BUSINESS LAW

The law affects every aspect of our lives; it governs our conduct from the cradle to the grave
and its influence even extends from before our birth to after our death. Law is essential to any
society in that it provides the rules by which people and businesses interact. Law affects
almost every function and area of business.

The law is a set of rules, enforceable by the courts, which regulate the government of the state
and govern the relationship between the state and its citizens and between one citizen and
another.

Business Law could be defined nowadays as the part of Private Law which regulates the
Enterprise and/or the entrepreneur and the economic activity developed with other
entrepreneur or consumers

Characteristics of Business law

• Defining general rules of commerce;
• Protecting business ideas and business assets;
• Providing mechanisms that allow business people to determine how they will
participate in business ventures and how much risk they will bear;
• Ensuring that losses are borne by those responsible for causing them; and
• Facilitating planning by ensuring that commitments are honoured.

Form the above definition of Business law we can distinguish the following components

Contract law

Banking law

Arbitration

Insurance law

Intellectual property law

LAW OF CONTRACT
Contracts form the backbone of society by establishing trust and minimising risks between
parties. A contract is the exchange of an act or promise between two or more individuals
where one individual offers the other some form of value in exchange for something in return.
Contracts are not always money related, as they often relate to the specific performance of
certain obligations or agreements not to carry out certain acts (e.g., non-compete
undertakings). A contract is a binding agreement that creates legal obligation(s) recognised by
law, meaning that a party can bring a civil claim (or even criminal if fraud is involved) against
another party to the contract for breach of contract.

A. Classification of contracts

Classification of Contracts can be done by Formation, Performance, Execution or Other

Contracts

Classification of Contracts according to formation

According to the mode of formation of contracts, contracts may be classified into three
namely: Express Contract, Implied Contract, and Quasi – Contract.

1. Express Contract

A contract is said to be an express contract, if the terms of a contract are expressly agreed
upon between the parties (either by words spoken or written) at the time of formation of the
contract. An express promise results in express contract. A promise is said to be an express
promise, when the offer or acceptance of any promise is made in words.

2. Implied Contract

An implied contract is one for which the proposal or acceptance is made otherwise than in
words. Where the proposal or acceptance of any promise is made otherwise than in words, the
promise is known as implied promise. Implied contracts are inferred from the circumstances
of the case and conduct of the parties.

For example, when A takes a cup of milk in a hotel, there is an implied contract.

3. Quasi – Contract
A quasi-contract is one, which is created by law. In the quasi-contract, there is no intention on
either side to make a contract. In a quasi contract, rights and obligations arise not by an
agreement but by operations of law.

For example, where certain letters are delivered to a wrong addressee, the addressee is under
an obligation to return the letters.

Classification of Contracts according to performance

According to the extent of performance of contracts, contracts may be classified as: Unilateral
Contract, and Bilateral Contract.

1. Unilateral Contract

It is also called as one-sided contract. In a unilateral contract, only one party has to satisfy his
obligation at the time of the formation of it, the other party having fulfilled his obligation at
the time of the contract or before the contract comes into existence.

For example, A takes a public taxi to go to Madagascar from Simbock. A contract comes into
existence as soon as A was dropped in Madagascar. By that time, taximan has fulfilled his
obligation, only A has to fulfill his obligation i.e. paying the taximan.

2. Bilateral Contract

A contract is said to be a bilateral contract where the obligations of both the parties to the
contract are pending at the time of formation of the contract. In this type of contract, a
promise on one side is exchanged for a promise on the other.

For example, A promises to stitch a blouse and B promises to pay 500Frs. Here A promises to
stitch the blouse and B promises to pay. Thus each party is both a promisor and a promisee.

Classification of Contracts according to execution

According to the execution of the contracts, contracts are classified into 2 as: Executed
Contract, and Executory Contract.

1. Executed Contract

A contract is said to be executed contract when both the parties to contract have performed
their share of obligation.
2. Executory Contract

An executory contract is one, which is either wholly unperformed, or something remains in

there to be done by both the parties to contract. Sometimes, a contract may be partly executed
and partly executory.

