CHAPTER 1 - NATURE OF LAW At the end of this chapter, the students should be able to: 1. Understand the nature of law and how it governs conduct in business 2. Identify the nature and classification of contracts INTRODUCTION The law affects every aspect of our lives; it governs our conduct from the cradle to the grave and its influence even extends from before our birth to after our death. We live in a society which has developed a complex body of rules to control the activities of its members. There are laws which govern working conditions (e.g. by laying down minimum standards of health and safety), laws which regulate leisure pursuits (e.g. by banning alcohol on coaches and trains travelling to football matches), and laws which control personal relationships (e.g. by prohibiting marriage between close relatives). The law is a set of rules, enforceable by the courts, which regulate the government of the state and governs the relationship between the state and its citizens and between one citizen and another. Business - All those activities which are aimed at transfer of goods & services from the production centre to consumption centre carried out by an entrepreneur by optimally utilizing resources at his command i.e. money, man, material & machine with a view to maximize profit. Business Law -Laws relating to business, commercial activity, trade or commerce. 1 What is law? Many efforts have been made to endeavor to provide a universally acceptable definition of law but with little sign of attaining that objective. PMS Hacker wrote: “The concept of law fulfills as central a role in jurisprudence as Kant claimed for the moral obligation in ethics. No simple definition will satisfy us in the absence of a clear grasp of the ramification of the concept throughout its domain and an acceptable criterion of adequacy”. From a layman’s perspective, law is simply understood to be a general rule of conduct in regulating human’s behaviors. The Oxford English Dictionary defines law as “the body of enacted or customary rules recognized by a community as binding”. In short, law may be defined as a body of rules which are enforced by a State. It is generally accepted that it is not possible to provide a simple definition to the question of “What is law” as law by itself is a complex subject and it overlaps with other fields of study such as politics, sociology and history. 2 Jurisprudence Jurisprudence is a field of study that consists of the study of the nature of law and its related ideas. According to Julius Stone, a lawyer must have knowledge of other subjects such as history, sociology, anthropology, economics and politics and then examine the percepts, ideas and techniques of the law in the light of his knowledge of social sciences. Some issues relate to the political moralities which impinge on our lives:Should the law enforce conventional morality? b. How should difficult cases be decided? c. What is the justification, if any, for punishing people? a. Some issues are philosophical:What is law? b. What is justice? a. c. What is morality? 3 Some popular theories about the nature of law 1.3.1 Natural Law Natural law means the law of nature, law as the emanation of the Divine Providence, rooted in the nature and reason of man. It is often argued by natural jurists that law in action is not a mere system of rules, but involves the use of certain principles, such as that of equitable and the good. This ‘legal theory’ was developed from the time of the ancient Greeks up until the 16 th or 17th century. The earlier natural law jurists include great philosophers such as Socrates, Aristotle, Stoics, Cicero, and St. Augustine etc. Classical natural law was a general moral theory which explained the nature of morality, not the nature of law per se. It emphasized on man’s common moral nature to the legitimacy of States. The essence of this legal theory was that the law must be understood as a practical application of morality; hence law and morality are intimately connected. Accordingly, much of natural law theory sought to show how legal authorities such as princes, emperors, states and so on could lay down laws which reflected the true dictates of morality and were, therefore, just. However, this natural law theory produces many difficulties and controversies:• • Morality is subjective as what is right thing to do for one is a wrong act for another Abortion may be viewed by some as an essential human right while others think of it as tantamount to a right to murder Modern natural law theory is an attempt to sustain the natural law theorist’s project of exposing and emphasizing the importance of the connections between law and morality, but which has to overcome the above controversies. The most important jurists for this modern natural law theory are John Finnis and Lon Fuller. John Finnis Finnis denies that the natural law tradition was founded on the derivation of ‘ought’ from ‘is’. Rather, he says, natural law theory is founded on man’s ability to grasp values directly, not inferring them from the facts of the world. According to Finnis, there are basic values that underline the human appreciation of the values of any particular thing and all man’s purposive activities. These values are life, knowledge, play, aesthetic experience, friendship, religion and practical reasonableness. These seven values are not inferred from facts about the world or man, but are appreciated directly by humans as valuing beings. The essential claim that Finnis makes about law is that it is a social institution whose purpose is to regulate the affairs of people and thus contribute to the creation of community in which all people can flourish, i.e. a community in which everyone can realize the seven different basic values. In this way, the law is a moral project. Therefore, in order to rightly describe the law, one must take the position of a person who examines the law with this person in mind (i.e. the practically reasonable person who grasps the seven basic values and the law’s purpose in helping people to realize them). This provides a clear connection between moral philosophy and legal philosophy. Whether one’s description of law is correct or not will ( in part, but very significantly) depend upon whether one’s moral views are correct, for one’s moral views will inform the way in which one conceives of the project of law. Lon Fuller Fuller’s concept of the natural law was that a legal system is the ‘purposive human enterprise of subjecting human conduct to the governance of rules.’ According to Fuller a legal system had other purposes as well. Whatever its substantive purposes are, certain procedural purposes had to be acknowledged as its basic goals if the legal system were to qualify as a system of law, rather than a set of institutions using arbitrary force. The way a legal system is set up must be able to satisfy the ultimate purpose of all legal systems, i.e. the governance of human conduct through the rules of law. The principles which specify the basic requirements for a legal system to satisfy this goal are known as ‘the inner morality of law’ or ‘procedural morality’. Fuller proposed that there are eight principles (i.e. procedural morality) of proper law making: - there must be rules - rules must be prospective and not retrospective - rules must be published - rules must be intelligible - rules must not be contradictory - compliance with the rules must be possible - rules must not be constantly changing - congruency between rules declared and authority’s action. Thus all laws that were enacted in accordance and compliance with the above procedural morality are rightfully considered as good laws. 1.3.2 Positive Theory 1.3.2.1 What is Positivism Positive law signified law by position ie. the law is ‘posited’. Thus positive law may be thought to be posited in the will theory: it was the expression of the will of the law giving supreme authority. Valid laws are viewed as the expression of the wills of human people, as opposed to the manifestation of any greater purpose, such as Divine will. In this theory, law and morals are kept separate and there is no necessary link between law and morality. The identification of legally valid laws is thus perfectly possible without reference to morality. There are different types of positivist theories under this category. 1.3.2.2 Command Theory of Law Jeremy Bentham and John Austin are the propounders of this theory. Here, law is defined as “Law is command of a sovereign backed by sanction” or “order backed by threat”. According to this command theory, every law should contain four elements: (1) wish of a sovereign who is habitually obeyed (2) sanction – one has a legal duty or obligation to comply to the wish, otherwise he will be punished. (3) expression of a wish (4) laws are general in nature The command theory in essence regards the nature of law as based on the concept of power, exercised by a political superior to a political inferior, and not on ideas which are perceived as good or bad or just and unjust. Law is viewed as a species of command issued by a person or a body of people (sovereign) to whom individual obedience was rendered. There are many criticisms of this theory and it is said that the theory fails to explain the following: a. the definition is too narrow and it fails to consider the complexity of law, for example it ignores the concepts of right, legal principles, legal rules, interpretation of statutes by judges (judicial law making) etc; b. fails to differentiate between ‘obliged to’ (a gunman in a bank forces us to hand over the money and we will obey his order but unwillingly ) and ‘under an obligation’ (when a taxman requests us to pay the tax, we feel that we are under an obligation to obey the order and we will obey willingly without any threat); and c. it may be quite accurate in explaining criminal law but not facilitative law such as contract law, law of succession etc in which there is no sanction involved. 1.3.2.3 Kelsen – Pure Theory of Law Kelsen was an American jurist who sought to define and identify the essence of law by providing a formula which would enable him to exclude any factors which might obscure our perception of law. He believed that the existence, validity and authority of law had nothing at all to do with non-legal factors such as morality, politics, history, ethics, economics, aesthetics or any other social science. He therefore sought to identify the essential elements which constituted the ‘bare bones’ of law and would constitute a ‘pure theory’ of law. Thus the Pure Theory of Law undertakes to delimit the cognition of law against other disciplines in order to avoid uncritical mixture of them. Kelsen defined the law as follows: “A law is a despsychogized command, a command which does not imply a will in a psychological sense of the term- a rule expressing the fact that somebody ought to act in a certain way, without implying that anybody really ‘wants’ the person to act in that way” What is the practical significance of studying various types of legal theories? The most important impact is that, if a judge applies different legal theory when adjudicating a case, it will yield different results. For example, if the judge in the Elmer’s case is a believer of Hart’s theory, then the murderer will be able to inherit the property notwithstanding that he had murdered the victim. On the other hand, if the judge is a firm believer of Dworkin’s interpretive theory, then the murderer will not be allowed to inherit the assets. In summary, the positivists do not apply equity in their adjudication while the followers of natural law and interpretive theory will be more willing to exercise the discretion under the equity. 5 What is the law? This question must be differentiated from ‘what is law?’ Let us look at this scenario. A businessman who recently received a consignment of flick-knives is concerned that the police may take action if he were to display and sell these flick-knives to the public and asks you for advice. The question now – how can you find out if she would be breaking the law? Obviously you need to know the law relating to flick-knives, displaying them in shop window etc. How do you go about this? It is easy to assume that ‘the law’ can be found in one book; that somewhere there is a book which will give you the answer to every legal question you might pose. If this were true there would be little need for lawyers. Clearly it is not true. So a fundamental legal skill must be the ability to find the law. 6 Classification of Law 1.6.1 Introduction There are many ways to classify the law, either as per contents of law, as per sources of law or as per relationship between parties. The more commonly adopted ways is to classify the law as per relationship between the parties and it can be categorized into three groups:• • Public Law International Law • 1.6.2 Private Law Public Law Public law is the sector of law that governs the relationship between individuals (such as citizens and companies) and the State. Public law can be divided into 3 sub-divisions:1.6.2.1 Constitutional Law This deals with the relationship between individuals and the State and the relationship between different branches of the State such as the Executive, the Legislative and the Judiciary. All these relationships are normally specified within a written constitutional document. 