MBA management

Legal System & Business Law Topics:


If we are to live with others, we must have a way to resolve the inevitable disputes. Perhaps we also need to have a code to provide a framework for our relations with others. We need to be able to create Contracts those are enforceable over long time periods. So if we are to design the institutions for a free Society, we must include a legal system in our deliberations.

Although our primary purpose is to create proposals for the future, we may get some ideas or, at least, some inspirations, from studying the history of legal systems. Perhaps we can avoid some of the mistakes that have already been made.


Since the legal system will be one of the few areas where we will allow the use of compulsion, we must be very careful to select a system that will not violate our philosophy. A legal System is certainly a “useful servant but a fearful master”. This study will not comment on the philosophy appropriate to the legal systems discussed. Suffice it to say that most of them are more Appropriate to statism than to freedom.


If we look back at the history of law in many societies, we can discern the same evolution taking place in the same sequence.

• First, people live in family units with rule by the patriarch.
• Second, a patriarchal sovereign, who is usually heroic, issues rulings in individual cases.
• Third, a code is created .This code bears on relationships between families or between the patriarchs of the families.
• Fourth, the code begins to bear on individuals rather than families.
• Fifth, more relationships are defined by contracts, i.e.; a movement from Status to contract

Accustomed as we are to legal systems with voluminous codes and well defined procedures for contracts, many of these don’t sound like much of a legal system to our ears. But for most of the existence of humans, these are the systems they lived under.


In the earliest records and in the observations of more primitive cultures by more study, the earliest Stage of development is characterized by people living in small group based on kinship and ruled by the eldest male. Usually the ruler was determined by very strict customs of descent through the eldest sons From the “original “ancavingestor. Often his rule was quite complete and almost always included property, earnings and contract. This was entirely at the caprice of the patriarch, with the ruled having none of what we would think of as rights. But the patriarch did have a customary responsibility to provide for his family. And males having obtained the age of majority could free themselves from the rule of their father and even start their own patriarchy.


Later there develops a sovereign ruling over a collection of families. This rule is in the style of the patriarch: he issues rulings after the fact and without reference to any established rules. Primitive Man at this stage supposed that the gods (Themis to the Greeks) dictated to the king what to award. The mistake was the name for the awards. Note that these are not laws but judgments. By a pattern Of themistes , a custom was created(as opposed to the theory that the laws embody the customs of a previous era).


Usually the initial kings were heroic, but often feebler monarchs followed. Often an oligarchy would grow up around the monarch. These aristocrats became the depository and administrators of the law. This was the epoch of customary law. English common law pretends to be of this type (a t one time, the judges relied on rules , principles, and distinctions not fully known to lawyers or the public).but it is today based on written precedents.


Finally a legal code is written down .This usually occurs just after the invention of writing. Often the initial code mixes civil, religious, and moral issues. But at last we have arrived at a stage where the legal system becomes recognizable. Usually the initial code retains the flavor of the earlier patriarchal era and Primarily deals with relationship between families or between the patriarchs of the families .In English History, King Alfred the Great Declared that the law would be written before the fact so that people could know what the law was (I date the beginning of the Libertarian revolution from this point.)


Next, the legal code begins to deal with individuals rather than just the patriarch. It even begins to regulate relations with the family.


Finally, relationships within a legal system begin to be determined more by contracts than by the status of the actors. The most obvious is employment, which becomes a matter of contract between parties rather than master and slave. This process can be observed in historical times and is still proceeding today.


For one of the most important steps a society takes is reducing its legal structure to a written code. It provides three important protections to a society

a) It reduces the likelihood and the magnitude of the excesses of the legal oligarchy.
b) It helps reduce the degradation of national traditions.
c) It reduces the likelihood of superstitious extension of the prohibitions in the original code.


Western European civilization is a rare exception in the history of the world. Most societies have not had the objective of improving their legal system .Where societies have attempted to be progressive. Social necessities and social opinion are usually ahead of the law .The happiness of the people depends on how quickly the gap is narrowed. The improvements usually come in three ways, and they usually develop in this order: First, legal fictions bridge over problems. Second, equity courts provide a means of relief. Third, legislation brings the law nearer the improved social opinion.

A legal fiction is an assumption that changes the operation of a law without changing the letter of the law. For example, an adoption allows a family tie to be created even though the child was not born into the family. Equity courts’ reason for existence is that they supersede civil law on the ground s of superior sanctity, often expressed as providing more just decisions. Legislation includes any agency for Changing the code, from ruling s by a despot to representative assembly deliberations. Two of these steps, legal fictions and equity courts need more explanation.



What is the rule of Law?

The ideal of the rule of law, which can be traced back at least as far as Aristole, is deeply embedded in the public political cultures of most modern democratic societies for example, the Universal declaration of Human Rights of 1948 declared that “It is essential if man is not to have recourse as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the Rule of Law.” Although the ideal of the rule of law has been criticized on the ground that it is an ideological construct That masks power relationships; even some Marxist critics acknowledge that observance of the ideal could curb abuses by the ruling class.

What is the ideal of the rule of law? An initial observation is that there are several different conceptions of the meaning of the rule of law. Indeed ,the rule of law may not be a single concept at all: rather, it may be more accurate to understand the ideal of the rule of law as a set of ideals connected more by family resemblance than a unifying conceptual structure.


Business Law is a body of principles which are framed by the state in the administration of justice (Anson). The Ruler (state) regulates the conduct of people, protect the Lawyer life and property, extend Justice and ensure security through Laws. It is a code of conduct .Law is prescriptive in nature. Business Law is a part of civil law. It is studied as Commercial Law. Mercantile Law .It deals with rights and obligations of Business persons with their rights and obligations arising out of business transactions. It encompasses various aspects of Law and business like Laws on contracts, Companies, partnership, Insurance, Sale of goods, corporate relations, Negotiable instruments etc.


• English Mercantile law.
• Statuts (Enactments).
• Judicial Decisions.
• Customs.
• International Law.

1. ENGLISH MERCANTILE LAW: British ruled India for a long period. Thy entered India as businessmen then turned to be the rulers. They incorporated many aspects of English laws which were based on custom usages of merchants in England.

2. STATUES: The government has enacted many statuts covering various aspects of business law. To name, Indian Contract Act 1872, Sale of Goods Act 1930.The Negotiable Instrument’s Act 1881 FEMA 2000,etc.

3. JUDICIAL DECISIONS: English and Indian Courts have laid down number of principles through their decisions and observations over the period of time .Indian legal system has accepted the judicial interpretations as part of law of land. Hence, business law has enriched significantly by judicial Decisions.

4. CUSTOMS: Customs and usages are very important sources of law. Additionally, Law has recognized the custom and usages. Forex, The Negotiable Instrument Act says, nothing contained therein shall affect any local usage relating to Instrument in an oriental language.

5. INTERNATIONAL LAW: Being a member of International community and a party to many International Instruments, Conventions and Treaties, India is bound to respect and adopt the obligations arising out of international Law. For ex. WTO Law, GATT.GATS etc.

Why one should know Law ?

“Ignorentia non excusat” means, ignorance of Law is of no excuse. One cannot take the defense that he did not know the law. Everyone is supposed to know the Laws of his land.

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Review Questions
  • 1. Trace the historical background of law.
  • 2. Write a note on Rule of Law.
  • 3. Compare Dicey's and Rawl's theories of Rule of Law.
  • 4. Explain the Constitutional background for business.
  • 5. Write a note on Fundamental rights and Duties which confirm freedom of Business and Trade.
  • 6. Comment on legal regulation of business activities.
  • 7. What are the sources of Business Law?
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