EIB 501Introduction to Business

“Assignment on Laws that Affect Business”This report is only base for-

Introduction to BusinessEIB-501

Prepared For:Dr. Abu Hossain SiddiqueProfessorDhaka University

Prepared By:Md. Shariful Islam7th BatchID: 80117027

Submission date: 13-08-2011

Business Law (also referred to as Commercial Law) governs the transactionsbetween businesses. This includes business formation; litigation; contracts; mergersand acquisitions; commercial leasing; and consumer protection. Business law dealsprimarily with the definition of rights and responsibilities, as opposed to theenforcement of laws. Business law and commercial law encompass severaloverlapping issues. The Uniform Commercial Code (UCC) is the primary governingauthority for commercial transactions. Other specified legal areas have developedthat are types of business or commercial law. They include Banking, Bankruptcy,Consumer Credit, Contracts, Debtor and Creditor, Landlord-Tenant, Mortgages,Negotiable Instruments, Real Estate Transactions, Sales and Secured Transactions. Itis important for all business owners to know and understand the laws that affecttheir businesses. It is equally important to comply with those laws. Ignorance of thelaws has never been a valid excuse in any Court of Law, and it never will be. As abusiness owner, it is your responsibility to know what laws affect your business.Business law and commercial law are broad legal topics that encompass business,commerce, consumer transactions, and the formation and management of businessentities. Some of the more important areas of commercial law include sales, securedtransactions, negotiable instruments, and debtor and creditor law. Business lawoverlaps, but also includes the formation and management of business entities. Anattorney with experience in business and commercial law can help you with all of

your questions.

Numerous and Varied laws regulate the activities of all businesses and everyoneinvolved in the business- from owner to manager to employee. Since every business,in every state, in every country is different, the laws that affect your business may bedifferent than the laws that affect other businesses. For that reason, it is impossible togive an account of all laws that affect all businesses. You will need to find out what

the laws are that affect your business. The major business law categories are:

The Law of Torts

The Law of Contracts

The Law of Sales

The Law of Agency

The Law of Property

The Law of Bankruptcy

The Law of Negotiable Instruments.

The Law of Torts

Tort law refers to any given body of law that creates and provides remedy for civilwrongs that do not arise from contractual duties. A person who is legally injuredmay be able to use tort law to recover damages from someone who is legallyresponsible, or "liable," for those injuries. Tort law defines what constitutes a legalinjury, and establishes the circumstances under which one person may be held liable

for another's injury.

Tort law is a branch of the law which covers civil wrongs, such as defamation andtrespassing, among many other transgressions. Under tort law, if someone suffers aphysical, legal, or economic harm, he or she may be entitled to bring suit. If the suitis deemed valid, damages may be awarded to the victim to compensate for his or hertroubles. Most tort laws are found in regional, state, and national civil codes, whichoften spell out limits on damages and the statute of limitations for tort cases.

Categories of torts

Torts may be categorized in a number of ways: one such way is to divide them intoNegligence Torts, and Intentional Torts.

The standard action in tort is negligence. The tort of negligence provides a cause ofaction leading to damages, or to relief, in each case designed to protect legal rights,including those of personal safety, property, and, in some cases, intangible economicinterests. Negligence actions include claims coming primarily from car accidents andpersonal injury accidents of many kinds, including clinical negligence, worker'snegligence and so forth. Product liability cases, such as those involving warranties,may also be considered negligence actions, but there is frequently a significantoverlay of additional lawful content.

Intentional torts include, among others, certain torts arising from the occupation oruse of land. The tort of nuisance, for example, involves strict liability for a neighborwho interferes with another's enjoyment of his real property. Trespass allowsowners to sue for entrances by a person (or his structure, such as an overhangingbuilding) on their land. Several intentional torts do not involve land. Examplesinclude false imprisonment, the tort of unlawfully arresting or detaining someone,and defamation (in some jurisdictions split into libel and slander), where falseinformation is broadcast and damages the plaintiff's reputation.

In some cases, the development of tort law has spurred lawmakers to createalternative solutions to disputes. For example, in some areas, workers' compensationlaws arose as a legislative response to court rulings restricting the extent to whichemployees could sue their employers in respect of injuries sustained duringemployment.

Theories of Tort Law: Justice, Rights, and Duties

Corrective Justice

Corrective justice theory — the most influential non-economic perspective on tortlaw — understands tort law as embodying a system of first- and second-orderduties. Duties of the first order are duties not to injure. These duties establish normsof conduct. (Some theorists believe that corrective justice has nothing to say aboutthe character of these norms; others think that it helps define their scope andcontent.) Duties of the second order are duties of repair. These duties arise upon thebreach of first-order duties. That second-order duties so arise follow from theprinciple of corrective justice, which says that an individual has a duty to repair thewrongful losses that his conduct causes. For a loss to be wrongful in the relevantsense, it need not be one for which the wrongdoer is morally to blame. It need onlybe a loss incident to the violation of the victim's right not to be injured — a rightcorrelative to the wrongdoer's first-order duty not to injure.

We can bring out what is distinctive about the corrective justice approach to tort lawby contrasting it with various alternatives.

Corrective Justice versus Economic Analysis

From the standpoint of economic analysis, all legal liabilities are but costs of one sortor another, there being no normative differences between such things as licensingfees, tort liability, and taxes. In contrast, corrective justice theory maintains that tortliability is not simply a mechanism for shifting costs. A licensing fee imposes a cost,as does a tax, but we would not say that in levying fees or taxes we are holdingpeople responsible. For this reason, corrective justice theory insists that differentlegal liabilities are not simply interchangeable cost-shifting implements in thereformer's tool box.