1.6.2.2 Administrative Law Administrative Law refers to the body of law which regulates the administrative procedures of the government and its agencies and it defines the powers permitted by the administrative agencies. These laws are enforced by the executive branch of a government rather than the judicial or legislative branches. This body of law regulates trade, manufacturing, pollution, taxation etc. 1.6.2.3 Criminal Law This involves the State imposing sanctions for certain crimes committed by individuals and companies. The government will pre-define what types of acts are crimes with the objective of maintaining peace and justice in the society. Criminal law codifies various types of offences committed such as murder, causing bodily harm, rape, cheating, theft, robbery etc. The purpose of imposing sanctions against the individual who commit the crime is to suppress the crimes and to prevent recurrence. A crime is a wrong against the State for which punishment is inflicted by the State and the committed proceedings are brought by the Public Prosecutor on behalf of the State. 1.6.3 International Law International law is the term commonly used for referring to the system of law that regulates the interrelationship of sovereign states and their rights and duties with regard to one another. International law deals with such matters as the formation and recognition of states, acquisition of territory, war, the law of the sea and of space, treaties, treatment of aliens, human rights, international crimes and international judicial settlement of disputes. It may be sub-divided into 2 categories:• • Public international law Private international law 1.6.3.1 Public international law This is the law that deals exclusively with the relationship between sovereign states. 1.6.3.2 Private international law This is also known as “Conflict of Law” and it establishes rules for dealing with cases involving foreign elements, i.e. contracts with some system of foreign law. Basically it governs resolution of dispute and conflict between private persons, rather than states. Generally it concerns the questions of which jurisdiction should be permitted to hear a legal dispute between private parties and which jurisdiction’s law should be applied. 1.6.4 Private Law Private law, also known as Civil Law, is that part of a legal system that involves relationships between individuals. It is concerned with issues that affect the rights and duties of individuals among themselves. Basically private law is designed to provide monetary compensations to persons injured, either physically or monetary by another and to enforce obligations. The concept of private law in common law countries is a little more broad, in that it also encompasses private relationships between government and private individuals. Type of law that falls under this category is:• • • Law of Contract Law of Tort Property Law • • • • • Law of Trust Family Law Commercial Law Employment Law Company Law SOURCES OF BUSINESS AND CORPORATE LAW: The following sources can be said to have contributed to the evolution of Business law: (a)Common law: A very frequently used term in British legal world , common law refers to that part of law which was created by court judgments’ based on the commonly accepted codes of conduct and social practices. In course of time, judges started basing their judgments on these common practices to determine the conflicts among various parties. This judicial sanction to common practices gave rise to common law. (b) Equity: Where common law was found t o be deficient in providing justice to parties, the judicial officers took recourse to their own wisdom and sense of justice to decide cases. Such judicial pronouncements became another source of fresh law for society and were called equity. (c) The law merchant: In course of time, trading communities evolved their own peculiar codes of conduct applicable exclusively to their trading activities. Courts started giving recognition to these trading practices also in their judgments giving rise to another source of law called the law merchant. (d) The statute law: A statute is a formally codified law or the written law of the land announced by an authorized law making body in the society. A statute is an Act of Parliament. When a statute is created by parliament, it takes into account the entire judicial experience accumulated till date on the matter to give to the society the most comprehensive piece of legislation. In course of time, however, this law is further expanded through judicial pronouncements and interpretations. Some basic principles of legal liability It is a basic function of the law to set out the circumstances in which a person may be required to answer for his actions. Legal liability describes a situation where a person is legally responsible for a breach of an obligation imposed by the law. Such obligations may arise from the operation of either the civil or criminal law. The activities of business organisations are subject to a wide range of potential liability. Civil liability The areas of civil liability which have the greatest impact on businesses are liability in contract and tort. Contractual liability Contractual liability arises when two or more persons enter into a legally enforceable agreement with each other. The law of contract is concerned with determining which agreements are binding, the nature and extent of the obligations freely undertaken by the parties and the legal consequences of breaking contractual promises. Tortious liability A tort consists of the breach of a duty imposed by the law. The law of tort seeks to compensate the victims of certain forms of harmful conduct by an award of damages or to prevent harm occurring by granting an injunction. Examples of torts include negligence, nuisance, trespass, defamation (libel and slander) and conversion. Criminal liability A crime is an offence against the state. The consequences of a criminal conviction are not confined to the punishment inflicted by the court. Law of property The law of property is concerned with the rights which may arise in relation to anything that can be owned. Thus, property covers land, goods and intangible rights such as debts, patents or the goodwill of a business. Ownership. Ownership describes the greatest rights that a person can have in relation to property. An owner enjoys the fullest powers of use and disposal over the property allowed by law. Possession. Possession consists of two elements: physical control and the intention to exclude others.
