Business Law

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1. Introduction
1 1.1 Meaning and Nature of Law
An ancient time people were free. They ruled by themselves. When people lived with group then they made rule
to manage their behavior and conduct. Then after gradually they became ruler and ruled. Senior person of the
group might be setup the rule and regulation at earlier time. The society gradually developed and changed. In the
changing context rule and regulation also be changed. In course of time various laws were enacted and amended.
All activities of natural persons as well as artificial persons are regulated and guided by laws. Law is a formal
mechanism of social control. By changing nature of law there is not universal definition of law. It depends on the
contexts and perceptions.
In general, the term 'law' means a set of rules. Those rules are made by the authorities. Public laws are made and
implemented by state authority. But private laws are imposed by the party in according to existing laws.
Law is an English word derived from the Stoic term 'Lag'. It means Stable and universal. In general sense, law
means the command of the sovereign power to manage and regulate the external human activities. Law is a
general term and has contextual meaning. It is used in different places within different senses and names. Still, it is
impossible to define it in a single term. Many literatures have been created, many books have been written by
many writers on this topic. However, it has not unanimous definition.
Here is better to cite an expression made by Lord Lloyd, who says "Since much juristic ink has flowed in an
endeavor to provide a universally acceptable definition of law, but with little sign of attaining the objective".
2 1.2 Definition of Law
John Austin says: A law is a rule of conduct imposed and enforced by the sovereign.
According to Salmond: Law is the body of principles recognized and applied by the state of administration of
Justice.
According to Justice Holms: Law is that what Justice says in his decision.
According to Roscoe Pound: Law is the body of principles, recognized or enforced by public and regular tribunals in
the administration of Justice.
Lawrence, Robert and Peter State that: The law refers to the body of philosophy, principles, standards and rules
which the Courts apply in deciding cases brought before them.
On the basis of above said several definitions, it can be said the term law cannot be defined unanimously. Some
Scholars have defined law in the narrow sense and some have defined in wider sense. It is impossible to formulate
commonly accepted single definition of law because there are several schools of thought concerning to it. Eminent
Jurist H.L.A Hart also accepts this fact that the definition of law is very difficult task.
At the Summing up, it can be said that to define the term of law is very difficult task. Besides this, many eminent
scholars have made various efforts. Comparatively a definition given by Black Stone is wider than others; who
Business Law - Complete Notes | www.edunepal.info
affirms that "Law in its most general and comprehensive sense signifies a rule of action, and is applied
indiscriminately to all kinds of action, whether animate or inanimate, rational or irrational".
In conclusion, it can be said that the essence and core of all definitions is similar. Law is a set of rules and principles
made by sovereign power through legitimate process to control or regulate the society for justice, peaceful living
and social security.
3 1.3 Origin and Nature of Law
Law is inseparable part of society. It is the standard to maintain the relation between the society and its members.
In the absence of law, society becomes destroyed and creates the situations of disorder, painfulness and anarchy.
The nature of law denotes its inseparable and inherent qualities. It can be to fulfill the needs of contemporary
society. The need of society is determined by its members and they make law to fulfill their requirement. For this
purpose law can play significant role to regulate, control and provide guidance to the society. There are several
views on law as mentioned in the various definitions and schools of thought. Every School of thought has accepted
the law as their specific understanding and defines it in different ways. Similarly, the various definitions also have
not prescribed the same nature of law. According to the several schools of thought and definition; the nature of
law can be found as follows.
Law is made and administered by the competent authority which is known as sovereignty.
•
Law cannot avoid the principles of natural justice. It should be based on reason and rationality.
•
It is the rule of conduct of the society. It is based on common interest of the society and it tries to
•
maintain the balance of interest for social solidarity and harmony.
• It has uniformity in action.
• It is the most powerful in the world. Law is more powerful than the lawmakers.
• It is rigid and equally enforceable to all persons in the society. No one can escape from its coverage.
• Law and Justice are interrelated.
• Law is administered by the court.
• It is changeable with the pace (speed) of time and on the basis of common need.
• It is backed by sanction of painful consequences in case of violation.
• In the strict sense it is free from the extra legal phenomena like morality, religious conviction etc.
IN Karishma Impex vs. National Trading Limited, S.C. held that, 'the parties to the contract can create mutual
obligation by agreeing upon the terms and condition as per their need which should be within the boundary of the
law and such type of contractual rights are different from constitutional and legal rights.' (Nepal Law Journal, 2048,
1
p. 891)
4 1.4 Purpose of Law
The purpose of law is concerning to meet or fulfill the certain objectives, which are as follows:
• To maintain the peace and security in society.

• To maintain the social and political stability in the society.
1
Karishma Impex vs. National Trading Limited
• To maintain the social solidarity and harmony in the society.

• To contribute for strengthening the public welfare, national economy and individual and commercial
interest.
• To prohibit criminal activities and harmful human conduct in society.
• To contribute to make developed, prosperous and civilized country in the international community.
5 1.5 Types of Law
Law is an instrument to regulate and control the society. There are several types of laws in existence. There is no
unanimous view in classification of law among the Jurists and scholars of this field. The basis of classification is also
different among them. Therefore it is very difficult task to give particular classification which may be acceptable for
all. There are three general types which are common in most of the countries.
• From the point of view of creation and nature of law. e.g. Substantive and Procedural law
• From the point of view of jurisdiction. e.g. Criminal and Civil
• From the point of view of legal effect. e.g. Private and Public
1.5.1 From the point of view of creation and nature of law
5.1.1 a. Substantive Law:
It is fundamental part of law and it is related to the Rights, Duties and liabilities of persons. It specifies the
definitions of such rights, duties and liabilities of a person in the country. It is related as doctrinal part of law.
According to Salmond: Substantive law is concerned with the ends of the administration of Justice. Substantive law
is based on the legal principles and related to the subject matter and motive of the law. It is the real and actual
law. It deals with content of Law.
5.1.2 b. Procedural Law
The Procedural law deals with how the content of law is implemented while substantive law deals with the content
of law. It is related to the procedure of legal proceedings. It also determines the steps of process of legal remedy in
the case of violation of substantive law. It is supplementary parts of substantive law. It deals with the process
regarding how to acquire remedy. If refers to the procedure for putting law into practice.
Differences between Substantive Law and Procedural Law
Substantive law Procedural Law
1. It is known as law of the rights and duties. It is known as remedial law.
2. It is the end of the law It is the means of the law.
3. It contains rights and remedies of the It contains modes and conditions to restore rights of
victim party. the victim party.
4. It determines rights and relationship of the It determines the relation between court and the
parties. parties to a particular case.
1.5.2 From the point of view of jurisdiction
5.1.3 a. Criminal Law:
Criminal law determines the crime and punishment. A punishment will be determined for them under the criminal
law. It is believed as a rigid law. It deals with the crime against the state. Criminalization, de-criminalization and re-
criminalization of human conduct are the subject matters of it. This law prohibits such types of human activities
which are regarded as harmful to the society or state.
5.1.4 b. Civil Law:
Civil law is that part of law, which is related with the property and position of persons. It is made and enforced by
the state to regulate the society. Civil law deals with the wrong doing of the individuals. Like; land law, contract
law, and commercial law are the illustrations of civil law.
1.5.3 From the point of view of legal effect
5.1.5 a. Private Law:
This part of law is very much important and necessary for general people for their daily activities. It regulates the
relations between two or more persons. It deals with the personal rights, duties and liabilities. And it may be civil
and criminal in nature. Contract law, Commercial law, Family law are the illustrations of this category of law.
5.1.6 b. Public Law:
Public law deals in the public matters. It defines and regulates the relation between the state and people. Public
law is related to the public interest and crimes regarding the security, public health and so on. e.g. Constitution
deals with the jurisdiction of Governmental bodies and dispute between local and national governments.
6 1.6 Sources of Law
The term source indicates that the place of thing from where something emerges or come into existences. Source
means origin of law. The source of law is relating to its validity. There is no unanimous view in respect of source of
law among the thinkers. Here are five major sources of law which are discussed here under.
According to Salmond there are following sources of law:-
a. Legislation: Legislation is the main source of law in the modern states. It enjoys the law making
power of country. It is made according to the change of time and it is the outcome of a long series of
discussions among the representatives of people. It is made by legislative body and enforced by the
supreme power.
b. Precedent: Precedent is the judicial decision which contains itself principle. Such principle which
creates in the verdict (decision) of court and is applicable to other similar future cases of the same
nature of case.
c. Custom and Usage: Custom is the oldest source of law. It is habitual behavioral system of the human
society. It is the usage of long period in a community. It shows that in primitive society the life of
people was regulated by custom. Custom be proved to be immemorial, it must reasonable,
continuously observed certain and definite. Those custom which must not oppose principles of
morality and must not conflict with the state law, is called a valid custom in present and regarded as a
source of law.
d. Convention: Convention means agreement between two or more parties for their dealings.
Conventional law is derived form the convention and treaty and it is applicable for the concerned
parties. Although it is regarded as weak source of law.
e. Ordinance and regulation: An executive body also makes laws in the name of the ordinance, order
and regulations. It also fulfills the vacuum of law and is more useful to maintain day to day
administrative functions of state.
7 1.7 Meaning of Business Law
Business is a part of social activity, regulated by the law. Business law is the law connected with business. It is an
aggregate of those rules which are connected with trade, commerce and industry. It is known as commercial law
and mercantile law. The term business law may be defined as that branch of law which is concerning to trade,
industries and commerce. It is an ever growing branch of law with the changing circumstances of trade and
commerce. It is concerning with the establishment, operation, development, expansion and winding up of any
business activities. It regulates the relation between business entities in regard to contracts, sale of goods,
partnership, companies insurance, insolvency, carriage of goods, arbitration and so on.
Business law is not separate discipline. It is a part of civil law. It deals with the rights and obligations of
businessmen or business firms that arise out of the business transactions. There is no demarcation of business law
with other branches of law in term of application and procedure, businessmen or business firms who commit
offense in regard as other offender.
According to A.K Sundran: Business law provides legitimacy, security, control and incentives to business activities.
It also protects rights and interests of consumers or labors, and business and society.
M.C. Kuchhal sates: The term mercantile law may be defined as the branch of law which comprises laws
concerning trade, industry and commerce.
Thus business law is that part of law which deals with all the laws connected with every activity of business and
rights and obligations of business persons and business firms arising from the business transactions. It helps the
business community to carry it's transactions without and fears and uncertainty with certainty and confidence.
1.7.1 Features of Business law
Basic features of business law are as follows:

• Business law is the fast growing part of law.

• It regulates industry, trade and commerce.
• It regulates every business activities of business community.
• It includes the law of contract, company, agency, banking, insurance, arbitration.
• It protects rights and interest of business community.
• It is most important means to create positive environment for the prosperity of business.
1.7.2 Importance of Business Law
Business law is a part of law which is relating to trade, commerce and industry. It is very much important in
business community from starting point to ending point of every business activity. Establishment, operation,
winding up of business institution should be recognized by law and it provides validity for business activities. As a
regulating and controlling instrument, the business law significantly contributes to develop the business area. The
need and important of business law can be mentioned as follows:
• To establish and run the business activities.

• To increase and maintain business transactions.
• To develop capital market.
• To develop the economic activities.
• To prepare the foundation for national development.
• To create employment and support the national interest.
• To create the environment for investment.
• To regulate the behavior of businessmen and officials of the business sectors.
• To develop the new principle of business.
• To increase the knowledge of international business.
• It helps to protect public health, safety and environment protection.
• To settle the commercial disputes.
• To aware and caution to obligations and duties of businessmen and firms.
8 1.8 Sources of Business Law
Source means place of beginning or origin. Source of business law means the beginning point of rules and
regulations in regard to trade, commerce and business. There may be numbers of sources which have contributed
to creation of business law. Here are under the major sources of business law which contributes to develop the
business environment. Those are as follow.
8.1.1 a. Law made by Parliament:
The laws made by parliament are important source of business law. To enact the new law repeal and amendment
of existing law is the sole business of this body. To regulate the business you need the strong law. This law is the
outcome of demand of the people in tuning of the time. It is made through formal process after a series of
discussions by the law makers. For Example: Contract Act 2056, Arbitration Act, 2055 Parliament was made or
enacted those laws which enhance or promote the business. That is why law made by parliament is an important
source of business law.
8.1.2 b. Custom and Usages:
Custom is particular way of behaviors. The rule developed from custom is customary rule. The customary rule is
binding, whereas it is ancient, reasonable, proved to be immemorial continuously followed and recognized by the
state. For this reason traditional custom and usages play important role in the development of business law.
8.1.3 c. Precedents:
Judicial decisions are called precedents. A precedent is a judicial decision which contains in itself a principle said
judicial authority in course of verdict of the business case which is applicable to other similar nature of case in
future. It is also known as case made law.
8.1.4 d. English Mercantile Law:
Business law was evolved in England. It is the pioneer of business law in the world. Nepalese and Indian business
law is influenced by the British business law that is why English mercantile law is another source of Nepalese
business law.
8.1.5 e. Opinion of Professional and Experts:
Lawyers and Jurists play significant role to create new principles and thoughts of business law. Various research
and analysis create the environment of enacting and amending the existing law as well as introducing the new one.
So the opinion of professional and expert on the business area help to develop the business law.
8.1.6 f. Business agreements and Conventions:
This is most important sources of modern business law. International business organizations are more active in this
realm. Those organizations are active at a national level, international level and word wide. They play vital role to
manage, regulate and control the business affairs. e.g. SAFTA, EU, WTO Those organization has made various
agreement, bilateral and multilateral treatises and Conventions. These are also became the source of national
business law. According sec 9 of the treaty act 1990, it creates the obligation to the parties to obey it and the
contrary provision to it law is invalid.
8.1.7 Short Questions
1. Define business law. Explain any three major sources of Nepalese business law. [4+6]
2055
2. Define legal environment. Why is the study of legal environment important for a business? [4+6]
2056
3. What is business law? Is there any clear-cut line of demarcation between business law and other branches of
law? [5+5]
2057
4. Explain the nature and sources of Nepalese business law. [5+5]

2058
5. Explain the nature and sources of Nepalese business law. [10]

2059
6. State and explain the importance of legal environment for business. [10]
2060
7. Define business law. Explain the sources of Nepalese business law. [4+6]
2061
8. Give the concept of business law and explain its importance. [3+7]
2062
9. What is business law? Explain the sources of business law. [3+7]

2063
10. Give the concept of business law and explain its importance. [3+7]
2066
11. Define business law. Explain its importance. [3+7]

2068

2. Meaning, Nature and Essentials of

Valid Contract
2.1 Meaning of Contract
The Law of Contract is the most important branch of business law. It is relating to the business of commercial
transactions. It has existed from the beginning of organized society. Like, safety of person and property depends
upon the rules of criminal law, similarly, the security and stability of the business depends upon the law of
contract.
The law of contract affects every one of us, because every one of us enters in to contract several times in a signal
day. While purchasing in the market or a ride on a bus, taxi or drink a cup of tea in a hotel in all these and many
other affairs of daily life are possible due to the law of contract. For this reason the study of the general principles
of contract law is important and essential not only business person but for all of us.
A contract is an agreement enforceable by law. The law of contract is the foundation of the business. Every
business activities are determined and guided by the agreement of the concerned parties. It is concerned with
rights and obligations of the parties entering to any business or commercial activities. A law of contract is an
important part of business law because the act of transaction is performed between two or more than two parties
and relationship between them regulated by the law of contract.
2.1.1 Definition of Contract
The term 'Contract' has been defined by the different scholars, statutes, dictionaries and judicial decisions. Some
of them are given below:
Oxford Dictionary has been defined the term contract as "A written or spoken agreement intended to be
enforceable by law".
According to Frederic Pollock; "Every agreement and promise enforceable at law is a contract."
John Salmond has been defined the term contract as "An agreement creating and defining obligations between the
parties."
According to Section 2 (h) of Indian Contract Act, 1872; Contract is an agreement enforceable by law is a contract."
According to Section 2(a) of Nepal Contract Act, 2056; Contract is an agreement between two or more than two
persons to do or not to do something, which can be enforceable by law.
According to David M. Walker; An agreement, creating between two or more persons intended to create a legal
obligations between them and to be legally enforceable, is called contract.
S.W. Anson defines contract as " A legally binding agreement between two or more persons by which rights are
acquired by one or more to acts done or forbearance on the part of others."
The Supreme Court of Nepal has defined the term 'contact as agreement of two or more parties with conditions'-
in the case of Vijaya kumar Basnet vs. Kathmandu Metropolitan et al (Nepal Kanoon Patrika 2059 p. 37. 1
Similarly the Supreme Court of Nepal has Stated 'Contract means meeting of mind between two or more parties to
do or not to do something through offer and acceptance' in the case of Tirtha kumara vs. Ramashekhar shrestha.
(Nepal Kanoon Patrika 2040 p. 298) 2
Observing the above definitions we may come to a conclusion that a contract has;
• Two or more than two parties

