intended to encourage, protect, guide the business activities. Such law are made and enforced by the state for the prosperity of every aspect of business.

According to Prem R Panta " The legal environment refers to the framework of laws, regulation are court decision, intended to encourage, guide and control business activities. “

CHAPTER2- CONTRACT

 (Define contract)

A contract is an agreement enforceable by law. The law of contract is the basis of business. Every business activity is determined and guided by the agreement of the concerned parties. In fact, the law of contract is concerned with everybody and every aspect of the business to perform any kind of act. And it is concerned with the rights and obligation of the parties entering into it.

According to A.J Salmond: "An agreement creating and defining obligation between two or more parties is a contract.

Supreme court of Nepal: "An agreement of two or more parties with condition is contract.

In short the contract includes the following:

- two or more parties

- an agreement on the ground of free consent

- exchange of promise by meeting the minds

- enforceable  by law.

In short the right and liabilities that are created reciprocally between the concerned parties can be called contract.

Nature of Contract:

A contract is an agreement which is enforceable by the law. The above definition have cleared that an agreement between two or more parties concluded with their consent, creates rights and liabilities between them. Such consent of the parties creates contract. An agreement is regarded as a contract where there are the main characteristics of valid contract presented in it. There should be the certain characteristics to be the contract determined by the law.

The nature of law can be discussed in the following grounds:

1) Agreement/ Promissory Nature:  Contract is a private legislation, which is formed and binding between the concerned parties on the ground of their agreement. Agreement has two element one is there should be two parties making an agreement, one can not enter into a contract alone. Another is.....

meeting of minds of concerning parties. An agreement is the outcomes of consenting minds of the parties. The contracting parties must meet their minds as regards the subject matter of the contract, in the same sense, upon the same thing and at the same time.

2) Private legislation: A contract is a private legislation binding from those parties who are involved in it. When any one breches the contract the other party becomes victimize financially. Therefore, the victim party may enforce by the court.

3) Legal Obligation: There must be legal obligation in an agreement to become a contract. Usually it is presumed that the parties entering into a commercial agreement intend to create a legal relationship between them. The agreement which do not establish a legal relationship are not contracts.

Contract = legality + Obligation + Business Matter

4) Freedom/ Autonomy of parties: The parties of contract must be autonomous to deliver their genuine consent at the time of concluding contracts. It is also known as a freedom of contracts. The concerning parties of the contract should be free to choose the form of contract, its subject and determine consideration and its extent as well as the term of condition.

5) purity of Contract: Sanctiteness is another nature of contract. The common law system protects contract from commission of fraud, mispresentation, mistake, coercion and undue influence and effort to control the economic exploitations of employee by the doctrine of restraint of trade.

6) Function of Contract: Contract is a means for the achievement of purpose of the parties. The following function are performed by nature through the contract.

- to facilitate forward planning of transaction and to make provision for future contingencies.

- to establish the respective responsibilities of the parties and performance to be expected from them.

- To enable the economic risks involved in the transaction to be allocated in advance between the parties.

- To provide alternative way or remedy if thing go wrong.

- Creation of legal rights to protect own interest.

Essential Elemnt of A valid Contract                                                (IQ) 20

Contract and agreement:

In general contract is an agreement between two or more parties. In fact such agreement are not contract. Only those agreement which are enforceable by the law are contract. In the agreement, the parties of it make promises about something which is to be performed, when such promises or expectation of the parties become an agreement and when this agreement is backed up by law it becomes a contract which creates legally binding obligation between the parties.

The scope of an agreement is wider than of contract because a contract must fulfill some essential elements. It has limited scope which exists within the limitation of legality. Thus all contract are agreements but all agreement are not contract.  Thus contract essentially consists of two element first is agreement and second is its enforceability. Where certain duties or obligation are created by agreement between the parties, contract law deals with , where as an agreement which does not create obligation is not the subject matter of contract law.

The essential elements of a valid contract are as follows:

1) Offer and Acceptance:  There must be an agreement between two parties to create a contract. The agreement involves a valid offer by one party and valid acceptance of the offer by other party. Therefore the journey of contract always starts with offer and acceptance.

2) Consideration: Consideration means something in return. It has motivation power to fulfill the promise. The agreement born when contracting parties are giving and getting something in return. It is not necessary to be cash or kind, it may be a promise to do or not to do something. But it must be real and lawful, which may be in past, present and future.

