Notes from Chapter 1: Introduction to Business Law and Law of Contract
1. Definition of Law
• Law is the command of the sovereign.
o Key Points:
1. Law has its source in sovereign authority.
2. Law is accompanied by sanctions.
3. The command must compel a course of conduct.
• Sovereignty: Supreme authority of a state to govern itself without external
interference. It means full control over territory, laws, resources, and decisions.
2. Sir Thomas Erskine Holland’s Definition of Law
• Holland defined law as: "A general rule of external human action enforced by a
sovereign political authority."
o Key Aspects:
1. General Rule: Law applies broadly to society, not just individuals.
2. External Human Action: Law governs outward behavior, not
thoughts or morality.
3. Enforced by Sovereign Authority: Laws must be backed by the
state’s power.
3. Commercial Law (Mercantile Law)
• Definition: "Commercial law is that branch of law which is applicable to or
concerned with trade and commerce in connection with various mercantile or
business transactions."
o Purpose: Governs business activities like contracts, sales, partnerships, and
ensures fair trade practices.
o Examples: Contracts, sales, partnerships, and other commercial
transactions.
4. Essential Elements of a Contract
• Definition of Contract:
o Salmond: "A contract is an agreement creating and defining obligations
between the parties."
o Sir William Anson: "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 the other or others."
o Key Points:
1. Agreement: One or more persons promise to do or not do
something.
2. Enforceable by Law: The agreement must be legally binding.
5. Essential Elements of a Contract
1. Offer and Acceptance:
o There must be a lawful offer by one party and a lawful acceptance by the
other.
o Example: A offers to sell a car to B for $10,000, and B accepts the offer.
2. Intention to Create Legal Relationship:
o Both parties must intend to be legally bound.
o Example: A business agreement between two companies is intended to be
legally binding.
3. Lawful Consideration:
o Each party must give something of value (e.g., money, goods, services).
o Example: A pays B $10,000 for a car.
4. Capacity of Parties:
o Parties must be legally capable of entering into a contract (e.g., not
minors, not mentally incapacitated).
o Example: A contract with a minor is void.
5. Free Consent:
o Consent must be free from coercion, undue influence, fraud,
misrepresentation, or mistake.
o Example: If A forces B to sign a contract under threat, the contract is void.
6. Legality of Object:
o The object of the agreement must not be illegal, immoral, or against
public policy.
o Example: A contract to sell illegal drugs is void.
7. Certainty:
o The terms of the agreement must be clear and not vague.
o Example: A contract to sell "a large quantity of goods" is too vague.
8. Possibility of Performance:
o The agreement must be capable of being performed.
o Example: A promise to bring someone back from the dead is impossible.
9. Void Agreements:
o Agreements that are expressly declared void (e.g., with minors, under
mistake, illegal, against public policy, or without consideration).
o Example: A contract with a minor is void.
10. Writing, Registration, and Legal Formalities:
o Some contracts must be in writing or registered (e.g., property sales).
o Example: A property sale agreement must be in writing.
6. Classification of Contracts
1. Method of Formation:
o Express Contract: Formed through spoken or written words.
▪ Example: A written employment contract.
o Implied Contract: Inferred from actions, conduct, or circumstances.
▪ Example: A lecturer working for years without a written contract.
o Quasi Contract: Not a real contract but imposed by law to prevent unjust
enrichment.
▪Example: A university mistakenly deposits extra money into a
lecturer’s account, and the lecturer must return it.
2. Time of Performance:
o Executed Contract: Obligations are performed immediately.
▪ Example: A guest lecturer is paid after delivering a seminar.
o Executory Contract: Obligations are to be performed in the future.
▪ Example: A professor signs a one-year contract but has not started
teaching yet.
3. Parties of the Contract:
o Bilateral Contract: Both parties make promises to each other.
▪ Example: A university promises to pay a professor, and the
professor promises to teach.
o Unilateral Contract: One party makes a promise, and the other performs
an action to accept.
▪ Example: A university offers a $5,000 grant to any professor who
publishes in a top-tier journal.
7. Void Agreements
• Examples:
1. Agreement with Minors: Contracts with minors are void.
2. Agreements Made Under Mistake: If both parties are under a
fundamental mistake, the contract is void.
3. Illegal Agreements: Contracts involving illegal activities (e.g., gambling)
are void.
4. Agreements Against Public Policy: Contracts that harm public welfare
(e.g., restricting marriage) are void.
5. Agreements Without Consideration: Contracts without something of
value exchanged are void.
8. Key Terms in Contract Law
• Express Contract: Formed through clear words (spoken or written).
• Implied Contract: Inferred from actions or conduct.
• Quasi Contract: Imposed by law to prevent unjust enrichment.
• Executed Contract: Obligations are performed immediately.
• Executory Contract: Obligations are to be performed in the future.
• Bilateral Contract: Both parties make promises.
• Unilateral Contract: One party makes a promise, and the other performs an
action.
Summary of Key Points:
• Law is the command of the sovereign, backed by sanctions.
• Commercial Law governs business transactions.
• Contract is an agreement enforceable by law, requiring offer, acceptance,
consideration, capacity, free consent, and legality of object.
• Void Agreements include contracts with minors, illegal activities, or those
against public policy.
• Contracts can be express, implied, quasi, executed, executory, bilateral,
or unilateral.
Examples to Remember:
• Express Contract: Written employment agreement.
• Implied Contract: Lecturer working without a written contract.
• Quasi Contract: Returning mistakenly deposited money.
• Executed Contract: Guest lecturer paid after seminar.
• Executory Contract: Professor’s one-year contract not yet started.
• Bilateral Contract: University and professor agreeing to teach and pay.
• Unilateral Contract: University offering a grant for publishing a paper.