• Offer and acceptance for to do or not to do something.
• An agreement to do or not to do any act on the ground of free consent.
• Exchange of promise by meeting of mind.
• Rights and liabilities are created reciprocally between the concerned parties.
• Enforceability of the liabilities by law.
In conclusion, we can say that Contract means an agreement made between two or more than two persons with
free consent for to do or not to do something for a definite consideration and which can be enforceable by law.
2.1.2 Nature of Contract
A contract is an agreement between two or more parties which is enforceable by law, such agreement is the
outcome of consensus and meeting of mind of the parties. It has some specific nature which can be mentioned as
follows:
1.1.1 a. Civil Nature:
The contract has civil nature because it creates rights and obligation to the parties. It is relating to the property and
position. In the case of breach of contract, aggrieved party has right to claim compensation. There is no question of
punishment as criminal law.
1.1.2 b. Social and Business Nature:
Contract is relating to social and business sector. It regulates the social behavior like, sale of goods, court marriage
and several transactions of business.
1.1.3 c. Autonomous Nature:
Every persons has right to choose his act. Under this freedom of people, they can make contract to do or not to do
something according to made contract. So, it possesses an autonomous character.
1.1.4 d. Limited Nature:
Contract is limited upon the parties. The parties have rights to determine terms and conditions only for their
extent. They have no right to impose any obligation to the third party. Therefore the contract is limited in nature
only to the contracting parties.
1
Bijaya Kumar Basnet vs. Kathmandu Metropolitan
2
Tirtha Kumari vs. Ramashekhar Shrestha (2010, p. 298)
1.1.5 e. Relating to promise and obligation:
Contract emerges from the promise. Promise creates the agreement and legal enforceability of an agreement is
recognized as contract. Therefore contract is relating to the promise and obligation.
2.1.3 Essentials of Valid Contract
To be a valid contract an agreement needs various elements. If these elements are not satisfied, law cannot
enforce such an agreement.
For example, Sita contract of car selling in rupees 5 lakh is made between two parties. Sita agree to sell his car to
Rita for Rs 5 lakh. Car is consideration for Rita and price 5 lakh is the consideration for Sita.
Supreme Court of Nepal has decided about essential elements of contract in some cases; like Supreme Court of
Nepal had treated as Contract If there presents proper offer and acceptance. (The case of Tritha Rajkumari Rana
vs. Binod Shanker Shrestha) 3
2.1.4 Followings elements are essential for a valid contract:
Nepal Contract Act 2056 mentions few provisions as an essential element of valid contract.
1.1.6 a. Plurality of parties:
There must be at least two parties to form a contract. A single person cannot enter into a contract. Two parties,
namely offerer and acceptor must be under an agreement for a valid contract.
1.1.7 b. Proper offer and acceptance:
There must be at least two parties one making the offer and the other accepting it. Offer means if somebody
makes proposals to do something or not to do something. Offer and acceptance is most important elements for
valid contract. Offer helps to create an agreement. If somebody offers in one way other party accepts it in another
way that is not acceptance. Offer and acceptance must be in same way which is mostly called the meeting of the
mind. There must be meeting of two minds. The term of offer must be definite and acceptance of the offer also
must be absolute and unconditional.
For example, Ram makes an offer for sending to Hari to sell his horse for Rs 10,000/- and Hari agrees to purchases
Ram's horse in prescribed offer. Here proposal is offer and consent to purchase is acceptance.
1.1.8 c. Intention to create legal relationship:
When the two parties enter in to an agreement their intention must be to create legal relationship between them.
If there is not such intention of either party of an agreement, there is no contract between them. To constitute a
contract legal relationship between or among parties should be seen otherwise remedy of that contract could not
be achieved. Agreement of domestic nature will not constitute contract. For an Example,
In a case Balfour vs. Balfour: A husband was employed in a government post in Ceylon. He returned with his wife
to England on leave but she was unable to go back to Ceylon with him for her medical reasons. Husband promised
orally to make her an allowance of £30 a months until she rejoined him. He failed to make this payment and she
3
Tritha Rajkumari Rana vs. Binod Shanker Shrestha
sued him. The Court of Appeal held that, husband and wife never intended to make bargain which conduct be
enforced in law. Hence wife could not claim the money. 4
1.1.9 d. Lawful Consideration:
Another essential element of valid contract is the presence of lawful consideration. Consideration has been
defined as the price paid by one party for the promise of other. To get something in exchange is consideration. An
agreement is legally enforceable only when each of the party gives something and gets something. Consideration
has been defined as the price paid by one party for the promise of other. It may be a promise to do or not to do
something. But it must be real and law full which may be in past, present and future. Nepal Contract Act has
defined consideration as the promise made to do or not to do any work in return of doing or not doing of any work
mentioned in the proposal. (Section 2(d) of Nepal Contract Act, 2056)
1.1.10 e. Free Consent:
Free consent of all the parties to an agreement is another essential element of valid contract. Consent means that
the parties must have agreed up on the same thing in the same sense. If the agreement is vitiated by any of the
following factors the contract would be voidable and can not be enforced by the party. Other party can reject the
contract. (Section 14 of Nepal Contract Act 2956)
• Coercion;
• Undue influence;
• Fraud;
• Misrepresentation;
• Mistake etc.
For example, 'X' treatens to beat 'Y' if he does not buy his cycle in rupees, 5000/- to so. Here 'Y's consent is not
regarded as free consent because 'Y's acceptance is made due to treatens.
1.1.11 f. Capacity of the parties:
The party to an agreement must be competent to enter into an agreement of contract. Otherwise it cannot be
enforceable by a court of law. In order to be competent enter into contract the parties must be the age of adult,
(According to Nepal contract Act, attained 16 years of age. Section 3.1) sound mind and must not be disqualified by
any law to which they are subject. If any of the party suffers from lunacy, idiocy and drunkenness the agreement is
not enforceable by law. For example, Ram is years old enter into agreement to sell his house to Shyam; an adult.
This contract is void ab initio, that is in operative from the beginning because ram, being a minor.
1.1.12 g. Lawful Object:
For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful
object. The object for which the agreement has been entered in to an agreement must not be fraudulent, illegal,
immoral, or opposed to public policy or must not imply injury to the person or property of another. If the object is
unlawful for one or the other of the reasons mentioned above the agreement is void. A contract of such objectives
is not enforceable by law. They are void from the beginning. (Section 13 of Nepal Contract Act, 2056) e.g. When a
landlord knowingly lets a house to a gambler to carry illegal gambling he can not recover the rent through a court
of law.
4
Balfour vs. Balfour
1.1.13 h. Written form and registration:
According to the Indian Contract Act, a contract may be oral or in writing. But in certain special cases it lays down
that the agreement to be valid must be in written form and registered. But there is no specific provision in Nepal
which made that contract should be registered. If parties wish they can registered it but not mandatory.
1.1.14 i. Certainty and Clarity:
To be a valid contract the objective and obligation of contract must be clear and certain. The term of agreement
must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement otherwise it cannot
be enforced. (Section 13(g) of Nepal Contract Act 2056)
For example, Ram agrees to sell to Hari 10,000 tons of oil there is nothing whatever to snow what kind oil was
intended it may be kerosene oil, it may be sunflower oil and may diesel oil.
1.1.15 j. Possibility to Performance:
Another essential element of valid contract is that it must be capable of performance. If the act is impossible in
itself physically or legally the agreement cannot be enforced by law. Impossible contracts are not valid because
performance is most essential elements of valid contract. Any act which should not be done or is non performable
does not create legal obligations. (Section 13(i) of Nepal Contract Act, 2056)
For example, Ram contract to change the color of sky with Shyam it is initially impossible to perform by Shyam. So
it is void as initio.
1.1.16 k. Not expressly declared void:
The agreement must not be expressly declared void by any prevailing law of country. If a contract is made contrary
to current law is regarded as void. Section 13 of Nepal Contract Act 2056 declares that those types of contract will
be void which are clearly as void under the prevailing law.
1.1.17 l. Legal formalities:
A contract may be made expressly but some contracts are recognized after fulfilling certain legal formalities.
Section 88 of Nepal Contract Act, 2056 has the provision that- "in case any current laws prescribes that any specific
procedure must be followed for executing any specific contract or that any specific contract must be registered at
a government office, a contract signed without fulfilling such formalities shall not be valid. An agreement becomes
enforceable by law when all the essential elements of a valid contract are present.
Thus, absence of any of the above said elements is adequate to make the contract invalid.
2.2 Rules regarding Offer and Acceptance
The offer and acceptance are basic and most important factors to form a valid contract. These both elements are
correlative each other for doing or obtain something. A party has to make an offer and the corresponding to
another party, to whom it is made, has to accept it for forming a valid contract. Therefore both are equally
important to a valid contract.
1.1.18 2.2.1 Offer
The word proposal and offer synonymous are also inter changeable. The term 'offer' expresses the willingness of a
party as proposal before other party. It must be made lawfully to be converted an agreement into a contract. It is
itself a starting point to form a valid contract and it must be expressed with expectation to get consent from the
other party in prescribed form. It is therefore known as an expression of willingness of a party with intention to get
acceptance from the other party.
According to the section 2(b) of Nepal Contract Act, 2056; An offer is a proposal presented by one person to
another with the intention of obtaining his assent for performing or not performing any work.
According to Indian Contract Act 1872, "When one person signify to another his willingness to do or to abstain
from doing anything a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal.
According to A.W. Anson, offer means willingness signified with an intention to obtain legal validity.
Thus an offer is a proposal to do or not to do something which is conveys to the other party to achieve his consent
and that can create a legal obligation if it is accepted by the offered party.
2.2.2 Types of Offer
On the basis of its nature, the offer may be classified in various types they are as follows:
1.1.19 a. Express or implied offer:
A valid offer may be expressed or implied. An expressed offer is made by using words in written form or verbal that
makes a contract formal. An implied offer is made by the conduct of the parties or circumstances of the cases. For
example, Ram says to Hari buy his motorcycle for Rs. 50,000/- it is an express offer. Ram runs a citybus on the
particular ….. there is an implied offer by the transport company to carry passengers for a certain fare.
1.1.20 b. Specific and general:
Specific offer is that offer in which the offerer put forwards his offer to particular person or a group of persons. In
this offer only the offered party has right to accept it. An offer addressed to the public in general is known as
general offer. It is not made for a particular person and anyone can accept such offer. In this offer the offerer does
not know about offeree. For example, Ram makes an offer to Hari to buy his car for Rs 50,000/-. Here Shyam the
brother of Hari cannot accept the offer on behalf of his brother. Ram offer from newspaper Kantipur that he will
provide Rs 10,000/- to any one who trace out his lost passport and bring to him. It is a general offer.
1.1.21 c. Cross and counter offer:
When two parties make different but similar offer to propose each other, without having knowledge of other's
offer, is known as cross offer. Such offer does not form a contract because cross offer does not mean as an
acceptance. If a person to whom an offer is put forwarded and he accepts offer altering or changing the terms of
the offer is known as a counter offer rather than an acceptance. The offeree can not change the terms mentioned
in offer but if he does so, it is regarded counter offer. For example, Ram wrote to shyam offering to sell him 100
tons of iron at rupees 8,000 per tons. On the same day Shyam wrote to Ram offering to buy 100 tons of iron at Rs.
8,000 per tons that is a cross offer. If Shyam offering to buy same tons of iron at Rs. 7,500 per ton. That is counter
offer.
2.2.3 The Features of an Offer
The following are the features of an offer.
1. An offer is an expression of willingness to do or not to do something.
2. It is made to another party, particular person or general people.
3. There is an intention to create legal obligations.
4. It may be specific or general, express or implied.
5. There is an intention to obtain the assent of the offeree.
2.2.4 Rules Regarding of an Offer
There are some rules to make valid offer. An offer must be made in accordance with these rules. Rules regarding to
valid offer are given below.
1.1.22 a. Express and implied offer:
An offer can be made in both expressed and implied form. "Expressed offer" denotes the spoken and written offer
and implied offer made by conduct of the party and the circumstance of the case rather than expression.
1.1.23 b. Clarity and certainty:
An offer which is intended to create contract must be certain and clear. Ambiguous and uncertain offer does not
create valid proposal before the other party. The terms of an offer must be certain and clear.
1.1.24 c. An offer may be specific or in general:
It is based on offeree. If an offeree is particular person than it is known as specific offer and the offeree is not
identified particularly is known as general offer. The general offer is made generally before the general people at
large.
1.1.25 d. An offer must be communicated to the offeree:
If an offer is not communicated to the offeree it can not take place as a valid offer. Proper communication of an
offer is necessary element to make a valid offer.
According to the section 4 of Indian Contract Act, 1872; the communication of an offer is completed when it comes
to the knowledge of the person to whom it is made. The similar provision is also made in section 7(1) of Nepal
Contract Act, 2056. According to this section, the act of sending offer is supplied to be completed when the offeree
gates knowledge of an offer.
1.1.26 e. Intention to create legal relationship:
To be a valid offer, it must be intended and capable to create legal relationship. If it has no capacity to create legal
relationship it does not convert into a valid contract.
1.1.27 f. Cross and counter offer do not make a contract:
To be a valid contract there should be an offer and acceptance. If two parties make separate offer in the same
subject matter it does not create a contract. A cross and counter offer is not regarded as acceptance.
1.1.28 g. An invitation of offer is not an offer:
In Carlill v. Carbolic smoke Ball Co. court held that Advertisement in newspaper that the advertiser has goods for
sale are not offers. But advertisement of a unilateral contract are offers. 5
An invitation to offer seems as similar to an offer but it is not valid offer. It is a preliminary step in forming of a
contract. It is only a notice to make an offer another person. For example, The notice of house 'to let' invitation of
quotation or list of petrol pump etc. are the illustration of an invitation of offer.
1.1.29 j. Offer is seeking acceptance of other party:
An offer is made to seek acceptance of the party to whom it is made. An offer is not valid if there is mere inquiry or
expression of a statement.
2.2.5 Revocation and Lapse of Offer
Revocations of offer mean cancellation or withdraw of an offer by the offerer. Offerer has right to revoke it at any
time. The revocation of an offer depends on the willingness of offerer himself. Thus if the offer once made is
recalled by the offerer before it is accepted by offeree. In the case of revocation and lapse of an offer normally
gets terminated and consequently it is no longer open to acceptance.
5
Carlill v. Carbolic smoke Ball Co.
The Nepal Contract Act, 2056 has mentioned several conditions relating to the revocation and lapse of an offer.
Any of the following conditions an offer may revoke or lapse.
1.1.30 a. By revocation notice (Section 8.1)
The offerer has right to revoke his offer at any time by giving notice of revocation to the offeree. But such notice
must be given to the offeree before his acceptance comes to the knowledge of offerer.
1.1.31 b. By the expiry of prescribed (Stipulated) time (Section 9.a)
An offer lapses if acceptance is not communicated within the prescribed time in the offer, or if no time is
prescribed, within a reasonable time. (Section 9.a of Nepal Contract Act, 2056)
For example, Ram offer to sell his orange of 100 tons to Shyam in month of Magh but Shyam accepts it in the
month of Baishak that is not a reasonable time because the seasons of orange has been over.
1.1.32 c. By the expiry of reasonable time (Section 9.b)
The time limit is not specifying in offer to get the acceptance from the offeree, the offer shall be revoked after the
expiry of the reasonable time limit as required by the nature of that work.
1.1.33 d. By death or Insanity of offerer or offeree before acceptance (Section 9.c)
The fact of death or insanity of the offerer would not put an end to the offer until it comes to the notice of the
acceptor before acceptance. An offeree's death or insanity before accepting the offer puts an end to the offer.
1.1.34 e. By Counter Offer (Section 9.f)
The offer is revoked if the acceptance is made by altering or adding the new conditions. It is because when become
so the acceptor himself comes to be an offerer.
1.1.35 f. By non fulfillment of conditions (Section 9.g)
If there is a condition in the offer and such condition must be fulfilled firstly but the acceptor accepts it without
fulfilling such condition, the offer is revoked.
For example, Ram made to sell his house and car to Shyam for a price of 15 lakhs. But Shyam agreed to purchase
only house and not the car. The offer lapses because here condition was sale of house and car together.
1.1.36 g. By rejection of offeree:
An offer is regarded as revoked when the offeree rejects it. The rejection may be express that is by words spoken
or written or implied. Implied rejection is one (a) where either the offeree makes a counter offer, or (b) where the
offeree gives a conditional acceptance.
1.1.37 h. By subsequent illegality of subject matter:
An offer lapses if it becomes illegal after it is made, and before it is accepted. Thus, where an offer is made to sell
100 bags of rice for Rs. 10,000/- and before it is accepted, a law prohibiting the sale of rice by private individuals is
enacted, the offer comes to an end.
1.1.38 i. By destruction of subject matter:
If the subject matter of an offer is destroyed by any cause like fire, flood or natural calamity before the offer is
accepted by the offeree it becomes lapse.
2.2.6 Meaning of Acceptance
Acceptance means giving consent to the offer. It is an expression by the offeree of his willingness to be bound by
the terms of the offer. According to section 2(b) of the Indian Contract Act, 1872 defines 'acceptance' as "When
the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted a
proposal when accepted becomes a promise". Nepal Contract Act, 2056 section 2(c) defines that acceptance is the
consent given by the person to whom an offer has been presented and it is based in the same meaning of that
offer.
According to S.W.Anson; "Acceptance of an offer is the expression by words or conduct of assent to the terms of
the offer in the manner prescribed or indicated by the offerer."
2.2.7 Rules regarding to Acceptance
The acceptance of an offer is very essential factor to constitute a contract. To avoid the possibility of a dispute over
the contract the following rules are in practice. A valid acceptance should have to fulfill the following rules:
1.1.39 a. Express or implied acceptance:
Acceptance may be made in express or implied form. If acceptance is made by words, spoken or written form
known as express and it is made by conduct is known as implied acceptance.
1.1.40 b. Offer can be acceptance by the offeree:
An offer can be accepted only by the offeree. Rest persons who are not indicated by the offer have no right to
make an acceptance if they do so the acceptance is not regarded as valid.
1.1.41 c. The acceptance must be communicated to the offerer:
The acceptance must be communicated to the parties to create a valid contract. Remaining silent or doing nothing
can not be regarded as a valid acceptance. Only accepting the offer is no enough, notice of acceptance should be
given to offerer.
1.1.42 d. Acceptance must be absolute and unconditional:
In order to create a valid contract, the offeree has to accept all the terms of the offer absolutely and
unconditionally. Partial or conditional acceptance of the offer does not amount a valid offer but create a counter
offer.
1.1.43 e. Acceptance must be communicated in usual or prescribed manner:
It is better to communicate acceptance of the offer in a prescribed or usual or reasonable manner within the given
time. If it differs, the offerer may reject the acceptance. e.g. Ram makes an offer to Shyam and says; "If you accept
the offer reply by post." Shyam sends the reply by phone that acceptance is not according to the mode as
prescribed in offer.
1.1.44 f. Acceptance must be given within prescribed time:
Rita made an offer to Sita asking that; 'Sita' will you sale your car to me for Rs.500000. If you agree, send me notice
within 7days after the received this proposal. Sita accepts the offer of Rita. But she made notice after 9 days from
the received of such offer. This is not a valid acceptance because the prescribed time for accepting offer has
already been lapsed.
1.1.45 g. Acceptance must be given after receiving the offer:
Acceptance must be given after receiving the offer if the acceptance is made before receiving the offer is not
regarded as valid acceptance.
1.1.46 h. Acceptance must be before the offer lapses or revokes:
To create a valid contract acceptance must be communicated before lapses or revokes of an offer. After a lapse or
revocation of the offer there is no validity of the acceptance.
1.1.47 i. Acceptance by silence is not valid:
A silent acceptance can not be communicated and is not evident by any words or conduct such an acceptance can
not create a valid contract.
2.2.8 Revocation and Lapse of Acceptance
An offeree may revoke the acceptance by sending a notice but such revocation is not valid if the offerer has
received the notice of consent earlier. (Nepal Contract Act, 2056 Section 8.2)
An acceptance is revoked or terminated under any of the following conditions:
a. Acceptance revoked by notification:
The Offeree can revoke his acceptance by giving notice to the offerer but such notice must reach first to the
offerer rather than the notice of acceptance. Nepal Contract Act, 2056 Section 8(2).
b. By Death or insanity of Acceptor (Nepal Contract Act, 2056 Section 9)
The acceptance is cancelled in case of death or insanity of the acceptor before received the consent by offerer. If
the offeree dies or becomes insanity only after received the notice of acceptance by offerer, the acceptance is not
revoked and it formulates a valid contract.
c. Effects of two notices: (Nepal Contract Act, 2056 Section 8, 9)
The offeree sends the letter of acceptance and notice of revocation to the offerer respectively. If the offerer gets
both notices at the same time in such situation the acceptance is generally revoked. No contract is formed by such
notice.
d. By Subsequent Impossibility:
Where impossibility arises subsequently the acceptance is revoked.

e. By lapse of time:
Acceptance lapses when the acceptance is not communicated till the prescribed time. (Nepal Contract Act, 2056
Section 9.b) The acceptance lapses when it is not communicated within the reasonable time.
f. By non-fulfillment of terms of proposal:
If any condition or act given in the proposal is not fulfilled it also revokes the acceptance.
2.3 Meaning and Rules Regarding Consideration
The Consideration is one of the most essential elements of a valid contract. It is the foundation of an agreement on
which valid contract may stand. To be converted an agreement in to contract, the consideration is necessary
condition except some exceptions. Generally without consideration no contract is regarded as valid contract.
Promises without something in return are not enforceable, such something is called consideration. A contract
without consideration is not create legal obligations. Consideration may be made in the form of money, goods and
promise to do something or providing service.
2.3.1 Definition of Consideration
Consideration means a promise made to perform or not to perform any work in consideration of performance or
non-performance of any work prescribed in the proposal. Nepal Contract Act, Section 2(d).
According to Anson; "Consideration is something which should be valuable in the eyes of law".
According to Black's Law Dictionary; "Consideration is the price or goods which the parties to fulfill the promise
mentioned in the contract".
The agreement is legally enforceable only when both the parties give something and get something in return. To
get something in exchange of something or do any work is called consideration. Consideration is need not
necessary be in cash but it must be lawful. It may an act or promise to do or not to do something.
Example: 'A' agrees to sell his car to 'B' for Rs. 10 lakhs. Car is consideration for B and 10 lakhs is the consideration
for 'A'.
To convert an agreement into a contract, every agreement must be made with consideration. In return for promise
one gets something and the other looses something such something is called consideration. It is also known as
"quid pro quo" in Roman law.
2.3.2 Features of Consideration
The basic features of consideration are as follows:
• Consideration is a promise to do or to abstain from doing something.

• It is made as desire of the Promisor.
• It can be given by the promisee or any other person on behalf.
• It can be the past, present or future.
• It may be more or less but must be reasonable.
• It is something real of valuable from view point of law.
• It can not be illegal, immoral and against the public policy.
2.3.3 Types of Consideration
Consideration may be classified in to the following three types
• Past Consideration
• Present or Executed consideration
• Future or Executory consideration
2.3.4 Rules regarding Consideration
There are some rules or essential elements to be valid consideration and the consideration is must satisfy such
rules or elements to be regarded as valid. The Nepal Contract Act, 2056 has also comprised several rules of
consideration. Rules regarding to consideration or its essential elements are given below:
a. Consideration must move at the desire of the offerer:
The offeree must follow the desire or request of the offerer to do or not to do something. The work performed
according to the desire of the third party or voluntarily rather than offerer does not constitute a valid
consideration. Thus the work to form consideration must be in accordance with the desire or request of the
Offerer not voluntarily or at the desire of other third person.
b. Consideration need not be adequate:
Although the consideration is necessary element but it is not necessary to be adequate. If it has some value in the
some value in the eyes of law, it is enough and the contract is valid. Whether it is more or less does not affect the
validity of contract.
c. Consideration must not be illegal:
The consideration of every agreement must be lawful or legal. No valid contract bears the unlawful consideration
and if the illegal consideration consists in an agreement it can loose its validity or enforceability.
d. The consideration must not be immoral or against the public policy:
The consideration must not be contrary with the public policy and general social practices of the people at large. If
it is against to the public policy and such social practices than it looses its way of remedy from the court of law.
e. Consideration must be real not illusory:
Although inadequate consideration is also sufficient to form a contract but it must be real and possible or not
illusory. Example, A promise to put life in dead body for Rs. 10,00,000/- is illusory.
f. Consideration must be valuable to some extent:
In Thomas v. Thomas, court held that consideration means something which is of some value in the eye of law. It
may be some benefit to the plaintiff or some detriment to the defendant. 6
6
Thomas v. Thomas
Inadequacy of consideration does not affect its validity but it has some value in the eyes of law. Therefore it has to
contain some value. For example, where A agrees to sell his car worth Rs. 10,00,000/- only and his consent is free,
the agreement is a valid contract.
g. Parties are autonomous to determine the consideration:
Parties of the contract are autonomous to fix the quantity of consideration. Such provision is incorporated under
section 4 of the Nepal Contract Act, 2056.
h. Consideration may be past, present or future:
Forms of consideration based on the nature of contract and it may be past, present or future. These forms of
consideration depend upon the nature of executed, partly executed of contract respectively.
Past consideration: Where the promisor had received the consideration before the date of promise, such
consideration is called past consideration. It means promise for past services rendered. But past consideration is
no consideration in English law. Example, 'A' has lost his purse and 'B' a finder, delivers it to him. 'A' in recognition
this service, promises to pay 'B' a sum of money. That is past consideration.
Present consideration: Consideration which moves simultaneously with the promise, is called 'present
consideration' or executes consideration. Example, where 'A' sells a book to 'B' and 'B' pays its price immediately, it
is a case of executed contract.
Future consideration: When the consideration on both sides is to move at future date, it is called future
consideration or executor consideration. Example, 'A' agrees to sell and 'B' to buy a quantity of goods at stated
price. In other words 'A' has promised to sell and 'B' has promised to pay.
1.1.48 i. Consideration may move from the promisee or any other person:
As long as there is consideration for a promise, it is immaterial who has furnished it. It may move from the
promisee or from any other person. This means that even a stranger to the consideration can sue on a contract,
provided he is a party to the contract. This is sometimes called as 'Doctrine of constructive consideration.
2.3.5 Contract without Consideration (Exceptional rules of consideration)
Generally it is assumed that no consideration no contract. It means an agreement without consideration is no

contract. It signifies that the contract without consideration is no a valid contract and consideration is essential
element to form a valid contract but there are some certain exceptions to this rule. These exceptions provide
validity to the contract without having consideration. Nepal Contract Act, 2056 has not mention any provisions
about the exceptions relating to consideration. But section 25 and section 185 of the Indian Contract Act, 1872 has
mentioned about the exceptions which are given below:
1.1.49 a. Natural love and affection:
An agreement without consideration is valid if it is based on natural love and affection. It is enforceable only if the
following requirements are satisfied.
• It is made by written document

• It is registered under the law.
• It is made on account of love and affection.
• The parties to it stand in a near relationship to each other.
Example: 'A' for natural love and affection promises to give his daughter 'B' Rs. 10 lakhs in to written and
registered it. This is a valid contract, but there is no consideration for 'A'.
b. Contract to pay time–barred debt:
If a debtor makes promise to pay a time barred debt then he is obliged to pay such debt. The promise may be to
pay whole or part of debt. According to Section 25(3) of Indian Contract Act, 1872 a promise to pay time barred
debt without consideration is enforceable provided that:
• It is promise to pay whole or part of the debt.

• It is made in written
• It is signed by the debtor or by his agent, who generally or specially authorized for these purpose.
• It relates to a debt which could not be enforced by creditor by limitation.
c. Gift:
The gifts actually made by a donor and accepted by the donee are valid even without consideration. According to
Indian Contract Act, 1872 Section 25 a completed gift need not consideration. Nepal Contract Act is silent in this
respect but the chapter of gift (Dan Bakas Ko Mahal) of Muluki Ain,2020 has made some provision under which a
party can transfer his property to other as a gift without consideration.
d. Agency:
According to the Section 185 of Indian Contract Act, 1872 the consideration is no necessary to create an agency.
There is no question of salary, reward or commission to agent. It is the matter between the appointer and
appointee of an agent.
e. Promise to compensate:
Such promise made without consideration is valid if it is a promise to compensate. (Wholly or in partly) The person
who is to be compensated has already done something voluntarily or has done something which the promisor was
legally bound to do.
f. Contribution to Charity:
A promise to contribution to charity would be enforceable by law even without consideration. Example, 'A' has
agreed to subscribe Rs. 1,000 toward the construction of a Town Hall at Patan. 'B' on the faith of the promise
entrusted the work to a contractor and undertook liability to pay him 'A' was liable.
2.4 Contractual capacity
2.4.1 Meaning and Definition of Contractual Capacity
The Contractual capacity is one of the most essential elements of the parties to form a valid contract. Parties must
be capable or competent to enter in to particular contract. Actually the contractual capacity determines the
qualifications of the parties to enter in a contract. Simultaneously it prevents the weak person being cheated by
other mentally, physically and legally strong person. An agreement made by or with the parties lacking such
capacity and competency is not valid and enforceable. The contract made by incapable parties does not create
legal relationship as well as rights and obligations between the parties. The Court of law does not provide remedy
to such contract in case of breaching of the terms and conditions. It means any contract must be formulated by
competent party in according to prevailing law.
Every person competent to contract who is the age of majority according to the law to which he is subject and who
is of sound mind and is not disqualified from contracting by any law to which he is subject. Sec. 11 of ICA, 1872
Thus the person is incompetent to contract under the following circumstance according to Indian Contract Act,
1872 (Section 11)
• If he is minor according to law,

• If he is unsound mind and,
• If he is disqualified from contracting by any law to which he is subject.
According to Section 3 of Nepal Contract Act, 2056; Any person other those mentioned below may be competent
for concluding a contract.
(a) Those who have not attained 16 years of age. (Minor)
(b) Those who are of unsound mind.
(c) Prevailing law shall be deemed to be incompetent to conclude that contract. (Disqualified person by
law)
It means a sound minded person who has attained age of 16 years and not declared disqualified by law is called
competent person to enter into a valid contract. If any person enters in to a contract, without such qualifications,
would be void.
2.4.2 Minor
Minor refers an infant person who has not attained certain age as specified by law for certain purpose. The person,
who has attained the age as specified by law, is called the adult. The minor and adult are treated by law differently.
It is believed that minor or infant do not understand the nature and consequence of action and they do not control
themselves, so they are treated differently than adult. The age of minority is different in different country and
somewhere may be same. In Nepal the age of competency is different in different purpose. Like competent age for
marriage or competent age for contract are different in Nepal.
Section 3(1) of the Nepal Contract Act, 2056, expressly provides that a minor is a person who has not completed
the age of 16 years. It means the minor is a person who does not attain the certain age as specified by the law for
the certain purpose. The main objective to determine the age limitation of minority is to protect their rights and
interests against the experienced and adult person. This provision is made for protection of minor on the ground
that the law must protect the interests of weak person. (e.g. Child, Person of unsound mind) Therefore law
protects minor, preserves his rights and interests and helps him in his dealings on account of absence of maturity.
The law has prohibited forming a contract by or with the minor.
1.1.50 2.4.2.1 Rules Regarding Minor's Contract:
It is clear that the minor has no right to enter into contract. If done, such contract becomes void and does not
enforce by the court of law. There are several rules regarding to minor's contract. The Nepal Contract Act, 2056
has also recognized these rules to some extent which are given below:
In Mohiri Bibi vs. Dharmodas Canose, Court held that; a minor sued for setting aside the mortgage stating that he
was underage when the executed the mortgage. In this case court held that, the mortgage was void and therefore,
it was cancelled. Further, the moneylender's request for the repayment of the amount advanced to the minor as
part of the consideration for the mortgage was also not accepted. 7
a. Contract made by or with a minor becomes void:
A minor person is regarded as incompetent party of contract and any contract made by or with minor is void. It has
not legal value and do not enforce through formal court.
b. Contract for the benefit of minor is valid:
Although a contract with a minor is void but he can promise of a contract which is made for his benefit. The
beneficial contract to minor is regarded valid for his benefit and it is enforced at his option, but not the option of
the other party.
c. No ratification on attaining the age of majority:
If any contract is made by a minor party, it cannot be ratified by him after attaining his majority. If he wants to
provide validity such contract he has to formulate fresh contract.
d. The minor can not become a partner but he may be beneficiary:
The partnership among the partners is result of their contract. A minor can not become a partner in the firm but he
may be admitted to the beneficiary of an existing firm with consent of the other parties. In the other words, the
minor can share the profit but not share losses. He does not become personally liable for any obligation of the
firm.
e. The minor can be an agent but does not liable for his act:
A minor can be appointed as an agent because an agent performs only a contracting role between the principal
and third party as per his assigned role. The minor does not liable for his acts. Such liability goes to the principal.
He is free from the personal responsibility.
f. Parents can be made a necessary contract on behalf of minor:
To preserve the interest of minor his parents or any other third person may be become a guardian and such
guardian can enter in to necessary contract on behalf of minor.
g. Contract by minor and major jointly:
If any contract is made by a minor jointly with a major person, the minor is not liable under such contract but the
adult person is fully liable and the contract can be enforced against him.
h. The rule of estoppel does not apply to minor:
Estoppel is a principle that under which a person does not go against his prior statement. If a person expressed a
particular statement on any matter or fact he is bound to obey it in future. In the case of minor this rule is not
applicable.
7
Mohiri Bibi vs. Dharmodas Canose
i. Minor and status of insolvency:
A minor can not be declared as an insolvent because he is not capable to enter in to a contract. He is not
personally liable even in the case of necessaries supplied or necessaries services rendered to him or his
dependents.
j. Minor's liability for necessaries things:
In the case of necessaries supplied to a minor the person who has supplied those things can be entitled to be
reimbursed from the property of such minor. But a minor is not personally liable. Only his property will be the
subject of liability. Therefore if a minor has not his own property, the supplier will lose the price of such necessary
things also.
2.4.3 Person of Unsound Mind
The sound mind of a person is a necessary element for the capacity of contract. As minor person, person of
unsound mind is also regarded as incapable or incompetent to contract and if such person makes any contract that
is void. It means the party of contract must have sound mind to create valid contract.
The sound mind means normal condition of mind by which the person can understand the nature and
consequence of his action. If person looses soundness of mind he does not differentiate wrong and right of his
work. Due to the unsoundness of mind of such persons, they are prevents by law from being treated as incapable
to enter in to a contract.
Although Section 3(b) of Nepal Contract Act, 2056 has made a provision that a person of unsound mind is
incompetent to make contract but it has not defined the term "unsound mind of person." The Indian Contract Act,
1872 has clearly defined the term "sound mind of person." According to Section 12 of Indian Contract Act, 1872 a
person is said to be of sound mind; for the purpose of making a contract, if at a time when he makes it, his capable
of understanding it and of forming a rational judgment as to its effect upon his interest.
On the basis of this definition it is clear that a person, having a capacity to understand the terms of the contract
and ability to form a rational judgment, is a person of sound mind. The unsoundness of mind may arise from
idiocy, lunacy or insanity as well as drunkenness and slow pace of mind. A person with mental illness, dumb,
extreme age and blind people are also fall under the category of the persons of unsound mind.
A person, who is usually of unsound mind, but occasionally of sound mind, may make contract when he is of sound
mind. Similarly, a person, who is usually of sound mind but occasionally of unsound mind, may not make a contract
when he is of unsound mind. Basically, unsoundness is caused by idiocy, (permanent insanity) lunacy or insanity,
(temporarily sound and temporarily unsound) drunkness, (unsound up to effect of drinks) hypnotism (unsound for
certain span of time because of another's tactics) and mental decay (incompetence caused by old age or over
excitement of other physical defects).
The guardian of the unsound mind can make contract on behalf of such person. Similarly, the contract relating to
necessaries supplies with a person of an unsound mind is taken as a valid one and supplier can claim his amount
from the property of such person. Unsoundness causes the free consent or reasonability of promise.
1.1.51 2.4.3.1 Effects of Contract with unsound minded person
• Generally, the position of contract with a person of unsound mined is similar with a minor. A contract made
with person of unsound mind is void and is not enforceable; however, a contract made for the interest or
benefit of such person is valid and enforceable by law.
• The guardian of unsound minded person can make contract with other person for the interest or benefit of
such person. Sec. 3(3) of NCA 2056
• In case of necessaries supplied to such person or any his dependents is deemed to have been enforceable.
Sec.11(a) of NCA 2056
2.4.4 Person Disqualified by Law
The person disqualified by laws also incompetent to enter into contract as minor and person of unsound mind.
Section 3(2) of the Nepal Contract Act, 2056 has made the provisions that person lacking of qualifications to
conclude a contract under current law shall be disqualified for the purpose of formulating contract. Their legal
status is the cause of disqualification by which they are regarded as incompetent for making contract. If such
disqualified person enters in to contract that contract does not amount the status of valid contract. The certain
legal status of person makes him incapable to do contract. Persons who are disqualified by laws to enter into a
valid contract are discussed given below.
a. Alien enemy:
Alien is a person of foreign country. When the war is declared with that country, which belongs with nationality of
such alien person, in this situation that alien person is regarded as alien enemy. In such situation no local person
permitted to contract with such alien enemy. If any contract was signed before the war, it is either repudiated
(reject) or suspended up to the period of war. After the termination of war, the previously held contract is revived
if it has not crossed the duration according to law. If there is no war between the countries as mentioned above,
the alien and local person can make a contract.
b. Convict or Criminal:
A person, punished by the court in the case of criminal charge, is known as convict or convicted criminal. Such
person looses their legal capacity to perform certain work. The convicted person does not enter in to a contract
during the period of punishment.
c. Foreign sovereigns:
Ambassador, Representative, Delegates can not enter into contracts. Because, they are free from civil liability,
which are created by the law of residential country. That is why; individual cannot enter into contract with such
person because there is no legal remedy against them.
d. Insolvent:
When a person unable to pay of borrowing money and whose property is divided among the creditors is known as
insolvent. Such person has no right to sell his property and has no right to make contract.
1.1.52 e. Company/ Corporation:
Company is also a person in the eyes of law. It is the creation of law for performing certain works. Such person has
less significant capacity in comparison to natural person to make a contract. It is empowered by its memorandum.
Corporation or Company can involve in to a contract within the jurisdiction of the memorandum and article of
association if they cross the jurisdiction of memorandum and article of association that would be void.
f. Professional person:
Professional person means such persons who are engaged in particular profession having with specific rules and
code of conduct like; doctor, professor, Judge, lawyer etc. Due to their high and reputed professional career they
are also disqualified by law to make certain contract in particular sector. Barrister can not contract directly to his
client in England due to their code of conduct. Similarly, retired Justice of Supreme Court of Nepal can not make
representation on behalf of his client. Nepalese lawyers are also prohibited to make contract with their client for
fees.
2.5 Meaning and Importance of Free Consent
2.5.1 Meaning and Definition of Free Consent
People who enter into contract must give their free consent. It is the most important and essential element of valid
contract. In the absence of free consent or without the free consent valid contract is completely impossible. It is
essential to create a valid contract that the parties have consensus or meeting of the mind. They must agree up on
something in the same sense at the same time. It gives continuous power till the entire performance of the
contract.
Mutual understanding between the parties results agreement on the same thing in the same sense. Such
agreements represent the real consent from the inner part of the parties which gives positive impression to
performance of the liabilities created from the contract. It is easily performed and enforced. Free consent provides
for a contract:
• Meeting of the mind of parties,

