Small Business Laws
I. COMMERCIAL LAW is the name given to those branches of law which is generally applied to cases arising out of commercial transactions. Some authors define it as a branch of law concerned with business, trade and commerce. Commercial law denotes the aggregate body of those laws which are connected with trade and commerce like the contract act, Partnership act, sale of goods act, company law, law of agency, law of insurance, law of arbitration. Thus it is a compendious for the entire body of commercial laws which are mentioned between traders or mercantile persons.
II. CONTRACT
A contract an agreement made between two or more persons which is intended to be enforceable at law.
All agreements are not contracts
Thus agreements are the subject matter of the law of contracts. But every agreement however is not a contract. The term agreement is a very wide one. It may be a social agreement or a legal agreement. In other words an agreement may or may not give rise to legal obligation. An agreement which does not create are enforceable in the court of law are legal agreements. A social agreement is not enforceable in the court of law.
Contract of indemnity and guarantee
Contract of indemnity, guarantee bailment, agency sale of goods and partnership are contract. There are certain special rules and principle relating to those contracts which are discussed below:
Contract of indemnity
Indemnity means to compensate loss or to make loss. Where two persons enter into an agreement in which one party promises to compensate the loss of the other arises a contract of indemnity.
Object of contract of indemnity
The object of contract of indemnity is essentially to protect and compensate the indemnified from the anticipated loss.
Different kinds of indemnity
Contract of indemnity may be classified as follows:
a. Express contract of indemnity ? Where the terms of the contract of indemnity are either in oral or written form, it is called an express contract of indemnity. Policy of insurance is a good example for express contract of indemnity.
b. Implied contract of indemnity ? Where the contract of indemnity can be inferred from the circumstance of the case or from the relationship of the parties it is called contract of indemnity.
Requirements of all essentials elements of contract
A contract of indemnity is a species of the general contract. Hence, it must have all the essential elements of valid contract namely consideration, competence of the parties, reality of consent, legality of object.
Contract of guarantee or surety ship
Where a person gives a guarantee to another person either of (a) performing a promise or (b) discharging the liability of a third person, there arises a contract of guarantee.
Essentials features of a contract of guarantee
To constitute a valid guarantee the following essential features are required.
1. Three parties ? There must be three parties in a contract of guarantee namely the principal debtor, the creditor and the surety.
2. Identity of mind ? The contract of guarantee requires the identity of mind of all the said three persons in respect of the subject matter of the contract.
3. Liability in existence ? The liability should be in existence. The word, liability means a liability which is enforceable at law. If that liability does not exist, there cannot be a contract of guarantee.
4. Primary and secondary liability ? There must be a primary liability in some person than the surety. The primary liability lies with the principal debtor. The liability of the surety is only secondary in the sense that his liability arises when the principal debtor falls to pay his debt.
5. Express or oral ? Contract of guarantee may be oral or in writing. But under the English law, a contract of guarantee must always be in writing.
6. Essential elements of contract ? A contract of guarantee must have all the essential elements of valid contract. But there is a special feature to be noted with reference to consideration and capacity to contract.
With reference to consideration
Like every other contract, a contract of guarantee should also be supported by consideration. But there need not be any direct consideration between the surety and the creditor.
So far as the consideration is concerned, the consideration received by the principal debtor will be sufficient to support the promise of the surety. Thus where a loan is given or goods are sold on credit to the principal debtor on the basis of a guarantee the same may be treated as sufficient consideration to the surety. No fresh consideration is necessary for the surety.
With reference to capacity to contract
So far as the capacity to contract is concerned, the general principle is that the principal debtor creditor and surety must be such persons who are competent to contract. Suppose the surety is a person competent to contract, but the principal debtor is not a person competent to contract. In such a case a question would naturally arise whether the surety?s liability would be affected.
III. BAILMENT
The word bailment is derived from the French word Bailer which means to deliver. It signifies a contract resulting from delivery. The ownership of the goods is with one person to another of some purpose. The circumstances in which they may happen are numerous. Delivering a cycle, watch or any other articles for repair or leaving a cycle at a stand, depositing luggage or books in a cloak room, delivering gold to a goldsmith for making ornaments or delivering garments to a dry cleaner are all familiar circumstances which create the relationship of bailment.