Corrective Justice versus Retributive Justice

Many theorists believe that a principle of retributive justice — says, that theblameworthy deserve to suffer — does a good job of interpreting and justifyingcriminal law. Yet most theorists think that such a principle does a rather poor job ofinterpreting and justifying tort law (except, perhaps, for the part of tort lawconcerned with punitive damages). First, the concept of responsibility at play in tortlaw is that of ‘outcome responsibility,’ not moral responsibility. Tort asks whether agiven loss is something that the defendant in some sense owns. It does not askwhether the defendant's action is something for which he is morally to blame.Second, the duty of repair in tort is in essence a debt of repayment. Like other debtsof repayment, it can be paid by third parties — and not just when the creditor (theplaintiff) has authorized repayment. By contrast, ‘debts’ incurred as a result ofcriminal mischief can never be paid by third parties.

You cannot serve my prison sentence. Third, a person cannot guard against liabilityto criminal sanction by purchasing insurance.

Yet it is common to purchase insurance to guard against the burdens of tort liability.Indeed, in some areas of life (e.g., driving), purchasing third-party insurance ismandatory.

Corrective Justice versus Distributive Justice

Some theorists are skeptical of the idea that corrective justice is really anindependent principle of justice. Their concern is twofold: considerations that makecorrective justice seem like a genuine principle of justice also seem to undermine itsindependence from distributive justice (justice in the distribution of resources); at thesame time, considerations that support the principle's independence fromdistributive justice also seem to undermine its status as a genuine principle of justice.This twofold concern stems from the fact that corrective justice requires the reversalof wrongful changes to an initial distribution of resources. If, on the one hand, someinitial distribution of resources is just, then corrective justice seemingly does no morethan require that we return individuals to the position to which they are entitledmerely as a matter of distributive justice. This suggests that corrective justice is butdistributive justice from an ex post perspective rather than an independent principleof justice. If, on the other hand, an initial distribution of resources is unjust, thencorrective justice seemingly requires that we sustain, enforce, or entrench what is exhypothesis an injustice. This suggests that corrective justice is not really a matter ofjustice at all: independent, yes; a genuine principle of justice, no.

First Response: Corrective Justice as Transactional Justice. Some theorists respond bysuggesting that we understand corrective justice as a kind of transactional justice.These theorists identify the domain of distributive justice with the initial distributionof holdings and take corrective justice to be concerned exclusively with norms oftransfer, norms that govern whether departures from an initial distribution arelegitimate. Whatever the underlying pattern of holdings, we can distinguishlegitimate modes of transfer from illegitimate modes. If agreement or gift movesresources from one person to another, then the mode of transfer is legitimate. Nevermind whether the resultant allocation of resources is unequal or unfair: that is aconcern of distributive, not transactional, justice. If fraud or force moves resourcesfrom one person to another, then the mode of transfer is illegitimate. Even if anillegitimate transfer gives rise to an equitable distribution, the transaction is unjustand must therefore be annulled.

Second Response: Justice versus Legitimacy. Other theorists respond bydistinguishing between a distribution's justness and its legitimacy. These theoristsallow that a legitimate distribution of resources may fall short of being a fully justdistribution. But they insist that a (merely) legitimate distribution can suffice togenerate duties of repair.

Civil Recourse Theory

Civil recourse theory agrees with corrective justice theory that tort's normativestructure involves a variety of first-order duties, duties that establish norms ofconduct. Yet civil recourse theory takes a very different view of the legalconsequence of a first-order duty's breach. Whereas corrective justice theory holdsthat such a breach saddles the would-be defendant with a second-order duty — inparticular, a duty of repair — civil recourse theory holds that no such second-orderduty results directly from the breach. Rather, the breach of a first-order duty endowsthe victim with a right of action: a legal power to seek redress from her injurer. Thatthis power so arises follows from what proponents regard as a deeply embeddedlegal principle — the principle of civil recourse — which says that one who has beenwronged is legally entitled to an avenue of recourse against the perpetrator.

Civil recourse theory has substantial explanatory power. Perhaps most obvious, itexplains why tort suits have a bilateral structure — why the victim of a tortuouswrong seeks redress from the wrongdoer herself instead of drawing on a commonpool of resources. It also explains why tort suits are privately prosecuted — why thestate does not act of its own accord to impose liability on those who breach first-order duties. According to civil recourse theory, the breach of a first-order dutygives rise not to a legal duty but to a legal power, a power the victim can choose notto exercise.

Furthermore, civil recourse theory accommodates a number of tort's centralsubstantive features, features that arguably elude corrective justice theory.Prominent among these are (i) the fact that tort offers a variety of different remedies,only some of which are designed to restore the plaintiff's antecedent holdings, and(ii) the fact that the defendant incurs a legal duty to pay damages only upon alawsuit's successful conclusion (either by settlement or by the final judgment of acourt), rather than immediately upon the breach of a first-order duty. It remainsunresolved whether corrective justice theory has the resources to explain these twosubstantive features.

Despite its explanatory power, civil recourse theory is vulnerable to a potentiallyserious objection — or else it seems to leave tort law vulnerable to such an objection.Because civil recourse theory offers little guidance as to what sort of redress isappropriate, the theory depicts tort law primarily as an institution that enables oneperson to harm another with the aid of the state's coercive power. Tort law may wellbe such an institution, of course. But if it is, it may be deeply flawed — indeed, itmay be unjust. This problem can be posed in the form of a dilemma. Either theprinciple of civil recourse is grounded in a principle of justice or it is not. If theprinciple of civil recourse is grounded in a principle of justice, then civil recoursetheory threatens to collapse into a kind of a justice-based theory. If the principle ofcivil recourse is not so grounded, then the principle apparently does no more thanlicense one party to inflict an evil on another. If that is what the principle does, wemight reasonably wonder whether it can justify or even make coherent sense of anentire body of law.

The Law of Contracts

A contract is a legally enforceable agreement between two or more parties withmutual obligations. The remedy at law for breach of contract is "damages" ormonetary compensation. In equity, the remedy can be specific performance of thecontract or an injunction. Both remedies award the damaged party the "benefit of thebargain" or expectation damages, which are greater than mere reliance damages, as

in promissory estoppels.

