What is Voidable contract, Kinds and its Consequences?

Scope of Study

1. What is voidable contract?
2. Kinds of Voidable contract
3. Consequences of Voidable contract

What,

Contract that can be affirmed or rejected at the option of aggrieved party can be said as voidable contract.

Here in a contract aggrieved/innocent  party doesn’t have given the free consent. Aggrieved party is induce to give the consent to the contract, against his/her will, that results, the absence of free consent in contract and became voidable.

Example,

Mr. Ram gives threat to shoot Shyam if he does not let his house to Ram on hire. Shyam agrees to give his house to Shyam on hire.

Kinds of voidable contract

Since absence of free consent in a contract makes it voidable, we can say the situation where there is absence of free consent is the kind of voidable contract.

Thus voidable contract are,

1. Contract by coercion
2. Contract by Undue influence
3. Contract by Fraud
4. Contract by Misrepresentation

Consequences of voidable contract

1. Innocent party may appeal to void the contract.
2. Innocent party can affirmed or continue the contract, if the contract is in the favor him/her.
3. He/she can claim compensation
4. He/she may ask to brought them in pre contract stage.
5. Limitation
6. Innocent party has to go the court, within 1 year to declare the voidable contract void
7. If not then contract will become valid Ipso Facto.      

Free Consent

Free Consent

 Consent

It is an act of assenting to the offer.

Section 2(c) of NCA-2056 ‘Consent’ means the consent given by the person to whom a proposal has been presented in the same meaning of that offer.

Thus to be a valid consent there should be two elements

v  Consensus ad idem – consent on same thing

v  Meeting of mind – meeting of same mind

Free Consent

Consent is said to be free where there is absence of

1. Coercion
2. Undue influence
3. Fraud
4. Misrepresentation
5. Mistake

“It is an essential element to form a valid contract”

Consequences

What happens if there is no consent itself in the contract?

Ans. Contract is void

What happens if there is consent in contract but that is not free or there is no free consent in contract?

Ans. Contract became voidable.

Importance of free consent

1.      To respect the contractual independency of the parties to the contract.

2.      To promote the reasonable transaction

3.      To respect the intent of the parties.

Consideration

The basic idea of consideration inside contract is that before one party can acquire something, he must actually give something to the other party.

It is also one of the means by which the law courts decide if a particular contract is enforceable, or should be enforced.]

It is related with the Latin term quid pro quo that means “something for something”. Contract is valid only if there is a exchange of something between the parties to the contract. It assumes that one will obey the term of the contract if there is something benefit to him/her.

It adheres to the common sense idea of bargaining where one person trades something for another.

 Justice Patterson

“Consideration means something which is of some value in the eye of law; it may be some benefit to the plaintiff or some detriment to the defendant.”

Section 2(d) of NCA-2056 says 'Consideration' means the promise made to do or not to do any work in return of doing or not doing of any work mentioned in the proposal.

This section doesn’t give clear meaning about the consideration as it only focus on work, but in reality it could be object or any thing else that has value in the eye of law.

Types of Consideration

1. Past consideration
2. Present consideration
3. Future consideration
4. Positive consideration
5. Negative consideration
6. Direct consideration

Indirect consideration

Rules Regarding Consideration and Exception to the general rule

Rules Regarding Consideration

1. Consideration must move at the desire of promisor
2. It must be real
3. It must be Lawful
4. Consideration must move from promisee (i.e. parties to the contract)
5. Performance of existing obligation is not consideration
6. Consideration needn’t adequate.

Exception to the general rule “No consideration No contract”

1. Contract in natural love and affection
1. Written
2. Register
3. Must based on natural love and affection
4. They must be relative
2. Contract to pay time barred debt
3. Contract relating to gift
4. Contract to pay for voluntary service
5. Contract to pay for gratuitous bailment
6. Contract of voluntary agency

Other Disqualified person to make a contract

Those who can’t understand the content of the contract and can’t make the rational judgment for their interest.

Since contract is private law made by the parties to the contract by them for themselves, the clear understanding and rational judgment should be there.