Classification of Contracts According to Validity

According to the validity of contracts, they are classified into 5 as discussed below.

1. Valid Contract: An agreement, which is enforceable at law, is said to be a valid contract.

When all the essentials of a valid contract are fulfilled, an agreement becomes a contract.

2. Void Contract: Void contract may be defined as, “a contract, which ceases to be
enforceable by law, becomes void when it ceases to be enforceable. Act may be valid at the
time when it was made, but later it may become void. Act with an alien friend becomes
subsequently void when alien friend becomes alien enemy”.

3. Voidable Contract: It means, a voidable contract is one, which is enforceable at the option
of one of the parties to contract. If the party does not get it enforced, he may rescind it. Such a
contract remains valid unless the party at whose option it is enforceable does not rescind it. In
other words, a voidable contract remains to be good till the party who is entitled to do so
avoids it.

4. Unenforceable Contract: An unenforceable contract is one which cannot be enforced due

to some technical defect such as absence of a proper stamp, absence of a written form, time
barred etc. The parties may carry out such contracts. But in the event of breach or repudiation
of the contract, the aggrieved party will not be entitled to any legal remedy.

5. Illegal Contract: An illegal contract is one which breaks some rule of basic public policy
or which is criminal in nature or immoral. It is void ab initio. Thus a contract to commit
murder is an illegal contract and cannot be enforced at law.

Other Contracts

Besides the above said classification, there are other types of contract also. Contingent
Contract is one such type.

1. Contingent Contract
Contingent contract is one, which is collateral to do or not to do something, if some event
collateral to such contract, does or does not happen. For example, A agrees to sell a certain
piece of land to B, in case he succeeds in his litigation concerning that land. This is a
contingent contract.

The essential elements of a contingent contract are:

1. There is an uncertain event,

2. The uncertain event is collateral to the contract,

3. The performance of the contract depends upon the contingency.

Contracts of insurance, indemnity and guarantee are the commonest instances of a contingent
contract.

B. Essential elements of a valid contract

Most people assume that once one party has made an offer and the other party has accepted, a
contract has been formed. However, there is more to a valid contract than this, and it has
nothing to do with how formal the agreement is. A contract can be formal or informal, written
or even oral. What are the 6 elements of a valid contract? A contract is valid and legally
binding if the following six essential elements are present: Offer Acceptance Consideration
Intention to create legal relations Legality and capacity Certainty

1. Offer

Offer and acceptance analysis form the basis of contract law and the formation of a valid
contract. Developed in the 19th century, the offer and acceptance formula identifies the point
of formation, where the parties are of 'one mind'. An offer is a proposal constituting specific
terms for one party to enter into an agreement with another party, which is essential to the
formation of an enforceable contract. What is the difference between an 'Offer' and an
'Invitation to Treat'? It is important to distinguish between an offer and an invitation to treat.
A valid contract requires an offer to be accepted, whereas an invitation to treat is not an
essential element to a contract. Whilst an offer can be accepted, an invitation to treat is
merely an invitation or willingness to negotiate that one party makes to the other. This is not
an offer as it does not show a willingness to be bound on specific terms once accepted. An
invitation to treat gives the party who issues the invitation control over whether the contract
should be made or when it should be made. An invitation to treat only constitutes an offer
when the wordings are clear, definite and explicit, which leaves nothing open for further
negotiation. Examples of an 'Offer' and an 'Invitation to Treat' In general, an invitation to
tender is an invitation to treat. However, if the invitation is addressed to everyone known to
the inviter and the invitation contains an agreement to accept the most competitive bid or
states that at least one of the tenders will be considered, then that invitation can be regarded as
an offer.

