1.1 Introduction

Law is an important aspect of human society. In order to avoid or at least to minimize frictions within a society, human beings have made rules to regulate their conduct. A set of such rules is called law. The law which is concerned, in some way, with business transactions is, therefore, important to you as bachelor of commerce students.

This lecture, therefore, introduces you to the basic concepts of law and how the law which regulates human conduct differs from other laws such as laws of nature and rules of morality.

1.2 Objectives

1.2 Objectives

At the end of this lecture you should be able to:

1.     Explain the meaning and nature of law.

2.     Discuss why there is no generally accepted definition of law.

3.     Explain the nature of law from some of the definition given by eminent jurists.

4.     Distinguish between law and morality

5.     Describe the functions of law.


1.3 The Meaning and Nature of Law

1.3.1 The Nature of Law

Most people have a common sense idea as to what law is. For them law means a collection of rules that must be obeyed otherwise they might face certain consequences. However, to define law exactly and precisely is a task that is so difficult as to be almost impossible. In its wider meaning “law” means a body of rules designed to regulate human conduct within a particular state which must be obeyed by everybody subject to it and enforced by the machinery of state.


The term ‘’law” may be used in a variety of different ways. It may be used to refer to laws of nature such as Newton’s Law of Gravitation or Newton’s laws of motions. Such laws relate to rules that govern the nature. They are immutable rules, but are not man made or state laws; they do not regulate human conduct. There are also laws of economics, for example, law of supply and demand which determines the price of a commodity in a free market. These laws are not laws for our purpose because they are neither binding nor enforceable in the courts of law.

We may speak of the rules of a club, society, sport, church or association or company which may be binding on their members. These laws, though important in their specific spheres are not the kind of laws with which we are concerned with. Laws of such institutions though relate to human conduct and binding on their respective members are not in any sense part of the Kenyan law mainly because they are not made by Parliament or, courts and enforceable by the state. It should be noted, however, that members of those institutions themselves may have agreed to abide by those rules and such agreements may be enforced by courts as contracts. They are not directly part of Kenyan law, but may indirectly be enforceable under Kenyan law.

We also come across what is termed as “rules of morality”, such as “thou shall not kill” or “thou shall not steal”. Although rules of morality are concerned with human behaviour, they are not enforceable by the machinery of state unless they are part of the legal rules of the state and therefore it cannot be said that they are legal rules.

Take Note


The law of state differs from other kinds of law such as laws of nature, in that it is made by institutions such as Parliament or courts and is of binding nature and enforced by the authority of the state.


1.3.2 Definition of Law

The law we are concerned with covers a wide variety of human behaviour from murder and rape to marriage, divorce, inheritance, making of contracts, incorporation of a company and driving of a motor vehicle without a license. It is practically difficult if not impossible to bring all such behaviours into one single definition. It is because of this that there is no generally accepted definition of law. Some definitions are so wide that they cover matters that are not law while certain other definitions are so narrow that they will not cover what is law. So, there is no universally accepted definition of law and so far no definition of law is considered as perfect.

For instance, John Austin, an English jurist defined law as the command of the sovereign body in a society. The sovereign may be a person such as a king or Parliament. The command may be issued to an inferior (an individual), and enforced by punishment (or sanction as Austin called them). That is, law is a command, you must do this or you must not do that. Law commands that you must drive a motor vehicle on the left hand side of the road, or that you must not cause bodily harm to another person or should not damage another person’s property. Since it is a command it is binding on every person and is enforced at the command of the sovereign authority. This definition by Austin applies in many instances but it cannot be said that it is a perfect definition. There are many rules of law which do not command us to do things at all. For example, the law does not command us to make a contract, but rather lays down the conditions under which an agreement will have the force of a legally binding agreement: Similarly, the law concerning wills never commands us to make a will but sets out conditions under which a person may make a will. There are many other instances in law, where the legal rules in question cannot sensibly be described as a form of command such as laws relating to marriage and divorce, and laws which gives powers to a minister to make rules or to a city council to make bylaws which cannot be reduced to the simple proportion that “that laws are commands”. Also, Austin’s definition does not account satisfactorily for laws made by judges.