Thus law of contract treat person of unsound mind as a disqualified person to make a contract or in other word they don’t have contractual capacity.

Rules regarding person of unsound mind’s agreement

1. Generally Contract with person of unsound mind is void ab initio in Nepal. But in UK it is voidable contract. The person of unsound mind may accept the contract or declare void by the court of law.
2. A person who is usually of sound mind but occasaionally of unsound mind may make a contract when he is of sound mind.
3. A person who is of usually of unsound mind but occasionally of sound mind may make a contract when he is of sound mind
4. The contract did for the benefit of person of unsound mind by the parent or guardian it s valid.
5. Necessaries supplied to the person of unsound mind create the implied contract and it is also a valid contract.

Other Disqualified person to make a contract

1. Foreign Diplomats
2. Alien enemy
3. Corporation
4. Married Women
5. Insolvent
6. Professional person

Rules Regarding Minors agreement

1. An agreement with or by minor is void ab initio

Test case: Mohari Biwi V. Dharam Das Ghose, AIR (1903), 30 Calcutta, 539

In this case, a minor mortgaged house in favor of a mortgagee to secure a loan of Rs 2000 out of which a mortgagee paid the minor sum 8000.

Subsequently, the minor sued for setting aside the mortgage, stating that he has underage when he executed the mortgage.

The court held that “the mortgage was void and, therefore, it was cancelled.

2. The ratification after attaining the age of majority is not valid.

Ratification means the subsequent adoption and acceptance of an act or agreement. A minor agreement being a nullity and void ab initio has no existence in the eye of law. So far as Nepalese law is concern it is not clear but references can be drawn that contract done in situation when he is not able to know the benefit and loss and result of act is void itself and can’t be ratified by the person.

3. Principle of estoppels doesn’t apply to the minor

Estoppels means when you put forward any fact you are prevented to deny that fact or precluded to put different fact on same matter.

A minor is not estopped from pleading his minority in order to avoid the contract, even if he has entered into an agreement by falsely representing that he was full of age.

4. Minor can be beneficiary or promisee

Unlike Minor’s agreement that gives obligation to the minor, contract made for the benefit of minor is valid one and there is nothing, which debars him from becoming beneficiary. The nature of law that is law always protects weaker section also signifies here.

Test Case: The General American Insurance Co. Ltd v. Madan Lal Sonu Lal AIR (1935) 59 BOM 656

Contract made by minor where minor is beneficiary is valid and Minor can get the compensation for the loss of his property through insurance contract.

5.                 5. A minor cannot be a partner but can admitted to the benefits of partnerships

Partnership is a mutual agency and continuous relationship between the partners. Generally minor cannot be a partner because it has a chance of loss and benefits equally. But minor can admitted to the benefits of partnership. i.e he can be benefited out of partnership

6. A minor can be a agent

Since the agent work on behalf of the principle and agent is only bridge and doesn’t have any obligation rather work a minor can be an agent.

7. Minor can be liable for necessaries

The word necessaries are a vague one. It may include from basics things to suitable for his life. If any person provide necessaries for the minor then minor is liable for that. There is an implied contract between supplier and minor. But necessaries provided should be economical to the status of minor and socially acceptable.

8. A lawful guardian may make a contract for the benefit of minor

Minor Through his/her guardian can become the shareholder of the company

Competent Parties for Valid Contract

To be valid contract, the parties to the contract should have contractual capacity according to law. Here the term contractual capacity denote the “capacity recognize by the law to do the contract.”

Every person is presumed to be competent to enter into the contract, and if any one claims exemptions from liability on the ground of incapacity to contract he must strictly prove such capacity.

 

In context of Nepal

The Nepalese Contract Act 2056 Section 3 mention “Any person other than those mentioned below may conclude contract.

1. One who has not attained 16 years of age
2. One who is of unsound mind

“But the guardian of minors and insane may, in their interest, conclude contracts on behalf of minor and insane”

3. One who is disqualified by law – Like Foreign Enemy, Married Women, and criminal who is taking punishment, insolvent.

Minor

Generally, in Nepal person who less than 16 years is treated as the minor and According to NCA 2056 Section 3 they are not competent to enter into the contract.