• Enforceability,
• Legal remedy for aggrieved party.
Famous Jurist Salmond states that: If there is any error in consensus or meeting of the mind of the parties then
there is no contract.
Nepal Contract Act, 2056 Sections 2(c) defines 'Consent' as the consent given by the person to whom a proposal
has been presented in the same meaning of that offer but there is no any definition about the free consent. Nepal
Contract Act only mentions about the void and voidable contract under section 13 and 14 respectively. In Indian
Contract Act, 1872 Section 13 defines 'Consent' as two or more persons said to consent when they agree up on the
something in the same sense. In conclusion, we can say consent given by a person voluntarily out of his own desire
and conscience is called the free consent.
Thus consent involves identity of minds of "consensus-ad-idem". (Agreeing upon the same thing in the same sense)
If, for whatever reason, there is no consensus ad-idem among the contracting parties, there is no real consent and
hence no valid contract. Similarly Section 14 of the Indian Contract Act, 1872 defines free consent: Consent is said
to be free when it is not caused by;
• Coercion
• Undue influence
• Fraud
• Misrepresentation
• Mistake.
These five elements are called vitiating (to spoil or reduce the effect) factors of free consent.
If the contract is made under coercion, undue influence, fraud and misrepresentation then the contract will be
voidable at the option of the aggrieved party. But when consent is caused by 'bilateral mistake' as to a matter of
fact essential to the agreement, the agreement is void. If both parties are mistaken, as the matter of fact, the
agreement would be void.
2.5.2 Importance of Free Consent
The importance of free consent is very much important factor in the law of contract. Without the free consent of
the contracting party, the performance of contract is impossible. Performance is the basic provision of the valid
contract. The importance of the free consent is as below:
• To respect the contractual independency of the parties.

• To promote the reasonable transaction.
• To response the intention of the parties.
• To protect the parties of the contract in case they are compelled to enter in to a contract under
fraud, coercion, undue influence, or misrepresentation.
• Meeting of mind.
• Enforceability of contract.
• Free consent is the foundation of valid contract. Without free consent any agreement can not bear
the status of valid contract.
• Without free consent any agreement does not amount the valid contract and such contract cannot be
enforced by the court of law.
• Under the free consent, parties are autonomous to determine the consideration.
• Free consent creates the meeting of the mind (Consensus ad idem) between the parties of contract.
• Free consent creates the legal obligations to obey their commitments for parties.
• Free consent binds the parties to fulfill their obligations and makes sure to resume the rights.
• Free consent helps to make conducive environment to determine the consideration
• Free consent secures the remedy for aggrieved party.
• Free consent helps to perform the consent.
• Finally, free consent helps to create the favorable legal environment to growth and to develop the
business realm etc.
2.5.3 Meaning and Definition of Coercion
Coercion is a term which denotes that a person is compelled to do or no to do something as against his willingness
of interest. As the view point of contract law; it is an act of using unlawful force for obtaining consent of person
who does not voluntarily agree to enter into a contract. Therefore when a party of contract is compelled to enter
such contract with use of force by another party under a threat is known as coercion. Under the English law it is
known as duress.
According to section 15 of Indian Contract Act, 1872 Coercion is the committing or threatening to commit any act
forbidden by Indian Penal Code, or the unlawful detaining, or threatening to detain any property to the prejudice
of any person whatever, with the intention of causing any person to enter in to an agreement. Likewise, Section
14(1) of the Nepal Contract Act, 2056 has explained the term 'Coercion' as a person should be committed coercion
If he, with a view to make any person enter in to any contract against his will, withholds his property or threatens
to loss his life, or threaten to commit any other work against the prevailing law.
In conclusion, the term coercion can be defined as "a person is compelled to enter into a contract against his will
due to extra-legal pressure is known as coercion in the sense of contract law". If a contract is made by coercion,
the aggrieved party must file a case against it within a year to have it declared invalid. Otherwise it amounts the
status of valid contract.
The following acts are included in the coercion:
• Committing or threatening to commit any act forbidden by the law.

• Unlawfully detaining or threatening to detain any property or life or reputation.
• Threatening to insult a person for compelling him to enter into a contract.
1.1.53 2.5.3.1 Features of coercion:
The Features of coercion are as follow:
• Coercion means to threaten or to attain the act against of law.

• Not only the contracting parties but also a third person may be threaten.
• Coercion should be constituted to enter into an agreement.
• Coercion can be constituted in the country or any other places.
• Consent is caused by coercion, when
 Committing or threatening to commit any act forbidden any law.
 Unlawfully detaining or threatening to detain any property.
 Threatening to injure body, life, or prestige of a person.
2.5.3.2 Conditions or Circumstances for non-coercion
In some special circumstances or cases, to compel a person to do or threaten to do some thing does not amount
coercion. In such cases it is not regarded as coercion. These are given below:
a. A threat to prosecute:
If any person makes threaten to another person to file case against him for compelling him to enter into contract is
not regarded as coercion. The condition is that the threat should not be of false case.
b. A threat to commit suicide:
If any person obtains consent, by threatening to commit suicide from another person, is not coercion. Threat to
commit suicide is not regarded crime therefore it is not coercion. Threatening to commit suicide is not punishable
by Indian penal code also.
c. High Price:
Persons are free to purchase goods as their will but due to necessity they have to purchase goods even in high
price. Only the ground of purchasing goods in high price is not regarded as coercion. But nobody can bind anybody
to purchase his own goods.
d. High Rates of Interest:
Like the high price, the high rate of interest also does not amount the coercion. Person may be compelled to
borrow loan from another due to his own compelling circumstances but it is not regarded as coercion. However,
nobody can be or is entitled to bind anybody to borrow loan only with him.
2.5.4 Undue Influence
When a party enters in to a contract under any kind of influence, mental pressure or persuasion, which prevents
him from exercising a free and independent judgment, is known as undue influence. It is an abuse of one's position
and to achieve unfair benefit. Such contract is voidable at the option of the influenced party to make contract.
Undue influence is an influence which compels another person to do some thing which he would not have done if
he has been a free mind. Thus undue influence is the domination of a weak mind by a strong mind to the extent of
exploitation in the context of an agreement.
2.5.4.1 Definition of Undue Influence:
Section 16(1) of the Indian Contract Act, 1872 has defined undue influence as "A contract is said to be induced by
undue influence where the relations subsisting between the parties are such that one of the parties is in a position
to dominate the will of the other and uses that position to obtain an unfair advantage over the other."
Likewise Section 14.1(b) of Nepal Contract Act, 2056 states undue influence means "Influence exercised by a
person upon another person who is under his influence for personal advantage or interest. Undue influence means
relation abuse agreement.
From these definitions, it is clear that one of the party is in a position to dominate the will of the other and uses
that position to obtain an unfair advantage over the other is an undue influence and a contract is formed in this
way is called a contract by undue influence.
According to the section 14(2) of the Nepal Contract Act, 2056 the following person can dominate the will of
another:
• Person under his detention, guardianship or protection.

• Person whose mental capacity is temporarily or permanently affected by reason of illness of bodily or
mental distress.
• Person over whom there is possibility to exercise economic or social influence.
A contract formulate by undue influence is voidable at the option of aggrieved party whose consent is obtained by
using undue influence. The aggrieved party is entitled to avoid the contract caused by undue influence. Such
contract remains valid until it is declared void by the court or the aggrieved party remains silence or voluntarily
accepts it
2.5.4.2 Presumption of Undue influence:
• Where a party holds a real or apparent authority over the other. (like- Master and Servant, Parent
and Child)
• Where a party stands in a fiduciary relationship to the other. (like- Lawyer and Client, Trustee and
beneficiary)
• Where a party playing a role of guardian or protector.
• When party makes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of old age, illness or mental or bodily distress it is often subject to influence of
others and law provides protections to such a distressed person.
This is, however, no presumption of undue influence in the following cases:
• Husband and wife

• Mother and daughter
• Grandson and Grandfather
• Landlord and tenant
• Creditor and Debtor.
In these cases, undue influence shall have to be proved by the party alleging that undue influence existed.
2.5.4.3 Burden of proof:
a. The burden of proof lies on the party who is in a dominant position only When:
• There is existed the power to dominate other's will.

• It appears that the transaction is not conscionable one.
• The circumstances are existed where undue influence is presumed.
b. The burden of proof lies on the alleging party:
• Undue influence cannot be presumed in the case of landlord and tenant or creditor and debtor.
• There is no presumption of undue influence where a lack of judgment, a lack of the knowledge of
facts.
When suspected undue Influence:
Undue influence is suspected in the following cases:
• Where consideration is inadequate.

• Where fiduciary relationship is between the parties.
• Where inequality is between the parties as regards to age, intelligence, social status etc.
• Where there is absence of independent advisors for the weaker/dominating party.
• Where there is unconscionable bargain or is against the conscience of reasonable person.
2.5.4.4 Difference between coercion and undue influence:
Although in some respects both are similar but there are some major differences which are given below:
Coercion Undue influence
1. Use of physical force to injure life and property. 1. By mental pressure dominating will of other.
2. Parties may or may not be related or stranger. 2. There must be a certain relationship between
the parties.
3. By detaining or threatening to detain life and 3. By dominating the will of other.

property of other party.
4. Burden of proof on the party who claims. 4. Burden of proof lies on the mainly dominant
party.
5. It includes the criminal conduct. 5. No criminal conduct is involved.
2.5.5 Misrepresentation
A representation means a statement of fact made by one party to the other, either before or at the time of
contract, relating to some matter essential to the formation of the contract with an intention to induce the other
party to enter in to a contract. A representation when wrongly made, either innocently or intentionally, is termed
as a misrepresentation.
Misrepresentation is one of the factors which hamper the free consent of contractual party. Misrepresentation is a
false statement made by a person innocently without any intention of deceiving (misleading) the other party.
Willful or deliberate with an intent, to deceive other party, is called fraud.
According to S.W. Anson; the term misrepresentation is a false statement which the person making it honestly
believes to be true or which at any rate he does not know to be false. Nepal Contract Act, 2056 Section 14.1(d)
mentions about the misrepresentation which are as follows:-
• Submitting a false statement or false particulars of any fact without any reasonable basis.
• Causing any party of the contract to his prejudice.
• Causing a mistake deliberately about the subject matter.
According to Bare Act, Indian Contract Act, 1872 Section 18 defined the term misrepresentation as follows:
• Positive assertion (to make certainty): In a manner not warranted by the information of the person
making it of that which is not true, though he believes it to be true. Example, 'A' says to 'B' who
intends to purchase his land, "My land produces 10 quintals of wheat per acre." 'A' believes the
statement to be true, although he did not have sufficient grounds for the belief. Later on, it transpires
that the land produces only 7 quintals of wheat per acre. That is a misrepresentation.
• Breach of duty which, without intent to deceive, gains an advantage to the person committing it.
• Causing mistake about the matter innocently
Thus a misrepresentation is a representation when wrongly made by a party to the contract to another innocently
or without any intention to deceive the other party. It is not dishonest as a fraud. A contract is made without mens
rea (guilty mind) or no intention of deceives others.
Contract caused by misrepresentation is not valid. Such contract is voidable at the option of the party whose
consent has been obtained by misrepresentation. The party who claims the contract as suffered from
misrepresentation has to present evidence to prove his claims. It means the burden of proof lies upon the
aggrieved party.
2.5.6 Fraud
It is a willful misrepresentation with intent to deceive another person to believe that a thing is true which is untrue
or false. It means fraud is misrepresentation with bad intention. It is made knowingly by a party to deceive
another. Fraud is a one of the factors which always hamper the free consent of contractual party. The Nepal
Contract Act, Section 14.1(c) has made the definition of the term fraud. According to this section it includes
following things under fraud if committed by a party to the contract or his agent with a view to deceiving another
party or his agent. Example, 'A' sells, by auction, to 'B' a horse which 'A' knows to be unsound. 'A' says nothing to
'B' about the horse's unsoundness. This is not fraud in 'A'.
In R.C. Thakkar v. Gujrat Housing Board, court held that a mere false statement is not fraud. Fraud is committed
wherever one man causes another to act on a false belief by a representation, which he doesn't himself believe to
8
be true.
• To induce a party to believe a false act as true one,

• To conceal (hide) actively any factual truth,
• To do any act by which the party believes false as true, and
• To do some such acts which are declared to be fraudulent by other Nepalese laws.
According to section 17 of Indian Contract Act, 1872 defines that; fraud means acts committed by a party to a
contract with intention to deceive another party or his agent or to induce him to enter into the contract with the
active concealment of a fact by one having knowledge of belief of the fact. Thus, where there is dishonesty,
recklessness, bad intention to induce others to wrong way, to harm others and having self benefit are the distinct
characteristics of fraud. It turns the contract to voidable class.
It is also a voidable contract. It may be void at the option of aggrieved party. The aggrieved party has right to take
legal action to avoid the contract where his consent was obtained through fraud and the party has right to claim
damages for his loses from the other party who commit fraud against him. The burden of proof in such case lies
upon the aggrieved party it means who claims the fraud, he has to prove it.
1.1.54 2.5.6.1 Difference between the Fraud and Misrepresentation:
The term fraud and misrepresentation is similar in some respect except the intention to deceive other party. Some
major differences between fraud and misrepresentation are as below:
Fraud Misrepresentation
1. It includes the intention to deceive the other 1. It does not include the intention to deceive the
party or it is willful action. other party or it is not willful action.
2. The party, who makes false statement, knows 2. The party who makes the false statement is
the truth very well. unknown and innocent about the truth.
3. Under this, the aggrieved party can claim the 3. Under this, the aggrieved party can not claim
damage because there was intention to the damage because there was no intention to
deceive to him deceive him.
8
R.C. Thakkar v. Gujrat Housing Board
2.5.7 Mistake
2.5.7.1 Meaning and definition of Mistake
Mistake is 'misconception'. The party of a contract intending to do anything but does something else is a mistake.
Mistake is another factor, which hampers free consent. In order to make a valid contract the parties to contract
must agree upon the something in the same sense where the contract is entered in to under mistake consent
cannot be said to be free. Mistake is an erroneous belief relating to the subject matter of the contract.
According to Black's Law Dictionary, Mistake means an error, misconceptions or misunderstanding and erroneous
belief. Section 20 of Indian Contract Act, 1872 clearly defines that where both the parties to an agreement are
under mistake as to the matter of fact essential to the agreement, the agreement is void. In this regard, Nepal
Contract Act, 2056 Section 13 has prescribed as a matter under the void contract. It states in the section 13(g) that
a contract can not be performed because the subject matter of the contract is not clearly known to the contracting
parties. Mistake may be defined as an erroneous belief about something.
When one or both parties of contract commit mistake to the contract or when both the parties misunderstand
about the subject matter of the contract, it is said to be fundamental error. On this condition the contract turns into
void.
2.5.7.2 Types of mistake:
a. Mistake of law: 'Ignorance of Law is no Excuse'. It is well set rule. No one can ignore the law. Everyone must
know the law of the country. All the citizens are presumed to be known the prevailing laws. A party can not be
allowed to get any relief on the ground that it had done a particular act in ignorance of law. A mistake of law does
not give the right to the parties to avoid the contract.
b. Mistake of fact: Mistake of fact is related to the subject matter of the contract. It is also a cause to turn the
contract void. If factual mistake is of serious nature like formation or essential factor that is responsible to void the
contract. Negligible mistake occurs that is excusable. Fundamental error is relating to the subject matter and it is
taken as serious mistake.
 Bilateral mistake: Where both the parties to an agreement are under a mistake as to a mater of fact,
essential to the agreement, the agreement is void.
 Unilateral mistake: If mistake is committed by one of the party of the contract is called the unilateral
mistake. Generally, a contract by unilaterally mistake is not void. A unilaterally mistake does not
affect the validity of the contract. If the unilateral mistake caused by fraud or misrepresentation
there is possibility to avoidance of the contract.
2.6 Legality of Object and Consideration
2.6.1 Meaning and importance of legality of Object and Consideration (Lawful Object)
Legality of object is an important essential element for valid contract. It means if the object and consideration of
an agreement is not legal, the agreement never be converted in to valid contract. The legal object provides validity
of legal status to an agreement. Legality denotes legal conformity or validity so as to legality of object refers that
the object of a particular agreement is in accordance with law or legal. The object means propose or something
return, for which the concern agreement is formulated. To be regarded as valid contract, the subject, object,
process, design, motive and all aspects of contract must be valid and lawful. Otherwise it can not bear the status of
valid contract. The Contract or an agreement is void if its object and consideration is not legal.
There are several provisions have been incorporated under the Indian Contract Act, 1872 and Nepal Contract Act,
2056 which make such contract of agreement void. No contract is valid without its legal object and lawful
consideration. Therefore the legality of object and consideration is one of the major perquisites to form a valid
contact.
Nepal Contract Act, 2056; Section 13 has declared the contract to be void if it has an illegal objective. Section 13(f)
declares the contract which has the objective against the morality or public welfare or public policy to be void.
Section 13(k) states the contract which has an illegal object and consideration will be void.
Indian Contract Act, 1872 names creation considerations and objectives as illegal and they are declared void,
except that other consideration and object are legal. The contracts which have either illegal or unlawful objectives
are void. Unlawful means not permitted by law and illegal means prohibited by law.
2.6.2 Importance of Lawful Object
The agreement which is made for a lawful consideration and lawful objective is enforceable by law. If the objective
and consideration of contract is unlawful it is impossible t enforce in real practice that's why lawful objective and
consideration is too much important for the valid contract. Some major importances are as below:
• To protect business from unfair competition and unfair business practice.

• To discourage socially undesirable conduct and in appropriate judicial practice.
• To enforce contract and maintain law and order in business field.
• Not to give an opportunity to carryout illegal act through the legal agreement.
2.6.3 Effect of Unlawful Agreements
Unlawful agreement means such agreement which is not made in accordance with law. It is made by the parties
lacking of its essentials either one or more than one, such agreement is not enforceable by the court of justice and
it has no legal remedy in case of breach of such agreement. If its contents illegal or prohibited object and
consideration, it may be punishable by law. If it is made lacking only its essentials then it is regarded as void. There
is no question of remedy and recovery. Section 13(a) to (k) of Nepal Contract Act, 2056 has provided the provisions
of unlawful agreement.
There are two types of agreement in Nepal Contract Act, 2056:
(i) Void agreement (Section 13) (ii) Voidable agreement (Section 14)
(i) Void agreement: The agreement which is illegal is void. It means no legal effect no legal remedy to the
agreed party. Illegal agreement forbidden by law Section 23 of Indian Contract Act, 1872 declared void agreement
that is why it is not enforceable by the court of law. According to section 13 of Nepal Contract Act, following are
the void agreement.
(1) Agreement in restraint of trade.
(2) Agreement in restraint of marriage.
(3) Agreement in restraint of public facilities.

(4) Agreement in restraint of legal proceeding.
(5) Agreement which unlawful object and consideration.
(6) Agreement by mutual mistake.
(7) Agreement to do impossible work.
(8) Agreement having uncertain meaning.
(9) Agreement by incompetent party.
(10) Agreement without consideration.
(11) Agreement contingent on impossible events.
2.7 Contingent Contract
2.7.1 Meaning of Contingent Contract
The word 'Contingent' means uncertain and conditional event. It means there is no certainty about something
which may or may not happen. Thus, it is a contract, the performance of which is dependent upon, the happening
or non happening of an uncertain event. The contingent contract contains a conditional promise. It is different
from absolute contract that one in which the promise has to be performed independently or without any
condition.
Contract of insurance, guarantee and indemnity are examples of contingent contract. In simple words, the
performance of a contingent contract becomes due only upon happening of some future uncertain event. It is a
conditional contract.
According to Black's Law Dictionary; Contingent contract means a contract part of performance of which at least is
dependent on the happening of a contingence.
Section 31 of the Indian Contract Act, defines a contingent contract as; A contingent contract is a contract to do or
not to do something, if some event, collateral to such contract, does or does not happen.
Example, 'A' promises to give a loan of Rs. 1000 to 'B', if he elected the president of particular association.
In Nepalese context, it is new concept and the Nepal Contract Act is silent on this regard. But section 12(1) makes
clarity that; in case a contract has been concluded to performing or not to perform any work if any event happens
in the future, the contract shall not create any liability until such event happens.
The performance of contingent contract always depends on the future uncertain event. The promise is conditional.
The performance is entirely related with such events, which must or must not happen on the basis of terms of
contract. In this sense, the contract in which obligations and rights arise only after the happening or non
happening of an uncertain event at a future time is known as a contingent contract. e.g. A concluded a contract
with B to pay Rs. 10 lakhs if B's factory is brunt. This is the contingent contract.
2.7.2 Features of a Contingent Contract
• There must be a contract to do or not to do something.