The Elements of a Contract

Typically, in order to be enforceable, a contract must involve the following elements:

A "Meeting of the Minds" (Mutual Consent)

The parties to the contract have a mutual understanding of what the contract covers.For example, in a contract for the sale of a "mustang", the buyer thinks he will obtaina car and the seller believes he is contracting to sell a horse, there is no meeting of theminds and the contract will likely be held unenforceable.

Offer and Acceptance

The contract involves an offer (or more than one offer) to another party, who acceptsthe offer. For example, in a contract for the sale of a piano, the seller may offer thepiano to the buyer for $1,000.00. The buyer's acceptance of that offer is a necessarypart of creating a binding contract for the sale of the piano.

Please note that a counter-offer is not an acceptance, and will typically be treatedas a rejection of the offer. For example, if the buyer counter-offers to purchase thepiano for $800.00, that typically counts as a rejection of the original offer for sale. Ifthe seller accepts the counter-offer, a contract may be completed. However, if theseller rejects the counter-offer, the buyer will not ordinarily be entitled to enforce theprior $1,000.00 price if the seller decides either to raise the price or to sell the piano tosomebody else.

Mutual Consideration (The mutual exchange of something of value)

In order to be valid, the parties to a contract must exchange something of value. Inthe case of the sale of a piano, the buyer receives something of value in the form ofthe piano, and the seller receives money.

While the validity of consideration may be subject to attack on the basis that it isillusory (e.g., one party receives only what the other party was already obligated toprovide), or that there is a failure of consideration (e.g., the consideration receivedby one party is essentially worthless), these defenses will not let a party to a contract

escape the consequences of bad negotiation. For example, if a seller enters into acontract to sell a piano for $100, and later gets an offer from somebody else for$1,000, the seller can't revoke the contract on the basis that the piano was worth a lotmore than he bargained to receive.

Performance or Delivery

In order to be enforceable, the action contemplated by the contract must becompleted. For example, if the purchaser of a piano pays the $1,000 purchase price,he can enforce the contract to require the delivery of the piano. However, unless thecontract provides that delivery will occur before payment, the buyer may not be ableto enforce the contract if he does not "perform" by paying the $1,000. Similarly, againdepending upon the contract terms, the seller may not be able to enforce the contractwithout first delivering the piano.

In a typical "breach of contract" action, the party alleging the breach will recite that itperformed all of its duties under the contract, whereas the other party failed toperform its duties or obligations.

Additionally, the following elements may factor into the enforceability of anycontract:

Good Faith

It is implicit within all contracts that the parties are acting in good faith. Forexample, if the seller of a "mustang" knows that the buyer thinks he is purchasing acar, but secretly intends to sell the buyer a horse, the seller is not acting in good faithand the contract will not be enforceable.

No Violation of Public Policy

In order to be enforceable, a contract cannot violate "public policy". For example, ifthe subject matter of a contract is illegal, you cannot enforce the contract. A contractfor the sale of illegal drugs, for example, violates public policy and is notenforceable.

Please note that public policy can shift. Traditionally, many states refused to honorgambling debts incurred in other jurisdictions on public policy grounds. However,as more and more states have permitted gambling within their own borders, thatpolicy has mostly been abandoned and gambling debts from legal enterprises arenow typically enforceable. (A "bookie" might not be able to enforce a debt arisingfrom an illegal gambling enterprise, but a legal casino will now typically be able toenforce its debt.) Similarly, it used to be legal to sell "switchblade kits" through theU.S. mail, but that practice is now illegal. Contracts for the interstate sale of such kitswere no longer enforceable following that change in the law.

Oral Contracts

There is an old joke that "an oral contract isn't worth the paper it's written on". That'sa reference to the fact that it can be very difficult to prove that an oral contract exists.Absent proof of the terms of the contract, a party may be unable to enforce thecontract or may be forced to settle for less than the original bargain. Thus, evenwhen there is not an opportunity to draft up a formal contract, it is good practice toalways make some sort of writing, signed by both parties, to memorialize the keyterms of an agreement.

At the same time, under most circumstances, if the terms of an oral contract can beproved or are admitted by the other party, an oral contract is every bit as enforceableas one that is in writing. There are, however, "statute of fraud" laws which hold thatsome contracts cannot be enforced unless reduced to writing and signed by bothparties. For more information on the Statute of Frauds, please see this associatedarticle.

Please note that, although sometimes an oral contract is referred to as a "verbalcontract", the term "oral" means "spoken" while the term "verbal" can also mean" inwords". Under that definition, all contracts are technically "verbal". If you mean torefer to a contract that is not written, although most people will recognize what youmean by "verbal contract", for maximum clarity it is helpful to refer to it as an "oralcontract".

The Law of Sales

The law relating to the transfer of ownership of property from one person to anotherfor value, which is codified in article 2 of the Uniform Commercial Code (UCC), abody of law governing mercantile transactions adopted in whole or in part by thestates.

The sale of a good, or an item of value, is a transaction designed to benefit bothbuyer and seller. However, sales transactions can be complex, and they do notalways proceed smoothly. Problems can arise at several phases of a sale, and at leastone of the parties may suffer a loss. In recognition of these realities and of the basicimportance of orderly commerce to society, legislatures and courts create lawsgoverning sales of goods.

The most comprehensive set of laws on sales is the Uniform Commercial Code(UCC). The UCC is a collection of model laws on an assortment of commercialactivities. The UCC itself does not have legal effect; it was written by the lawyers,judges, and professors in the American Law Institute and the National Conference ofCommissioners on Uniform State Laws. All states have adopted the UCC in whole orin part by enacting the model laws contained in its eleven articles.