But if we look into the provision of India and UK person under 18 years of old is minor. Here the nature of law i.e. law varies place to place plays a role.

Generally minor could not enter into a valid contract and contract with minor is void ab initio as per section 13 of NCA 2056. The principle behind this is

1. They don’t know the result of their act
2. They can’t analyze the benefit and loss.

But there are certain circumstance where contract with and by minor is valid. Those are governing by the rules regarding minor agreement/contract. The rules governing minor agreement/contract are based on two fundamental principles i.e.

1. The law must protect the minor against his inexperience

2. The law should not cause unnecessary hardship to an adult who deals fairly with minors. 

Rules regarding valid acceptance

1. Acceptance should be absolute and unqualified

In the case of Nihal Chand v. Amarnath, AIR 1926 Lal 645 Indian court of law held that "acceptance should be absolute and unqualified if there is acceptance with the  reservation in offer it is not the valid acceptance and doesn’t give emergence of valid contract and legal obligation there upon to the parties” 

2. Acceptance should be given by the person to whom offer is made; another person can't give acceptance to the offer.

a.       Person – only person to whom offer is made

b.      Group- Only a person of than group

c.       General Public- all the general public

3. Acceptance should be given before lapse of offer.

Since acceptance is given to the offer, it must be given before lapse of offer. Acceptance given to the offer that was lapsed before doesn’t have any meaning and won’t create any contract.

4. It must be give according to the mode prescribe or usual mode

If offeror prescribe certain mode to give acceptance to the offer then the offeree should use that mode. But is there is no any prescription of mode for acceptance for the communication then the offeree should use usual mode.

5. It must be given within reasonable time

If offer doesn’t contain the specific time for the acceptance then the acceptance should be given within reasonable time. Acceptance after reasonable time doesn’t create any valid contract and obligation upon the parties.  Like Apurba  offer the the Ajaya to send 10 tones of sugar for Tihar before 15 days of Tihar and Ajaya accept that offer after Tihar will not make any valid acceptance.

6. Acceptance should be given with the intention to create legal relationship

This is most important rule to the formation of valid contract. Parties should have intention to create legal relationship while giving the acceptance to the offer. Mere jocular acceptance doesn’t create any legal obligation upon the parties and it won’t create valid contract either.

7. Silence doesn’t amount to acceptance

Section 7(4) of Nepalese Contract Act 2056 provides that although the offer mentions that in case of failure to communicate refusal within prescribe time shall be regarded as acceptance. The failure to do so shall not be regarded as acceptance. Thus silence doesn’t amount to acceptance.

8. Indirect performance of term of offer signifies assent for acceptance.

When the offeree acts or performs certain behavior as to the offer then it signifies the assent for acceptance. This is also called the indirect acceptance

9. Acceptance should be communicate the offeror

Once an offer is accepted by the offeror it must be communicated to the offeree. Only accepting the offer is not enough, the notice of acceptance should be given to offeror.

10. Acceptance can revoke

See Section 8 of NCA 2056.

Introduction and Kinds of Acceptance

Introduction

Acceptance is the act of assenting by the offeree to an offer. In other word, it is the manifestation by the offeree of his willingness to be bound by the terms of the offer.

Acceptances give the validity to the offer and contract. Moreover acceptance must also be clear, unambiguous and certain.

According to section 2(c) of NCA 2056 Consent means "Consent given by a person in the same sense in which the offeror has taken the substance of the proposal presented by him/her to the former is called the acceptance.

Here for the valid acceptance there should be "meeting of mind" of the both the parties to the contract. That means the acceptance should be given as to what the offeror has the intention in offer.

