Difference between mercantile law and business law?

The author in this article differentiates between the Mercantile Law and the Business law with the help of related provisions. Author further discusses the scope and sources of both Mercantile Law and Business Law.
Estimated Reading Time: 9 minutes

Introduction

Law has multiple fields. Regulation could be one such term that defines what law is. One such field is the Mercantile law. Mercantile Law is defined as rules for the regulation of trade, industry, and commerce. Examples for this law include The Contract Act, Sale of Goods Act, Partnership Act, Negotiable Instruments Act, Companies Act, and so forth. It is an ever-growing branch of law that has been in existence for a long time in the history of man. From primitive laws enacted by the king for trade purposes to the robust legal system today, these laws have grown and changed accordingly. With the advent of globalization, these laws have gained huge importance in the national and international scenario.

Mercantile Law deals with the obligations, duties, and rights that accompany the transactions and agreements that enter into mercantile transactions. For example, contract law deals with the rights, obligations, duties, and conditions of the parties to a contract. These laws are applicable not just on a single individual but every legal entity who engages in them, be it a sole proprietorship or a huge MNC with thousands of employees.

Mercantile law is a broader term, the narrower term for it would be Business law. Business law is narrower in the sense that they govern contracts, taxes & commercial transactions.  The two terms are not formally different, but business law is a niche specialization in the vast sea of mercantile law.

Scope & Sources of Mercantile/Business Law

ENGLISH MERCANTILE LAW SOURCES

English Law: Mercantile law as we know it is a result of years of development in the English law structure. Indian law has heavily borrowed from English law on matters such as contract law. English law or common law has been substantial in helping our judiciary to decide on a matter that is too ambiguous or indefinite in our Indian legal system. The English law further takes up from the law of merchant. The law of merchant relates to the customs and traditions that are were being followed by merchants and traders for centuries.  

Principle of Equity: This is neither a written or a custom but more of a conscience guideline that ought to follow and dictate the difference between right and wrong. Equity courts recognize this principle and developed important legal concepts such as specific performance, equity of redemption, etc. 

Statue law: Statute law is that portion of the law that derived its powers from English legislations or enactment of parliament. Laws like The English Sale of Goods Act,1893, etc are some examples of these.

INDIAN MERCANTILE LAW SOURCES

Customary law: Customs is an important part of the Indian legal system. Customs between traders and businessmen under the raja rule was used to formulate policies and laws that exist in today’s times. The codification of laws led to such customs becoming obsolete but they find their place in Indian Jurisprudence and courts employing them in case of any dispute in the codified laws. A good example for this is Section 1 of the Indian Contract Act, 1872, “Nothing herein contained shall affect the provisions of any statute, Act or Regulation not hereby expressly repealed, nor any usage or customs of the trade, nor any incident of any contract, not inconsistent with the provisions of this Act”. This shows that the Indian Legal system has not done away with customs completely and has adopted them in the present legal system.

English Mercantile Law: The Indian legal system borrows heavily from the English mercantile law. With certain modifications, the law has been adopted in the Indian system. The influence of the English system is again so much that even courts use it as a recourse in case of absence or uncertainty of the Indian legal system.

Acts Enacted by the Indian legislature or Statute Law: The Indian Contract Act, 1872; The Negotiable Instruments Act, 1881; The Sale of Goods Act, 1930; The Indian Partnership, Act, 1932; The Companies Act, 1956 are instances of the statute law.

Judicial Decisions:It is up to a court and the judge to interpret the statutes and these interpretations are what form the basis of understanding. When it is decided by the courts, the point of the law becomes a precedent for any similar conditions that may follow in the future and becomes a law. Whenever an Act is silent on a point or there is ambiguity, the judge has to decide the case according to the principles of justice, equity and good conscience

International treaties, conventions: sometimes international treaties between two states can also govern the functioning of commercial activity between the two states. In case of a dispute, it is solved through the articles as decided in the treaty itself. 

Scope of Business Law

The Indian Contract Act, 1872; The Negotiable Instruments Act, 1881; The Sale of Goods Act, 1930; The Indian Partnership Act, 1932 and The Companies Act, 1956 are instances of Statute Law in the field of ‘business law’. These Acts or laws fall into 2 separate areas of function: (1) regulation of commercial legal entities (2) regulation of commercial transactions by such entities.

Difference between the scope of the Two Laws

The Scope of Mercantile Law is wide and encompasses the following:

  • Contracts.
    • Partnerships.
    • Sale of goods.
    • Negotiable instruments.
    • Companies.
    • Insolvency.
    • Insurance.
    • Carriage of goods
    • Arbitration

Mercantile law is very broad in terms of its definition and as can be seen usually revolves around more than one law or law. These laws vary in their nature and are very specific in their scope. On such niche specialization in mercantile Law is the existence of business laws. Mercantile law with its wide scope encompasses everything from maritime arbitration, international import & exports to domestic contract formation.[1]

Business laws include Employment law; Contracts; Taxes; Commercial transactions. These laws further have their specifications. But the gist of things is that business laws relate to business aspects of a commercial legal entity. Business laws are generally required when starting a business or when there is a need for mergers and acquisitions. Business laws also encompass an area of public law & private law and governing trade aspects in these two. One example of this is the law of contract.  The law of contract is the foundation upon which the superstructure of modern business is built.