3) Legal Relationship: At the time of entering into an agreement the parties should have the intention to create legal relationship between them to avoid all types of conflicts. This types of legal relationship helps victim party to have legal remedy in case of failure of either party. Agreement without legal relation can not be enforced. For example: The relationship between a loaner and borrower can not attract the law of contract. The father promise his son to get a cycle if he passed the exam. Son passed the exam, The son claims for his prize. In such matter , father not bound to take cycle for his son, because they had no such intention to create legal relationship while making the promises. To be fallen in contract law the agreements parties must have the intention to establish legal relationship between them.

4) Free Consent: When the parties of contract agrees upon same thing in the same sense, their consent must be free from oppression , under influence, mispresentation, fraud and mistake of law. The consent must be made with knowingly and freely. If the consent is not free the parties can avoid the contract.

5) Meeting of Minds: To be a contract, two or more than two persons must agree upon same thing in the same sense. If 'A' want to purchase 'X' but B want to sell 'Y' than there is no contract raised between 'A' and 'B' because there is no meeting of minds.

6) Competent ( Capable) parties:  the parties who are involved in the agreement must be competent to contract. If incompetent parties are in a contract, it is not valid. The parties not capable to contract are minor person of unsound mind and legally disqualified person.

7) Lawful Objectives:  The objectives of agreement must be lawful to be a valid contract. If the subject matter of agreement are not lawful ( illegal, immoral and oppose to public policy) are not contract, and the agreement having this types of objectives are not enforced by law.

8) Not declared to be void: Those agreements which are expressly declared void by the contract and other law force are not the contract. Agreement to kill the life of other or agreement to steal goods are illegal and void. Similarly agreement in restraint  marriage, or profession are void by NCA.

9) Certainty: The objectives of an agreement must be certain and clear and practical. The contract which is uncertain due to lack of providing reasonable meaning is void. For example: A agrees B that he will purchase another car if the first car becomes lucky to him. Such agreement can not enforce against A, and B can not claim for another purchase by A. Because the term ' lucky' does not have any certain and clear meaning in practical life.

10) Possibility of performance:  The objectives or the action to complete the agreement must be possible to perform. Any act which can not be done or is non- performable does not create legal obligation to the contracting parties.

11) Legal formalities: the contract must be in written form and comply with other legal provision such as registration in government office.

chapter-6

OFFER AND ACCEPTANCE

Define Offer:

            To offer means to present something so that it may be accepted or rejected. Offer is the proposal of the first party to another parties. NCA defines offer as " An offer is a proposal presented by one person to another with the intention of obtaining his assent for performing any work" And this types of proposal creates a legal obligation if it is accepted by the acceptance parties. A valid offer may be expressed or implied.

i) Specific and general offer: Where an offer is made to a particular person there is a specific offer and where it is made to the general public there is a general offer.

ii) Cross and counter offer: Where both parties make their offer to each other at the same time, there is a cross offer. Such types of offer is not a valid offer for the contract because to create a contract there must be an offer from one side and acceptance from other side.

Where an offeree intends to accept the offer after alteration in any term of offer, there is a counter offer.

Note : ( the above types of offer is just for understanding purpose that may unnecessary for exam)

Rules Regarding the valid offer                               (important question)

i) Creating a legal relationship: the offerer must have intention of creating legal relationship. After the acceptance of the offer it must create some legal obligation.

ii) Offer should not be certain and should be made to a definite person.

iii) Offer may be conditional: An offer may be made subject to conditional and that must be clearely conveyed to the offeree. An unreasonable treatment and ignorance of offeree to the conditions are not valid.

iv) Offer and offree must be communicated.

v) The offer can be expressed in different for written, spoken) and implied

vi) Offer is seeking acceptance of other party

vii) offer may be specific to the person or be to general public or globally.

viii) Offer should not contain the term that non-communication or rejection would amount to an acceptance.

ix) Invitation to offer is not an offer.

x) Advertisement is not the offer.

xi) Catalogue is not the valid offer.

Consideration

Define consideration and describe rules regarding consideration?

Consideration cab be defined as a price of promise, which is bought by the next parties (promise). When a party to an agreement promises to do something he/she must get something in return which must be valuable in the eye of law. This ‘something’ is defined as consideration which may be price, reward, payment or value for which the promise of the other is carried.

According to Justice palterson : consideration means something, which is of some value in the eye of law, it may be some benefit to the planting or some detriment to the defendant.

For example: A agree to sell a house to B for Rs 2 lakh. For A’s promise, the consideration is Rs. 2 lakh and for B’s promise, the consideration is the house.