Article 2 of the UCC deals with the sale of goods. All states with the exception ofLouisiana have enacted at least some of the model laws in article 2. Laws on the saleof real estate and the sale of services are different from laws on the sale of goods, andthey are excluded from article 2. A service contract may be covered by the provisionsin article 2 insofar as it involves the transfer of goods, and courts may use article 2 asa reference for interpreting laws on the sale of services. Some contracts are a blend ofthe sale of goods and the sale of services and may be covered by article 2. Forexample, the service of food by a restaurant may be considered, for some purposes, acontract for a sale of goods (U.C.C. Sec. 2-314).

Article 2 covers sales by both private individuals and merchants. Merchants arepersons engaged in the business of buying or selling goods. A small number ofprovisions apply only to merchants, but otherwise the provisions cover all sales.

Contract Formation

A contract for the sale of goods can be made in any manner that shows agreementbetween the buyer and seller. A contract may be made in writing, orally, or throughany other conduct by both parties that acknowledge the existence of a contract.

To form a contract, one of the parties must make an offer, the other party mustaccept the offer, and consideration, or something of value, must be exchanged. Anoffer may be revoked without any loss to the offeror if the revocation is made beforethe other party accepts the offer and gives consideration. However, an offer may notbe revoked for up to ninety days if it is (1) accompanied by an assurance that theoffer will be kept open; (2) made by a merchant; and (3) in writing signed by theoffering merchant (U.C.C. Sec. 2-205).

If a party accepts an offer but in the process of accepting changes material terms ofthe offer, the acceptance may be considered a counteroffer. A counteroffer eliminatesthe first offer, and no contract is formed until the original offeror accepts thecounteroffer and consideration is exchanged. In contracts between merchants,additional or different terms by the offeree become part of the contract unless (1) theoffer expressly limited acceptance to the terms of the offer; (2) the new termsmaterially alter the contract; or (3) the offeror objects within a reasonable time.

Many basic principles of contract law also apply to the sale of goods. The Statute ofFrauds requires that an agreement to sell goods at $500 or more must be in writingor it cannot be enforced in court. The writing must be signed by the party to becharged, it must contain language indicating that a contract has been made, and itmust identify the parties to the contract and the quantity of goods sold. There are afew exceptions to the Statute of Frauds.

A sales contract that is unconscionable may be struck down in whole or in part by acourt. A sale is unconscionable if a person in a superior bargaining position dictatesterms that are grossly unfair to the other party. A court will determine whether asale is unconscionable by examining the circumstances at the time the contract wasmade. Courts rarely find unconscionability in sales between merchants becausemerchants generally are more sophisticated in sales negotiations than are non-merchants.

Seller's Obligations

Generally, the seller's primary obligations are to transfer ownership of the goods anddeliver the goods. A seller may agree with the buyer to perform other obligations.For instance, a seller may agree to package or label the goods in a certain way orservice the goods for a specific period of time.

A seller should convey the title to the goods free from any security interest or otherlien or claim, unless the buyer was aware at the time of the sale that other personshad a claim to the goods. If the sales contract does not specify a time of delivery, theseller should deliver the goods within a reasonable time after the contract is made.Delivery should occur in one shipment unless the parties agree otherwise. If the salesagreement does not indicate where the goods are to be turned over, the delivery ofthe goods should occur at the seller's place of business. The tender of the goodsshould be at a reasonable hour of the day, and the buyer should have the ability totake the goods away.

If the goods are in the possession of a third party, or bailee, at the time of the sale,the seller must arrange matters with the bailee so that the buyer may takepossession. If the goods are to be transported, there are two ways to handle delivery.The buyer and seller may agree to a shipment contract, in which case the seller mustarrange for the transportation. In a shipment contract, the seller's duties for deliveryare complete as soon as the goods are delivered to the carrier. With a destinationcontract, the seller's obligation to deliver does not end until the goods are deliveredto the buyer or at a selected location.

Buyer's Obligations

A buyer's basic obligations are to accept the goods and pay the sale price. If thegoods are nonconforming, the buyer may reject the goods. If the goods conform tothe specifications of the sales contract and the buyer wrongfully rejects them, theseller may choose one of four options, or a blend of two or more options.

First, the seller may sue for damages. The amount of damages for a wrongfulrejection would be the sale price minus the market price of the goods, measured atthe time and place of the tender. Second, the seller may sue for the price of thegoods, but only if the goods cannot be resold in the seller's ordinary course ofbusiness, or if circumstances indicate that resale efforts will be fruitless. Third, theseller could cancel the contract, putting an end to shipments and reserving the rightto sue for damages or collect unpaid balances. Fourth, the seller could resell thegoods to a third party and recover the difference between the sale price and theresale price plus any incidental damages.

The resale of wrongfully rejected goods presents a few special problems. Undersection 2-706 of the UCC, the sale may be either public or private. A private sale ismade personally by the seller, whereas a public sale is made with public notice andcarried out by a sheriff or at a publicly held auction. In either case the sale must becommercially reasonable in method, manner, time, place, and terms. Furthermore,the seller must notify new buyers that the goods are being resold under a breachedcontract to disclose the potential for legal conflict.

A seller who resells wrongfully rejected goods must inform the original buyer of theresale. If wrongfully rejected goods are perishable, the seller need not give notice tothe buyer of the time and place of the resale. If the resale of wrongfully rejectedgoods is at a public sale, only goods identified in the contract may be sold, and thesale must be made at a usual place for public sale, provided such a site is reasonablyavailable. If the goods are not in view of bidders at a public sale, the public notice ofthe sale must state the place where the goods are located, and the seller must givebidders an opportunity to inspect the goods. If the seller resells the goods for a pricehigher than the price in the original sales contract and the extra profit covers costsincident to the resale, the seller has no damages, and the original buyer is not liableto the seller for the wrongful rejection.