• The performance of contract must depend upon the happening or non happening of a future
uncertain event.
• The event must be possible but uncertain.
• The event must be collateral to the subject matter of a contract.
• The event not depending on the will of the promisor.
• The contingent contract regards possible events it never regards impossible events.
2.7.3 Rules Regarding to Contingent Contract
Rules regarding performance of Contingent contract are mentioned in section 32-36 of the Indian Contract Act and
Section 12 of Nepal Contract Act, 2056. These are given below:-
a. On the happening of an uncertain future event:
Contingent contract depends on the happening of an uncertain future event. It can not be enforced until the event
has happened. If the event becomes impossible, such contract becomes void. e.g. 'A' concludes a contract to pay
'B' a sum of money when 'B' married to 'C'. If 'B' married with 'C' 'A' liable to pay a sum of money to 'B'. This is a
contingent contract but If 'C' dies without married with B. Such contract becomes void.
b. On the non-happening of an uncertain future event:
The contract can be enforced when the happening of an event becomes impossible to happen, the contingent
contract dependent on non- happening of an uncertain future event can be enforced by law only after the
happening impossible. e.g., A agrees to sell his bicycle to B If C dies. The Contract can not be enforced so long as C
is alive.
c. Happening of an uncertain event within specified time:
A contingent contract can be enforced with a specified event happening within a fixed time. In other words, there
is happening an uncertain event before the expiry of that prescribed time the contract becomes valid.
e.g., 'A' promises to pay B Rs. 10 lakhs if a certain ship returns with in a year. The contract may be enforced if the
ship returns within a year and contract becomes void if the ship is burnt with in the year.
d. On a specific event not happening with in a fixed time:
A contract to do or not to do any thing if specified uncertain event does not happen with in a fixed time. Such
event must be happen or it must become certain that such event will not happen before the prescribed time e.g.,
'A' promise to pay 'B' a sum of money (as insurance claim) if a certain ship does not return with in a year. The
contract may be enforced if the ship does not return within the year.
e. Event must not be impossible:
If Contingency in an agreement is an impossible event, the agreement is void. A contingent contract considers only
uncertain event but not the impossible event. e.g., 'A' agreed to pay 'B' Rs. 1000/- if two straight lien should
enclose a space the agreement is void.
2.7.4 Wagering Agreement:
A 'wager' is a bet. A wager also is the nature of an agreement, on which a party is to pay a certain sum of money
on the happening of a special uncertain event. It is a game of chance. The chance of either party winning or losing
is depended on an uncertain event. It is not valid due to illegality or unlawfulness.
Differences between Contingent Contract and Wagering
Contingent Contract Wagering
1. Contingent Contract is valid in the eyes of law. 1. Wagering agreement is not valid in the eyes of
law
2. Contingent Contract is enforceable by law. 2. Wagering agreement is void ab intio.
3. Contingent Contract is not against public welfare. 3. Wagering agreement is against public welfare.
4. Both parties have consideration. 4. Both parties have loss or gain each other.
5. Performance is obligatory. 5. Performance is not obligatory.
6. Future event is only collateral to create liability of 6. Future event is sole determining factor in
the parties. wagering.
7. There is no matter of gain or loss. 7. Main aim is loss to one and gain to other in
wagering.
8. In Contingent contract the parties have real 8. The parties are not interested in the
interest on the occurrence or non-occurrence of occurrence of event except for the winning or
the event. losing the amount.
2.8 Performance of contract
Performance means to fulfill or execute the lawful promises of parties. It implies fulfillment of the terms of the
agreement respective parties to a contract. Performance of contract plays a significant role in the context of
contract. Performing of their respective obligations by all parties of contract is the normal and natural mode of
discharging or terminating a contract. This mode provides the fulfillment to the objective of the contract.
2.8.1 Definition of Performance of Contract
Fulfillment of respective promises by the concerned parties in a manner as designed in a contract without making
any change in its terms is called the performance of contract.
The parties to the contract specified their rights and obligation in the agreement of contract. They must perform
their promises as prescribed by them in the agreement of contract. In case any party fails to do any thing as
mentioned in the contract, then remedial rights emerges to the other party. If one party alone is discharged from
liability of his part, and acquires rights of action against the other party non-performing of his promises.
The contract automatically discharges when the purpose of the contract is fulfilled by the performance of its
parties that may be called a happy ending of the contract. If it is ending up without a performance it is not happy
ending of the contract. Performance by all the parties of the respective obligations is the normal and natural mode
of discharging a contract. That's why the performance of contract is much more important in the realm of contract.
The parties have to perform their obligations in accordance with the contract. If any of the parties fails to perform
the obligations the other party will obtain the following rights against failure party.
• To ask for a specific performance of the contract.

• To claim for compensation for the loss.
• To rescind (cancel) the contract.
• To ask for an assignment of a contract.
Nepal Contract Act, 2056 section 74-81 has made provisions relating to the performance of contract. Section 74
states that each party to a contract has to fulfill their obligations under the contract.
2.8.2 Importance of performance
Performance of contract means to achieve the objective of the contract by fulfilling the obligation of the party.
Performance is important for the following reasons:-
• The parties get happy ending of contract by performance.

• The good performance encourages the parties to further contract.
• Objectives of both parties are completed due to performance.
• To establish a good relations between the parties.
• To maintain the good business relation.
• To maintain law and order.
• To develop business efficiency.
• For the prosperity of business.
• For the development of the human civilization.
2.8.3 Rules Regarding to Performance of Contract
With regard to performance of contract there are certain rules. Some are incorporated in the Nepal Contract Act,
2056 as well. The Act has provided these rules under the section 71, 72,74,76,77 and 78. The major rules regarding
performance of contract are as follows:
• Person to demand the performance of Contract.

• Person bound to perform the contract.
• Time and mode to perform the contract.
• Place to perform the contract.
• Conditions need not be performed the contract.
a. Person to demand the performance of the Contract:
• Only contracting parties can demand the performance of contract. (Promisor)
• The third party or beneficiary can demand the performance of contract. Section 78(1) of Nepal
Contract Act, 2056 (Third Party)
• By legal representative or his heirs can demand to performance the contract. (Heirs and Legal
representative)
• By persons who jointly promise to the contract. (Joint promisees)
b. Person bound to perform the Contract:
• By Promisor himself.
• Contracting parties should perform the contract.
• Legal representatives and Heirs.
• By the agent of contracting parties.
• By Third party (Section 77(2) of Nepal contract Act, 2056
• By joint contracting parties.
c. Time and modes to perform the contract (Sec. 71(1)(2)(3) of NCA, 2056
Where a time is prescribed in the contract the performance of the contract must be within or at the time
prescribed in the contract. Where the time is not prescribed in the contract; it has to be done at a reasonable time.
d. Place to perform the contract: (Sec. 72(1)(2)(3) of NCA, 2056
If the place is prescribed in the contract should be performed at such prescribed place. If there is not prescribed
the place in the agreement, contract should be performed at the reasonable place or the place where the goods
are stored.
e. Conditions where contract need not be performed: (Sec. 73 and 79 of NCA, 2056
Generally, the contract once concluded must be performed in according to contract. The parties to a contract are
bound to fulfill their respective obligations. However, this rule is not absolute. There are some cases under, where
the contract need not be performed. Such cases have been stated under section 73 and 79 of Nepal Contract Act,
2056 as well. They are as fallows:
i. In case of relief of party: When a party to a contract relieves other party from fulfilling his obligations
wholly or in partly, a contract need not be performed.
ii. In case of voidable contract: If aggrieved party made contract void from ab initio in case of voidable
contract, such party need not be performed his respective obligations..
iii. In case of breach of contract: When a party to the contract breaks terms and conditions of agreement,
the other party is discharged from performing his promise; in such case, contract need not be performed.
iv. In case of subsequent occurrence or supervening impossibility of the circumstance: It becomes

subsequently impossible to perform the contract, due to the fundamental change in situation or circumstances,
no need to be performed. (Section 79 of Nepal contract Act, 2056.
• Where the contract becomes illegal therefore that should not be enforceable.
• Impossibility to perform of the contract due to the natural calamity, war, soil erosion, flood,
earthquake.
• Destruction of subject matter or non existence of subject matter.
• Death or insanity of the promisor when contract is personal nature.
2.8.4 Assignment of Contract
Simply, to assign means to transfer. To transfer refers to an act by what something passes over one person to
another, that is to say it is an act of passing over one's rights of something and liability there under from one
person to another. Assignment means transfer of contractual rights or liability by a party to the contract to some
other person who is not a party to the contract.
The assignment of contract is the exceptional rule of the principle of privity of contract. This principle is popular in
Britain, which is established by the British law.
According to this principle only the contracting parties are responsible for the contract. Liability and obligation of
the contract is performed by only contracting party. The third party is not responsible to the contract. But, it is not
absolute rule. In certain cases, the assignment of contract is admitted as exceptions of such (privity) rule. Under
assignment, contractual rights and obligations can be assigned by contracting party to the third person. After the
assignment of contract, the new party becomes the party of contact as original party and the original party
disappears from that contract. It can not be assigned in case of the contact of personal nature and skill.
Rules Regarding to Assignment of Contract
There are several rules concerning the assignment of contact and some of them have been accepted by
the Nepalese Contract Act, 2056. These rules are given below:
1. Assignment by the act of the parties:
(a) Contract involving personal skill and capacity, can not be assigned.
(b) Contract can be assigned only after getting the consent of the concerned parties.
(c) Liability of the contract can be assigned only after getting the consent of the next (second) party.
2. Assignment by operation of law of according to law:

(a) After becoming unsound mind of death of any contacting parties, rights and liabilities of the
contract can be transferred to the legal representative.
(b) If any of the contracting parties becomes insolvent, the rights and liabilities of the person
concerned passes to the official receivers.
9.1 Termination of contract
2.9.1 Mode of Termination and Discharge of Contract
Simply the word termination is an end of something. Termination or discharge of a contract means discontinuation
of the contractual relationship between the parties. Termination of contract is the ending of a contract. A contract
can be terminated when the contracting parties become free from their liability or legal obligations arising from a
contract. This is known as discharge of a contract. The formation of the contract is the prime stage and the
terminated or discharged of contract is ending stage where the rights and obligations created by contract come to
an end. Termination or discharge of a contract may take place either due to performance or agreement or
operation of law or impossibility of contract.
When a contract is duly performed by both parties, the contract comes to a happy ending and nothing more
remains. But if one party only performs his promise, he alone is discharged and he gets a right of action against the
other party who is breaching the contract.
A contract may be terminated in any one of the following circumstances:
• By performance of contract;
• By mutual consent or agreement;
• By subsequent or supervening impossibility or illegality;
• By lapse of time;
• By operation of law;
• By breach of contract.
2.9.1.1 Termination by performance:
Performance of a promise by all the contracting parties to a contract is one of the must usual, easy and natural
ways of termination or discharge of contract. A performance may be actual or attempted.
a. Actual performance:
When the parties perform their promise in accordance in the terms and conditions of the contract, there will be
actual performance of contract.
b. Attempted performance or the tender of performance:
When a performance is offered by the Promisor but is not received by the Promisee there is an attempted
performance. It is only the 'tender' not an actual performance. Thus tender is not actual performance but is only
an "offer to perform" the obligation under the contract. A valid tender of performance is equivalent to
performance.
2.9.1.2 Discharged by mutual agreement or consent:
In Rastriya Bima Sansthan vs. Shreeram Sharma, court held that contract could be amended through the consent
of both parties. 9
The contracting parties may come to an understanding to end the contract. This kind of termination may occur in
any of the following ways:
a. Novation: Where a new contract is agreed by all the parties to replace an existing contract, that is a novation.
In Madan Bahadur Thapa vs. Khindra Bahadur Thapa, court held that, where there are two transaction between
the same parties and nothing is mentioned about the previous transaction between the same parties, it will be
presumed that the parties have settled the previous transaction and it will have no effect. 10
b. Alteration: An agreement reached between the parties that change some terms and conditions to obtain the
original objective may also terminate the contract. The alteration is a change in terms of a legal document. In this
situation a …….. contract is needed.
c. Remission: An agreement, between the parties to accept a less sum of money or a less significant fulfillment of
the liability, also terminates the contract. It is a unilateral act of a contracting party to discharge the other at his
will with happiness and pleasure the other.
d. Rescission: 'Rescission' means a cancellation.' The parties to a contract can rescind before the performance, on
the basis of mutual consent and consideration. It is dissolution of contract. In this situation the contract is
terminate.
e. waiver: A waiver means a 'voluntary giving up' of right or claim, which a person is entitled. If a waiver provision
is made in the contract, any of the parties can terminate it in this way. Consideration is not necessary in this kind of
termination.
f. Merger: A merger that takes place, when an inferior right acquired by a contract is merged into a superior right
acquired by the same party under the same or other contract, termination of a contract. Example, 'X' holds a house
under a lease. Subsequently if he buys the same, he becomes the owner of the house. His rights as a lessee merger
into his rights as an owners. This is a case of merger.
2.9.1.3 Discharge by subsequent or supervening impossibility of illegality:
In Manju Kumari Gyawali vs. Tilak Raj Thapa, court held that; contractual obligation need not be fulfilled when
there is fundamental change in the situation. 11
Possibility to perform is one of the significant elements of a valid contract. It was possible to perform at the time of
formulation but later on it becomes impossible to perform the work under the contract, this is called subsequent
or supervening impossibility. The contract becomes void from the time of its impossibility or when the work
becomes impossible to perform. This principle is known as 'Doctrine of supervening impossibility' or Doctrine of
frustration. This doctrine is based on the Maxim "impossibilium nulla obligatoest" which denotes "what is
impossible does not create legal obligation." It means the law does not compel to do impossible work.
The conditions of supervening or subsequent impossibility are as below:
9
Rastriya Bima Sansthan vs. Shreeram Sharma
10
Madan Bahadur Thapa vs. Khindra Bahadur Thapa
11
Manju Kumari Gyawali vs. Tilak Raj Thapa
• Destruction of the subject matter: When the subject matter of a contract, subsequent to its
formation, is destroyed, without the fault of the promisor or promise in this situation the contract is
discharge.
• Death or permanent incapacity of parties.
• Failure of ultimate purpose: Where the ultimate purpose for which the contract was entered into
fails, the contract is discharged.
• Change of law: Example, 'A' sold to 'B' 100 bags of wheat at Rs. 1000/- per gage. But before delivery
the government rendered the sell and purchase of wheat by private traders illegal under the
Nepalese law. In this situation the contract is terminated due to the change of law.
• Declaration of war and natural calamities.
Non applicability of the Doctrine of Supervening impossibility:
First, the contract must be performed by its parties for its happy ending. In the course of performance, it
subsequently becomes impossible to perform, the parties become free from the contractual liability on the ground
of supervening impossibility. This is the general rule but it is not an absolute and it is followed by exceptions. Some
of these exceptions are also recognized by the Nepal Contract Act, 2056. In the following cases a contract is not
discharged on the ground of supervening or subsequent impossibility.
• Difficult of the performance of contract: Example, 'A' agreed with 'B' to supply goods from Pokhara to
Bhairahawa. Short old road is closed due to landslide. Performance of contact will not be excused
because there is another route via Mugling.
• Commercial hardship or impossibility: A contract is not discharged merely because expectation of
higher profit is not realized, or the necessary raw material is available at the higher price because of
the outbreak of war or there is a sudden devaluation of money.
• Impossibility due to conduct of the third party: The doctrine of supervening impossibility does not
cover cases where the contract could not be perform because of the impossibility created by the
failure of a third person on whose work the promisor relied.
• Strikes, lockouts and civil disturbance: A strikes by the workmen or a lock-out by the employer also
does not excuse performance because the former is manageable (as labor is available otherwise) and
latter is self-induced. Where the impossibility is not absolute or where it is due to the default of the
promisor himself. As such this event also does not discharge a contract.
• Additional tax, revenue: In a contract of any additional taxes or fees have to be paid afterword, then
the contract will not be terminate because of additional tax, revenue.
• Partial impossibility (Failure of are the objects): When a contract is entered into for several object,
the failure of one of them does not discharge the contract.
• Self-induced impossibility: A strikes by the workmen or a lock-out by the employer also does not
excuse performance because the former is manageable (as labor is available otherwise) and latter is
self-induced. Where the impossibility is not absolute or where it is due to the default of the promisor
himself. As such this event also does not discharge a contract.
2.9.1.4 By lapse of time:
Every contract must be performed with in a fixed or reasonable time. If any one does not perform the contract
within the prescribed time limitation, he loses his remedy under the contract. In case of contract, the period of
limitation is two years, if a party does not file a suit to enforce his right within the prescribed period the courts will
not enforce the contract.
2.9.1.5 By operation of law:
Sometimes a law itself becomes influenced by some incidents and the law is activated. It can be cause of the
termination of the contract. In some cases the contract terminated by operation of law and the rights and liabilities
arising out of the contract. It means the law regards the contract as discharged. The following cases are those in
which a law becomes active to discharge the contractual liability:-
• Death of the Promisor
• Insolvency
• Merger.
2.9.1.6 Termination of contract by the breach:
In contract each of the parties must perform his promise, when one party fails to perform it. The contract is
deemed to have been violated and it comes to end. In the case of breach of contract, the contract goes
termination. In case the breach of contract, non-breaching party or innocent party can received the contract from
his part and claim the compensation against the breaching party. In this situation, the whole contract is
terminated.
2.10 Remedy for Breach of contract
2.10.1 Meaning and Definition
Breach of contract means non fulfillment of obligations which a contract imposes. Every contract is formulated
with intention to perform it or for the fulfillment of the obligations. When the party fails to fulfill the obligations
under contract as prescribed or reasonable time and manner it is called breach of the contract. A breach of the
contract is just opposite to a performance of contract and it can be said non-performance of the contract. When
the one party breaks the contract, the other party may become victim. On such case he has two options either
"free from the contractual obligations by the notification to termination of the contract from the very moment of
the breaching of contract" or "to seek remedy for specific performance of contract as well as compensation for
loss".
Where a party to a contract fails to fulfill obligations under the contract within the fixed time or within a
reasonable time or expressed his intention not to fulfill obligations under the contract, is called breach of contract.
Whenever a party breaks the contract, the other innocent party will be relieved from performing the contract and
he can rescind (cancel) the contract by sending a notice to the other party. When the contract is breached
aggrieved party can sue for his loss. Sec. 82(2) of NCA 2056
A breach of a contract includes the following elements:
• If the party fails to fulfill obligations under the contract.

• If the party gives information to the other party that he will not perform the work as mentioned in
the contract.
• If by action and conduct the party seems to be incapable of performing the work as mentioned in the
contract.
• If a breach of contract may be committed by words spoken or written or by conduct.
2.10.2 Types or Mode of Breach of Contract
A breach of contract may be expressed or implied. It may be caused by the act of either party of contract. The
nature of breach of contract may be Anticipatory or Actual. Basically the breach of contract can be categories into
two types:-
a. Actual breach (Present breach): It is known as a fundamental breach of contract. When the party to a contract
does not perform his obligations under the contract at the time when it is due, it is an actual breach of contract.
Sometimes, a party performs the liability of his part, but the other party alleges that it is not a proper
performance, in accordance with the terms of the contract. It is known as a breach during the performance of
contract. It is a failure to performance the contract. (Section 83.1 of Nepal Contract Act, 2056) Actual breach of
contract may happen on the following two categories:
• Breach on due date of performance: If one party fails or refuses to perform or seems to be incapable
of performing his obligations at the time fixed for performance, is called an actual breach of contact
on due date of performance. Example, 'A' agrees to deliver to 'B' 10 bags of rice on 5th February. He
does not deliver the rice on that day there is a actual breach of contract.
• Breach on during the performance: In case where one party has performed a part of his obligation
under the contract, but fails or refuses to perform the remaining part of obligation under the
contract, is called an actual breach of contract during the performance.
b. Anticipatory breach of contract:
If the time for performance of contract is fixed in the contract and one party repudiates his obligation or gives pre-
information to the other party that he will not perform his obligation before the time for performance arrives, is
said to be an anticipatory breach of contract. It is also known as a constructive or an anticipatory breach of
contract. Example, 'A' undertakes to supply certain goods to 'B' on 11th March before this date (or 10th March) he
informs 'B' that he is not going to supply the goods this is an anticipatory breach of contract.
An anticipatory breach of contract may happen on the following condition:
• By Renunciation: It occurs when a party to an executory contract renounces his liability under the
contract expressly, before the performance is due.
• By Creating some impossibility: It occurs when a promisor to an executory contract, before the time
when for performance arrives, by doing some acts makes performance of his promises impossible.
2.10.3 Remedies for Breach of Contract
The contract is itself a law made and applicable to its parties. It must be made in accordance with law and enforced
by court. When a party breaches a contract the injured party becomes entitled to legal remedies. A remedy means
a right which is given by law for enforcement of a prescribed right under an agreement of contract. Such remedy is
known as legal treatment, provided by the court of law or other formal agency formed under law, to the aggrieved
party.
There are different kinds of remedy may be available to the aggrieved party in the breaching of contract. The
remedy for breach of contract depends on the basis of nature of breaching. The aggrieved party may claim one or
more remedies as per the law. When a contract is broken, the injured party can use one or more of the following
remedies: (Section 82-87 of Nepal Contract Act, 2056)
• Right to rescind (Cancel) the contract

• Rights to claim damages
• Suit for specific performance of contract
• Suit for injunction
• Suit upon quantum merit
a. Right to rescind the contract: When a contract is broken by one party the other party will also be relieved from
his contractual liability and he may rescind (conceal) the contract by sending a notice to the former party. The
injured party is freed from all of his obligations under such Contract. (Section 82.2 of Nepal Contract Act, 2056) The
injured party is to be restored any benefit received by the breaching party. The injured has the right to demand
compensation for the loss. But the court can refuse a rescission of the contract in the following circumstances.
(Section 87 of Nepal Contract Act, 2056)
• Where the parties cannot restore the contract due to the change of circumstances.
• Where a third party has, during the substance to the contract, acquired right in good faith and for
value.
• Where only a part is sought to be rescinded that is not separate.
b. Rights to claim damages: Claim for damages refers the right to claim compensation to the aggrieved party
against the former party. The Nepal Contract Act, 2056 has made provisions in this respect. According to the Act
the injured party can claim the following compensation.
• Compensation for actual loss: Where a contract has been broken under section 82 of Nepal Contract
Act, 2056 the injured party may recover the actual loss from the breaching party of contract. (Section
83.1)
• Compensation for anticipated loss: Where loss or damage is anticipated at the time of entering in to
the contract (due to the breach) such a loss or damage can be compensated by the breaching party
• Amount if mentioned, claim certain amount as contract: Where the amount for damage mentioned
in the contract, the injured party is compensated not exceeding the amount in the basis of quantum
meruit.
c. Suit for special performance of contract: The injured party is entitled to sue for specific performance of the
contract. The specific performance means an order by the court to the breaching party to perform his contractual
obligation. Such an order is made by the court when other types of compensation do not seem to be adequate.
However, in the following circumstances, the claim for a specific performance is not applicable. (Section 86.2 of
Nepal Contract Act, 2056)
• Where compensation for the breach of contract is adequate.

• Where the liability of contract lies upon personal nature. (Personal skill or knowledge)
• Where a specific performance is not applicable due to the change of circumstances.
• Where the breaching party itself has claimed for a specific performance against the injured party.
d. Suit for injunction: Where a party is in breach of a negative term of contract (Where he is doing something
which he promised not to do) the court may by issuing an order, restrain him from doing what he promised not to
do. Such an order of the court is known as an injunction. Such a remedy is appropriate where there is an
anticipatory breach of contract. That is why; it is a kind of preventive relief to the aggrieved party.
e. Suit upon quantum merit: The remedy for a breach of contract available to an injured party against the guilty
party is to file a suit upon quantum merit. The Latin phrase 'quantum meriut" means 'Payment in proportion to the
amount of work done.' Right to quantum merit means a right to claim the compensation for work already has
done. Such a type of remedy is based on the implied agreement to payment for what has been done or completed.
The rules are flied in the following situations.
(i) The contract must be terminated.
(ii) Contracting party who claim quantum merit must be innocent.
(iii) The party claim must have provided service benefit and goods to the next party.
(iv) Performed is impossible by technical problems.
2.11 The Major provisions or Evolution of Contract Law in Nepal
2.11.1 Background
Contract law is a branch of business law. It is related with transaction of services and goods. Services and goods are
very essential matter for human being. These are daily consuming commodity or service of human society. Though,
there was not developed the formal contract law at the beginning stage of the human civilization, but there may
be regulated contractual behavior in at any name. So, we can imagine, there was practice of contractual behavior
at the very beginning of human civilization in Nepal.
Obviously, we have not long written legal history, but in practice we have long lasting customs and usages even till
date. Still now, we are in initial stage of industrialization. So, we have not long written history of business law as
well as the contract law.
Nepalese first formal written law was Civil Code, 1910 B.S. which was promulgated of the resign of King Surendra
Bikram Shah. Such civil code was repealed in time to time and finally that was replaced by the Civil Code 2020. Civil
Code 2020 is prevailing till now.
2.11.2 Civil Code 1910
This was the first codified law of Nepal. This code introduced the concept of contract on the name of Shahu-
Aasami ko Mahal and Lenden Byabahar. (Section of Creditor and Debtor and Money Transaction of Civil Code
1910) Such code was repealed by the Civil Code 2020.
2.11.3 Civil Code 2020
First time, this code introduced the concept of agreement. Rule 37 of Lenden Byabahar first time incorporated the
provisions in regard to the agreement of other transaction except the historical money transaction one. Rule 37
stated that; "Not belongs with other provisions of this code, any written agreement or the subject matter of such
agreement is not against the prevailing law, could be in according with written agreement". Similarly rule 39 of
that code was incorporated the provisions for the limitation of remedy of the breaching of an agreement. But
there were not particular provisions about contract, contractual liability, contractual capacity, right and obligation,
remedy for the breaching of contract etc.
2.11.4 Contract Act, 2023
Before the promulgation of this Act, there was introduced the only concept of contract under the general law. But
contract Act, 2023 was the first and specific law in regard to control and regulated the contractual behavior in
Nepal. The first time that Act defined about the terms contract, proposal and acceptance, qualification of parties,
types of contract, performance of contract, breach of contract and limitation of remedy, under the 19 sections of
Contract Act, 2023. But that was not complete law and there were some lacunas, ambiguity and not covered the
overall subject matter of contract law.
2.11.5 Nepal contract Act, 2056
Contract Act, 2023 was replaced by the Nepal Contract Act, 2056. The contract Act, 2023 was not complete in
different sense. There were not any provisions about the special contract like contract on indemnity, guarantee
and bailment and so on. Similarly there was not clarity about the various aspect of contract law. On this situation,
Nepal Contract Act, 2056 was promulgated with various new concepts and provisions about the contract law.
Nepal Contract Act, 2056 divided in to 13 chapters and 90 sections.
2.11.6 Majors Provisions of Nepal Contract Act, 2056
The law relating to the contract Act plays significant role to conduct the human behavior. Specially, in the business
transactions, the contract law plays very important role by providing validity and enforceability. Any transactions
to be regulated in reliable way the parties of it enter in to an agreement and such agreement made by the business
parties must be supported by the contract law. To carry any business transaction, person should enter firstly in
some contract without law no person can carry out the business transaction.
Most of the countries of the world have been made the laws relating to contract as their need for maintaining the
business. Nepal is also not remaining in isolation in the modern context. Recently, she has entered into WTO as
other country which is international treaty concerning to the international trade. As the need of nation and
international obligation to the treaty, Nepal has to make or amend several legal frameworks to meet the standard
of the treaty. Although Nepal has no long history of contract law but nowadays she has separate contract law as a
special law “the Contract Act 2056”. Including several specific area of contract, Nepal Contract Act, 2056 has
attempted to modify and remove the lacunas of previous Act by adopting different contemporary aspects of
Contract Law. It seems highly influenced by the Indian Contract Act, 1872. The major provisions of Nepal Contract
Act, 2056 are as below:
The present Nepalese Contract Act, 2056 has made for the fulfillment of current requirement of the business
environment. It divided in 13 chapters and contained 90 sections including the several specific area of contract.
Most of the provisions seem similar to the Indian on Contract Act. The provision of the Act discussed under the
relating headings. These are given below:
a. Provision relating to definitions:
The Act has defined various terms like contract, sale of goods, offer and acceptance, agencies etc which contain
specific meaning in contract. They are defined under section 2, 15, 25, 35, 40, 56 and 65 of the Act respectively.
b. Provision relating to contractual capacity of the parties:
Section 3 of the Act has made the provision relating to the contractual capacity of the parties. According to this
provision the person who is : (a) major by age (b) of sound mind and (c) not declared disqualified for contracting by
any law prevalent in the country, are deemed to be competent to the contract.
c. Provision relating to the autonomy of the parties:
The parties to a contract are free to choose the form of the contract and its subject matter and determine:
• the consideration and its extent