Rules Regarding consideration

a) Consideration must be real and something of valuable in the eye of law.

b) Consideration must move at the desire of the promisor: The act must be done at the desire of the promisor. Without the desire of the promisor no consideration can be valuable. It regards that the consideration must be moved from promise only not from other or stranger to contract.

c) Consideration may move from the promise or third persons: The act which constitutes a consideration may be moved by the promise or any other person on his behalf to enforce a promise. But in English law it must be from the promise not from other.

d) Consideration may be of past, present or future.

e) Consideration must be lawful: When a party to an agreement promises to do something the acceptors must get something in return which must be legal and have the values in the eye of law. An illegal consideration is not supposed to be a contract. It is void.

f) Consideration need not be adequate(satisfactory) : Consideration need not be adequate to the promise. The contract .......

is depend upon consideration. So quantum of the consideration is decided by the parties to the contract. The adequacy of consideration is determined by the facts, circumstances and necessities and nature of cases.

Chapter-9

( Free Consent )

Define free consent

Consent means agree to do something. Two or more parties are said to  consent when they agree upon the same thing in the same sense. It is the meeting of mind. The agreement without any control is ‘free consent’. Only meeting of minds are not sufficient  to be the contract whether there must be the real and free consent of the parties. It is obtained by free and pure will of the parties from their own accord, consent is said to be free when it is not caused by coercion, fraud, undue influence, mispresentation and mistake. If there is no free consent then there will not be any contract, so it is created for the sake of due and lawful consideration, not to lose anything. Free consent provides meeting of minds, enforceability and legal remedy for the contracting parties on their agreement.

 Define  Coercion

Coercion is the act of forcing or threatening someone to do something against law. It is a threat  or force used by one party against another for compelling to enter into an agreement. In such condition the consent is not free. NCA states that " When somebody has detained or threatened to detain property or has threatened to commit  any act forbidden by the law for causing any person to enter into contract against his will, the person is said to have caused coercion." If A compels B to enter into an agreement by causing harm or treating to commit harm as against the life and property  of B or his persons or third person. The contract between A and B is caused by coercion.

 Chapter-7

                        Consideration

Define consideration and describe rules regarding consideration?

Consideration cab be defined as a price of promise, which is bought by the next parties (promise). When a party to an agreement promises to do something he/she must get something in return which must be valuable in the eye of law. This ‘something’ is defined as consideration which may be price, reward, payment or value for which the promise of the other is carried.

According to Justice palterson : consideration means something, which is of some value in the eye of law, it may be some benefit to the planting or some detriment to the defendant.

For example: A agree to sell a house to B for Rs 2 lakh. For A’s promise, the consideration is Rs. 2 lakh and for B’s promise, the consideration is the house.

Rules Regarding consideration

a) Consideration must be real and something of valuable in the eye of law.

b) Consideration must move at the desire of the promisor: The act must be done at the desire of the promisor. Without the desire of the promisor no consideration can be valuable. It regards that the consideration must be moved from promise only not from other or stranger to contract.

c) Consideration may move from the promise or third persons: The act which constitutes a consideration may be moved by the promise or any other person on his behalf to enforce a promise. But in English law it must be from the promise not from other.

d) Consideration may be of past, present or future.

e) Consideration must be lawful: When a party to an agreement promises to do something the acceptors must get something in return which must be legal and have the values in the eye of law. An illegal consideration is not supposed to be a contract. It is void.

f) Consideration need not be adequate(satisfactory) : Consideration need not be adequate to the promise. The contract is depend upon consideration. So quantum of the consideration is decided by the parties to the contract. The adequacy of consideration is determined by the facts, circumstances and necessities and nature of cases.

Chapter-9

( Free Consent )

Define free consent

Consent means agree to do something. Two or more parties are said to  consent when they agree upon the same thing in the same sense. It is the meeting of mind. The agreement without any control is ‘free consent’. Only meeting of minds are not sufficient  to be the contract whether there must be the real and free consent of the parties. It is obtained by free and pure will of the parties from their own accord, consent is said to be free when it is not caused by coercion, fraud, undue influence, mispresentation and mistake. If there is no free consent then there will not be any contract, so it is created for the sake of due and lawful consideration, not to lose anything. Free consent provides meeting of minds, enforceability and legal remedy for the contracting parties on their agreement.

 Define  Coercion

Coercion is the act of forcing or threatening someone to do something against law. It is a threat  or force used by one party against another for compelling to enter into an agreement. In such condition the consent is not free. NCA states that " When somebody has detained or threatened to detain property or has threatened to commit  any act forbidden by the law for causing any person to enter into contract against his will, the person is said to have caused coercion." If A compels B to enter into an agreement by causing harm or treating to commit harm as against the life and property  of B or his persons or third person. The contract between A and B is caused by coercion.