Thus the acceptance is

1. After offer
2. Meeting of mind
3. assent
4. to do or not to do anything mention in offer

Kinds of acceptance

1. Express/direct
2. Implied

Rules regarding valid Offer

Rules regarding valid Offer:

Since offer is the starting point of the contract, it should be valid one and there are some rules for the validity of offer

1. Intention to create legal relationship

For the creation of valid contract offer should be made with the intention to create legal relationship. Until and unless an offer doesn’t owe the intention to create legal relationship it doesn’t make a valid offer and contract itself. Generally following statement doesn’t have intention to create legal relationship and are not the valid offer in the eye of law

1. Social invitation
2. offer made in joke or in excitement
3. invitation to offer/treat
4. Statement of intention 

2. Offer should be communicate to the offeree.

Offer should be communicate to the offeree for the validity of offer. If offeree doesn’t have knowledge about the offer or offer is not communicated then it can't create any valid contract and legal obligation to the parties.

In the case of LalMan Sukla v. Gauri Dutta, AIR 1913 489the Indian Court of law held that " For the creation of contract and legal obligation to the parties, offer should be communicate to the offeree for the acceptance and since there is not knowledge of offer to the offeree no contract has been made."

3. Offer should be certain

Offer should be certain and unambiguous. The terms and condition of offer should be definite and clear. If there is confusion in terms of offer then it may give the confusion in obligation to the parties itself. Thus offer should be certain for its validity. E.g. If X Offer Y to Purchase his bike then X has to disclose all the fact and related thing like price, color etc.

4. Offer could be revoked

Refer to the section 8 of the NCA 2056

5. Offer is terminated in certain situation ( Refer section 9 of NCA 2056)
1. By the death or insanity of offeror
2. Lapse of time
3. Alteration of term of offer ( Cross offer)
4. Subsequent illegality
5. Death or insanity of offeree
6. If offer is revoked as per section 8 of NCA 2056 etc.

Introduction and Kinds of Offer

Introduction

Generally Offer mean will present by the one party in front of other to do or not to do something. It is the starting point of any agreement or contract. The offer and its acceptance is the universally acknowledge process for the making of a contract.

According to section 2(b) of NCA 2056 offer means " offer put forward by one person to another with the expectation of obtaining his consent for performing of not performing any work."

Similarly Indian Contract Act 1872 define offer as "when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make offer."

Thus to be offer there should be at least,

1. presentation of will by party
2. To do or not to do anything
3. with the intention to get consent or acceptance

Here those who makes the offer is called the offeror and to whom the offer has been made is called the offeree.

Kind of offer

1. Express
2. Implied
3. Offer to the certain person
4. Offer to the particular group
5. Offer to the general public (refer section 10 of NCA 2056)

Essentials of valid contract

   

1. Offer and Acceptance

Offer is proposal make by either party to the contract (offeror), to do or not to do some thing and Acceptance is assent of the offeree (To whom offer is made) to the term of the offer. There must be two parties to an agreement that means one party makes an offer and another accept it.

There must be consensus ad idem (Meeting of mind) for valid offer and acceptance. If somebody offers in one way and other party accept in another way that is not acceptance. Moreover the terms of offer must be definite and acceptance should also be absolute.

2. Intention to create legal relationship

The contract must have the element of intention to create legal relationship to be a valid contract. It is the conclusive test of the valid contract. Both the parties to the contract must have the intention to create legal relationship for making valid contract. Generally domestic and social affair lacks the intention to create legal relationship. But all the business transaction does have.

In the case of Balfour v.Balfour 1919 K.B 571 the English court of law held "the agreement between husband and wife is totally a domestic nature and not a contract".

Similarly in the case of Spellman v. Spellman (1961)2AER 498 English court of law also upheld the former decision and held "agreement of domestic nature doesn’t create legal obligation to the parties and it is not a contract."

Thus to be a valid contract there should be element of intention to create legal relationship.

3. Lawful consideration

Generally consideration implies "something in return." It equally implies the concept of "something for something." In Latin term it is said as a Quid Pro Quo. That means if one party to the contract has given something to another then he has right to get something from another party. E.g. Ram and Shyam enter into a contract for sell and purchase of Motorbike; here money and bike for each other are the consideration.

Consideration must be lawful and those contracts that have unlawful consideration are void contract as per the section 13 of NCA 2056. Here unlawful consideration means consideration that are prohibited by law like consideration in the form of weapon, drugs etc.