• the terms and conditions of the contract
• the nature of the remedy in case the contract is breached and
• the measures for resolving disputes under the contract.
d. Provision relating to place of the contract:
Section 6 of the Act is relating to it. According to it, if the place is mentioned by the offer to make acceptance for
his offer, the contract is supposed to be concluded in the same place, but if the place is not mentioned in the offer,
the contract is supposed to be concluded at the place where he receives the consent from the offeree.
e. Provision relating to void and voidable contracts/agreements:
Section 13 and 14 of the Contract Act have made the provisions relating to the conditions which a contract
becomes void and voidable at the option of aggrieved party.
f. Provision relating to contract of sale of goods:
The provisions relating to contract of sale of goods is new one for the Nepalese context. This provision was not
comprised by the former Act and none of the current law comprises such provision. Under the chapter 7 sections
40 to 55 of the Act are concerned to this matter. Under which the provision regarding nature of property (goods)
determination of price of goods, mode of selling and transferring goods, risk and examination goods, performance
of sale, damage, conditions of invalidation of the contract etc are stipulated.
g. Provision relating to Contingent Contract:
The provision regarding contract made for performing or not performing any work if any event happens in some
future time, rights and liabilities of the parties arising out there from in case event specified in the contract
happens or not happens are mentioned under section 12 of the Act.
h. Provision relating to contract of bailment:
It is also a new provision incorporated under this new Contract Act 2056. Under the chapter 5, sections 24 to 34 of
the Act are concerned to this provision. Section 25 has defined the term ‘contract of bailment’ and rest services
have made the provision as regards to the rights and duties of the bailor and bailee and the conditions at which
the contract of bailment becomes void.
i. Contract of agency:
This new Act of contract has made the provision in the area of contract of agency, in addition to the provision of
Nepal Agency Act 2014 & Rules 2019. The Act has made the provision, under the chapter 8, sections 56 to 64,
relating to the appointment, function, right and duties and liability of the agent, conditions of appointing sub
agent, termination of agency etc
j. Provisions relation to offer and acceptance:
Section 7, 8 and 9 of the Act, are relating to it. Likewise, sub-section 2 of this section has stated that the
acceptance. And the other provisions are relating to revoke and lapse of the offer and acceptance.
k. Contract of guarantee and indemnity:
Section 15 to 24 of the Act, have dealt with the various rules regarding in this respects.
l. Provisions relating to contract of sale of goods:
Provision relating to breach of contract and remedies section 82 to 87, under the chapter - 12 have made the
provisions for breach of contract and remedies available to the injured party in case of such breach.
m. Provisions of limitation period:
The limitation period means the period within which the case must be brought in the court, otherwise the court
does not hear the case. This provision is formulated on the basis of doctrine of limitation, which provides certainty
in the case, section 89 of the Act has made this provision.
Short Questions
1. What is supervening impossibility? Illustrate and explain the cases, which do not come within the principle of
supervening impossibility. [4+6]
2055
2. Can silence be fraudulent? What remedies are available to a party who has been induced enter into an
agreement by fraud? [4+6]
2056
3. Define consideration. Explain the exceptions to the rule "No consideration no contract".
[4+6]
2057
4. Distinguish between void agreement and voidable contract. [10]

2058
5. Give the concept of Quasi contract and distinguish with contingent contract. [4+6]
2058
6. What is revocation of offer? On what ground does an offer is revoked. [5+5]

2058
7. What is wagering contract? How is it formed? [5+5]

2059
8. What is performance of contract? Discuss the provisions relating to the performance of contract. [4+6]
2059
9. Point out the meaning importance of lawful object in a law of contract. [5+5]
2059
10. Explain the concept of quasi contract with suitable illustrations. [10]
2060
11. What are voidable agreements? Explain the legal effects of voidable agreements. [5+5]
2060
12. What is contingent contract? Explain the rules regarding contingent contract. [4+6]
2061
13. What is contingent contract? Explain the rules governing a contingent contract. [3+7]
2062
14. Who is a finder of lost goods? Explain the rights and duties of the finder of the lost goods? [3+7]
2063
15. What is free consent? What will be the effect of coercion of the formation of the contract? [3+7]
2063
16. What is consideration? Explain the rules regarding consideration? [3+7]

2064
17. Explain the rules related to a valid offer and acceptance under Nepal Contract Act. [10]
2064
18. Explain the rules of assignment of contract? [10]

2064
19. What is fraud? Describe the effect of fraud on the validity of a contract. [3+7]
2064
20. What is the consent? Explain the importance of the consent in the formation of a valid contract. [3+7]
2064
21. What remedies are available to an injured party in case of breach of contract? Explain.
[10]
2065
22. Explain the rules regarding contingent contract. [10]

2065
23. Who is a competent party to a contract? Describe the rules regarding an agreement made by a minor.[3+7]
2067
24. What are void contracts? Explain the contracts that are declared as expressly void. [3+7]
2067
25. What is meant by the termination of contract? Describe the various modes of termination of a contract.[3+7]
2067
26. What is meant by assignment of contract? Explain the rules regarding assignment of contract. [3+7]
2067
27. What is consideration? Describe the rules regarding consideration. [3+7]

2068
1.1.55 Comprehensive Questions
1. Distinguish between anticipatory beach and actual beach of contract. Also explain remedies available to a
party against the other on the breach of a contract. [8+12]
2055
2. When are the consideration and the object of an agreement treated unlawful. Explain and illustrate. [20]
2056
3. What is assignment of contract? Explain and illustrate the rules regarding assignment of contracts. [8+12]
2057
4. Discuss the doctrine of consideration and its exceptions with suitable examples. [20]
2058
5. A lawful contract has to comply a number of elements. In the light of the given statement discuss the
essential elements of a contract. [20]
2059
6. Why is it necessary to perform a contract? Examine the legal consequence of not performing a contract.
[10+10]
2060
7. A lawful contact besides complying a number of elements, needs to be within the capability of performance
of parties of the contract. In the light of the given statement discuss the importance and rules the regarding
the performance of contract. [10+10]
2061
8. Discuss with suitable illustrations the various remedies available to a party in case of breach of contract.[20]
2062
9. Point out the various modes in which a contract may be discharges and discuss the case of impossibility of
performance as a mode that discharges the contract. [5+15]
2063
10. What is contract ? Discuss the essentials of a valid contract. [5+15]

2064
11. Discuss the major provisions of Nepal Contract Act. [20]

2065
12. Define contract. Discuss the essentials of a valid contract. [5+15]

2066
13. What is law of contract? Discuss the elements required for forming a valid contract.
[5+15]
2067
14. How does a contract differ from an agreement? Discuss the factors that are essential for a valid contract.
[4+16]
2068
15. Discuss the various modes in which a contract may be discharged. [20]
2068

3. Contract of Bailment
3.1 Meaning and Definition
The term 'Bailment', is derived from a French term 'Bailor' which means "to deliver or handing over". A Bailment is
the delivery of goods by a person to another for definite purpose, in the condition that after the purpose is
accomplished; the goods have to be returned. Bailment is the change of possession of goods, not a transfer of
ownership of goods as in sale. The common illustrations of bailment are hiring of goods, furniture or cycle etc.
Delivering of cloth to a tailor for making suit, delivering a car or scooter for repairing and delivery dress to dry
cleaner are the example of bailment.
According to Section 25 of Nepal Contract Act, 2056, "a contract relating to bailment shall be deemed to have been
concluded in case any person delivers any property to another person on a returnable basis or for handing it over to
any other person or selling it as ordered by him."
According to Section 148 of Indian Contract Act, 1872, "a bailment is the delivery of goods by one person to
another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the directions of the person delivering them."
If a person gives some property to another person upon a contract that it shall be returned to him or otherwise
disposed off or sold out according to the order of the person delivering it, the contract is said to be the contract of
bailment. Thus a bailment is a delivery of goods on condition that the recipient shall ultimately restore them to
Bailor or dispose of them according to the directions of the Bailor.
3.2 Essential Features or Characteristics of Bailment
3.2.1 Contract
The relationship of Bailor and Bailee is the creation of a contract. In other words, the bailment is based on contract
between the Bailor and Bailee. There must be written document if delivery of goods is worth more than five
thousands rupees in accordance with the Section 25 of Nepal Contract Act, 2056.
3.2.2 Delivery of Moveable Goods
Firstly, for the valid contract of bailment, the property must be moveable. Money is not movable goods but it
signifies the goods, which is moveable like, car, timber, horse. Delivery of goods involves a change of possession of
goods from one person to another, but not a change of ownership of the goods. Delivery of goods is needed to be
a valid contract of bailment.
a. Actual delivery: Handover of goods to Bailee is an actual delivery.
b. Constructive Delivery: Secondary things handover to Bailee is the constructive

delivery. e.g Receipt of purchasing or Key of Car
3.2.3 Delivery for Some Special Purpose
Delivery of goods must be made for some specific purpose. e.g repair, security, making something. When the
goods are delivered by mistake without any purpose, there is no bailment.
3.2.4 Non-transfer of Ownership
Under the contract of bailment, the ownership of goods is not transferred, only the possession of goods is
transferred from a Bailor to Bailee. The ownership of goods remains with Bailor.
3.2.5 Return or Dispose of Goods
The goods are to be return either in their original form or in an altered form or disposed in accordance with the
directions of the Bailor.
3.3 Rights and duties of Bailor and Bailee
3.3.1 Rights of Bailor
The duties of Bailee are the rights of the Bailor. The following are the rights of the Bailor and reciprocate duties of
the Bailee.
1.1.1 3.3.1.1 Enforcement of Bailee's duties:
The duties of Bailee are the rights of Bailor. The Bailor can enforce by suit all the duties of the Bailee as his right.
And the Bailee has to fulfill the rights of Bailor as his duty. These are as follows;
• Right to claim damages for loss caused to the goods bailed by Bailee's negligence. (Section 28.2)
• Right to claim compensation for any damage arising from or during unauthorized use of goods.
(Section 28.3)
• Right to claim compensation for any loss caused by unauthorized mixing of bailed goods with his own
goods. (Section 28.6)
• Rights to demand return of goods in the prescribed time. (Section 29.1)
• Right to claim any natural increment to the bailed goods (Section 29.4)
1.1.2 3.3.1.2 Right to termination a contract of bailment:
The Bailor has right to terminate the contract of bailment before the prescribed time in the following
circumstances. (Section 34)
• If the objectives of the contract can not be fulfilled.
• If the contract has an illegal object.
• If the Bailee breaches the terms of the contract.
• If the contract has a fraudulent object.

3.3.2 Duties of Bailor
The following are the liabilities and duties of Bailor. (Section 27 of Nepal Contract Act, 2056)
1.1.3 3.3.2.1 Duty to disclose known defects of goods:
The Bailor has duty to disclose the known defects of goods bailed to the Bailee. Known measures necessary for the
safe custody should be disclosed otherwise the Bailor will be responsible for the loss caused by the defects of the
bailed goods.
3.3.2.2 Duty to repay necessary expenses:
The Bailor is responsible to bear or reimburse the extraordinary expenses of goods .e.g. medical treatment of the
sick animal.
1.1.4 3.3.2.3 Duty to indemnify bailee:
For any loss suffered by the Bailee, by reason of the fact the Bailor was not entitled to bailed goods because of the
defective title, in such case the Bailor has duty to indemnify the Bailee for this loss.
1.1.5 3.3.2.4 Duty to receive back the goods:
It is the duty of the Bailor to receive back the goods when the Bailee returns them after the time of expiration of
bailment or the purpose of bailment has been accomplished.
3.4 Rights and duties of Bailee
A Bailee is a person to whom the goods are delivered for specific purpose or for specific period of time. During the
period he has actual possession over the goods bailed, being a Bailee, he has some rights against his Bailor and he
is bound some duties towards the Bailor. The rights and duties of Bailee are given below:
3.4.1 Rights of Bailee
1.1.6 3.4.1.1 Enforcement of bailor's duties:
The duties of the Bailor are rights of Bailee. And the Bailor has to fulfill the rights of Bailee as his duty these are as
follows.
(a) Right to claim damages for loss arising from the undisclosed faults in the bailed goods. (Section 27.2 )
(b) Right to claim reimbursement for extra-ordinary expenses incurred in the bailed goods. (Section 33)
(c) Right to indemnity for any loss suffered by him by reason of defective title of the Bailor to the bailed
goods. (Section 27.3)
(d) Right to claim compensation for expenses incurred for the safe custody of the goods if the Bailor has
wrongfully refused to take delivery of them after the term of bailment is over. (Section 29.1.2 )
1.1.7 3.4.1.2 Rights to deliver goods to one of several joint Bailor. (Section 29.3 of NCA, 2056)
If there are several bailor, bailee can deliver goods to one of several joint bailor.
1.1.8 3.4.1.3 Right to lien:
The right to possession of the property or goods belonging to another until some debt of claim is paid is called the
right of lien. The Bailee may enjoy the right of special lien to the bailed goods.
1.1.9 3.4.1.4 Right to deliver goods in good faith to the untitled Bailor:
The Bailee may deliver the bailed goods to his Bailor, he should not be responsible to the real owner of the goods.
1.1.10 3.4.1.5 Right of general lien:
A Bailee can keep any kind of goods of the same Bailor in his possession until the full payment of necessary
charges.
3.4.2 Duties of Bailee
The Bailee is the person to whom the goods are delivered. The duties of the Bailee are as follows:
1.1.11 3.4.2.1 Duty to take reasonable care of goods delivered to him:
The Bailee must take reasonable care of goods as like his own goods in similar circumstance. If in spite of
reasonable care, the goods are lost or destroyed without any negligence on his part, the Bailee is not liable in
respect of any damage of the goods. He is liable to make an effort to recover the goods in case of stolen.
1.1.12 3.4.2.2 Duty not to make unauthorized use of goods of bailment:
It is the duty of Bailee to use the goods with the terms of the bailment. If he makes an unauthorized use of the
bailed goods he is liable to make compensation to the Bailor for any damages arising to the goods from or during
such use of them.
1.1.13 3.4.2.3 Duty not to mix bailed goods with his own goods:
It is also the duty of Bailee that he should not mix his own goods with those of the Bailor, without Bailors' consent.
Otherwise, he is liable for compensation.
1.1.14 3.4.2.4 Duty to return the goods:
"It is the duty of Bailee to return or deliver, according to Bailors' directions the goods bailed, without demand, as
soon as the time for which they were bailed or has expired or purpose for which they were bailed has been
accomplished." In case of joint bailers, the Bailee may return the goods to any one of the joint owners.
1.1.15 3.4.2.5 Duty to deliver any accretion (increment) to the goods:
It is the duty of the Bailee to deliver to the Bailor any natural increase or profit from the bailed goods. Example,
cow give birth to calf then bailee has to return the calf also.
1.1.16 3.4.2.6 Duty not to set up adverse title:
The Bailee has duty not to set up adverse title in the goods of bailment. As a rule the bailee is stopped from
denying bailor's title or setting up against the bailor his own title or right of a third party. He must inform the bailor
of the third party's claim. Example, 'A' obtain some goods from 'B' by unfair means then give the goods on
bailment to 'C'.
3.5 Termination of Bailment
Termination of bailment means the bailment comes to end and the legal relationship of the parties is no longer
remain. There are various circumstances under which the contract of bailment is terminated. Nepal Contract Act,
2056 has also laid down some legal provisions in respect of the termination of bailment. A contract of the bailment
is terminated as follows:
• On the expiry of specific time period.
• On the accomplishment of specific purpose.
• Inconsistent act with the term.
• On the death of the party of the bailment.
• On the destruction of subject matter of the contract of the bailment.
• On the void condition of the contract.
• A gratuitous (Without price) bailment: It can be terminated by the Bailor at any time.
3.6 Finder of Lost Goods
The term finder of lost goods means a person who has found goods not belonging to him and keeps them with
him. Although the Nepal Contract Act, 2056 has not defined the term finder of lost goods but under section 11.d of
Nepal Contract Act, 2956 has made the provisions relating to the responsibilities of the finder of lost goods as
same as the Bailee. According to this provisions when any person keeps any property of another person he has to
keep it as bailment. According to the section 71 of Indian Contract Act, 1872; A person who finds goods belonging
to another person and takes them in to his custody, he is subject to the same responsibility as Bailee. According to
these statutory provisions, the person who finds the lost goods, is treated as equivalent as to Baliee. Example, 'A'
finds a watch belonging to somebody he is finder of goods. He is bound to take the watch with him safely until the
owner is find out.
3.6.1 Rights and duty of finder of lost goods:
Although the person, who finds goods, has no direct contract to the owner of the lost goods but he has some rights
implied by the law. They are as follows:
1.1.17 3.6.1.1 Right to retain possession of the goods until the true owner is found:
A finder of lost goods has the right to possession of the goods against the whole world, except the true owner. But
the finder never becomes the owner of the goods. The ownership will always remain with the true owner, and the
finder only enjoys the rights to (retain) possession of the goods,
1.1.18 3.6.1.2 Right to lien over the goods for expenses:
A finder has right to retain the goods against the true owner until he receives reasonable compensation and
expense incurred by him to preserve the goods and to find out true owner.
1.1.19 3.6.1.3 Right to sue for reward:
The finder can file the suit against the true owner to recover any reward, which was offered by the true owner for
the return of lost goods, provided he came to know of the offer before actually finding out the goods. He may also
retain the goods until he receives the reward.
1.1.20 3.6.1.4 Right to sale:
If true owner cannot be found or if he refuses upon demand to pay lawful charges of finder, the finder may sales
the goods in the following conditions:
• When the owner refused to pay the expenses incurred by him.

• When the things is in danger nature or of losing the greater part of its value.
• When the lawful charges of the finder in respect of things found amount of two third of its
value.
• The true owner however is entitled to get the balance of sale proceeds, if there is a surplus left after
meeting the lawful charges of the finder.
3.6.2 Duties of the Finder of Lost Goods
The finder of lost goods has some duties implied by the law. They are as follows:
1.1.21 3.6.2.1 Duty to take reasonable care of the goods as Bailee:
The finder of the lost goods has duty to take reasonable care of the goods as Bailee because he has physically
possessed the goods found, under this his duties are as follows:
a. To take necessary care of the goods
b. Not to use for personal purpose and
c. Not to mix with his own goods.
d. To retain the goods to the real owner after receiving the necessary expenses.
1.1.22 3.6.2.2 Duty to find out true owner:
It is duty of the finder to make efforts to find the true owner of the goods, if the finder of lost goods fails in his
duty he should inform the police about it.
3.7 Pledge or Pawn
3.7.1 Meaning and Definition
The Pledge is also a kind of special contract and a part of bailment. The bailment of goods as security for payment
of a debt is called pledge. It is a transfer or bailment of goods as a security for the payment of debt or performance
of the promise. Loan transaction is very familiar in business operation. Pledge or pawn provides security for
repayment of such loan. The goods deposited as security to repay the debt or to perform the promise is known as
pledge. The term pawn is synonymous to the term pledge. e.g. 'A' takes Rs. 20 thousands from 'B' and keeps his
golden chain as security for payment of debt. The bailment of chain is Pledge. 'A' is Pledger and 'B' is Pledgee.
A contract by which a person received some property from another as security for granting a loan or as guarantee
for performing a job is known as pledge or pawn. The contract by which the possession of goods is transferred as a
security is known as a pledge. In this case the person who gives goods as security is called the Pledger or Pawner
and the person who receives the goods as security is called the Pledgee or Pawnee.
According to Section 172 of the Indian Contract Act, 1872; the bailment of goods as security for payment of debt or
performance of promise is called pledge or pawn. The Bailor in this case is called the Pledger or Pawner and the
Bailee is called the Pledgee or Pawnee.
Similarly according to Section 35.1 of Nepal Contract Act, 2056 defined that; if there is a delivery of a property from
one person to another for security of debt or for the guarantee of the performance of any promise there is a
contract of pledge. In Nepalese context pledge is also called mortgages.
Thus a pledge is only special kind of bailment contract. A pledge also involves only a transaction of possession of
goods pledged. The ownership of such goods remains with the Pledger.
3.7.2 Different between Bailment and Pledge
Bailment Pledge
1. Its scope is wider than pledge. 1. Its scope is limited. It is a branch of bailment.
2. Goods are bailed for carrying out specific 2. Goods are pledged as a security of debt or
purpose, repair or safe custody etc. performance of promise.
3. Bailee may be used the goods bailed as per 3. Pledgee has no right to use the goods, but he
the terms of the contract. can use if the Pledger allows to do so.
4. The Bailee has no right to sell the goods 4. The Pledgee has right to sell the goods
bailed but he can either, sue the Bailor of pledged on default after giving notice to the
retain the goods until payment of his due. Pledger.
5. There is no need of the guarantee in the 5. A guarantee of goods is necessary for the
contract of bailment. purpose of security for the payment of debt
in pledge.
6. There is no loan transaction exist under it. 6. Loan transaction may exist under it.
7. Goods must be moveable in bailment. 7. The goods may be moveable or immoveable

but must be long lasting.
8. Consideration may or may not be in bailment. 8. Consideration is necessary in the pledge.
3.7.2 Essential elements of Pledge
The essential elements of pledge are as below:
1.1.23 3.7.2.1 Delivery of goods:
As in a bailment, the goods should be delivered from the Pledger to the pledgee, which may be either actual or
constructive.
1.1.24 3.7.2.2 Delivery for Security:
Such delivery of goods should be made by way of security for payment of debt or performance of promise.
1.1.25 3.7.2.3 Lawful purpose:
The delivery of goods for a security purpose should be lawful. Otherwise it is not valid pledge.
1.1.26 3.7.2.4 Return of goods:
The pledged goods must be returned after the purpose is achieved.
1.1.27 3.7.2.5 The goods must be (durable) long lasting:
The pledged goods must be durable.
3.8 Right and duties of Pawner and Pawnee
3.8.1 Rights of Pawner
The rights of Pawner are as follows:
1.1.28 3.8.1.1 Enforcement of Pawnee's duties:
The duties of the Pawnee are the rights of the Pawner. Therefore, partner enforces by suit all the duties of the
Pawnee as his rights.
1.1.29 3.8.1.2 Right to get back the goods pledged:
A Pawner has right to return the goods after the fulfillment of duties or fulfillment of his obligation as per the
contract of pledge.
1.1.30 3.8.1.3 Right to receive notice before sale of pledged goods:
A Pawner, who defaults in payment of the debt amount the partner, has right to receive the notice before sale of
goods of pledge.
1.1.31 3.8.1.4 To receive the goods with accretion:
The Pawner has right to receive the goods with accretion. Example, 'A' leaves a cow as a security to debt of 'B' the
cow gave birth a calf, 'B' is bound to delivery the cow as well as to 'A'.
3.8.2 Duties of Pawner
The duties of Pawner are as below;
• To compensate the extra-ordinary expenses incurred for necessary care of the goods pledged.
• To pay of the dues, if it is inadequate by the sale of the goods pledged.
• To disclose the facts of defect and goodness of the goods pledged.
• To meet his obligation on stipulated time, date and complies with the terms of contract.
3.8.3 Rights of Pawnee
The followings are the rights of the Pawnee:
1.1.32 3.8.3.1 Right to retain continuous possession:
A Pawnee has right to retain the continuous possession over the goods pledged until he is received his dues. He
has the right to detain the goods not only the payment of debt or performance of promise, but for the interest due
to the debt and all other necessary expenses incurred by him in respect of the possession or for preservation of
the goods pledged. Thus, this right may be termed as the Pawnees' right of particular lien.
1.1.33 3.8.3.2 Right to extra-ordinary expenses:
The Pawnee has also right to be recovered from the Pawner extra-ordinary expenses incurred by him for the
protection of goods pledged. He has right to sue the Pawner for recovery of such extra ordinary expenses.
1.1.34 3.8.3.3 Right to sell the goods on default of the Pawner:
Where a Pawner makes defaults in the payment of the debt or performance of promise, the Pawnee may exercise
either of the following rights:
• To sue the Pawner for nonperformance of the contract.