In sales where the buyer pays a deposit and then wrongfully rejects the goods, theseller may keep the goods and the deposit. However, a seller is not entitled to adeposit that far exceeds her actual or expected damages. Under section 2-718 of theUCC, a buyer is entitled to restitution of any amount by which the sum of thepayments already made exceeds either (1) the amount of any reasonable liquidateddamages clause, or (2) 20 percent of the value of the total performance for which thebuyer is obligated under the contract, or $500, whichever amount is smaller.

When a buyer accepts a seller's tender of conforming goods, the buyer is obligated topay the sale price contained in the contract for sale. In some cases the parties mayfail to agree to a price or choose to leave the price terms open. Under section 2-305 ofthe UCC, if a price term is left open, the price should be set in good faith at areasonable market price at the time of delivery. If the parties intend that there is tobe no contract unless a price is agreed to or fixed by a particular market indicatorand the parties ultimately are unable to agree to a price term, there is no contract. Insuch a case the buyer must return any goods received, and the seller must return anymoney paid by the buyer.

Generally, a buyer has the right to pay in any manner observed in the businessunless the seller demands a particular form of payment. Unless the parties agreeotherwise, payment should be made when the goods are delivered to the buyer. Abuyer does not have the right to inspect the goods if they are delivered cash ondelivery or on similar terms, or if the contract provides for payment beforeinspection.

The Law of Agency

The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent,is authorized to act on behalf of another (called the principal) to create a legalrelationship with a third party.[1] Succinctly, it may be referred to as the relationshipbetween a principal and an agent whereby the principal, expressly or impliedly,authorizes the agent to work under his control and on his behalf. The agent is, thus,required to negotiate on behalf of the principal or bring him and third parties intocontractual relationship. This branch of law separates and regulates the relationshipsbetween:

Agents and principals; Agents and the third parties with whom they deal on their principals' behalf;

and Principals and the third parties when the agents purport to deal on their

behalf.

The common law principle in operation is usually represented in the Latin phrase,qui facit per alium, facit per se, i.e. the one who acts through another, acts in his orher own interests and it is a parallel concept to vicarious liability and strict liabilityin which one person is held liable in criminal law or tort for the acts or omissions ofanother.

The reciprocal rights and liabilities between a principal and an agent reflectcommercial and legal realities. A business owner often relies on an employee oranother person to conduct a business.

In the case of a corporation, since a corporation is a fictitious legal person, it can onlyact through human agents. The principal is bound by the contract entered into by theagent, so long as the agent performs within the scope of the agency.

A third party may rely in good faith on the representation by a person who identifieshimself as an agent for another. It is not always cost effective to check whethersomeone who is represented as having the authority to act for another actually hassuch authority. If it is subsequently found that the alleged agent was acting withoutnecessary authority, the agent will generally be held liable.

There are three broad classes of agent

1. Universal agents hold broad authority to act on behalf of the principal, e.g.they may hold a power of attorney (also known as a mandate in civil lawjurisdictions) or have a professional relationship, say, as lawyer and client.

2. General agents hold a more limited authority to conduct a series oftransactions over a continuous period of time; and

3. Special agents are authorized to conduct either only a single transaction or aspecified series of transactions over a limited period of time.

Agent or Independent Contractor

Not every person employed by another to accomplish an object, is an agent. Therelation of agency implies control of the agent by the principal. A person may beemployed to do certain things in such a way as to leave him independent, so far asany such authority of his employer is concerned, and bound to his employer only bysuch definite agreements as exist between them. Thus it has been held that a personemployed under a certain contract to build a house for another, was not an agent,but was an independent contractor; and it is probable that the contractor under theordinary building contract would be so held. An important result of this would bethat the owner would not be liable for acts and neglect of the contractor in the way inwhich it will appear a principal is liable for acts and neglect of his agent.

Powers of Agent

So long as an agent acts within the scope of his authority, he binds his principalthereby. The authority of an agent may be expressly granted or impliedly granted. Ifpersons dealing with an agent know him to be acting under a written power ofattorney, they are bound to inquire and take notice of the nature and scope of thepower, and fail to do so at their own risk. If the expression of the authority hasexcluded a certain power, persons dealing with the agent are held to know that suchis the fact, and cannot, therefore, hold the principal bound by the action of his agentin excess of the power granted.

But an agent may, and usually does, have powers outside of such as are expressed.These are called implied powers. The extent of such implied powers is oftentimes adifficult question of law. Such powers are to be implied only from facts from whichis inferred the intention of the principal to grant them. It is said that every delegationof power carries with it, as implied powers, authority to do all things reasonablynecessary and proper to carry into effect the main power conferred, and notforbidden by the principal. Moreover a widely known and long existing usage whichis reasonable and not contrary to law, may have the effect of conferring power uponan agent in addition to that expressly granted. It is also to be noted that although anact of an agent exceeds his authority, the principal may subsequently ratify the act soas to make it binding upon himself as if authorized in the first instance.

Liability of Principal

Not only is a principal liable upon such contractual obligations as may be enteredinto by his agent acting in his behalf within the scope of the granted authority, butthe principal is also liable for such torts, or civil wrongs, such as trespass, assault, orbattery, which his agent may commit in the course of his business. This often provesa serious matter to employers, although the development of liability insurance hasfurnished a means of equalizing the risks. These shows further the importance of thequestion whether a person is an agent or an independent contractor. If he be theformer, then the principal as well as the agent himself, is liable for torts. If the latter,there is no way of going back of the individual wrongdoing.

The Law of Property

Property law is the area of law that governs the various form of ownership in realproperty (land as distinct from personal or movable possessions) and in personalproperty, within the common law legal system. In the civil law system, there is adivision between movable and immovable property. Movable property roughlycorresponds to personal property, while immovable property corresponds to realestate or real property, and the associated rights and obligations thereon.

The concept, idea or philosophy of property underlies all property law. In somejurisdictions, historically all property was owned by the monarch and it devolvedthrough feudal land tenure or other feudal systems of loyalty and fealty.