4. Competent Parties

The parties to the contract must be capable of entering into the contract. Contract made by the parties those are incapable in the eye of law is void as per the section 13 of NCA 2056. 

According to section 3 of the NCA 2056 any person other than mention below is eligible to make a contract.

1. Those who have not complete 16 years of age
2. Those who are of unsound mind
3. Person who is declare incapable by other laws

Generally above mention person cannot make the contract and contract made by them is not valid and it is void as per the section 13 of NCA 2056

However if any specific law made them as capable of doing contract then contract made by them is also valid one.

Moreover contract done by the guardian of above mention person except C category for the benefit of them then the contract is valid.

5. Free consent

The free consent is also an important essential to be a valid contract. Consent is said to free if there is absence of fraud, misrepresentation, mistake, coercion and undue influence.

Contract done without free consent is voidable as per the section 14 of NCA2056, and the aggrieved party can make contract void by lodging case in court of law.

E.g. Ram and Kailash enter into the contract for sell and purchase of 5 ropani land and Kailash is going to sell 5 ropani lands to Ram because Ram has told him otherwise he will kill him. This contract is voidable because Kailash didn’t have given free consent rather in coercion.

6. Legal Objective

The objective of contract should be legal for validity of contract. Whenever parties enter into the contract the purpose and object should be valid one.

Objective of contract is said to be lawful if

1. it is permitted by law
2. it is not forbidden by law

If the contract have illegal objective then it is not valid contract and is a void contract as per the section 13 of NCA 2056.

E.g. Contract for killing, Contract for carrying a business of prostitution.

7. Certain Meaning

Contract should have certain meaning and it should not have any confusion and ambiguity in obligation to the parties. Even the court of law doesn’t recognize the contract that has uncertain meaning. Thus the contract should have certain and definite meaning.

Ram accepts to sell Hari "hundred tons of oil". There is nothing whatever to show, what kind of oil is intended. It may be kerosene, sunflower and mustard. This is not a valid contract.

8. Possible to perform

Contract is the private law created by the parties for themselves. Thus it should be possible to perform. Contract that cannot perform is void and doesn’t create any legal obligation to the party. Like, contract on selling Bike which is not in the name of party.

9. Legal formalities

Generally court of law recognize both Oral and Written contract. But if there is specific law that requires the contract should have written or register then to create a valid contract, those legal formalities should be followed. E.g. Section 25 of NCA, Bailment above 5000 should be written.

Nature of contract

1. Contract is private law generally made by the parties to the contract
2. Parties are autonomous
3. Contract is a law made the parties for themselves
4. Contract has different types
5. Parties to the contract has obligation to perform duty
6. Violator (Guilty Parity) has to compensate the affected person

In a case of Karishma Impex v. National Trading Limited, Nepal Law Journal 2048, Decision no. 4444 p. 691 Supreme Court held that “ the parties to the contract can create mutual obligation by agreeing upon the term and condition as per their need within the boundary of law.

What is contract?

1. According to contract Act 2056 section 2(a) “Contract is an agreement made between two or more than two parties do or not to do something that is enforceable by law.”
2. Similarly Indian Contract Act 1872 Section 2 define “Contract is an agreement enforceable by law”

 Many scholars has also tried to define the contract

1. According to Salmond “Contract is an agreement creating and defining obligation between the parties.”
2. According to F Pollock “A contract is a promise or set of promise for the breach of which law provide remedy.”

Similarly Supreme Court of Nepal in a case of Sarki Kami v. Kancho Kami NKP 2048 page 546 define Contract as

“To be a contract there should be agreement between two or more than two parties to do or not to do something and if there is element of offer and acceptance then that could be said as contract.”

Thus the contract is an agreement made between the parties to do or not to do something that should be enforceable by law. Generally from above definition four elements should be there for contract

1. Two or more than two parties
2. An agreement
3. Enforceable by law
4. Condition – to do or not to do something

Set of Promise + some consideration = Agreement                       

Agreement+ Enforceable by law = Contract

E.g. A offered to B that you provide me your laptop I will pay 40000 and if B accepts then there is contract.