• To sell the goods after giving notice to the Pawner.
• To recover the debt from the Pawner if it is inadequate for the full claim but the surplus amount
should be returned to the Pawner if any.
• To retain the goods as collateral security after the snit.
1.1.35 3.8.3.4 Right of retainer for subsequent advances:
When the Pawnee lends money to the same debtor after the debt of pledge without any further security, it shall
be presumed that the right of retainer over the pledged goods extends even to subsequent advantage.
3.8.4 Duties of Pawnee
The duties of the Pawnee are similar to Bailee, however following are the duties of the Pawneee:
• To take reasonable care of the goods pledged

• Not to make any unauthorized use of the goods pledged.
• Not to mix the goods pledged with his own goods.
• Not to do any act in violation of the terms of the contract of pledge and of the provisions of contract
Act.
• To return the goods pledged on the receipt of his full dues or fulfillment of promise of the Pawner.
• To deliver any accretion to the goods pledged to the Pawner. e.g. Bonus share.
• He should not sell the goods pledged without a reasonable notice to the pawner.
3.9 Pledged by Non-owner
The owner of the goods can always make a valid pledge but in the following cases pledge made by the non owner
is also valid. (Section 38 of Nepal Contract Act, 2056 and Section 178, 179 of Indian Contract Act, 1872.)
3.9.1 Pledge by mercantile agent
Mercantile agent can keep some goods on pledge, on the consent of his principal. It can be valid if it was made on
good faith even if he is not the owner of the goods pledged. According to the Section 178 of Indian Contract Act,
1872; Pledge by a mercantile agent, who is not authorized by the owner of goods, will be valid if it was made on
the ground of the good faith. e.g. Railway receipt or bill lading can make a valid pledge of the goods while acting in
the ordinary course of business.
3.9.2 Pledge by person in possession under voidable contract
A pledge may be made by a person who has obtained some goods under the voidable contract. It can be a valid
pledge if:
• The Pawnee acts in good faith and he has no notice about the defective title of the Pawner.
• The contract is not made void before the contract of pledge.
3.9.3 Pledged by erson having limited interest and right [Section 38 (3) of NCA]
When, Pledger has a limited right or interest, the pledge will be valid only to the extent of his rights over the
goods. Example, 'A' delivers a suit to 'B' the tailor master for making a suit and agrees to pay Rs. 1,500/- as sewing
charges. 'B' pledges the suit with for Rs. 3,000/-. The pledge is valid to the extent of 'B's interest in the suit, namely,
Rs. 1,500/- (sewing charges). 'A' can, therefore, recover the suit only on paying Rs. 1,500/- to 'C', the pledge.
3.9.4 Pledge by buyer in possession of goods under an agreement to sale
When a buyer has got possession of goods under a contract of sale or even before payment he can make a valid
pledged; which should be acted on the ground of good faith.
3.9.5 Pledge by co-owner in possession
Where there are several joint owners of goods, one of the co-owner may be sole possession with the consent of
other co-owner may make a valid pledge of the goods.
3.9.6 Pledge by the same seller after sale
If a pledge is made in good faith by the same seller in possession after the sale it will be valid.
Questions
1. State and explain the important provision of "Naso Dharot" in Nepal. [10]
2. Who is a finder of lost goods? Briefly explain the rights and duties of the finder of lost goods.
[4+6]
2056
3. Explain any four cases where a non-owner can give the transfer a valid title to the goods. [10]
2056
4. What is meant by pledge? What are the essentials of a valid pledge? [4+6]
2057
5. What is a "holder"? Is there any difference between a holder and a holder in due course? [4+6]
2058
6. Who is a bailor? What are his rights? [4+6]
2058
7. Who is a bailee? Write down the duties of a bailee. [4+6]
2059
8. Write down the various provisions of Nasho Dharaut in Nepal. [10]
2060
9. Write about the rules relating of Nasho Dharaut in Nepal. [10]
2061
10. Define contractual capacity. Explain the rules regarding minor's agreements. [3+7]
2062
11. When does a non-owner of goods can transfer a valid ownership to the buyer? [10]
2064
12. What a pledge of goods made by a person who is not the real owner is valid and blinding. Explain and
illustrate. [10]
2065
13. Who is bailee? Explain the duties of bailee. [3+7]
2066
14. What is contract of bailment? Explain the rights and duties of finder of lost goods. [3+7]
2067
15. What is pledge? Explain the legal effect of pledge by a non-owner. [3+7]
2068
1.1.36 Comprehensive Answer Questions

1. Any lawful contract creates the legal relationship and there upon rights and duties between the contracting
parties. In view of the given statement discuss the rights and duties of bailee under a contract of bailment.
[10+10]
2061
2. Define pledge. Discuss the rights and duties of pawner and pawnee. [5+15]
2063
3. Who is the considered as the finder of lost goods? Explain the rights and duties of finder of lost goods.[3+7]
2068

4. Contract of Agency
4.1 Meaning and Nature of Agency
It is not always possible for a person to do everything by himself. Due to the complexities of modern business; it
becomes necessary to delegate some of the acts to be performed by another person. Such another person is called
an agent. The person to whom the act is done, or who is represented of that work is called the principal. The
contract, which creates the relationship of principal and agent, is called a contract of agent or agency.
E.g. 'A' appoints 'B' to sell his land on his behalf. Here 'A' is principal and 'B' is his agent. The relationship between
'A' and 'B' is called contract of agency.
The Nepal Contract Act, 2056 has defined the term 'Contract of agency' in section 56 as "any person may appoint
any other person as his agent to do any thing on his behalf, except the something connecting with his personal skill,
or to conduct business as his agent or any transaction with a third person on his behalf or to represent himself to
such person, or establish any kind of legal relation with the person appointing an agent and a third person, and in
case an agent is so appointed, a contract relating to agency shall be deemed to have been concluded".
Section 182 of the Indian Contract Act, 1872 defines that "an agent is a person employed to do any act for another
or to represent another in dealings with third person. The person for whom such act is done or who is so
represented is called the principal".
Above said definitions signify that the agency is a legal relationship between the principal and agent for doing any
work on behalf of the principal except the work relating to his personal capacity. The function of an agent is to
bring about contractual relations between the principal and the third parties. The Acts of the agent bind his
principal to third person. So, the function of the agent, as to bring his principal in to contractual relationship with
the third party, creates the relation between principal and third party. The agent has power to make the principal
answerable to the third party for his conduct.
General Rules of Agency
There are two important general rules regarding agency,
(i) Whatever a person competent to contract may do by himself, he may do through an agent except
for acts involving personal skill and qualification. For example, a person cannot marry through an
agent, can not paint a picture through an agent etc.
(ii) "He who does through another, does by himself. "In other words, the acts of the agent are, for all
legal purposes, the acts of the principal.
4.2 Characteristics of Contract of Agency
The characteristics of contract of agency are as follows:

4.2.1 Appointment of the agent:
The agent is appointed on the wish of principal, while the things appropriate.
4.2.2 Mode of appointment:
The mode of appointment may be express or implied.
4.2.3 Binding Nature:
The work of agent binds the principal to the third person.
4.2.4 No need of consideration:
Absence of consideration does not affect the validity of contract of agency. It is internal matter between the
principal and agent.
4.2.5 Good faith:
Agency is based on the agent has to inform his principal all the information as he knows. Similarly, the agent must
neither set up adverse title nor use information against the principal obtained in the course of agency.
4.2.6 Delegation of Authority:
The principal delegates authority to the agent to do any work for him or on his behalf.
4.2.7 Purpose of Agency:
The purpose of the appointment of the agency is to establish legal relationship between the principal and third
person.
1.1.1 Distinction between Agent and Servant
A servant acts under the direct control and supervision of his master, and servant has to act according to the
orders of the master in every particular case. He does not create relations between his master and third persons.
An agent is not subject to the direct control and supervision of the principal. He has often a large discretion to act
within the scope of his authority. A principal directs the agent as to what is to be done.
4.3 Modes of creating an Agency
There are several modes for creating agency. It can be created in any one of the following modes:
4.3.1 Agency by express agreement
Normally agency is created by an express agreement. The term express comprises both the oral and an agreement
in written form. In Nepal, registration must be necessary in the prescribed governmental department to create an
agency. When a power of attorney is given to another person an agency is created and the agent enables to
perform the work on behalf of the principal. The authority of power of attorney may different in accordance with
the terms and conditions of that document. They are as follows:
a. General power of attorney: Under this attorney the agent is authorized to do all dealings to act
generally in the business agency.
b. Special power of attorney: Under this attorney, the agent is authorized to do a special transaction.
e.g. selling a house.
c. Particular power of attorney: Under this attorney, the agent is authorized to do a particular single
act. e.g. submission of document in the particular office or court.
4.3.2 Agency by implied agreement
An agency may be created by an implied form. Implied agency arises when there is no express agreement
appointing a person as agent. It arises from the conduct, situation or relationship of parties. The authority to act as
an agent is inferred from the nature of business. Parties are usually regarded as agent by implications of their
relationship. It may be the followings types:-
a. Agency by Estopple: Estopple is legal doctrine which prevents a person from denying a fact. If person,
by his words or conduct has willfully led another to believe that certain circumstances of facts exist,
the another person, who has acted on that belief may create an agent once accepted acts of facts
cannot be rejected again. This agency is based on the doctrine of estopple.
b. Agency by holding out: It is a branch of estopple. But an agency by holding out requires some
positive act of conduct by the principal to establish agency subsequently. For example, 'A' who is
domestic servant of 'B'. Generally A purchases goods on credit from 'C' and B pays them regularly. 'C'
can assume that 'A' is 'B's implied agent. Later on, 'A' uses 'B's authority to purchase goods for his
own use. C files a suit against 'B' to recover the cost of the goods which were actually consumed by
'A'. In this prior conduct in holding out that 'A' was B's agent. Here 'C' can recover the price from 'B'.
c. Agency by necessity: It is also mode of creating agency by implied agreement or authority. In some
cases the agency can be created because of the necessity. Where one may need to work being an
agent of another person even in the absence of expressed agreement.
In certain circumstances the law confers (accepts) an authority in one person to act as agent for another without
requiring the consent of principal. Following conditions must be fulfilled for the agency of necessity:
• It must be impossible to get the principals' instructions,
• The agent of necessity must act honesty in the interest of all parties.
• There must be real emergency and necessary of an act on behalf of principal
4.3.3 Agency by Ratification
Ratification means subsequent acceptance by the principal in respect of an act done by the agent without the
consent of principal. It is the subsequent adoption and acceptance of an act originally done without authority or
instructions. It is an approval of the previous act and conduct by principal. It has got retrospective effect. That
agency comes in to existence from the moment when the agent acted and not from the time when the principal
ratified. Ratification depends upon the will of principal. If he approves the previous conduct, he is said to have
conform that act and becomes liable for that act. For example; 'A' buys certain goods on behalf of 'B', 'B' did not
appoint 'A' as agent. Latter on "B" accepts it and the act is ratified. Here, 'A' becomes agent of 'B' with
retrospective effect.
4.4 Rules and Essential Elements of Valid Ratification
There are some rules or essentials elements regarding to valid ratification. Ratification becomes valid only if the
following conditions are satisfied.
• The agent must act on behalf of the principal,
• The Principal must be in existence at the time of ratification,
• The principal must have contractual capacity,
• The principal must have full knowledge of material facts of ratification,
• Whole transaction must be ratified,
• Ratification must be done within a reasonable time.
• Act to be ratified should not be void or illegal,
• Ratification must not injure a third party.
• Act to be ratified must be within power of principal,
• Ratification may be expressed or implied,
• Ratification must be communicated to the concerned party.
4.4.1 Classification of Agent
There are different types of agent in regarding to their capacity, authority as well as their nature. The
classifications of the agent are as below:
1.1.2 A. From the view point of agents' authority:
• General Agent: A general agent is one who is employed to do all acts connected with a particular
business or employment.
• Special Agent: A special agent is one who is employed to do same particular act of represent his
principal in same particular transaction. e.g. an agent employed to sell a car. As soon as the act is
performed, the authority of such an agent comes to an end.
• Universal Agent: A universal agent is said to be one whose authority is unlimited. e.g. who is
authorized to do all the acts which the principal can lawfully do and can delegate. He enjoys extensive
powers to transact every kind of business on behalf of his principal.
1.1.3 B. From the view point of the nature of work:
• Mercantile Agent: A mercantile agent is one who has authority either to sell goods or to buy goods
or to raise money on the security of goods. The various kinds of mercantile agent are as follows:
• Factor: A factor is a mercantile agent to whom goods are entrusted for sale. He enjoys wide
discretionary power in relation to the sale of goods.
• Commission agent: A commission agent is a mercantile agent who buys or sells goods for his principal
on the best possible terms in his own name and who receives commission for his work.
• Broker: He is one who is employed to make contracts for the purchase and sale of goods. He is not
entrusted with the possession of goods. He simply acts as a connecting link and brings the two parties
together to bargain.
• Non-mercantile agent: They include Advocates, Attorneys, and Insurance Agent etc.
4.5 Right and Duties of Agent
An agent is a person who works as a representative of another person or who works on behalf of principal. During
course of his work, he performs several works and the works performed by him, ultimately goes under the liability
of his principal. The right and duties of the principal and agent seem corresponding to each other. Being an agent,
he has some rights and some duties. The rights and duties of agent are given below separately.
4.5.1 Rights of Agent
The following are the rights of an agent:-
1.1.4 a. Right to retain money:
The agent has right to retain necessary costs received on the account of the principal in the course of business of
agency.
1.1.5 b. Right to receive remuneration:
Where the contract on the remuneration or commission, the agent has right to sum remuneration or commission
and it must be supplied to him. He has right to receive salary at the time of completion of his work. In this respect
Section 219 of the Indian Contract Act, 1872 has made the provisions.
1.1.6 c. Right to lien:
Except otherwise agreed, an agent has a right to retain goods, papers and other property of the principal received
by him, until the amount due to himself for compensation and services in respect of, has been paid to him. The
agent can only retain the goods he has no power to sell.
1.1.7 d. Right to Compensation:
An agent has right to compensation to him by the principal's negligence. According to the Section 62(3) of the
Nepal Contract Act, 2056, unless otherwise provided that in contract, the agent is entitled to reasonable
compensation for the loss or principal removes the agent without any reasons before the specific period
prescribed or before the completion of work assigned to him or without a prior notice stating reason if no period
or work has been prescribed for.
1.1.8 e. Right to stoppage of goods in transit:
An agent has right, as an unpaid seller, to stop the goods in transit to the principal on the following conditions;
• He has bought goods either with his own money or by incurring a personal liability for the price.
• The principal has becomes insolvent.
4.5.2 Duties of Agent
The agent performs work on behalf of principal; therefore an agent has the following duties towards the principal:
a. To conduct the business of agency according to instructions of the principal: It is the duty of every
agent as to act and perform the agency work according to the directions given by the principal.
When the agent acts otherwise and there occurs any loss, he must account for such work himself.
b. To follows customs of trade in the absence of instructions: It is duty of an agent to perform the
work in accordance with the law, practices and custom, where expressly no instruction is made by
the principal. If the agent does not do so, he is liable for the loss sustained by the principal.
c. To render proper accounts to the principal: The agent has to maintain the account properly. And the
agent has to render proper account to the principal or provide detail of accounts and records on
principals' demand.
d. To communicate with the principal, in case of difficulty: To provide all reasonable communication
with his principal in seeking to obtain his instruction before taking any steps in facing the difficulty or
emergence.
e. Not to deal on his own account: According to section 215 and 216 of the Indian contract Act, 1872
the agent must not deal on his own account in the business of agency without consent of the
materials circumstances which have come to his knowledge.
f. To pay all sums received for principal: The agent must pay to the principal all sums received on his
behalf.
g. Not to delegate his authority and responsibility: An agent can not delegate his authority or employ
another to perform acts which he has expressly or impliedly undertake to perform personally.
Ordinarily an agent can not further delegate the authority which has been delegated to him by his
principal.
h. Not to make secret profit: An agent stands in fiduciary relation to his principal and therefore he
must not make any profit out of his agency. He must pay to his principal all moneys received by him
on principal account.
i. Not to disclose confidence: To operate the business activities, it is necessary the confidence
between the agent and principal. Therefore, not to disclose the confidential matters others.
j. Not to set up adverse title: The agent must not set-up his own title or the title of third party to the
goods received by him from the principal.
k. Act in good faith and in the interest of the principal: An agent is only a doer of the principal; he has
to work for the benefit and interest of the principal.
4.6 Rights and Duties of Principal
The duties of an agent are indirectly the rights of principal and the rights of an agent are indirectly the duties of the
principal. The Principal is a person who employs the agent to work on his behalf. As being an employer, he has
some rights and duties towards his agent. The Nepal Contract Act 2056 has made some provisions in this regards.
The rights and duties of the principal are given below separately.
4.6.1 Rights of Principal
1.1.9 a. Right to revoke agent:
In case, the agent commits fraud or uses excess authority or deceives principal, the principal has right to revoke
agent before the completion of work.
1.1.10 b. Right to instruct:
The principal has right to instruct his agent in respect of working procedure. The agent also has duty to follow his
instruction.
1.1.11 c. Right to claim compensation.
The principal has right to claim compensation from his agent, if he does any work beyond the authority provided to
him by principal or by careless or by negligence. In such case the agent is liable for the loss of his principal.
1.1.12 d. Right to demand secret profit
The relation between the agent and principal is fiduciary and the agent has no right to make any secret profit. If he
does so, the principal has right to demand such secret earned profit from his agent.
4.6.2 Duties of principal
Duties of the principal are as follow:
a. To provide remuneration: Although it is the matter between the principal and agent but the
principal has to provide remuneration or commission as mentioned in an agreement. If
remuneration is not mentioned in the agreement, the principal should provide reasonable
commission to his agent.
b. To reimburse money: The principal is liable for repaying or reimbursing money which spent by the
agent to preserve the goods or performance of contract.
c. To provide indemnity: The principal has duty to provide indemnity (Compensation) to his agent in
following cases.
• Against the consequences of lawful acts performed by the agent within his authority.
• Against the consequences of acts performed by the agent in good faith.
• In respect of injury caused to the agent by the principal's negligence.
d. To give reasonable compensation: In the case, where the principal removes his agent without any
reason and prior notice, he must provide compensation to the agent for his loss.
4.7 Delegation of Authority
Delegation of authority means to give authority for conducting certain work to another person from the authority
holders. The appointment of an agent is a form of delegation of authority. In other words, the agent works under
the delegated authority on behalf of his principal. Generally the delegated authority can not be delegated again to
the other without consent of the principal. Like wise, the legal provision of Nepal Contract Act has made the
provisions under the section 58 that the agent has to obtain consent of the principal before delegating power to
sub agent.
Exceptions of the general rule of delegation
There are some exceptions to this general rule. In the following cases the agent can delegate his authority to
another or he can appoint a sub-agent and bind the principal.
a) Where the principal has expressly permitted delegation of such power.
b) Where the principal has impliedly, by his conduct allowed such delegation of authority. Where the
principal knows that the agent intends to delegate his authority but doesn't object to it.
c) Where the ordinary custom of trade sub-agent may be employed. Stock exchange member brokers
generally appoint clerks to transact business on behalf of their client.
d) Where the very nature of agency makes it necessary to appoints a sub-agent. For illustration a
manager of a shop may employ sales assistant.
e) Where unforeseen emergencies arises rendering appointment of the sub-agent is necessary.
f) Sub-agent and substitute agent: In Nepalese Contract Act has not any provision about the substitute
agent. If an original agent appoints an agent in his placed is known as substituted agent. After
appointing such substitute agent then original agent walks out of the scene. The original agent must
act with reasonable care in selecting a substituted agent. If he makes the selection carelessly, he
becomes liable to the principal for the negligence of the agent so selected.
Nepalese contract Act 2056 has not defined the form substituted agent but the Indian Contract Act 1872 has
defined it under Section 194 as a person appointed by the agent according to the express or implied authority of
the principal to act on behalf of principal in the business of agency.
Sub-agent and substituted agent
1.1.13 Sub-agent
A sub-agent is a person employed by and acting under the control of the original agent in the business of the
agency. Thus, a person employee by an agent is called a sub-agent. A sub-agent acts under the control of original
agent as for the relation in between themselves is that of agent and principal but the original agent acts as
principal for the sub-agent. He has no independent power to work. The sub-agent is liable to the agent.
Remuneration or commission to a sub-agent to is paid by the agent.
1.1.14 Substituted agent:
When an agent has an express or implied authority of his principal to name another person to act for the principal
and agent names another person accordingly, such person is not sub-agent but substituted agent of the principal.
He has independent power to work. The substituted agent is liable to the principal. The remuneration or
commission to a substituted agent is paid by the principal.
4.8 Termination of Agency
An agency is not a permanent entity. It may be terminated in the same manner as any other contract. The
termination of agency implies the end of the relationship of the principal and agent. When the power of attorney
is withdrawn by the principal the agency is said to be terminated.
This may take place mainly by the act of the parties and the operation of law. The Nepal Agency Act, 2014 has no
clear provisions in this regard but Nepal contact Act 2056 has mentioned provisions about the termination of the
contract of agency. An agency may be terminated in any of the following ways.
1.1.15 a. Termination of agency by acts of the parties:
i. By mutual agreement: Any agency, like, any other contract, can be terminated at any time by the mutual
agreement between the principal and agent.
ii. By Revocation: The principal is empowered to revoke his authority given to the agent before at the stage of
operation. The principal terminate the agency against the right of the agent. The revocation of agent must be
noticed before revoke his power.
iii. By renunciation: An agency may also be terminated an express renunciation by the agent because no person
can be compelled to continue as agent against his will. Unless otherwise mentioned in the contract, the agent can
voluntarily discontinue the agency by giving a reasonable notice to his principal. The notice is necessary to give to
the principal for renunciation otherwise he is liable to compensate the loss of his principal. The agent who
renounces the agency has no right to claim remuneration for his performed work.
iv. By completion of the work: Unless otherwise mentioned in the contract, if the agent has been appointed for
the specific work and he performs his duty, the agency comes to end from the time of completion of that work.
1.1.16 b. Termination of agency by operation of law:
The agency is terminated due to application of law in some conditions. It covers the following modes.
(i) By expiry of time: Unless otherwise mentioned in the contract, if the agent is appointed for a fixed
time, the expiration of the terms puts an end to the agency, even though the business of the agency
may not have been completed.
(ii) By death or insanity: Unless otherwise mentioned in the contract, the agency is terminated with the
time of the death or insanity of the principal or the agent.
(iii) By insolvency of the principal: Unless otherwise mentioned in the contract, if the principal is
declared insolvent, the agency is automatically terminated. It is not clear in the case of insolvency of
the agent under the Indian and Nepalese Contract Act. But it is accepted that the insolvency of agent
also puts an end of the agency.
(iv) By destruction of the subject matter: An agency which is created to deal with certain subject matter
will be terminated by the destruction of that subject matter. For example, where the agency was
created for the sale of a house if the house is destroyed by fire, the contract of agency is ended.
(v) By dissolution of a company: If the principal or agent is an incorporated company, the agency
automatically ceased on dissolution of the company.
(vi) Principal and agent becomes alien enemy: If the principal and agent are nationals of two different
countries and a war breaks out between those two countries on such condition those parties of
agency turn into alien enemy and the contract of agency is terminated.
(vii) By change of law: Due to the change of law, if the works under the contract of agency become
impossible to perform subsequently, the agency puts an end.
4.9 Provisions of Nepal Agency Act, 2014 B.S. and Rule 2019 B.S.
Before enactment of the first separate Agency Act, in 2014 BS in Nepal, the Contract of agency was operated by
the Agency Istihar (Law) of 1992 BS. The Agency Act, 2014 is still in operation and for clarification of the
provisions, the Agency Rules 2019 has made in 2019 BS. In addition to this Act and Rule, the Contract Act, 2056 has
also incorporated some provisions to deal with the law of agency.
At present in Nepal, the Contract Act, 2056 is the main legal framework to govern the matter of agency. The
Agency Act, 2014 is old one and it has comprised only 11 section which are relating only to the agent, registration
and renewal of agency, punishment. It does not able to comprise the modern aspects of agency. The Contract Act,
2056 is a new one and it deals with several provisions of agency, alone with other forms of contract under the
chapter 8, it deals with definition of agency, principal, agent, and sub-agent, and makes provisions relating to the
rights and duties of them, as well as the modes of creation and termination of agency.
4.9.1 Procedure of Registration of an Agency
The Agency Act, 2014 B.S. was introduced with the object to restrict the agent from making unfair advantage in the
sale of goods and to regulate, control such activities and makes other relevant provisions to the effect. The Agency
Rule, 2019 is made for obtaining the objectives of the Act. According to the both Act and Rule procedure of
registration of an Agency is given below:
• Application: The person who wants to operate the business of agency he has to apply for the
registration of an agency to the Director General of the Department of Commerce, Government of
Nepal. He has to mention Name and Address of the principal in the application. Further, he has to
commit for providing description of transaction within every three months. He is restricted to make
any undue profit other than prescribed commission. He has to pay application registration fee.
• Registration: The Director General of the Department of Commerce can be register the agency after
receiving the application if there has been all required information in the application to register the
agency. The Director can fix terms and conditions in the registration while allowing the agency. In
case, where the application is not approved, the applicant can take back the paid amount. The
registration must be renewed before the end of every chaitra month under the Nepalese calendar to
be valid.
• Submission of Account: Every registered agent has to submit account of transaction under taken on
every three months at the office of Director General. The account has to include description or
goods, worth, profit, sale rate and so on. From this, the department receives information about the
transaction.
• Transfer of Agency: The registered agency can be transferred from one to another. For this purpose,
the person willing to be new agent has to submit the consent letter of the principal and application
with Rs.25 at the department of commerce. If the Director found appropriate, agency can transfer to
the applicant.
4.9.2 Effect of Non-registration of Agency in Nepal
The agency must be registered to operate the business of agency in Nepal. The transaction without having
registration is not only illegal but also creates numbers of difficulties as well as makes liable for the punishment to
the agent. According to the Nepal Agency Act, 2014 and Rule 2019 the effects of the non-registration of agency can
bear following consequences;
• Punishment of fine: Government of Nepal can punish the agent working without registration, with
the punishment of fine up to Rs.1000.
• Prohibition to work as an agent: Government of Nepal may also punish the agent working contrary
to legal provision of the Act with the fine Rs.200. or prohibits to work as agent for two years.
• Violating the essential terms: The agent violating the contract which has been made the time of
registration with essential terms is subject to punishment of fine up to Rs.500. or restriction to work
as agent for up to five years.
As mentioned above, the effects of non-registration of agency makes one punishable for fine and makes him
disqualifies to the business of agency for the certain period.
Agency
1.1.17 Short Answer and Questions
1. What is agency? Explain the procedure of registration of agency business in Nepal. [4+6]
2055
2. What is agency? Explain the possible circumstances relating to the termination of agency by operation of law.
[4+6]
2056
3. What do you mean by agency by ratification? Explains the conditions for a valid ratification. [4+6]
2057
4. What is agency? Write down the rights of an agent. [5+5]
2058
5. Distinguish between sub-agent and substituted agent. [10]
2059
6. What is termination? Explain the methods of termination of agency business. [4+6]
2060
7. Who is an agent? Point out the different kinds of agent. [4+6]
2060
8. Explain the procedures of registration of agency business in Nepal. [10]
2061
9. Describe the procedures of registration and effect of non-registration of agency in Nepal. [10]
2062
10. Highlight the nature of agency and explain the rights and duties of agent. [3+7]
2063
11. Give the meaning of agency and describe the situation where an agency is terminated.
[3+7]
2064
12. Define agent and principal. Explain the duties of an agent towards the principal. [3+7]
2065
13. What Is agency? Distinguish between an sub-agent and a substituted agent. [3+7]
2065
14. Highlight on the modes of creating agency. [10]
2066
15. Who is a sub-agent? When may an agent appoint a sub-agent? [3+7]
2067
16. How an agency is created? Show the difference between a sub-agent and a substituted agent. [3+7]
2067
17. When is an agency terminated? Explain. [10]
2068

5. Indemnity and Guarantee
5.1 Meaning and Definition
To indemnify means to compensate or to make good of the loss and a contract of indemnity means a promise or
statement of liability to pay compensation for a loss or for a wrong in a transaction. It is known also bearing the
anticipated loss by the party. Indemnity is a security or protection against a contingent hurt, damage or loss.
According to section 22 of NCA, 2056, "Where any person has concluded a contract relating to indemnity with the
provision to pay to any party to a contract or a third person for any loss or damage that may result from his
actions, while working under the direction of that party to that contact, he may realize as compensation."
According to ICA, 1872 section 124, "A contract by which one party promises to save the other from loss, caused to
him by the conduct of the promisor himself or by the conduct of any other person, is called a contract of indemnity."
Features of contract of Indemnity:
• It is a special contract as well as the general
• It has also necessary to be the all essential elements of valid contract.
• It is a contingent contract.
• All matter depends on the agreement of the contract.
• A contract of indemnity is a security for an anticipated loss.
• It covers the concerned party as well as the third party.
• It may be made expressly or impliedly.
• It covers only the loss caused by an event mentioned in the agreement of contract.
• It covers only the actual loss.
• It has two parties.
5.2 Right and Duties of Indemnity Holder
The person who promises to make good for contingent damages is called the Indemnity holder. The indemnity
holder is entitled to recover any or all of the amounts of compensation under the contract of indemnity.
5.2.1 The rights of Indemnity holder are as fallows:
• To recover entire indemnity amount prescribed in the agreement of contract.
• To claim all damages compelled to pay to a third party for loss
• To claim all costs spent in relating to indemnity.
• To claim all the costs of legal actions.
But, except otherwise is mentioned in the contract, the indemnifier will not be liable for the loss in the following
circumstances, which are called also the duties of indemnity holder:
• Not to work negligently.
• Work without the intention of causing any loss or damage.
• Not to work against the instruction of the promisor or indemnifier.
• Work in according with agreement of contract.
5.3 Rights and Duties of Indemnifier
Rights of an indemnity holder are the duties of an indemnifier. He must pay all damages, all costs and all sum of
money is according to an agreement of contract of Indemnity. Similarly, Duties of indemnity holder are the rights
of indemnifier.
Rights of indemnifier
There are not prescribed any specific rights of indemnifier either in Nepalese law or in Indian law.
(1) If indemnity holder acts negligently.
(2) If indemnity holder is acting with the intention of causing any loss or damage.
(3) If he is acting against the instruction of the other party (promisor).
Duties of indemnifier
The duties of an indemnifier arise in the following circumstances.
(1) There must be a loss in accordance with the contract to make the indemnifier liable.
(2) There must be an occurrence of the anticipated events.