2. Acceptance

Acceptance is an agreement to the specific terms of an offer. Offers do not have to be

accepted through words; they can be accepted through conduct. If someone purports to accept
an offer but accepts on different terms than that of the original offer, that will constitute a
counter-offer rather than an acceptance. The acceptance must normally be communicated to
the offeror – silence cannot be treated as an acceptance. In exceptional circumstances (for
example, where the offeree has been given terms of dealing and proceeds with the dealing
without formally communicating acceptance), silence may be treated as an acceptance.

3. Intention to Create Legal Relations

An agreement does not need to be worked out in meticulous detail to become a contract.
However, an agreement may be incomplete where the parties have agreed on essential matters
of detail but have not agreed on other important points. The question of whether the parties
have reached an agreement is normally tested by asking whether a party has made an offer
which the other party has accepted. Agreements may not give rise to a binding contract if they
are incomplete or not sufficiently certain. There will usually be no contract if the parties agree
‘subject to contract’ but never quite agree on the terms of the contract. If the agreement is a
stepping stone for a future contract or is an agreement to agree, then the agreement might be
void for a lack of intention to create legal relations. Moreover, a domestic contract is
presumed not to be legally binding in common law jurisdictions.

4. Contractual Consideration

Ultimately the purpose of the contract relates to what it provides: the consideration. For
contractual purposes, consideration includes the value that has been agreed upon, whether that
be an action or an item. Property, services, even protection from harm, are all examples of
contractual consideration.
It’s important to note that there does not need to be a financial component for consideration to
be valid. An agreement of an exchange of services, for example, is enough to meet the legal
burden of consideration. The key is that the consideration has an agreed-upon value between
the signatories to the contract.

5. Contractual Capacity

In simplest terms, an individual cannot sign away their rights. Of course, the reality is a bit
more complicated, which is why contract law requires that all signatories demonstrate that
they clearly understand the obligations, terms, and consequences of the contract before they
sign.

The court defines that understanding as “legal capacity,” and each party signing a contract
must demonstrate this legal capacity for the contract to be valid.

Generally speaking, people who fall into one or more of these categories may not have legal
capacity to validate a contract:

Minors

Someone with a brain disorder (e.g., dementia)

Someone under the influence of drugs or alcohol

Someone without sufficient understanding of the language used in the contract

There are, of course, ways to overcome these capacity hurdles. A minor may have a court-
appointed representative, for example. In the case of a foreign language, a translated copy of
the contract could suffice. The final determination on capacity ultimately rests on
understanding: does each party fully comprehend the contract’s words and meaning?

6. Contract Legality

Finally, all contracts are subject to the laws of the jurisdiction in which they operate,
including any applicable federal, state, and local laws and ordinances. Obviously, a contract
for an illegal action or product cannot be enforced. Even if the parties initially had no
knowledge, if their agreement runs afoul of local laws, that lack of awareness is insufficient to
overcome the legality burden. It also goes without saying that a contract that involves criminal
activity is not valid.
As always, there are nuances. In general, the contract must adhere to the law in the
jurisdiction where it’s signed.

In addition, there are certain instances where a contract is no longer legal, including:

Undue Influence, Duress, Misrepresentation: When any party to the contract signs as a result
of coercion, threats, false statements, or improper persuasion

Unconscionability: When the result of a contract triggers oppressive obligations or produces

results that “shock the conscience of the court.”

Public Policy and Illegality: When a contract violates public policy or jeopardizes public
welfare

Mistake: When an error in the contract has a “material effect” upon the obligations and
responsibilities initially agreed to

Force Majeure: When circumstances beyond the control of the parties make it impossible to
satisfy the obligations of the contract

Contracts are critical business tools. That means establishing a valid contract is crucial, as is
ensuring all the terms and conditions are clear and that both parties are aware, competent, and
able to enter into a legally binding agreement.

Termination of contract

Breach of contract and remedies

Remedies for Breach of Contract

When one of the party commits a breach of the contract, the other party becomes entitled to
any of the following reliefs:

Rescission of the contract.