Though the Napoleonic code was among the first government acts of modern timesto introduce the notion of absolute ownership into statute, protection of personalproperty rights was present in medieval Islamic law and jurisprudence, and in morefeudalist forms in the common law courts of medieval and early modern England.

Classification

Property law is characterized by a great deal of historical continuity and technicalterminology. The basic distinction in common law systems is between real property(land) and personal property (chattels).

Before the mid-19th century, the principles governing the devolution of realproperty and personal property on an intestacy were quite different. Though thisdichotomy does not have the same significance anymore, the distinction is stillfundamental because of the essential differences between the two categories. Anobvious example is the fact that land is immovable, and thus the rules that govern itsuse must differ. A further reason for the distinction is that legislation is often draftedemploying the traditional terminology.

The division of land and chattels has been criticized as being not satisfactory as abasis for categorizing the principles of property law since it concentrates attentionnot on the proprietary interests themselves but on the objects of those interests.[2]

Moreover, in the case of fixtures, chattels which are affixed to or placed on land maybecome part of the land.

Real property is generally sub-classified into:

1. corporeal hereditaments – tangible real property (land)2. incorporeal hereditaments – intangible real property such as an easement of

way

Possession

The concept of possession developed from a legal system whose principal concernwas to avoid civil disorder. The general principle is that a person in possession ofland or goods, even as a wrongdoer, is entitled to take action against anyoneinterfering with the possession unless the person interfering is able to demonstrate asuperior right to do so.

In England, the Torts (Interference with Goods) Act 1977 has significantly amendedthe law relating to wrongful interference with goods and abolished somelongstanding remedies and doctrines.

Transfer of property

The most usual way of acquiring an interest in property is as the result of aconsensual transaction with the previous owner, for example, a sale or a gift.Dispositions by will may also be regarded as consensual transactions, since the effectof a will is to provide for the distribution of the deceased person's property tonominated beneficiaries. A person may also obtain an interest in property under atrust established for his or her benefit by the owner of the property.

It is also possible for property to pass from one person to another independently ofthe consent of the property owner. For example, this occurs when a person diesintestate, goes bankrupt, or has the property taken in execution of a court judgment.

Priority

Different parties may claim an interest in property by mistake or fraud, with theclaims being inconsistent of each other. For example, the party creating ortransferring an interest may have a valid title, but intentionally or negligently createsseveral interests wholly or partially inconsistent with each other. A court resolvesthe dispute by adjudicating the priorities of the interests. but according to the Indianproperty law it define the ‘Transfer of property’ means an act by which a livingperson conveys property, in present or in future, to one or more other living persons,or to himself and one or more other living persons; and "to transfer property" is toperform such act. In this section "living person includes a company or association orbody of individuals, whether incorporated or not, but nothing herein contained shallaffect any law for the time being in force relating to transfer of property to or bycompanies, associations or bodies of individuals

John Hardy from the Legal institute of England stated "For the title to be valid, wemust incorporate the company or association for the living" This statement has beenused thoroughly.

Lease

Historically, leases served many purposes, and the regulation varied according tointended purposes and the economic conditions of the time. Leaseholds, forexample, were mainly granted for agriculture until the late eighteenth century andearly nineteenth century, when the growth of cities made the leasehold an importantform of landholding in urban areas.

The modern law of landlord and tenant in common law jurisdictions retains theinfluence of the common law and, particularly, the laissez-faire philosophy thatdominated the law of contract and the law of property in the 19th century. With thegrowth of consumerism, the law of consumer protection recognized that commonlaw principles assuming equal bargaining power between parties may causeunfairness.

Consequently, reformers have emphasized the need to assess residential tenancylaws in terms of protection they provide to tenants. Legislation to protect tenants isnow common.

The Law of Bankruptcy

Bankruptcy or insolvency is a legal status of a person or an organization that cannotrepay the debts it owes to its creditors. Creditors may file a bankruptcy petitionagainst a business or corporate debtor ("involuntary bankruptcy") in an effort torecoup a portion of what they are owed or initiate a restructuring. In the majority ofcases, however, bankruptcy is initiated by the debtor (a "voluntary bankruptcy" thatis filed by the insolvent individual or organization). An involuntary bankruptcypetition may not be filed against an individual consumer debtor who is not engagedin business.

The word bankruptcy is formed from the ancient Latin bancus (a bench or table),and ruptus (broken). A "bank" originally referred to a bench, which the first bankershad in the public places, in markets, fairs, etc. on which they tolled their money,wrote their bills of exchange, etc. Hence, when a banker failed, he broke his bank, toadvertise to the public that the person to whom the bank belonged was no longer ina condition to continue his business. As this practice was very frequent in Italy, it issaid the term bankrupt is derived from the Italian banco rotto, broken bank.

Bankruptcy law is the legal framework that provides the necessary groundwork forany individual or business entity who may find themselves in a position where theyare no longer able to fulfill their debt obligations. The reasons for filing bankruptcyare numerous; individuals or business entities can face insurmountable debts as aresult of failed business ventures, investments, or simply by overextending theirspending habits.

There are two basic types of Bankruptcy proceedings. A filing under Chapter 7 iscalled liquidation. It is the most common type of bankruptcy proceeding.Liquidation involves the appointment of a trustee who collects the non-exemptproperty of the debtor, sells it and distributes the proceeds to the creditors.Bankruptcy proceedings under Chapters 11, 12, and 13 involve the rehabilitation ofthe debtor to allow him or her to use future earnings to pay off creditors. UnderChapter 7, 12, 13, and some 11 proceedings, a trustee is appointed to supervise theassets of the debtor. A bankruptcy proceeding can either be entered into voluntarilyby a debtor or initiated by creditors. After a bankruptcy proceeding is filed,creditors, for the most part, may not seek to collect their debts outside of theproceeding.