(3) Where the right of indemnity is used by the indemnity holder prudently and the instruction of the
indemnifier is not contravened or when there is no breach of contract.
(4) If the costs demanded by the indemnifier are not caused by negligence, haphazard behavior.
5.4 Contract on Guarantee
A "Guarantee" means a contract of a promise to be responsible for something, to perform the promise or to
discharge the liability of a third person, in case of his default. In other words, guarantee means a promise to
answer debt, default or miscarriage of another. Such a contract involves three parties.
a. Creditor: The person, to whom the guarantee is given, is called the creditor.
b. Surety: The person, who gives the guarantee, is called the surety.
c. Principal Debtor: The person, in respect of whose default is given the guarantee, is called the
principal debtor.
A contract relating to guarantee shall be deemed to have been concluded if it provides that, if any person defaults
in the repayment of the loan obtained by him or fulfillment of the obligation accepted by him, It will be repaid of
fulfilled by a third person. [Sec. 15(1) of NCA 2056]
A contract of guarantee is a contract to perform the promise to discharge the liability of a third person in case of his
default. [Sec. 126 of ICA 1872]
On the basis of definitions given above, it can be said that a contract of a guarantee is that contract by which one
party promises to discharge the liability or to repay the loan on behalf of the third party if the third party is unable
to repay the loan or to discharge the liability promised by him. Example, If 'A' advances a loan of Rs. 5,000/- to 'B'
and 'C' promises to 'A' that if 'B' does not repay the loan, 'C' will pay. Here, this is a contract of guarantee.
In Mahabir Shumsher vs. Loyds Bank, the court held that 'A contract of guarantee is a tripartite Agreement which
1
contemplates the principal debtor, the creditor and the surety.
5.4.1 Features of Contract of Guarantee
1.1.1 A tripartite (tri-party) contract:
Under the contract of guarantee, there must be the three parties. Principal Debtor, Surety and Creditor are party
of contract of guarantee. There should be three different agreements between three parties.
• No direct Consideration between Surety and Creditor:
• Primary liability lies upon the principal debtor and surety seems to be secondary or conditional
liability.
• Competency of parties is must essential along with other essential elements of a valid contract.
1
Mahabir Shumsher vs. Loyds Bank
• Liability of Surety arises after the defaults of the principle debtor.
• It must be concluded in written form.
• Consent all of three parties is essential.
• The contract of guarantee may be express or implied etc.
Besides that, being special types of contract, it must satisfy all the essential elements of valid contract such as offer
and acceptance, lawful objective, consideration, free consent, contractual capacity etc.
5.5 Types of Guarantee
5.5.1 Types of Guarantee are as below:
1.1.2 a. Absolute and Conditional Guarantee:
Unconditionally a promise to pay the debt, on the default of the principal debtor, is called absolute guarantee but,
if some contingency arises there is a conditional guarantee.
1.1.3 b. General and Special Guarantee:
The guarantee that can be accepted by general people is called general guarantee and accepted by a particular
person is called the special guarantee.
1.1.4 c. Limited and unlimited Guarantee:
If there is limitation of time and amount under an agreement is called the limited guarantee, whereas there is not
any limitation of time and amount is called the unlimited guarantee.
1.1.5 d. Prospective and Retrospective Guarantee:
Guarantee is given for future transaction is called prospective guarantee and Guarantee is given for past or existing
actions is called retrospective guarantee.
1.1.6 e. Specific and Continuing Guarantee:
Guarantee is extended to a single transaction or debt is called a specific guarantee and if a guarantee extends to a
series of transactions continuously is called a continuing guarantee.
• Features of continuing guarantee:
 Continuing Guarantee is not ended by the first advance.
 It is always be revoked by a notice to the creditor.
 A revocation of continuing Guarantee is possible for future transactions.

 Death of the surety terminates the contract.
• Revocation of the continuing guarantee:
 A Surety may revoke a continuing guarantee at any time by a notice.
 The death of the surety automatically terminates the contract of guarantee. But except
otherwise agreed, the liability of the surety for the previous transactions is not discharged.
 By the variation in the terms of the contract without the consent of surety.
 By novation of the contract.
 By discharge of the principal debtors.
 By loss of security
5.5.2 Rights and Liability of Surety:
1.1.7 5.5.2.1 Rights of Surety:
a. Rights against the creditor:
 Rights to demand security with creditor.
 Right to claim set-off. Set-off means to counter a claim. If the creditor lost or loss the security the
surety can make a counter claim.
 Right of subrogation: It means right to substitution. After the payment of all the guaranteed debt
to the creditor, Surety substitutes the status of creditor.
 Right to claim Equities: On the full payment of guaranteed debt, the security is entitled to
all equities. (With natural increment and claim)
b. Rights of a surety against the Principal debtor: After the payment of the guaranteed debt, the surety stands
against the principal debtor. So, there are some rights for surety against the principal debtor established by law
which is as below:
 Right to be relived from liability: Surety may compel to principal debtor to pay the loan and get
rid of him from the liability.
 Right to claim indemnity: Surety has the right to claim of the legal expenses, eg. loan, interest,
cost of suits, etc.
 Right to subrogation: Subrogation means to be placed on the seat of the creditor. Such a right of
surety can be exercised on the full payment of the guaranteed debt.
c. Rights against co-sureties: If there are more people become the sureties under a single agreement of contract
or single transaction of loan all are responsible to pay the loan respectively. Except otherwise, there is different
terms and conditions under the agreement, liability of co-sureties is equal. If they bound for different-different
sum, they are compelled to pay their respective liabilities. In case one co-surety paid entire liability but other co-
sureties do not make payment or fails to pay their respective liability in this situation aggrieved co-surety has the
right to sue against the other co-sureties to recover his paid amount.
d. Rights to recover the actual amount paid: Surety has the right to recover the entire payment from the principal
debtor. He can recover only the amount actually paid by him but not equal to the guarantee in case surety did not
pay total sum of guarantee.
1.1.8 5.5.2.2 Liabilities of Surety
a. Liability co-extensive as the principal debtor: The surety's liabilities is same as that the principal debtor. Hence,
in the absence of a contract to the contrary, liability of the surety is co-extensive with or similar to that of the
principal debtor and he remains responsible until the principal debtor becomes free from his liability.
b. Secondary liability of surety: Firstly, the principal debtor must be paid his all liability by himself. Where the
principal debtor performs his duty by himself nothing remains any liability of surety. If principal debtor does not
perform his liability, then after, liability of surety will begin. So, it can be said that surety's liability is secondary.
c. Contingent nature of liability: The contract of guarantee seems conditional or contingent nature of contract.
After the failure of principal debtor, the obligations of surety will begin. So, it depends on the future uncertain or
collateral event.
d. Limited nature of liability: It limits the liability of the surety.
e. Liability of primary nature:
• If the principal debtor is the minor at that time surety will be liable as the primary nature.
• The principal debtor becomes insolvent.
• Operation of law occurs death, insolvent/ insanity principal debtor can discharge form the liabilities
but not surety. But all most depends on the agreement of the contract.
1.1.9 5.5.2.3 Discharge of Surety from the liabilities
a. By performance
b. Revocation of Surety
 By notice
 Death
 Novation (Renewal)
c. Discharge by variation in terms
d. By discharge of principal debtor

e. By release of principal debtor
f. By compromise of creditor and principal debtor
g. By loss of security
h. By the discharge of one of the surety
i. By damaging surety's rights.
j. By expiry the time etc.
5.5.2.4 Differences between Indemnity and Guarantee
Base of distinction Indemnity Guarantee
Purpose To save indemnifier from loss To provide necessary security to the

creditor.
Numbers of parties Two parties Three parties
Number of Contract One agreement of contract Three agreement of contract
Nature of liability Primary liability is of the indemnifier. Secondary liability is of the surety and it
It arises immediately after loss from arises only on the default of the principal
the collateral event. debtor.
Consideration It has consideration. It has not direct consideration to surety.
Commencement of The liability of indemnifier arises after The liability of the surety arises on the
liability the happening of the collateral event. defaults of the principal debtor.
Discharge from The indemnifier discharges after The surety discharges when the creditor
liabilities paying indemnity to the indemnity discharge or he fulfils the debtors'
holder. liability.
Nature of contract It has contingent nature. It has general nature
Right to The indemnifier has no right of The surety has the right of
reimbursement reimbursement of the amount paid reimbursement of the amount from the
to the indemnity holder. principal debtor, which is paid to the
creditor.
Number of promisor Indemnifier is only one promisor Principal debtor and Surety both are
promisor.
Scope It has limited scope. It has boarder scope.
1.1.10 Short Answer Questions
1. When does the liability of a surety under a contract of guarantee come to end? Illustrate and explain. [10]
2055
2. Distinguish between a contract of guarantee and a contract of indemnity. [10]

2056
3. Define contract of indemnity. Explain the rights of the indemnity-holder. [4+6]

2057
4. Explain the rights of indemnity holder. [10]

2058
5. Explain continuing guarantee with suitable illustrations. [10]

2059
6. Who is surety? State and explain the circumstances under which surety is discharged.
[4+6]
2060
7. Distinguish between promissory note and bills of exchange. [10]

2060
8. When is a surety discharged from his liability under a contract of guarantee? [10]
2061
9. What is a contract of guarantee? When is the surety discharged from his liability? [3+7]
2062
10. Explain the rights and duties of surety under the contract of guarantee. [3+7]
2063
11. What is a contract of indemnity? Describe the rights and duties of indemnifies and indemnity holder. [3+7]
2064
12. State and explain the conditions under which a surety is discharged. [10]
2065
13. Define a contract of indemnity. Explain the rights and duties of indemnifier. [3+7]
2066
14. Define contract of guarantee? Show the difference between a contract of indemnity and a contract of
guarantee. [3+7]
2067
15. Who is a surety? Explain the rights and duties of surety under a contract of guarantee.
[3+7]
2068

6. Contract of Sale of Goods
6.1 Meaning of Contract of Sale of Goods
A sale of goods is the transformation of ownership of goods for a price from a seller to a buyer. It is a transaction
performed between the parties on the basis of contract of sale of goods. In a Contract of sale of goods, there must
be a change of ownership of goods or property. Ownership is a legal right of a person over the goods. Sale and an
agreement to sale both are included in the contract of sale of goods that may be performed in the present or
future. Contract of sale of goods is also a contract, so, it needs all the essential elements of valid contract, like
capacity of parties, free consent, lawful objective, lawful consideration, intention to create a legal relationship etc.
A contract of sale of goods is also a special contract. We have not separate laws, but some provisions are
incorporated under the chapter 7 of Nepal Contract Act, 2056. Similarly, Indian sale of goods Act, 1930 has made
various provisions in context of India which closely follows the English sale of goods Act. Goods are the
fundamental factors in a Contract of Sale of goods.
The term goods include every kind of movable goods or property, except money and actionable claim. Indian Sale
of Goods Act, 1930 Section 2(7) stated that; the term good means movable property which may be sold or
purchased. Thus, the goods that are movable include shares, patents, designs, copyright, car, crops, grass etc.
Immovable property means which are not separated from the earth.
According to Nepal Contact Act, 2056 Section 40; 'Where a seller agrees to transfer any goods immediately or in
future against the price of that goods, there is a contract of sale of goods.'
On the summing up of above discussion, we can define; A contract of sale of goods is a contract whereby the seller
transfer or agree to transfer the property in goods to the buyer for a price.
6.2 Features of Contract of Sale of Goods
On the basis of its' meaning and definitions, the contract of sale of goods has some specific features or essentials.
They are given below:
a. Two Parties: There must be two parties to form a contract of sale of goods as the seller and buyer.
The party, who agrees to sell goods, is called seller and the party who buys such goods is called buyer.
Under this contract, the good has to pass from seller to buyer under their free consent.
b. Transfer of Ownership: Ownership of goods must be transferred from seller to buyer according to the
contact of sale of goods. Only transfer of possession is not a transfer of ownership. Generally, the
owner has right to sell his property but in some exceptional case, the Bailee and finder of lost goods
also can sale the goods in some extent.
c. Goods: Goods means every kind of movable property except money and actionable claim. Like;
furniture, vehicles, clothes etc. The goods are the subject matter of the contract of sale of goods, so it
is an important essential of this contract.
d. Price of goods: The price plays significant role for determination of consideration in the contract of
sale of goods. It is determined by money or money is a consideration for a sale of goods that is why
the price is another important essential features.
e. Sale and agreement to sell: The terms sale and agreement to sell is the different matter. When the
goods are transferred from the seller to buyer immediately such contract is called the sale. But where
the transfer of goods is to take place at future time or subject to some condition there after to be
fulfilled such contract is called the agreement to sell.
e. Express and implied: The contract of sale of goods can be formed in expressed or implied both mode.
f. Terms of Contract of sale: The contract of sale of goods may be absolute or conditional. Place of
delivery, place of payment, mode of payment or delivery of goods, time of payment or delivery may be
the terms or conditions under the contract of sale of goods.
g. Essential elements of valid contract: Contract of sale is the special contract, so there must be the
essential elements of valid contract.
6.3 Types of Goods
There are many types of goods such as movable and immovable goods and like wise, with the view point of sale of
goods they are classified in the following main types.
1.1.1 (1) Existing/present goods
Existing goods means goods either owned or possessed by a person while making a contract of sale. There is no
doubt on the selling capacity of the seller to the goods owned and possessed by him because such goods are
regarded as his own property.
(a) Specific goods: Goods identified and individualise at the time of forming contract of sale are called
specific goods. Example, One cycle selected by buyer among the 20 cycle is the specific goods.
(b) Ascertained: Goods identified or which become ascertained subsequent to the formation of the
contract of sale.
(c) Unascertained or generic goods: The goods which are not identified and agreed upon at the time of
contract of sale are unascertained generic goods. Example, Nataraj pen is ascertained goods but table
is unascertained goods because it can be change into any kinds of table after making a contract.
1.1.2 (2) Future goods:
In contract Act, 2056, there is no any definition about the future goods, but in Indian sale of goods Act, 1930
section 2 (6) has defined about the future goods. Future goods means, goods to be manufactured or produced or
acquired by the seller after the making of the contact of sale.
1.1.3 (3) Contingent goods:
This is one of the forms of future goods. The goods come into existence only after meeting particular event of
future. According to section 6(2) of the Indian sale of goods Act, 1930 "contingent goods are goods the acquisition
of which by the seller depends upon a contingent which may or may not happen." Example, 'A' agree to sell 1000
bags of imported rice to 'B' provided the ship which is bringing the same, reaches the port safely. This is an
agreement for the sale of contingent goods.
6.4 Difference between Sale and Agreement to Sale
The differences between sale and agreement to sale are as bellows;
Sale Agreement to sale
1. Where ownership of the goods is transferred 1. Where there is an agreement to transfer

immediately at the time of contract, there is a sale the ownership of the goods in future there
of goods or an executed contract. is an agreement on sale of goods.
2. This is current selling contract. 2. This is the agreement to sell the goods in
future.
3. Ownership of goods is transferred at the time of 3. Ownership of goods is transferred in the

contract. future.
4. Ownership or possession lies with buyer. 4. Ownership lies with the seller.
5. The seller may file a suit against the buyer for 5. Buyer may file a suit against the seller for
price. indemnity.
6. After payment the goods in possession of the 6. The seller can sell the same goods again to
seller can not be sold. another buyer.
7. The seller can sell specific and existing goods. 7. The seller can sell future contingent and
unascertained goods.
8. The buyer will be responsible for the loss of goods 8. The seller will be responsible in case of a
after the sale. loss of the goods.
6.5 Transfer of Title and Risk of Loss
The general rule is that only the true owner is entitled to sell the goods. Hence, a seller can sell any goods
belonging to him but can not sell the goods belonging to others or the goods possessed or owned by other. If the
sellers' title to the goods is defective, the buyer's title will also be defective, though the buyer has acted bonafide
and has paid for the goods. This rule is based on Latin maxim "Namo dat quod non habet" The English version of
this phrase is "no one can give what he does not have had himself."
The Contract Act, 2056 has not directly recognized this rule. But the Supreme court of Nepal has recognized it
through its' judicial decision that no one can pass the better title than he acquired. But Indian sale of goods Act,
1930 has clearly defined about this doctrine. According to Section 27 of that Act has defined as "Where goods are
sold by a person who is not the owner of the goods and who does not sell them under the authority or with the
consent of the owner, the buyer acquires no better title to the goods."
The general aim of this doctrine is to protect the interest of society and to secure the right of the true owner of
goods. Main intention of this rule is only the true owner can pass a better title of the goods.
6.5.1 Transfer of title by non owner
But there are some exceptional circumstances on which a seller or non-owner can give or pass a better title of
goods to the buyer.
• Sale by mercantile agent.

• Transfer of title by estopple.
• Transfer of title by a co-owner.
• Sale of goods in possession under a voidable contract.
• Sale of goods in possession of a buyer after an agreement to sell.
• Sale by an unpaid seller.
• Sale under other laws like; pledge, finder of lost goods, official receiver.
• Purchase in free market.
• Doctrine of 'Caveat Emptor'
The term 'Caveat Emptor' is a Latin expression, the English version of this expression is "let the buyer beware". It
means that the buyer must take the precaution before to buy the goods. This doctrine stress on that to supply
goods whether fit or not suitable for a particular purpose of the buyer is not the duty of the seller. In other words
the buyer himself must take care of his own purpose while purchasing the goods. The central intention of this
doctrine is that the buyer must be careful while purchasing the goods. He must inspect all the facts about the
goods before purchasing the goods.
6.5.2 Exception of the rules
The Indian sale of goods Act, 1930, the contract Act, 2056 of Nepal has also accepted some exceptions to this
doctrine under the several concerned sections. These are as follows:
(1) Disclosure of particular purpose: Where the buyer makes known to the seller the purpose for which
he is purchasing the goods, the seller must supply the goods to meet such purpose of buyer. In case
of the unfit goods supplied to meet that purpose, the buyer is entitled to reject such goods. In such
case, due to the disclosure of purpose the doctrine of caveat emptor doesn't apply.
(2) Misrepresentation by seller: In the case, where the seller makes misrepresentation about the goods
sold and buyer purposes the goods relies upon that misrepresentation, the doctrine of caveat
emptor doesn't apply
(3) In case of concealment of defect: If the seller knowingly consuls the defects, which cannot be
discovered on a reasonable inspection, the doctrine of caveat emptor doesn't apply.
(4) In case of sale by description: The goods sold by description must correspond with the description.
If the seller sells the goods by description but the goods supplied by him do not correspond to the
description, the doctrine of caveat emptor doesn't apply.
(5) In case of sale by sample: Another case where the doctrine of caveat emptor doesn't apply is that if
the seller sells the goods by sample but the goods supplied by him do not correspond to the sample.
6.6 Conditions and Warranties
6.6.1 Meaning of Condition:
The terms which are essential or root element of contract of sale are regarded as condition and any secondary or
assisting terms of sale are regarded as warranty. Both the condition and warranty play an important role in the
contract of sale of goods. It is necessary to fulfill both the conditions and warranties before the performance of
such contract, otherwise performance of contract becomes impossible and the contract can be terminated.
A condition is the major term of the contract of sale of goods. It relates with the main purpose of the contract of
sale of goods. The term 'condition' has not been defined under the Nepal Contract Act, 2056 but in this respect,
Indian sale of goods Act, 1930 Section 12(2) has made clear definition of condition. According to Section 12(2) of
Indian sale of goods; "A condition is a stipulation (agree to the term in the contract) essential to the main purpose
of the contract; the breach of which gives the aggrieved party a right to repudiate (to refuse or to reject) the
contract itself." In addition, he may maintain an action for damages for loss suffered, if any, the whole contract is
broken.
On the basis of above definition, we can conclude some of major terms of contract of sale of goods are called
conditions. By virtue of the violation of those conditions contract can be repudiated.
6.6.2 Types of Conditions
a. Express Condition: A condition may be either express or implied. Conditions, which are inserted in clear words
in the contract, are called express conditions.
b. Implied Condition: Implied conditions are those, which are not expressly incorporated in clear words in the
contract by the parties at the time of forming. The implied conditions are stated as below:
• If sale by description.
• Condition as title of goods.
• Sale of sample.
• Merchantable quality of goods.
• Condition as usage of trade.
• Sale by sample and description etc.
6.7 Meaning of Warranty
A warranty is a kind of stipulation or terms. It is the secondary stipulation to the main purpose and to support the
main purpose of the contract.
The Contract Act, 2056 is silent even about the term "warranty". But the Indian Sale of goods Act, 1930 has defined
the term clearly. According to Section 12(3) of Indian Sale of goods Act, has stated; "A warranty is stipulation
collateral to the main purpose of the contract; the breach of which gives the aggrieved party right to sue for
damage only, and not to avoid the contract itself. In another word; some are minor terms and the stipulations,
which may insert under the contract of sale of goods, are called warranties.
6.7.1 Types of Warranty
a. Express warranty: As like the condition of contract of sale of goods, the warranty also may be either express or
implied. Express warranties are those which clearly mentioned in such contract and the parties are agreed upon
those at the time of formation of contract.
b. Implied warranty: Implied warranties are those which the law presumes to have been incorporated in the
contract of sale inspite of fact that the parties have not expressly incorporated then in the contract of sale. They
are as follow:
• Warranty of quite possession of buyer: The buyer have enjoy quite possession of the goods. In the
case of breach of warranty the buyer is entitled to claim damages from the seller.
• Warranty of freedom from any encumbrances or charges:
• Warranty of use of trade.
• Fitness of goods those are required for a purpose.
c. Warranty of disclosing the dangerous nature of goods to the ignorant buyer: In case the goods sold are
dangerous nature he must warn the ignorant buyer of the probable danger. If there is breach of this warranty the
buyer is entitled to claim compensation for the injury caused to him
6.8 Differences between Conditions and Warranty
The differences between condition and warranty are as below:
Condition Warranty
1. A condition is a stipulation, which is essential to 1. A warranty is a stipulation which is collateral or