Meaning and development of contract Law

What is contract?

Contract is an agreement made between two or more parties to do or not to do something that is enforceable by law.

The law that regulates the contract is called the contract law/ law of contract. It lay down the information that what the party to the contract can do or cannot do. It also deals about the obligation of performance of duty emerging out the contract and give remedy for the violation of obligation.

• Basically the development of contract law could be seen in two ways i.e.

1. International perspective
2. National perspective

1. International perspective

Before 18^th century there was no concept of law of contract and state doesn’t recognize the contract and enforce by the law. In 19^th century there is the dominance of Laissez faire principle ( it is the principle that gives more freedom to the person and state doesn’t intervene peoples affair regarding the business, state only made certain law that are essential to run the state affair.) and state has made free to the parties to the contract to do any sorts of contract as they like.

This adoption of Laissez faire principle later result terrible bad effect in the society and in a state as a whole like it effect upon the health, environment, welfare of the worker and public policy too. Thus states realizing the need to regulate the contract were made laws on contract.

2. National Development of law of contract

Regarding Nepalese development, before 2018 there were no recognition of contract by the law, even though, people used to make contract in good faith, reliance and believe. In 2018 with the formulation of Rasan Thhekka Regulation-2018 Nepal has started to give recognition to the contract by law. But that law is only invoked if there is state as a party to the contract.

Later the Muluki Ain 2020 also incorporated some of the provision regarding the contract on bailment and pledge. The specific law regarding the contract law was made by the state in 2023 that is Contract Act 2023. Contains

1. Definition of contract, offer and acceptance
2. Void and Voidable contract
3. Performance of contract
4. Remedy for breach of contract etc

The Contract Act 2023 couldn’t cover the emerging concept like Globalization, Privatization, and Foreign Investment etc. Thus the government has promulgated another law that is Contract Act 2056 that is applicable till the date

• Major provisions of Nepalese Contract Act 2056

1. General principle of contact – section 2-14
2. Special Contract – section 15-70
3. Performance of contract - section 71-81
4. Breach of contract and remedy 82-87
5. Miscellaneous section 88-90

Sources of Business law

1. Legislation

The legislation is important source of business law. The parliament make law regarding the business are the sources of business law. It comprises the law of contract, law of company, law of arbitration, law of agency etc. The law made by the parliament is coercive in nature and it must be followed by all the stake holder of the business transaction. Principally it is the main body to make the laws.

2. Custom

Many customary practices are still practice in the business world and those customs are also the law in itself. Before legislation or formal law the custom used to regulate the behavior of the business person. The court also uses the custom while deciding the case. Thus if any custom is related with the business world then that is also the source of business law. Like Barter system.

3. Precedent

Any decision (where the apex court has propounded the principle) made by the apex court of the country in regard to the business is also the sources business law. Those decisions are binding to the lower court and apex court itself. Whenever such kind of case comes to the court again they use the same principle and decide the case. Thus it is also the source of the business law. E.g. Tirtha raj kumari Rana V. Ram Shankher Shrestha NKP 2040 page 239. Where court decide the Bainapatta is also the contract.

4. Convention

Many international conventions regarding the business has been adopted and that are binding to the state if the state has ratified it. Since it is binding to the state or it is treated equally as the domestic legislation. Thus the international conventions are also the sources of law and court also use this while deciding the case. The domestic law also drafted taking help of those conventions.

  

5. Writing of experts

 The writing of experts, professional on business helps to develop the business law, their in depth study and analysis could help to define and develop the law. Thus in business law it is also taken as a source of law.

6. Determination of international organization
7. Morality justice and good conscience
8. Law of other country

Importance and Nature of Business law

Importance of business law could be seen from two dimension i.e. knowledge and regulation.

• Why knowledge of business law is important.

1. As a Business Person or manager

a. Contract – Appoint a labor that that is guided by law

b. Get loan or lend loan to run the business

c. Sell or purchase the goods

2. To know what is permitted and what is restricted by the law in regard to carryout business. Like you cannot infringe other right to environment, health while carryout your business.