The debtor is not allowed to transfer property that has been declared part of theestate subject to proceedings. Furthermore, certain pre-proceeding transfers ofproperty, secured interests, and liens may be delayed or invalidated. Variousprovisions of the Bankruptcy Code also establish the priority of creditors' interests.

However, a recent decision by the Supreme Court has shifted this power towards thedebtor. In Rousey v. Jacoway, (April 4th, 2005), the Court held that assets inIndividual Retirement Accounts (IRA's) are protected under 11 U.S.C Sec. 522(d) andthus exempt from withdrawal from the bankruptcy estate. This decision has broadimplications for the baby-boomer generation, providing millions of Americansnearing retirement with increased protection of their earnings.

The Law of Negotiable Instruments

A negotiable instrument is a document guaranteeing the payment of a specificamount of money, either on demand, or at a set time. According to the NegotiableInstruments Act, 1881 in India there are just three types of negotiable instrumentsi.e., promissory note, bill of exchange and cheque.

More specifically, it is a document contemplated by a contract, which (1) warrantsthe payment of money, the promise of or order for conveyance of which isunconditional; (2) specifies or describes the payee, who is designated on andmemorialized by the instrument; and (3) is capable of change through transfer byvalid negotiation of the instrument.

As payment of money is promised subsequently, the instrument itself can be used bythe holder in due course as a store of value; although, instruments can be transferredfor amounts in contractual exchange that are less than the instrument’s face value(known as “discounting”). Under United States law, Article 3 of the UniformCommercial Code as enacted in the applicable State law governs the use ofnegotiable instruments, except banknotes (“Federal Reserve Notes”, aka "paperdollars").

Negotiable instruments distinguished from contracts

A negotiable instrument can serve to convey value constituting at least part of theperformance of a contract, albeit perhaps not obvious in contract formation, in termsinherent in and arising from the requisite offer and acceptance and conveyance ofconsideration. The underlying contract contemplates the right to hold the instrumentas, and to negotiate the instrument to, a holder in due course, the payment on whichis at least part of the performance of the contract to which the negotiable instrumentis linked. The instrument, memorializing (1) the power to demand payment; and, (2)the right to be paid, can move, for example, in the instance of a 'bearer instrument',wherein the possession of the document itself attributes and ascribes the right topayment. Certain exceptions exist, such as instances of loss or theft of theinstrument, wherein the possessor of the note may be a holder, but not necessarily aholder in due course. Negotiation requires a valid endorsement of the negotiableinstrument.

The consideration constituted by a negotiable instrument is cognizable as the valuegiven up to acquire it (benefit) and the consequent loss of value (detriment) to theprior holder; thus, no separate consideration is required to support anaccompanying contract assignment. The instrument itself is understood asmemorializing the right for, and power to demand, payment, and an obligation forpayment evidenced by the instrument itself with possession as a holder in duecourse being the touchstone for the right to, and power to demand, payment. Insome instances, the negotiable instrument can serve as the writing memorializing acontract, thus satisfying any applicable Statute of Frauds as to that contract.

Classes

Promissory notes and bills of exchange are two primary types of negotiableinstruments.

Promissory note

A negotiable promissory note is an unconditional promise in writing made by oneperson to another, signed by the maker, engaging to pay on demand to the payee, orat fixed or determinable future time, ertain in money, to order or to bearer. (SeeSec.194) Bank note is frequently referred to as a promissory note, a promissory notemade by a bank and payable to bearer on demand.

Bill of exchange

A bill of exchange or "draft" is a written order by the drawer to the drawee to paymoney to the payee. A common type of bill of exchange is the cheque (check inAmerican English), defined as a bill of exchange drawn on a banker and payable ondemand. Bills of exchange are used primarily in international trade, and are writtenorders by one person to his bank to pay the bearer a specific sum on a specific date.Prior to the advent of paper currency, bills of exchange were a common means ofexchange. They are not used as often today.

Bill of exchange, 1933

A bill of exchange is an unconditional order in writing addressed by one person toanother, signed by the person giving it, requiring the person to whom it is addressedto pay on demand or at fixed or determinable future time a sum certain in money toorder or to bearer. (Sec.126)

It is essentially an order made by one person to another to pay money to a thirdperson.

A bill of exchange requires in its inception three parties—the drawer, the drawee,and the payee.

The person who draws the bill is called the drawer. He gives the order to pay moneyto the third party. The party upon whom the bill is drawn is called the drawee. He isthe person to whom the bill is addressed and who is ordered to pay. He becomes anacceptor when he indicates his willingness to pay the bill. (Sec.62) The party inwhose favor the bill is drawn or is payable is called the payee.

The parties need not all be distinct persons. Thus, the drawer may draw on himselfpayable to his own order. (See Sec. 8)

A bill of exchange may be endorsed by the payee in favor of a third party, who mayin turn endorse it to a fourth, and so on indefinitely. The "holder in due course" mayclaim the amount of the bill against the drawee and all previous endorsers,regardless of any counterclaims that may have disabled the previous payee orendorser from doing so. This is what is meant by saying that a bill is negotiable.

In some cases a bill is marked "not negotiable" – see crossing of cheques. In that caseit can still be transferred to a third party, but the third party can have no better rightthan the transferor.

In the Commonwealth

In the commonwealth almost all jurisdictions have codified the law relating tonegotiable instruments in a Bills of Exchange Act, e.g. Bills of Exchange Act 1882 inthe UK, Bills of Exchange Act 1908 in New Zealand, The Negotiable Instrument Act1881 in India and The Bills of Exchange Act 1914 in Mauritius. The Bills of ExchangeAct:

1. defines a bill of exchange as: 'an unconditional order in writing, addressed byone person to another, signed by the person giving it, requiring the person towhom it is addressed to pay on demand, or at a fixed or determinable futuretime, a sum certain in money to or to the order of a specified person, or tobearer.