Sir John Salmon defined law as the body of principles recognized and applied by the state in the administration of justice. According to G.W. Paton, law consists of the body of rules which are seen to operate as binding rules in that community backed by some mechanism accepted by the community by means of which sufficient compliance with the rules may be secured to enable the system or set of rules to be seen as binding in nature. Holland defined law as a general rule of external human action enforced by a sovereign political authority. Vinogradoff saw law as a set of rules imposed and enforced by a society with regard to the attribution and exercise of power over persons and things. Justice Oliver Wendell Holmes, an American judge defined law as what the courts do in fact about law. This definition is based on the premises that law is what the courts will pronounce as law. Courts are thus creators or source of law.

On this premise, body of rules as made by Parliament or customs is not law. Acts of Parliament, or statutory law, delegated legislation and African customary law are not law according to this view. This definition is controversial because it emphasizes that judges make law. However, many believe that judges do not make law but merely decide cases in accordance with existing legal rules. However, it is true that certain rules are entirely creation of judges. For example, English Common Law and rules of Equity are made by judges and therefore are judge made laws. But in case of statutory law and African Customary law they merely declare law which already exist. They are bound to apply rules created by statutes and African customary law.

Marxists and other radicals define law as a body of rules which reflects the will of the dominant class in society. The law according to this point view protects the interest of economically strong in a given society.

Activity 1.1

Explain why definitions of law by John Austin and Justice Hoimes are not perfect.


Thus there is no universally agreed definition of law. The following loose definition of law, however, will help you to understand what is law : Law is a set of rules made and altered by certain institutions recognized by the state, is binding on every person subject to it, and enforced by the machinery of the state.

This definition requires further explanation. First, law is a set of rules. For instance when we say law of contract, we mean that it consist of a number of rules which are collectively called the law of contract. Second, such rules attempt to regulate human conduct and prescribe what activity should or should not be carried out or refers to activities which should be carried out in a specific way. Broadly speaking there are the following types of rule:

  • Rules which forbid certain type of behaviour under threat of punishment e.g. murder and theft are prohibited through the rules of criminal law.
  • Rules which require a person to compensate others for the wrong he/she has committed against them, e.g. person committing tort or breach of contract is required to compensate the injured party.
  • Rules which may impose certain conditions under which activity may be carried out, e.g. motor vehicle drivers must have valid licence before they can drive or a businessman must have a valid business licence before he can start a business.
  • Rules which specify what must be done in order to do certain activities, e.g. to make a valid contract or to form a business organization or to marry or to make a will.


Third, law is made and altered by certain institutions. Note the word “institutions”. Generally law is made by Parliament or the National Assembly, but that is not always true. There are many laws which are made by other bodies. African Customary Law is not enacted by the National Assembly but is based on customs of different tribes in Kenya and is being followed by the members of that tribe from time immemorial. Similarly, certain laws such as judicial precedent, common law and rules of equity are made by courts and not by Parliament. The requirement is that law made by such institutions should be recognized by the state. Also, these institution must have power to alter or change the law so as to carter for the needs of the changing society. Generally, Parliament is empowered to change or amend the law: Parliament can amend any law including African Customary Law and the judge made laws, including common law, rules of the equity and judicial precedent.

Fourth, law is binding on everybody, that is, it must be obeyed by all. If a law has been made but is not binding it has no meaning. People will not follow it.

Finally, law must be enforced by the machinery of the state. Without the threat of enforcement people will not obey it. Law is generally enforced by police, courts of law and prison systems.

Take Note

Law is a body of rules which must be obeyed and followed by everybody subject to sanctions or legal consequences.


1.4 Law and Morality

Morality is what is right and wrong according to a set of values or beliefs of a social group and governs a group’s behaviour. Moralities are not fixed and vary from one group or society to another. Even within one group or society values and beliefs may vary from one individual to other. Moral values may also change over time.

In many cases rules of morality and law clearly coincide. Most of the crimes are also moral wrongs. For example, murder is both a legal and moral wrong. However, even on this major issue there are people who believe that euthanasia should be allowed. In Kenya, homosexuality is illegal but in many countries homosexual behaviour in private between consenting adults is not illegal although some persons might regard it as an immoral act. So is true of abortion.