Essential characteristics of bailment
The essential characteristics of bailment are as follows:
a. There must be a delivery of goods.
b. Such delivery should be upon a contract that the goods after purpose is over, should be returned to the bailer.
c. The delivery must be made on condition that the same goods should be returned either in its original form or in an altered form and
d. Ownership is not transferred.
Classification of bailment
On the basis bailment can be classified into two as follows:
a. Gratuitous bailment ? Where no remuneration is given to the bailee, it is called gratuitous bailment. It is significant to note that parting with the possession of goods by the bailor is detriment suffered by bailor. The said detriment itself is sufficient consideration to support the bailee?s promise to return them.
b. Non-gratuitous bailment ? Where the bailee gets remuneration, it is called non gratuitous bailment.
Duties of bailee
a. To take reasonable care of the goods bailed
b. Not to mix the goods bailed with his own goods.
c. Not to make any unauthorized use.
d. Not to set up adverse title.
e. To return the goods
f. To return additions or profits.
Liability of a bailee
When the goods are lost by bailee or he returns the same in a damaged condition, he must prove that there was no negligence on his part and that he took reasonable care of them.
Rights of the bailee
1. If the bailor has no title to the goods and the bailee, in good faith delivers back to the bailor is not responsible to the true owner.
2. If a third party interferes with the possession of the bailee in respect of the goods bailed the bailee has to right to take suitable action against that third party.
3. Where the goods are bailed for a particular purpose and the bailee has invested his skill and labour or spent some amount in due performance of the bailment. He has a right to retain the goods until his charges are paid to him. This is called lien.
Duties of he bailor
a. To disclose known defects
b. Duty to bear extra ordinary expenses
c. Duty to indemnity the bailee
d. To receive back the goods.
Rights of the bailor
a. To claim back the goods.
b. To claim increase in value or profits.
c. To claim damages.
Law relating to lien
Lien means a right by which a person is entitled to retain the possession of goods of another until the sum due to him is paid. This right is sometimes called possessory lien.
Kinds of lien
Lien is of two kinds
a. Particular lien ? A particular lien is one which is available only against these particular goods in respect of which the charge is due.
b. General lien ? A general lien on the other hand is a right to detain any goods belonging to the other as security for a general balance of accounts.
Law relating to pledge or paw
Pawn or pledge is a special kind of bailment where a thing is delivered as security for the repayment of debt.
In other words, where the object of the delivery of goods is to provide a security for a loan or for the fulfillment of an obligation that kind of bailment is called as Pawnee or pledgee.
IV. LAW OF AGENCY
In the modern business world it is humanly impossible to run a business by oneself without the help of others. Surroundings and circumstances require a businessman to depend upon another person to transact all his business and he has to delegate some of his powers or rights to another person. Such another person is called agent and the contract by which he is appointed is called agency. The person who appoints the agent is called the principal. Thus, an agent will be a connecting link or a conduit pipe of a bridge bringing about a contractual relationship between the principal on the one side and third parties on other side.
V. ARBITRATION
Arbitration means settlement of disputes between two contending parties by referring the same to the decision of a third person instead of filing a suit in a court of law. The said third person is called an arbitrator. The decisions given by him is known as award.
Advantages and disadvantages of arbitration
There are advantages and as well as disadvantages in the arbitration proceedings.
Advantages
As compared to litigation in a court of law, arbitration has following advantages.
a. The procedure is very simple. It avoids cumbersome technical procedures which are followed in a court of law.
b. Expenses in the arbitration proceeding are less than those of a suit in a court of law.
c. It saves times.
d. Arbitration is more expeditions and saves the parties from unnecessary irritation which arises due to delays in court proceedings.
e. There will not be any publicity which cannot be avoided in the court proceedings. But the proceedings under arbitration will be conducted in private.
f. If the matter in dispute is connected with technical nature a person having sufficient technical qualification may be appointed as arbitrator.
Disadvantages
a. The arbitrator may be incompetent particularly when the matter in dispute raises any questions of law and
b. Due to informality of the procedure an injustice may result.
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