INTRODUCTION TO BUSINESS LAW

BUS-361/360
1
Dr. Engr.Rashid A. Chowdhury

Chittagong Independent University

INTRODUCTION
The law of contract is the most important
branch of Mercantile Law.
 Without such a law it would be difficult, if not
impossible, to carry on any trade or business
in a smooth manner.
 The law of contract is applicable not only to
business but also to all day-to-day personal
dealings.

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WHAT IS LAW?

 Before learning the meaning of the term 'Law' you

must know as to why we need law.
 No civilized society can exist without law. It is
required for the preservation of peace and
orderliness in every society.
 Without law, no person will care for others and
their dealings may not materialize.
 With the growth of society and the concept of
welfare state, it became necessary to regulate the
conduct of people and protect their property and
contractual rights.
 Hence, each country enacted laws suited to its 3
various needs and the value system it cherished.
DEFINE LAW…
 "Law is a rule of civil conduct, prescribed by
the supreme power of state, commanding what
is right and prohibiting what is wrong."
------- Blackstone.

 'Law is the body of principles recognised and

applied by the state in the administrator of
justice."
- Salmond.
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MEANING OF MERCANTILE
LAW OR BUSINESS LAW

 Mercantile law or commercial law is not a

separate branch of law.

 It is a part of civil law which deals with the

rights and obligations of mercantile persons
arising out of mercantile transactions in
respect of mercantile property

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SOURCES OF MERCANTILE LAW

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ENGLISH MERCANTILE LAW:
 Our laws are based primarily on the English
laws which developed through customs and
usages of Merchants or traders in England,
These customs and usages governed these
merchants in their dealings with each other.
This law is also known as 'Common Law'.
 As a matter of fact, it is an unwritten law based
on customs, usages and precedents. The most
important part of mercantile law, namely, the
Law of Contracts, is still a part of Common Law
in England.
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INDIAN STATUTE LAW:
 The Acts passed by the Indian Legislature are
the main source of Indian mercantile law.
 The important Acts passed by the Indian
Legislature are the Indian Contract Act 1872,
The Negotiable Instruments Act Essentials of a
Contract 1881, The Sale of Goods Act 1930,
The Indian Partnership Act 1932, The
Companies Act 1956, and so on

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JUDICIAL DECISIONS:
 The past judicial decisions of courts are another
important source of law. They are generally
followed by the courts while deciding similar cases
before them.
 The past decisions have persuasive and guiding
value.
 Wherever the law is silent on a point, the judge has
to decide the case according to the principle of
equity, justice and good conscience.
 The decisions of English courts are also frequently
referred to as precedents in deciding various cases
and for interpreting the Indian Statutes.
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CUSTOMS AND USAGES:
 The customs and usages of particular trade are
yet another important source of Indian
mercantile law.
 They play an important role in regulating the
dealings between the merchants of that trade.
But it is necessary that such customs or usages
must be widely known, reasonable, constant
and must not be inconsistent with the law, The
Indian Contract Act recognises this fact by
providing that "nothing contained therein shall
affect any usage or custom of trade.”
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WHAT IS A CONTRACT?
 Broadly speaking, a contract is an agreement made
between two or more persons to do or to abstain from
doing a particular act. A contract invariably creates a
legal obligation between the parties by which certain
rights are given to one party and a corresponding duty
is imposed on the other party. A contract has been
defined by different authorities in various ways. Some of
the important definitionsare as follows:

 A contract is an agreement, creating and defining the obligations

between parties.
- Salmond

 A contract is an agreement enforceable at law made between two

or more persons by which rights are acquired by one or more to
acts or forbearance on the part of others.
- Sir William Anson

 Every agreement and promise enforceable at law is a contract. 11

- Sir Fredrick Pollock
A CONTRACT ESSENTIALLY
CONSISTS OF TWO ELEMENTS:

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AGREEMENT

 Section 2(e) of the Contract Act defines

agreement as “every promise and every set of
promises forming the consideration for each
other.
 In this context a promise refer to a proposal
(offer) which has been accepted.
 For example, Ramesh offers to sell his ,scooter
for Rs. 8,000 to Shyam. Shyam accepts this
offer. It becomes a promise and treated as an
agreement between Ramesh and Shyam.
 In other words, an agreement consists of an
offer by one party and its acceptance by the
other. 13
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DIFFERENTIATION BETWEEN :

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CLASSIFICATION OF CONTRACTS

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ON THE BASIS OF CREATION

 A contract may be

(i) made in writing or by word of mouth

or

(ii) inferred from the conduct of the

parties or circumstances of the case.

The first category of contract is termed

as 'express contract' and the second as
'implied contract' 17
EXPRESS CONTRACT
 An express contract is one where the terms are
clearly stated in words, spoken or written.