Sometimes, however, the rules of law and morality may diverge. For instance, a person is not legally liable for disrespect to his parents but failure to respect parents is a moral wrong. Similarly, a person is under no legal duty to rescue another person who was drowning though many would consider that he was under a moral duty to save the drowning man.

Thus, law and morality coincide in many respects but diverge on many issues.

Take Note

Rules of law and morality are not the same except where rules of morality  are part of the law of a particular state.


1.5 Functions of Law

Law has a wide variety of functions. The important functions of law are:


  • To achieve justice

The main aim of law is the attainment of justice in society. Law is generally applied equally in all situations and to all persons without any bias or favour. It is administered without any discrimination on the basis of sex, religion, race, tribe, wealth, social status or political influence. It provides equal protection of law to each and every person within the country. Law which applied in this way may be regarded as embodiment of justice.

  • Settlement of disputes

An obvious function of law is dispute settling in society. Law may be used to remedy grievances among members of a society. Should any disputes arise in society, the law provides means of resolving them. There may be disputes between private parties, or between a private person and government or a government agency or a government official, or between different government units and officials.

Generally, settling of dispute is the function of courts and they perform this function by following substantive and procedural laws. Even administrative agencies and private persons who engage in adjudicative dispute settlement do it according to law and final role is played by the courts. For example, an arbitration award given by an arbitrator is enforced by the courts.

  • Maintenance of public order

This is one of the most important functions of law in society. Law preserves public order and tranquility and protects stability of the state. This is generally done through the bulk of criminal law against violence or aggravated harm to persons or property by the threat penalties of imprisonment or fine. Law is thus used as a coercing agent to force people to behave in a particular way.

  • Protection of citizens against oppressive, unconstitutional and arbitrary acts of the government or government officials.

The law is used to prevent the state from abusing its power. The Constitution of Kenya protects certain fundamental rights and freedoms of individuals such as freedom of expression, assembly, association, movement and conscience, and rights such as right to life, personal liberty, and protection from inhuman treatment, deprivation of property, etc. If any of these rights is infringed the aggrieved person may go to the constitutional court for redress. A person may also seek remedy for oppressive, unconstitutional or arbitrary act of the government or government official by means of judicial review.

  • Protection of rights and interests of an individual

Law protects a wide variety of an individual’s rights and interest. In addition to protection to individual fundamental rights under the constitution, law also protects many other rights. For example, for breach of contract, the law will provide compensation or damages to the injured party, because his right created by the contract had been violated.

The law also protects a wide variety of individual’s interest by means of law of torts, such as interest in one’s own physical person or property, interest in reputation, financial interests, interests in family relations, and trade interests. If there is injury to any such interests the law would require the person causing the injury to compensate the injured person, although other usually remedies such as injunction, and specific restitution of property are also available.

  • Protection of people against excessive or unfair private power

The law is concerned too, with protecting people against excessive private power. The present day pervasiveness of giant business entities, particularly of corporations, show that size of business has brought with it power that dwarfs many of the nation states today. A few hundred managers of such businesses are making daily business decisions which have more impact on the people’s lives than those of most sovereignty states. Big businesses are however subject to laws and regulations. In addition to anti monopoly law protecting against private economic power, there are a number of specialized protections. For example, an employer’s power is curbed by laws like those compelling the payment of minimum wages, prohibiting discrimination in employment, compelling collective bargaining with trade unions, compelling protection of health and safety and many other regulatory laws. However, most of these laws are often ineffective against big businesses, particularly against multinational corporations. In fact problem of regulation of multinationals are both legal and political.


  • Regulation of the business

The most important function of the law in the context of business is regulation of private enterprise. The term “regulation” in its broadest sense refers to any government intervention into the market process. In this sense it is synonymous with the term control. The areas of controls exercised by the government machinery backed by the force of law include:

  • Monetary, fiscal and related control

These include regulation of the volume of money and credit and the terms upon which they are available to consumers and investors. Related controls are fiscal measures and taxation. Tax is an indirect regulation of business if it has the effect of inducing or preventing some actions of businessmen.