Damages for the loss suffered.
Suit for the specific performance.
Suit upon quantum meruit.
Suit for injunction.
1. Rescission of the Contract
When one of the parties commits breach of contract, other party shall further treat the contract
as void or rescinded. When the contract is rescinded, the affected party is automatically
discharged from all the commitments under the contract. The party who rescinds the voidable
contract, must if he has received any benefit there under from the other party, restore such
benefit to the person from whom it was received. Further, the person who rightfully rescinds
the contract is entitled to compensation for any damage he faced from non-fulfillment of
contract.

2. Damages for the loss suffered

The term “Damages” means monetary compensation payable by the defaulting party to the
affected party for the loss suffered by him when contract was breached. Therefore, the
aggrieved party may bring an action for damages against the party who is guilty of the breach
of contract.

The party who is guilty of breach is liable to pay damages to the aggrieved party. The main
purpose of awarding damages is to put the injured person in as good a position as he would
have been if performance had been rendered as promised. Therefore, the aggrieved party can
recover the actual damages and nothing more. Exemplary damages can be awarded only when
the feelings of the injured party are considered.

There are two types of damages, which.can be claimed by the aggrieved party.

1. Ordinary Damages or General Damages: Damages that arise in the ordinary course of
events from the breach of contract are called ordinary damages.

2. Special Damages: Special damages are those damages that are payable for the loss arising
on account of some special or unusual circumstances. That is, they are not due to the natural
and probable consequences of the breach of the contract.

3. Specific Performance

Sometimes, the damages are not an adequate remedy for breach of the contract. In such cases,
the Court may, at the suit of the party not in breach, direct the patty in breach to carry out his
promise as per the terms of the contract. This is known as specific performance of the
contract.
Example: A agreed to sell an Car for 1 million Frs. But subsequently, A refused to sell it. In
this case, B may,file a suit against A for the specific performance of the contract. And the
Court may order A to sell the stamp to B as agreed.

Some of the cases where Court may direct specific performance are as follows:

1. When the act agreed to be done is such that compensation in money, for its non-
performance could not afford adequate relief.

2. When there exists no standard for determining the actual damages caused due to the non-
performance of the contract.

However, specific performance shall not be granted in the following cases:

1. Where the damages are an adequate relief,.

2. Where the contract is determinable in its nature.

3. Where the contract involves personal nature.

4. Where the Courts cannot supervise the carrying out of the contract.

5. Where the contract is not fair and just.

4. Suit upon Quantum Meruit

In literal sense, the expression “Quantum Meruit” means, “as much as earned “. In legal
sense, it means payment in proportion to the work done. This principle provides for the
payment of compensation under certain circumstances, to a person who has offered the goods
or services to the other party under a contract, which under certain circumstance, could not be
fully performed.

Cases for Claim on Quantum Meruit

1. Where the work, which has been done and accepted under a contract, is subsequently
discovered to be void – Here the party who has effected part of the contract can rightfully the
amount for the work he has done. And the party, who accepts and reaps the benefit under such
contract, must make compensation to the other party.

2. Where one party abandons or refuses to perform the whole contract. Here the compensation
for the work done may be recovered on the basis of quantum meruit.
3. Where something is done without any intention to do gratuitously. In such cases, the other
person is bound to make the payment if he accepts such services or goods, or enjoys their
benefit.

4. Where the contract is divisible and the party has enjoyed the benefits of the work done – In
such cases, the party in default may sue on quantum meruit if the other party has enjoyed the
benefits of the part performance.

5. Suit for Injunction

The term”Injunction” may be defined as an order of the Court instructing a person to refrain
from doing some act that has been the subject-matter of contract. Where a party has promised
not to do something and he does it, and thereby commits a breach of contract, the aggrieved
party may, seek the protection of the Court under certain circumstances and obtain an
injunction.

Example: A contracted to sing only at B’s theatre and nowhere else for a certain period.
Afterwards A made a contract with C to sing at C’s theatre and refused to sing at B’s theatre.
The Court refused to order specific performance because the contract was of a personal nature
but granted an injunction against A to restrain him from singing anywhere else.