3. To know what are the facility provided by the law to run the business and choose the suitable vehicle for business e.g. Partnership, company or private form.

• Importance in regard to the regulation of business itself

1. Regulate the behavior of business person
2. Helps to systematize the business transaction
1. Good faith
2. Environment friendly
3. Restrict monopoly
4. provide dispute settlement mechanism

3. Provide facility to enhance trade
1. Drag or create environment to foreign investment
2. Speedy dispute settlement mechanism
3. Certain exemption like tax for prioritized company like medicine producer.

4. Protection of public health and safety
5. Enforcement of intent or promise
6. Protection of property and creating investment friendly environment.

Nature of Business law

1. Generally made by state
2. Regulate the transaction of business stakeholder
3. create investment friendly environment
4. It is also dynamic and changeable
5. Different in different place and time
6. Generally enforce by the state
7. Includes law of contract, company, Agency, arbitration etc.

Concept and meaning of Business law

Business law is a branch of law that regulates the business sector. It comprises the law concerning trade, industry, and commerce. The business law may be defining as that branch of law which laid down the rights and obligation of the mercantile person, arising out of the mercantile transaction. Like contract law, which gives right to the party to chose the time, place and subject of contract in the form of rights and oblige the related party perform the duty emerging out of contract.

The business law laid down the provision as to what a party to the business can do or can not do. As law has aim to maintain social security and peace it restrict the business activities that lead to the destruction of social order. Like you cannot sell and purchase the weapon or can’t make contract to sell and purchase the weapon. Similarly you can’t open brothel for business.

The business law provides the information about the legal institution related to the business. Since the today’s business world is complex one and many dispute arise out the business transaction it is imminent to know about the dispute settlement mechanism and institution regarding business and business law provide this kind of information.

William MC Charty says the business law contains

1. study of legal institutions
2. process that affect the business
3. Includes contract, company etc.

In short business law could be define as the law which regulate business transaction, laid down rights and duties of the business person emerging out of business transaction, provide information what could be done or couldn’t be done and provide information about the institution.

 

Sources of law

The sources of law can be defined in a two ways. That is the meaning of sources of law could be from where the law get legitimacy or where is the origin of law and on the other hand what the court use while deciding the case. On that very basis the sources of law can be

     1.      legislation

     2.      Precedent

     3.      custom

Legislation

The laws made by the parliament of the country are called the legislation. This is the popular sources of law and cover almost area of law. This is the important source of law as well. The legislation is coercive in nature and violation of it, amount the punishment. Company Act 2063, Contract Act 2056, Agency Act 2014, Mediation Act 2055 are the example of legislation in Nepal.

Precedent

Precedent is the decision made by the supreme court of the country in a case. If Supreme Court propounds certain principles while deciding the case, the principle or decision should be followed by the lower court and the Supreme Court as well. That is why, It is also treated as source of law.

Custom

Custom can be defined as a regular practice carryout by the society from time immemorial. It is also treated as law itself. While deciding the case the court also considers the custom of the society, thus the custom is also the sources of law. Generally for the valid custom it should be backed by four elements at least

1. practice from time immemorial
2. continuity
3. shouldn’t contradict to the law
4. Practice by bulk of people as it has societal interest.

Besides the sources above mentions there are other sources of law as well they are convention, writing of experts, morality, equity and good conscience and determination of international organization. Among them convention is binding if that is ratified by the state and equally applicable as domestic law but other are only persuasive sources of law.

Aims, Nature, Kinds of Law

Aims/objective of law

1. Maintaining peace, prosperity and security in the society. Like it prohibit the killing of a person and theft etc.
2. Provide facilities to the people to make their own arrangement  like it provide

a.       Freedom of contract

b.      Right to register the company

c.       Right to make a will

d.      Enjoy your land

3. Provide standard to settle dispute. Like Formal Court, Arbitration and other alternative dispute settlement mechanism. In the absence of this people will seek to get justice as per their expediency.

 Nature of law

From the above discussion we can extract some nature of law and it is also helpful to understand law.