  • Regulation of entry into business

This kind of regulation is usually by means of licensing legislation. Through licensing government seeks to achieve an objective of orderly development and growth of business and industry. It may also be used to prevent wasteful competition.

  • Regulation of financial organization

This regulation is for the protection of investors. A primary purpose has been to safeguard their credit and thereby make the production of services economical.

Related areas of regulation protecting investors are issuance of security and of security and commodity markets.

  • Regulation of labour relations

Law regulates industrial and labour relations in many ways. Labour legislation has its origin in humanitarian efforts to check the obvious abuses of industrialization. Many types of regulations in this area are: protection against industrial hazards, minimum wages, minimum labour standards, protection of women and children, discrimination in employment etc. It is in this area that maximum pressure is now put on the governments for minimum regulations by vested national and international private interests.

  • Promotion of competition

Law seeks competition because it is considered to be the form of industrial organization most likely to yield certain economic benefits. Competition helps to promote greatest economical efficiency, growth, price stability a more equitable income distribution and improved performance of the balance of payments. Absence or lack of competition, on the other hand, leads to the disadvantages of stagnation, inefficient and high cost of production, low output, unnecessary high price and lack or progressiveness and innovation. Competition is promoted by means of controlling concentration of economic power, monopolies and mergers and anti competitive trade practices.

  • Regulation of prices

One form of direct market intervention by law is that of control of prices. Price controls are generally imposed on businesses where competition is not possible either because of natural monopolies or where there is a little possibility of competitors entering into the market. However, in Kenya price controls are virtually non existence because all items were removed from the price control regime by 1994. Take Note

Important functions of law, include attainment of justice, dispute  settlement, maintenance of public order, protection of individual’s constitutional and legal rights, and individual’s various interests, protection of individuals against private power and regulation of business.


Control of harmful business activities

Globalization and liberalization of economy has created new opportunities for business deviance. In recent times we have witnessed many industrial disasters causing human suffering and death, and financial scandals resulting in enormous financial loss.The large scale corruption and financial crimes such as bribery, securities, frauds, tax frauds, foreign exchange frauds, insurance frauds, computer crimes, transfer pricing, money laundering; consumer crimes such as marketing of unsafe and defective products, deficient services, sale of adulterated food, drinks and drugs, marketing counterfeit goods and harmful drugs; factory crimes such as work place death and injury, health hazards and environmental crimes such as water, land and air pollution and dumping of hazardous waste are examples of business or corporate crimes which are direct products of business activities.

The law thus attempts to control many harmful business activities. Without law no society can function and there will be chaos in the society if there is no law.


Intext Question

Think of two functions of law which relates to business activity


1.6 Summary


In this lecture we have discussed the nature of law and pointed out that that term “law” has wide connotations. It is used in several senses such as laws of nature and economics, rules of club, society, sport, association or church and rules of morality. The law of our purposes means law of a particular state consisting of a body of rules to regulate human conduct which are of binding nature and enforceable by the authority of the state. We considered various definitions of law and found that there does not exist any generally accepted definition of law. So far no definition is considered as perfect. We also pointed out that rules of morality and law in many cases overlap but in many other they diverge. We have also examined various important functions of law of law and concluded that without a system of law, it would be most difficult, if not impossible for any society to function. Without law there can only be anarchy.


Activity 1.2

1)Explain the nature of law.

2)Discuss what you understand by law and how law for our purpose differs from other laws.

3)Law and morality usually coincide on major issues, but may differ on other. Discuss.

4)Describe important functions of law.


1.7 References

1.7 References

1.     Patricia Hirst& Michael Hirst, (1998) Textbook on A Level LawND Edition), Chapter 1. (London: Blacktone Press Ltd, 2

2.     William Mbaya, (1991) Commercial Law of Kenya. (Nairobi: Petrons Ltd.), Chapter 1.

3.     Ashiq Hussein, (1978, reprint) A textbook of General Principles and Commercial Law of Kenya. (Nairobi: East African Educational Publishers Ltd), Chapter 1.

4.     J. J. Ogolla, J. (1999, reprint 2005). Business Law, (Nairobi: Focus Books), Chapter 1.



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