 For example,
A wrote a letter to B stating “ offer to
sell my car for Rs. 30,000 to you", B accepts
the offer by letter sent to A. This is an express
contract.
Similarly, when A asks a scooter
mechanic to repair his scooter and the
mechanic agrees, it is an express contract 18
made orally by spoken words.
IMPLIED CONTRACT
 A contract may be created by the conduct or acts
of parties (and not by their words spoken or
written). It may result from a continuing course of
conduct of the parties.
 For example,
where a coolie in uniform carries the
luggage of A to be carried out of railway station
without being asked by A to do so and A allows it,
the law implies that A has agreed to pay for the
services of the coolie. This is a case of an implied
contract between A and the coolie.
Similarly, when A boards a BMTC bus, an
implied contract comes into being. A is bound to
pay the prescribed fare. 19
ON THE BASIS OF EXECUTION

 On the basis of the extent to which the

contracts have been performed, we may
classify them as

(i) executed contracts,

and

(ii) executory contracts.

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EXECUTED CONTRACTS:
 It is a contract where both the parties have
fulfilled their respective obligations under the
contract.

 For example,

A agrees to sell his book to B for Tk. 30.

A delivers the book to B and B pays Tk. 30 to
A. It is an executed contract.

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EXECUTORY CONTRACTS:
 It is a contract where both the parties to the contract
have still to perform their respective obligations.
 For example,
A agrees to sell a book to B for Tk. 30. If the
book has not been delivered by A and B has not paid
the price. the contract is executory.
 A contract may sometimes be partly executed and
partly executory. It happens where only one of the
parties has performed his obligation.
In the example given above, if A has delivered
the book to B but B has not paid the price. the
contract is executed as to A and executory as to B.
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 On the basis of execution, a contract can also
be classified as unilateral or bilateral.

A unilateral contract is one in which only

one party has to perform his obligation, the
other party had fulfilled his part of the
obligation at the time of the contract itself. For
example, A buys a ticket from the conductor
and is waiting in the queue for the bus. A
contract is created as soon as the ticket is
purchased. The other party is now to provide a
bus wherein he could travel.
A bilateral contract is one in which the
obligations on the part of both the parties are
outstanding at the time of the formation of the
contract. 23
ON THE BASIS OF ENFORCEABILITY

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VALID CONTRACT:

 A contract which satisfies all the conditions

prescribed by law is a valid contract. If one or
more of these elements is/are missing, the
contract is either void, voidable, illegal or
unenforceable.

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VOID CONTRACT:
 According to Section 2 (0) A contract which ceases
to be enforceable by law becomes void when it
ceases to be enforceable.
 It is a contract without any legal effects and is a
nullity.
 A contract may become void due to impossibility
of performance, change of law or some other
reasons. Section 2(g) says that an agreement nor
enforceable by law is said to be void.
 In the case of void agreement no contract comes
into existence. Such an agreement confers no
rights on any person and creates no obligations. It
is void ab-intio i.e., from the very beginning.
 A void agreement never matures into a contract, it
is void from the very beginning. 26
VOIDABLE CONTRACT:
 According to Section 2(i) of the Contract Act,
An agreement which is enforceable by law at
the option of one or more of the parties
thereon, but not at the option of the other or
others, is a voidable contract.
 Thus, a voidable contract is one which can be
set aside or repudiated at the option of the
aggrieved party. Until it is set aside or avoided
by the party entitled to do so, it remains a
valid contract.

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DISTINCTION BETWEEN:

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ILLEGAL OR UNLAWFUL CONTRACT:
 The word illegal' means contrary to law. You know that
contract is an agreement enforceable by law and
therefore, it cannot be illegal. It is only the agreement
which can be termed as illegal or unlawful. Hence, it is
more appropriate to use the term 'illegal agreement' in
place of 'illegal contract'.
 An 'illegal agreement' is one which has been specifically
declared to be unlawful under the provisions of the
Contract Act or which goes against the provisions of any
other law of the land. Such agreement cannot be
enforced by law.
 For example,
A agrees to pay Tk.50,000 to B if B kills C. This
is an illegal agreement because its object is unlawful.
Even if B kills C, he cannot claim the agreed amount 29
from A.
UNENFORCEABLE CONTRACT:
 It is a contract which is actually valid but cannot be
enforced because of some technical defect.
 This may be due to non-registration of the
agreement, non-payment of the requisite stamp
fee, etc.
 Sometimes, the law requires a particular agreement
to be in writing. If such agreement has not been
put in writing, it becomes unenforceable.
 For example,
an oral agreement, for arbitration are
unenforceable because the law requires that an
arbitration agreement must be in writing. It is
important to note that in most cases, such ,
contracts can be enforced if the technical defect
involved is removed. 30