1. Generally law is made by the state.
2. It regulate the human behavior
3. Law always aims to maintain peace and security in the society.
4. Law penalize the offender
5. The law is dynamic and changeable
6. Law varies time to time and place to place
7. Law treats all people alike that is to say no one is above the law it is equally applicable to farmer and president.

 Need of Knowledge of law

1. “Ingorantia Juris Non Excusat” ( Ignorance of Law is no Excuse)

Although it is not possible for laymen to learn every branch of law, they can’t get excuse of ignorance of law. Person must acquaint himself with the general principle of the law of the country. Example Carrying arms openly in the street and catch up by police for violation of peace, you are not excuse though you don’t know you can’t carry weapon openly.

2. All the activities that we perform demand legal information for correct action.

The law is generally everywhere and all are abide by it, so for correct action the information of knowledge of law is important. Example while crossing the road you should use Zebra cross, you couldn’t drive without license etc.

3. To know about the facility given by the law

The law also has given number of facility to the people like tax exemption, discount, rights etc. To get or enjoy that kind of facility we should aware about the law as well.

Kinds of law

On the basis of nature, function and objective of the law it could be classify into various kinds. But as a student of Business, the five kinds of law are important to study. They are

1. Substantive law
2. Procedural law
3. Civil law
4. Criminal law
5. Business law

Substantive law

Substantive law refers to those sorts of laws that create and define the right and obligation of the person of the institution. Like the interim constitution of Nepal 2063 has given the right to religion, environment, property etc. Generally substantive law concerned with the end of the law.

Procedural law

If the rights given by the substantive law is taken away or infringe, the branch of law show the path to restore or get back that right. Those laws are called the procedural law. It doesn’t only enforce or restore the violated rights, also compel the person to perform the obligation. E.g. under the Company Act of Nepal 2063 you have a right to register the company. But if authority doesn’t register the company then you can proceed to the court and the procedure you have to follow is lay down by the law, and that is called the procedural law. Like filing petition within limitation

Civil law

Those laws, of which, the violation amount the punishment in the form of compensation or fine is called the civil law. Generally it deals about the relation of individual with individual. Like contract law, law of property and law on partition etc.

Criminal law

If the purpose of law is to protect the society as a whole rather than its member that law is called the criminal law. It includes that kind of law, of which violation amount the punishment in the form of Jail. The criminal law focuses on wrong against the whole society. It is directly related with the peace and security of the society.  E.g. prohibiting the killing of person without lawful excuse as per the Muluki Ain 2020 Jyan Sambandhi ko mahal.

Business law

The laws that regulate the behavior of the mercantile person are called the business law.

Why not uniformity in definition of law?

Why not uniformity in definition of law?

law is dynamic and changeable:

Law is made for the society and it is implemented there too. As we know society is changeable, the law also changes with the society. New development in the society create new problem and law has to cope up with those problem instantly. E.g. the cyber crime and hijacking of plane were not there in the past. But it is the problem of the present society and law has to address this kind of problem.

On the other hand, it varies time to time and place to place, what ever activities are prohibited in U.S.A might not be prohibited in Nepal. And whatever activities is treated as illegal in Hindu community might not to treat as illegal in Muslim community.

Thus the single definition of law couldn’t be found and all the writing, views as to what the law is equally important to understand about the law, we could not say one is right and another is wrong.

Solution

Since the law is dynamic and changeable it can only elaborate rather define. Thus to know about the law we can adopt the three dimension of approach of law. Those are

1. Law as a means or living instrument of society that guide the social transformation.

a. Superstition to reality

b. alleviating bad practices and transform to the good practices, like Sati system, Ordeal system.

 2. Law is an instrument to protect people from societal disorder and anarchy. That means it always in line with the establishment of peace and prosperity in the society. E.g. Law prohibit strong person to exploit or suppress weaker section.

3. Law define basic rights and duties of both state and individual, that makes the relationship between state with individual, individual with individual. E.g as a individual you have right to enjoy your property, liberty, culture and you have duty to maintain social order and respect other culture too. State has duty to protect its people and provide them development and has a right to collect revenue and punish the offender too.