2. defines a cheque as: 'a bill of exchange drawn on a banker payable ondemand'

3. defines a promissory note as: 'an unconditional promise in writing made byone person to another, signed by the maker, engaging to pay on demand, or ata fixed or determinable future time, a sum certain in money to or to the orderof a specified person or to bearer.'

Additionally most commonwealth jurisdictions have separate Cheques Actsproviding for additional protections for bankers collecting unendorsed or irregularlyendorsed cheques, providing that cheques that are crossed and marked 'notnegotiable' or similar are not transferable, and providing for electronic presentationof cheques in inter-bank cheque clearing systems.

The 1911 Encyclopedia Britannica Eleventh Edition has a comprehensive article onthe bill of exchange, detailing its history and operation, as understood at the time ofits publication.

In the United States

In the United States, Article 3 and Article 4 of the Uniform Commercial Code governthe issuance and transfer of negotiable instruments. The various State lawenactments of Uniform Commercial Code Sec.3-104(a) through (d) set forth the legaldefinition of what is and what is not a negotiable instrument:

Sec. 3-104. NEGOTIABLE INSTRUMENT.

(a) Except as provided in subsections (c) and (d), "negotiable instrument"means an unconditional promise or order to pay a fixed amount of money,with or without interest or other charges described in the promise or order, ifit:

(1) is payable to bearer or to order at the time it is issued or first comes intopossession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the personpromising or ordering payment to do any act in addition to the payment ofmoney, but the promise or order may contain

(i) an undertaking or power to give, maintain, or protect collateral to securepayment,

(ii) an authorization or power to the holder to confess judgment or realize onor dispose of collateral, or

(iii) A waiver of the benefit of any law intended for the advantage orprotection of an obligor.

(b) "Instrument" means a negotiable instrument.

(c) An order that meets all of the requirements of subsection (a), exceptparagraph (1), and otherwise falls within the definition of "check" insubsection (f) is a negotiable instrument and a check.

(d) A promise or order other than a check is not an instrument if, at the timeit is issued or first comes into possession of a holder, it contains aconspicuous statement, however expressed, to the effect that the promise ororder is not negotiable or is not an instrument governed by this Article.

Thus, for a writing to be a negotiable instrument under Article 3, the followingrequirements must be met:

1. The promise or order to pay must be unconditional;2. The payment must be a specific sum of money, although interest may be

added to the sum;3. The payment must be made on demand or at a definite time;4. The instrument must not require the person promising payment to perform

any act other than paying the money specified;5. The instrument must be payable to bearer or to order.

The latter requirement is referred to as the "words of negotiability": a writing whichdoes not contain the words "to the order of" (within the four corners of theinstrument or in endorsement on the note or in along) or indicate that it is payable tothe individual holding the contract document (analogous to the holder in duecourse) is not a negotiable instrument and is not governed by Article 3, even if itappears to have all of the other features of negotiability. The only exception is that ifan instrument meets the definition of a cheque (a bill of exchange payable ondemand and drawn on a bank) and is not payable to order (i.e. if it just reads "payJohn Doe") then it is treated as a negotiable instrument.

Negotiation and endorsement

Persons other than the original obligor and obligee can become parties to anegotiable instrument. The most common manner in which this is done is by placingone's signature on the instrument (“endorsement”): if the person who signs does sowith the intention of obtaining payment of the instrument or acquiring ortransferring rights to the instrument, the signature is called an endorsement. Thereare five types of endorsements contemplated by the Code, covered in UCC Article 3,Sections 204–206:

An endorsement which purports to transfer the instrument to a specifiedperson is a special endorsement;

An endorsement by the payee or holder which does not contain anyadditional notation (thus purporting to make the instrument payable tobearer) is an endorsement in blank or blank endorsement;

An endorsement which purports to require that the funds be applied in acertain manner (e.g. "for deposit only", "for collection") is a restrictiveendorsement; and,

An endorsement purporting to disclaim retroactive liability is called aqualified endorsement (through the inscription of the words "withoutrecourse" as part of the endorsement on the instrument or in allonge to theinstrument).

An endorsement purporting to add terms and conditions is called aconditional endorsement – for example, "Pay to the order of Amy, if she rakesmy lawn next Thursday November 11th, 2007". The UCC states that theseconditions may be disregarded.

If a note or draft is negotiated to a person who acquires the instrument

1. in good faith;2. for value;3. without notice of any defenses to payment,

The transferee is a holder in due course and can enforce the instrument withoutbeing subject to defenses which the maker of the instrument would be able to assertagainst the original payee, except for certain real defenses. These real defensesinclude (1) forgery of the instrument; (2) fraud as to the nature of the instrumentbeing signed; (3) alteration of the instrument; (4) incapacity of the signer to contract;(5) infancy of the signer; (6) duress; (7) discharge in bankruptcy; and, (8) the runningof a statute of limitations as to the validity of the instrument.

The holder-in-due-course rule is a rebuttable presumption that makes the freetransfer of negotiable instruments feasible in the modern economy. A person orentity purchasing an instrument in the ordinary course of business can reasonablyexpect that it will be paid when presented to, and not subject to dishonor by, themaker, without involving itself in a dispute between the maker and the person towhom the instrument was first issued (this can be contrasted to the lesser rights andobligations accruing to mere holders). Article 3 of the Uniform Commercial Code asenacted in a particular State’s law contemplates real defenses available to purportedholders in due course.

The foregoing is the theory and application presuming compliance with the relevantlaw. Practically, the obligor-payor on an instrument who feels he has beendefrauded or otherwise unfairly dealt with by the payee may nonetheless refuse topay even a holder in due course, requiring the latter to resort to litigation to recoveron the instrument.

In conclusion we can say that, It is important for all business owners to know andunderstand the laws that affect their businesses. It is equally important to complywith those laws. Ignorance of the laws has never been a valid excuse in any Court ofLaw, and it never will be. As a business owner, it is your responsibility to know

what laws affect your business.

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