Chapter - 1 Into Duct Ion

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By Sayyed Majid / [email protected]

B USINESS L AW

Introduction to

Chapter I

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I NTRODUCTION

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INTRODUCTION

Business law is composed of two wordsbusiness and law. The word Business

literally means to be busy.In economics it refers to an act, effort, workconnected with the production of wealth. Itentails (involves) all activities which arecarried out to earn profit and satisfyconsumer needs i.e. provision of goods andservices. It includes manufacturing, trading,banking, and transport etc,

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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 Positivelaw. Natural law is also called God made,

or divine law and is unchangeable,where as positive law also known as CivilLaw, is a law made by man for man.

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C ONT

It is also known as law of the state, lawof the nation or law of the land. It

regulates the behavior of men/citizen andis changeable by the need of time. Civillaw is divided into a) public and privatelaw. Public law is divided into a)

constitutional Law and b) Administrativelaw, whereas Private law is divided into a)Criminal Law and b) Civil law.

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Thus Business law is that branch of lawwhich deals with the rights and obligation

of business person arising out of businesstransaction in respect of businessproperty . Business law is the part of civillaw.

Business law is basically founded on the lawof Contract. To understand business law it isnecessary to understand the fundamentalsof the law of Contract

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C ONTRAC T Fundamentals of the law of Contract

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W HAT IS C ONTRACT ??

Contract may be defined as an agreementthat is enforceable by law . It has two

Elements i.e. Agreement and Enforceability.1. Agreement : it is a manifestation of mutual

assents by two or more parties. Itoriginates from a promise, when one person(also known party) makes a proposal oroffer to another person (party) and heaccepts, such dealing constitutes a promiseand is known as agreement.

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E LEMENTS OF CONTRACT CONT

. Thus, a promise comes to an existence whenthe party to whom a proposal is made, signifieshis assent thereto. In such transaction a personwho makes an Offer, Proposal is known asOfferer, Proposer, Or Promisor , and the personwho accepts such offer, proposal is known asAcceptor, Offree, Proposee Or Promisee.

Therefore contract is an agreement, andagreement is a promise and promise is anaccepted proposal. Example: A offer to sell hiscar to B for $ 8000, B gives his acceptance. Itis agreement.

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2. Enforceability : it means that agreementmust be enforceable by the law. An

agreement is enforceable by the law when itis recognized by the court. In order to berecognized by the court, it must create legalobligations between the parties. It meansthat if one party does not fulfill the promise,he shall be liable for breach of contract.Thus for the enforceability, the agreementmust create legal obligations between theparties.

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We know that all agreements do not createlegal obligations; therefore, they are notenforceable by the law. Agreements are of Two Kinds i) social agreements and ii) legalagreements.

1. Social Agreements creates no legal

obligations thats why they not enforceablethe 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 socialagreement.

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

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E SSENTIALS OF

VALID C ONTRACT


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A valid contract is binding andenforceable. In a valid contract, all theparties are legally bound to perform thecontract. If any one of the parties refusesto perform the contract the other canenforce it through court. To beenforceable the agreement must possessthe essentials of a valid contract. Whichare given as below

14 E SSENTIALS OF VALID C ONTRACT


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15 E SSENTIALS OF VALID C ONTRACT

1. Offer and Acceptance2. Legal obligations

3. Lawful consideration4. Capacity of parties5. Free consent6. Lawful object

7. Writing and registration8. Certainty of term9. Possibility of performance10.Not expressly declared void


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1. Expression of the term of agreementthat is Offer and acceptance: for anagreement there must a lawful offer byone party and acceptance by the otherparty. By law means that the offer mustfulfill the requirements of Contract law.

Example: A offers to sell his bicycle forAfs. 2000. if B accepts this offer, there isan acceptance.

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Certain points must be consideredregarding offer and acceptance. Theoffer made must be communicatedto the offeree, and it must beaccepted either by words or by

conduct, and the acceptance mustbe communicated to the offeror.Mere mental intention to accept isnot sufficient.

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2. Legal Obligations: the parties to anagreement must create legal obligations.

It means that if one party does not fulfillhis promise, he shall be liable for breachof contract.

Example: A offers to sell his watch to B for Afs. 300. B accepts to buy, it is acontract it creates legal obligations.



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3. Lawful Considerations: Consideration isthe price paid by one party for the

promise of the other party. An agreementis enforceable only when both partiesgive and take something. That somethinggiven or taken is called consideration.

Example: A agrees to sell his house to B for $ 30000. $ 30000 is consideration forA. And house is consideration for B.



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4. Capacity of parties: an agreement is validand enforceable if made by parties whoare legally competent to contract. To becompetent parties must be of age of majority, having sound mind and notdisqualified from contracting by the law.

Example: M a person of unsound mindagrees to sell his house for Afs. 100000. itis not a valid as M is incompetent to enterinto contract by the law.



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5. Free consent: for a valid contract it isessential that the consent of the partiesmust be free. Consent is free when it isnot taken by coercion, undue influence,fraud, misrepresentation or mistake.

Example: A compels B to enter into acontract at gunpoint. A contract made inthis way is void as it is without freeconsent.



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6. Lawful object: it is necessary that agreementis made for a lawful object. The object of agreement must not be fraudulent, illegal,immoral or opposed to public policy, involvinginjury to the person or property of another.Every agreement with unlawful object orconsideration is illegal and therefore void.

Example: A hires a house for gambling. Theobject of agreement is unlawful. Soagreement is illegal and void.



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7. Writing and registration: a contract may beoral or in writing. It is preferable that thecontract be in writing because it is easy toprove in court. If required by the law particularcontact must be in writing, signed, attested bywitnesses and revered e.g. the contract of saleor mortgage.

Example: A verbally promises to sell his bookto Y for Afs. 200. it is valid because the lawdoes not require such contracts to be inwriting.



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H verbally promises to sell his houseto Z. it is not valid because the law

requires such contracts to be in writing.



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8. Certainty of terms: the terms of anagreement must be clear, complete and

certain. If the terms are uncertain theagreement is void.

Example: A promises to sell 20 books toY without specifying their titles. Theagreement is void because the terms arenot clear.



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9. Possibility of performance: a validcontract must be capable of beingperformed. An agreement to doimpossible act is void. If the act isphysically or legally impossible to performthe agreement cannot be enforced by law.

Example: A agrees with B to discover atreasure by magic, the agreement is notenforceable.



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10. Not expressly declared void: the agreementmust not be one of those agreement whichhave been expressly declared to be void bythe law. Certain agreements which havebeen expressly declared to be void . E.g.agreement in restrain of trade etc.

Example: A promises to close his businesson the promise of B to pay him Afs. 2 lac isvoid. Because it is in restrain of trade.



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Example: K promises to promises topay $ 2000 to L if Afghanistan wins the

match with India. The agreement is voidbeing wagering agreement.



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T HANKS S AYYED M AJID

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Chapter - 1 Into Duct Ion