Some of the Laws which help in understanding the scope of Mercantile and Business Laws

Business laws are a niche specialization of the mercantile laws. So, it is no wonder that they have laws that are common to both, even in India there are such acts which could be considered as an example for both Mercantile laws and Business laws. Some of these laws are-

The Indian Contracts Acts, 1872- A contractis an agreement which is enforceable by law and is generally present to govern the rights and duties of the parties in an agreement. Contracts are a crucial part of the business world, so this is not surprising that The Indian Contracts Act is a part of business law and mercantile law. The Indian Contracts Act governs the law related to contracts in India and is the key Act in regulating Indian contracts. The acts have its source in English common law, the reason for this is that as India was a colony for the British many common law principles which were codified in the British parliament were passed on to India one of those principles was the law related to contracts. The Act is divided into 75 sections each section dealing with an important part of Indian Contracts Law. Indian contracts Act not only deals with essentials of a contract, i.e. offer, acceptance, consent, consideration, lawful object, capacity, etc but it also defines some of the crimes related to contracts. 

Offer- an offer or a proposal is said to be the starting point of the contract. In the Indian contracts act the word ‘proposal’ is present. Section 2 (a) of The Indian Contracts Act contains the definition of what is a proposal.

Acceptance- Section 2(b) of The Indian Contracts Act deals with acceptance. There is no word acceptance in the Act but only the term ‘accepted proposal’. acceptance is an important part of a contract as every proposal is made of offer from one side and acceptance from the opposite side. The Indian Contracts Act also puts forwards the essentials of a valid acceptance. 

Capacity- The capacity of the parties is essential for a contract mentioned in section 10 of The Indian contracts Act. Capacity means the competency to enter into a contract. Further section 11 of the Indian contracts act deals with capacity in three distinctive branches.

Consideration- consideration is one statutory ingredient in section 10 of The Indian Contracts act. Section 2(d) describes what is a valid consideration. While section 24 describes consideration to the object of the contract and section 25 describes the legal effects of an agreement without valid consideration. 

Consent- Consent is defined in section 13 of The Indian Contracts Act and free consent in section 14. Consent is one of the statutory ingredients present in section 10. Section 14 also mentions the factors that should not be presented for valid consent i.e. coercion, undue influence, fraud, mistake, misrepresentation.

The legality of the object- this is one of the ingredients present in section 10 of the Indian contracts act. Section 23 and 24 also deal with the legality of the object. According to this, any unlawful agreement is void. 

The Sale of Goods Act, 1930- Initially the sale of goods was regulated by Chapter VII of the Indian Contracts Act, 1872 but with the rise in the mercantile transactions in the country, there was a need of Act to regulate these transactions hence, in 1930 the sale of goods acts came into force which laid down the basic laws related to the sale of contracts. Similar to the Indian Contracts Act as this Act also has its source in English Common Law. As sales of good Acts were derived from The Indian Contracts Act it also contains essentials of contracts that are present in section 10 of the Indian contracts Act. The sale of goods act is an important part of Mercantile law and business law as it defines basic terms of business as a Buyer, Seller, Goods, price, transfer of property these terms are mentioned in Section 29(10), Section 29(13), Section 2(7), Section 2(11) resp. The Act further describes the performance of a contract, acceptance, delivery of goods, etc. Some of the other important sections of this Act would be sections 12(2) and section 12(3) as these sections describe condition and warranty. The Act was further developed in time through different judgments. 

This Act safeguards the rights of buyers and sellers while providing them with a remedy in case of a breach. This Act provides the customers with the means to protect themselves in case they were cheated in a contract and similarly protects the seller in case of a breach by the buyer.   

The Negotiable Instruments Act, 1881-A good example of business law is the N.I Act. It is an Act “to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques”. A cheque is a widely used method of payment and post-dated cheques are frequently used in various transactions in business life. Post-dated cheques are given to provide a certain accommodation to the drawer of the cheque. Therefore, it becomes necessary to ensure that the drawer of the cheque does not abuse the accommodation given to him. The Negotiable Instruments Act, 1881 (“Act”) deals with negotiable instruments, such as promissory notes, bills of exchange, cheques, etc. The penal provisions contained in Sections 138 to 142 of the Act have been enacted to ensure that obligations undertaken by issuing cheques as a mode of deferred payment are honored.

Conclusion

Mercantile Law & Business Law are interchangeable depending on the situation in which they are used; mercantile law can be used to define broader limits of commercial activities while hiring/firing of an employee is better defined under business law. The clear-cut demarcation between the two is simple enough and is generally mixed due to the closeness. However, the knowledge of the difference between the two is important for business and professional purposes. With ever-increasing demand and supply, international trade and commercial activities depend on these laws for smooth functioning.

Also read Section 61: Power of Limited Company to Alter its Share Capital


[1] mercantile law. BusinessDictionary.com. WebFinance, Inc. http://www.businessdictionary.com/definition/mercantile-law.html  (accessed: July 07, 2020).

Hey there!

come here often?

Login To Come In