the main purpose of the contract. It is valuable. auxiliary to the main purpose of the contract.
2. The aggrieved party can repudiate the contract of 2. The aggrieved party can claim damage for the loss
sale of goods. only.
3. Breach of conditions may be treated as a breach of 3. Breach of warranty may not be treated as a breach of
contract. contract.
4. There are more liabilities for the parties created by 4. There are fewer liabilities for the parties created by
the conditions of contract. the warranty of contract.
5. In repudiation of the contract, the aggrieved party 5. In repudiation of the contract, the aggrieved party can
should be discharged from his liability. not be discharged from his liability without fulfilling the
obligations.
Transfer of ownership
A sale is a transfer of goods for price from seller to buyer. Ownership is a legal and the ultimate rights over the
goods of a person. It is a transferred by the contract the sale. When ownership of goods is transferred to buyer he
becomes the owner of the goods. It is different from transfer of possession when implies the custody or control of
goods. Likewise a person may have possession of the goods but he may not have ownership. Therefore in the case
of sale of goods ownership of the goods must be transferred.
Rule regarding transfer of ownership
The parties are free to fix the time for the transfer of ownership from the seller to the buyer. The ownership of
goods or property in goods may pass at once, or at a future time or on the performance of condition. In this regard
there are certain rules of ownership are as follows.
(1) Transfer of ownership of specific or ascertained goods when there is contract for sale of specific or
ascertained goods which are in a deliverable stage the ownership is transferred to the buyer at the
time of contract. Where the seller has to do something to make the goods deliverable, it is not
possible to deliver the goods. If there is still something to do for delivery, there is no transfer of
ownership. Where the seller has to do the act of measurement of the goods to be delivered, if he fails
to do so there is no transfer of ownership.
(2) Transfer of ownership of unascertained goods: The goods which have not been particularized but
described only by name they are called unascertained goods. This kind of sale is not actual sale. It is
an agreement to sell when goods are ascertained after the act of deliverable stage or necessary
measurement than transfer of ownership will be actual.
(3) Transfer of ownership after approval or acceptance of goods: When goods are delivered to the buyer
on approval on sale or return or on other similar terms, the ownership is regarded as follows. If he do
sent signify his approval or acceptance to the seller he returns the goods prescribed time or
reasonable time.
(4) Buyer can inspect the goods: The buyer has right to inspect the goods delivered. He should have
reasonable opportunity to inspect the goods to ascertain whether the goods correspond to the
mentioned terms in the contract or not, until the goods are inspected and accepted by the buyer the
ownership is not transferred to them.
(5) Send the bill and related document to the buyer: The seller has to send the bills and other related
documents with the goods delivered the ownership of goods shall not to have been transferred after
their sale until basic documents connected with their ownership are also handed over by seller to the
buyer.
(6) Duty of seller must be done.
6.9 Performance of Contract of Sale of Goods
The term 'performance' is the fulfillment of the promise. The performance of the contract of sale of goods means
the performance of the respective duties of the seller and the buyer as per the terms and conditions of contract.
Thus, the performance of the contract of sale implies delivery of goods by the seller and acceptance of the delivery
of goods and payment for them by the buyer in accordance with the contract. The parties are free to provide any
terms in their contract about the time, place and manner of delivery of goods, or acceptance of goods and as well
as time and mode of payment of the price.
Delivery of goods from by the seller and payment of price for them by the buyer is the performance of contract of
the sale of goods. There are reciprocal promises in the contract of sale of goods. There are three main processes of
the performance of a contract of sale of goods.
a. Transfer or delivery of goods.
b. Acceptance of the goods by the buyer.
c. To pay a price for the goods.
6.10 Unpaid seller
The value of the goods hand to hand is not always possible in the mercantile transaction. So, the question of
unpaid seller arises, but it arises mainly under credit sale. A seller becomes unpaid seller when he fails to get the
whole payment from the buyer in time or when the bank dishonors the negotiable instrument received by him for
payment.
The Contract Act, 2056 has not defined the term unpaid seller. Section 45(2) of Indian Sale of goods Act, 1930 has
defined the term as "the seller is deemed to be unpaid seller; a. when the whole of the price has not been paid for
or tendered, or b. when a conditional payment was made by a bill of exchange or other negotiable instrument, and
the instrument has been dishonored". Thus the seller becomes unpaid seller as soon as he does not get cash value
for his goods from the buyer within the prescribed time in the contract.
6.10.1 Characteristics of Unpaid Seller
The Characteristics of unpaid seller are as follows:
• The seller must not have yet got the price of the goods as prescribed in the contract.
• The seller must not have got the price either the wholly or partly.
• The seller must not have received the payment due to dishonor of negotiable instrument. e.g
Cheque, Bill of Exchange, Promissory note etc. from bank or other related party.
• When the whole or partial price is not paid on the due date or in time.
6.10.2 Rights of Unpaid Seller
A seller who fails to get cash value for his goods from the buyer in time is said to be an unpaid seller. Such unpaid
seller has some rights which are as follow:
1.1.4 a. Right against the goods:
An unpaid seller has the following rights against the goods.
• Rights of lien: The unpaid seller has the right to hold the goods and keep them until the price
paid.
• Rights of stoppage of goods in transit: When the buyer becomes insolvent or unable to pay, the
unpaid seller can stop the goods on the way or transit.
• Right of resale: On the situation of insolvent or unable to payment of buyer unpaid seller can
resale the goods.
1.1.5 b. Rights against the buyer:
An unpaid seller has the following rights against the buyer.

• Right to suit for price: When goods are passed to the buyer but the latter buyer does not pay the
price at the prescribed time, unpaid seller can sue against the buyer for the price.
• Right to suit for damages or non performance of contract: When the buyer wrongfully neglects
to receive or refuses to accept the agreed goods, the seller may demand the damage by filing a
suit.
• Right to suit for special damages and interest: The unpaid seller can demand special damage or
interest on the price of the goods from the buyer by filing a suit.
1.1.6 Short Answer and Questions
1. What is caveat emptor? Are there any exceptions to its application to the sale of goods?
[4+6]
2055
2. What are essentials of a valid contract for the sale of goods? [10]
2057
3. Define the goods and explain the rights of an unpaid seller. [4+6]
2059
4. Explain briefly the implied conditions and warranties in a contract of sale. [10]
2061
5. Define the term goods. Distinguish between specifies and unascertained goods. [3+7]
2062
6. Define the term goods. Distinguish between specifies and unascertained goods. [3+7]
2063
7. Distinguish between conditions and warranties in a contract of sale. [10]
2067
8. Explain about the rules regarding the performance of contract of sale of goods. [10]
2068
1.1.7 Comprehensive Answer Questions

1. 'No one can give what one has not'. How does this principle apply in the case of sale of goods? Discuss.[20]
2055
2. What are implied conditions in a contract of sale of goods? Discuss with illustrations. [20]
2056
3. Who is an unpaid seller? Discuss the rights of the unpaid seller. [8+12]
2057
4. Who is an unpaid seller? What are the rights of unpaid seller against the goods and the buyer? [10+10]
2058
5. Who an unpaid seller? Discuss the rights against the goods and the buyer. [5+15]
2062
6. Define the term 'Delivery'. Discuss the rules regarding delivery under the contract of sale of goods. [5+15]
2064
7. Who is an unpaid seller? Discuss the right of unpaid seller the goods and the buyer.
[4+16]
2065
8. When can a seller who is not the owner goods transfer the ownership of goods to the buyer of goods?
Discuss. [20]
2066

7. Law of Carriage
7.1 Meaning and Importance of Law of Carriage
A person or company agrees to carry goods or people from one place to another in return for a payment are
known as a contract of carriage. The party who undertakes to carry the goods or people for payment is called the
carrier. Carriage means the acts of carrying goods from one place to another. It is a branch of a business carriage is
the most important basis for the management and regulation of a business properly. It is the factor of a business
which helps to mobilize labor, tools and machinery. Modern business is based on system of exchange or
transportation. The term 'carriage' means transporting goods or passengers from one place to another that may be
within or outside the country. The law which regulates the relationship between the carrier and the owner of
goods is called; law of carriage. In a broad interpretation of law of carriage, it includes carriage through land,
water, sea or air. The receipt issued by the carrier to the owner of goods at the time of delivery of goods (to the
carrier) is recognized as proof of contracts between the owner and the carrier.
Contract of carriage, means; a contact between a carrier and owner of goods for the purpose of carrying goods
from one place to another is called the contract of carriage.
According to the Contract Act of Nepal, 2056 Sec. 65 (1), "A contact relating to carriage shall be deemed to have
been concluded if it provides for the transportation of goods from one place to another."
Sec. 65(2) sates, "The receipt of the transporter (carrier) issues to the owner of goods for transportation should be
recognized as proof of contract between them."
The Act has made provisions only for land transport and not for marine and air transport as the Act states; the
term transporter means a person operating a transport service through land, internal water ways or rope ways or
through animals or any other means other than air or marine transport.
Thus, the Act, carriage includes only the act of carrying goods from a place to another for money and it includes
only land transport other than marine and air transport. The person or firm who receives the goods for the
purpose of carriage or transportation as a profession is called carrier. Sec. 65 of NCA expressly declares that the
person employed for carriage on wage, or agent or person acting under him are not the carrier for the purpose of
the Act. In other words, any natural person or legal person or firm who does the profession of carrying goods as a
business is carrier.
7.2 Features of Carrier
A carrier has the following features:
• A carrier may be any person or firm or organization.

• A carrier carries goods or passengers.
• Generally a carrier acts for fare or money.
• A carrier acts within the country or abroad.
• Providing carriage service at a proper place and time is the major duty of a carrier.
• Goods or passengers are carried through land, sea or air carriers.
7.3 Importance of Law of Carriage
Transport plays a vital role in the economic development of country. It facilitates the movement of goods and
labor. Modern commerce based entirely on a system of exchange. The role of the transport is very important in
the development of commerce. Hence the importance of the study of law relating to contract of carriage of goods
is great.
The carriage of goods may take place either by land or by sea or by air.
The vast system of collection of raw materials and distribution of goods wouldn't possible without carriers. Carrier
business is the most important activity of today business which can lead the whole business to stability and
development.
The following points can be noted regarding the importance of a carrier.
• To regulate and control transportation business.

• To settle disputes legally that arise in carrier business
• To facilitate, regulate and regularize the relation between the owners and carriers.
• To make carrier accountable for the carriage of goods.
• To make liable to the carrier for loss or damaged caused to the goods during carriage.
• To limit the liability of carrier in ordinary contact of carriage.
• To impart the knowledge of legality of business of carriage.
• To save the agent and porters from the liability as a carrier.
• To provide remedy in the breach of contact of carriage.
• To provide healthy environment for the carrier to perform their business.
7.4 Classification of Carriers
• Carriage by land: Carriage service that is provided through land. E.g. truck, bus, train, cars, ropeway,
cable car, trolley etc.
• Carriage by sea: Carriage that run water like, ship, boat they are the carriages by sea.
• Carriage by air: The carriers which provide services by air like, aero planes, helicopters are air
carriers.
Nepal Carrier and Transportation Act, 2049 provides the following classification of carriers:
• Common or public carriers

• Private carriers
• Tourist carriers
• Government carriers
• Corporation carriers
7.4.1 Public or common carrier
Nepal Carrier and Transportation Act, 2049, Sec. 2(6) defines a public carrier. Thus carrier which is used for
transportation services is a public carrier. Transportation service means carrying goods for passengers from one
place to another place for a fare. Thus a common carrier means, "Any individual, firm or company other than
governmental, who transport goods, as a business, for money over land or inland, waterways, without
discrimination between different consignors, is called common carrier."
A common carrier can be classified into two classes:
• Carrier for passengers, and
• Carrier for goods, goods means non living things and living things (animals, birds) except man.
According to above definition, a public carrier must be ready to carry goods or any body (public) without any
discrimination and are entitled to get remuneration or charges for the services.
7.4.2 Characteristics of a Public Carrier
• A public carrier must be ready for general carrier business. The carrier which carries goods
occasionally is not a public carrier.
• A public carrier has to carry goods for any body, indiscriminately.
• A public carrier provides goods by land, sea and air.
• Only carriers of goods come under this definition (In Indian Law). It does not carry passengers.
• A public carrier provides services regularly through its customary rate, route etc.
• A common carrier may be an individual, a firm or a company. It does not include government
carrier.
• Carrying goods is a regular business. It always carriers goods for payment. So if one carries goods
occasionally or if one carries goods free of charge, it is not a common carrier.
• A common carrier is bound to carry goods of any person. Generally, he cannot refuse carrying
goods of any consigner; there are certain conditions where a common carrier can lawfully refuse to
carry goods of some consigners.
7.4.3 Exceptions of Public Carrier
Generally, a public carrier is supposed to be ready to carry goods regularly and indiscriminately, but they can reject
to provide services in the following exceptional circumstances.
• If the goods are illegal.
• If the carrier has no more vehicles or space to carry.
• If the destination is out of route or of a customary route.
• If goods are not packaged properly and safely.

• If goods are of dangerous nature.
• If the carrier is fully loaded and there is no more accommodation to keep other goods in it.
• If the goods are risky enough.
• If the consignor refuses to pay its lawful and reasonable charges.
7.4.4 Private carrier
Private carrier is one who does not regular business as a carrier but occasionally carry goods for money. The
private carrier does not carry the goods a regular business. It uses to carry its own goods but he may also carry the
goods of others for money. He could not be complied to carry the goods of the others. It is his discretions whether
or not to carry the goods of others.
Generally, the private carrier uses the vehicles to carry his own goods. When he does not have his goods to carry,
he may carry the goods of others also for money. It is not his regular business to carry goods of other people. He is
not bound to carry goods of all and sundry. So, no one can compel him to carry goods without his own option. He
may or may not carry goods of others. Thus, he enjoys the discretion of accepting or rejecting any offer made by
either gratuitously or not gratuitously.
7.4.5 Difference between common carrier and private carrier
Common carrier Private carrier
1. To carry goods of other for money is the regular 1. Carrying goods for others is not the regular
business of common carrier. business of private carrier.
2. Common carrier should carry goods of all the 2. A private carrier can make discrimination in
people without discrimination. carrying goods of the consignors.
3. No discrimination of the rate of carriage. 3. Discrimination in carriage.
4. Carriage through customary route. 4. Carriage through different route.
5. Common carrier carries only goods and no 5. Private carrier may carry either goods or
passengers. passengers.
6. A common carrier is governed by the Carriers 6. A private carrier is governed by the Contact Act
Act, 1865 of India. and not by the Carrier's Act.
7. A common carrier is always non gratuitous. It 7. A private carrier may be either gratuitous or non
carries goods only for money. It is regular gratuitous as the case may be.
business of carrier to carry goods on hire.
7.4.6 Rights of Common Carrier
The common carrier shall have the following rights:
• Right to get remuneration: When something is done as a profession, he must do so for his living. So
that he has the right to get the reasonable remuneration for the service he has provided.
• Right of lien: If any consigner does not pay the charges of his service, the common carrier may
exercise the right to lien over the goods he had carried unless such charges are paid to him.
• Right to recover damage: If the goods are of dangerous nature or they are not properly packed and
the carrier suffers any loss, it may recover from the consigner.
• Right to limit his liability: Sec. 68(1) of Contract Act limits the liability of carrier to the amount of Rs.
10,000. But this could be altering by declaring the valuable goods in the contract by express provision
(Sec. 68(2) of NCA.
• Right to recover expenses: The common carrier may recover the expenses he had incurred for the
safe carriage of goods.
• Right to refuse to carry goods: Generally common carrier can not refuse to carry goods
discriminately. But he can refuse to carry goods if there is no space in the vehicle or the consignor
refuses to pay the charges of the carrier etc.
• Right to sell: A common carrier cannot usually sell the goods in transit. But under the following
circumstances, he may enjoy a right to sell them either:
 If the goods are of perishable nature.
 If they are supposed to be perished by the time when they arrive at the place of delivery.
 If it is not possible to inform the sender of such matter.
• Right to take necessary action: The duty of the carrier is to carry goods and deliver them to the said
person in the said destination. The consignee should take delivery of goods when they arrive at the
concerned station. Now if the consignee does not accept delivery, the carrier will be entitled to take
any of the following steps:
 If the goods are perishable, he can, by informing the sender, sell them in the market.
 If the goods are not perishable but are refused to be accepted by the consignee, he can, until he
gets further instruction from the sender, keep the goods in a nearly go down for necessary
protection.
 He can recover from the sender the sums paid by him to the go down keeper or other necessary
expenses incurred by him for the protection of goods.
7.4.7 Duties of Common Carrier
A common carrier has certain duties to be fulfilled. They are as following:

• To carry goods without discrimination: The first duty of the common carrier is that he has to carry
goods of all the people of charging a reasonable charge. Until the vehicle is fully loaded, he has to
accept to keep the goods of all the people in the carrier and carry them without any discrimination.
• To carry goods through customary route: A common carrier has its regular route to carry goods and
it always carries goods through the same route. If the route is closed due to some unavoidable
reasons, only then it can use some alternate route. Otherwise, no consignor can ask him to carry
goods through the route other than its customary route.
• Duty to deliver the goods in proper condition: Under the Sec. 66(1) of proper condition, of which he
had received from the consigner.
• Duty to compensate: In case goods received from the consigner are lost, destroyed or damaged or do
not reach their destination in proper condition for any reason, the carrier will be held responsible and
he had to compensate to the consigner or his representatives.
• Duty to carry goods within reasonable time: Under Sec. 68(3) of NCA, the carrier must carry goods
within the time mentioned in the contract and if not time is mentioned in the contract then, has to
deliver the goods within reasonable time.
• To carry goods to the said place and deliver them to said person within a specific time.
• To take proper care of the goods carried: Common carrier has to take proper care of the goods
carried by it, so that they may be safely delivered to the consignee in time. If due to carelessness or
negligence of the carrier, the goods are loss or damaged or perished or evaporated or stolen in
transit, the carrier himself will be held responsible to bear such loss. He has to pay compensation to
the consigner for such loss or damage.
• To follow the instruction of consignor.
• To inform the sender about the goods to be sold in transit.
7.4.8 Liabilities of a Common Carrier
The contract Act, 2056, has mention some liabilities under the section 66 to 70. According to the Act, the liabilities
of a carrier are as follows:
• To carry goods are specific place: It is a liability to a carrier to carry goods safely to the determined
destination and deliver than to the said person or his representative.
• To delivery goods within a prescribed time: If the date of delivery is mentioned in the contract, the
carrier must deliver the goods carried to the consignee or his agent within the mentioned time. If the
time is not mentioned in this respect, he should deliver then to the consignee or his agent within the
reasonable time.
• To pay compensation: If the goods received from the owner for transportation are lost, destroyed,
harmed or damaged or if they do not reach their destination in proper condition, the carrier itself
shall be responsible for such loss.
• Liability of the first carrier: If the goods are carried through two or more carriers or through two or
more means of transport and if the goods are cost or damaged in transit, the first carrier, on less
otherwise mentioned in the contract, shall be liable for such loss.
• Liability in case of negligence: It due to negligence or carelessness of the carrier, the goods are lost or
damaged in transit, he shall compensate the owner of the goods in a way as mentioned in the
contract.
• Compensation up to ten thousand: The carrier for any loss or damage is not clearly mentioned in the
contact, the carrier will not be liable for a sum of more then Rs. 10,000/-
• Liability to insurance: The carrier should insure the goods against the risk either through the owner or
his agent or himself by collecting fees separately for the purpose or take necessary arrangement to
avoid the risk.
7.4.7 Limited Liability of Carrier
According to Sec. 69 of Contract Act, the carrier must pay reasonable compensation to the concerned owner for
any loss or damage caused to goods during transportation. But Sec. 68(1) limits the liability of carrier for any loss
or damage caused to goods during transportation, on Rs. 10,000 except when the owner of goods or his agent has
clearly declared at the time of concluding the contract that the goods to be carried worth more than Rs. 10000.
7.4.8 Exceptions (liabilities of a common carrier)
The liability of common carrier is strict in case of goods received from the owner for carriage is lost, destroyed,
broken, harmed or damaged or in case they do not reach their destination in proper condition for any other
reason. Nepalese Contract Act does not mention about the exception of liability of carrier. According to English law
if the damage or harm is caused on these exceptional circumstances, the common carrier would not be held liable:
• If damage is caused by act of natural cause.

• If damage is caused by declared enemies of the state. This does not include loss or damage to the
goods by strike or rebellions during internal riots.
• Inherent vice in the goods carried. A carried is not liable for losses arising from inherent vice in the
goods carried over which he has no control and against which he can not guard. Example liquid goods
may evaporate.
• If the damage has been caused due to defective packaging of goods, the carrier cannot be held liable.
• If the damage has been cased due to fault or fraud of consigner, the carrier cannot be held liable.
• In the circumstance where the law has clearly exempted the liability of carrier, the carrier cannot be
held liable.
7.4.9 End of Carrier's Liability
Except otherwise provided in the contract the liability of carrier comes to an end in any of the following
circumstances.
• When carries delivers the goods to the owner or consignee or person designated by consigner.
• When the consigner takes back the goods.
• When the carrier returns the goods to the consigner stating the reason why the goods cannot be
transported because of fundamental changes in the situation.
7.5 Contract of Affreightment (Charter Party and Bill of lading)
A contract for the carriage of goods by sea is called a contract of affreightment. The law relating to carriage by the
sea is guided by recommendations of the International Conference on 'Maritime Law' held in Brussels in 1922. It
tries to secure uniformity of laws relating to the rights and liabilities of the sea carriers. In Nepal maritime law 2027
has been enacted. In India, the Merchant Shipping Act, 1958 is applied.
The contract between the ship owner and the goods owner for the purpose of carrying goods from one port to
another port is known as a contract of affreightment.
7.5.1 Charter Party Contract
A written agreement for hiring a ship or certain portion thereof for the purpose of carrying goods through sea
routes is called charter. The charter party must be made in a written from which contains the terms between the
agreed parties. The charter may hire the ship to carry his own goods or to use the ship as a general ship for
carrying the gods of other under bill of lading.
The carter party can be classified into two classes.
• Voyage charter party: Where the charter party hires the ship to transport from one particular place
to another particular place is called voyage charter party.
• Time charter party: Where the charter party hires the ship to transport from one particular time to
another particular time it is called time charter party. During this period of time charter he may take
the ship any where he decides. Where a contract of affreightment exists for a certain period of time
that is called a time charter. In this type of affreightment the shipper may use the ship all over the
time contracted.
7.5.2 The Bill of Lading
The ship owner or carrier issues a receipt of goods in which some necessary terms are contained that is called bill
of lading. It will have three copies. Each of them is for the ship owner, goods owner and the goods receiver. A bill
of lading is kind of receipt which is treated as a contract between consigner and carrier. A bill of lading is issued
when the goods are delivered for carriage to a general ship. It is a documents signed by the ship owner or his agent
on his behalf, or by the charter party, which states that certain goods have been board for shipped on a particular
place to a particular place. A bill of lading, as a document of title to the goods, can be transferred to another
person by endorsement. If the goods are deliverable merely on proof of bill of lading can be delivered to another
party by the endorsement of the consignee.
1.1.1 7.5.2.1 Feature of Bill of Lading
• Bill of lading is a receipt of the goods shipped or loaded in the ship.

• Bill of lading is itself a contract document of the carriage of goods.
• It deals with the rights and liabilities of the agreed party.
In a bill of lading the matters relating to name, fare, date of receipt of goods, condition of goods, qualities of
goods, lading port and the time to deliver the goods are mentioned.
7.6 Airway Bill, Other Document Relating to Carriage by Air
If goods or passengers are carried by airway by the means of aircraft it is called carriage by air. The law relating to
the carriage by air is guided by the International Conference of Warsaw 1929 and Hague Protocol 1995. In Nepal
Civil Aviation Act, 2015 and Nepal Airline Service Corporation Act, 2019 have been enacted. Airway bill is one of
the documents made as a contract relating to carriage by air. It is known as the Air consignment note when goods
are transferred to the air carrier for the purpose of carriage, the carrier issues the airway bill to the consigner. The
airway bill is issued in triplicates. Each of them will be with the carrier, goods receiver and the consignor
respectively.
The document is regarded as a contract between the carrier and the consignor. The following particulars contain
the airway bill.
• The place and date of issue of the bill.

• The place of departure name and address of the consignor.
• Nature of goods and the packing method.
• Weight and quality of the goods.
• Carrying route, period and stopping place.
7.6.1 Passenger Ticket
It is also a document which is regarded as a contract between the carrier and passenger. It is issued by the air
carrier or his agent to the passenger after paying the fare. It contains the following matters.
• Name and address of the airline company and the airplane.

• Name the address of the passengers, issue date of the ticket, date and time of departure, fare, arrival
time of airport, and liability of the company
7.6.2 Luggage Tickets
The ticket that is issued by the carrier to a passenger with a permission to carry goods by air is called 'luggage
ticket' and that is regarded as a document of a contract. It is in duplicate one is for the consignor or passengers the
other is for the carrier. Portable and small goods are carried by the passengers in their hands. But large and non
portable goods are delivered to the carrier, the receipt issued by the carrier is the luggage ticket. It contains the
matter of the number of baggage and their weight, place of the departure and arrival ticket number, date and
place of luggage to be received, and liabilities of the carrier and so on.
1.1.2
1.1.3 Short and Questions
1. Explain briefly the different modes of winding up of a company. [10]

2055
2. What is annual general meeting? Explain the purpose and the procedure of annual general meeting of
company. [3+3+4]
2056
3. Explain the procedure of registration of company. [10]
2057
4. What is minute? How minutes are kept in a company meeting. [4+6]
2060
5. What is the different modes of winding up of a company in Nepal? Explain. [10]
2061
6. Define the term 'minutes' and explain the provisions regarding the keeping of minutes.
[3+7]
2062
7. Point out the various of company meeting and distinguish between ordinary and explain ordinary general
meeting. [3+7]
2063
8. Explain the provisions of the company Act relating to the rights and power of an auditor.
[5+5]
2064
9. Describe the procedure relating to incorporation of company in Nepal. [10]

2065
10. Explain the rights and powers of auditor under Company Act of Nepal. [5+5]
2065
11. State and explain the modes of winding up of a Company in Nepal. [10]
2066
12. What are the various kinds of company meeting? Explain the provisions of Company Act in Nepal relating to
extraordinary general meeting. [5+5]
2066
13. What are company meetings? Explain the legal formalities to be fulfilled for an annual general meeting of a
company. [3+7]
2067
14. What is a special meeting? When and how such meeting is conducted in a company.
[3+7]
2068

8. Company Incorporation and

Management
8.1 Background
A company plays very important role to develop the industry, trade and commerce in the world because it is an
organization having separate identity from its promoters and it has covered almost all areas of the business.
Today, big type of corporations or institutions or organizations of insurance, bank, industry etc. are operative as
companies with the participation of private or public or government or non-government, indigenous or foreign
faces. Company is an artificial person that is created, run and ended by the law. The scope of a company is wider
than of a partnership firm of business. Partnership firm is a suitable device for a small group of partners who take
personal interest and there is mutual trust and confidence among them.
The concept of the formation of a company is the outcome of the experiences of partnership business and
incorporation by registration. In partnership, on the other hand the liability of the partners for the debts of the
business is unlimited. They are bound to meet without any limit, all the business obligations of the firm. The
company being a separate person, the liability of its shareholders is limited in the context of company. The
shareholders are not liable personally.
8.2 Meaning and Definition of Company
The term ‘company’ is derived from the Latin word ‘companies’. Literally, the term company means a group of
persons associated to achieve some common objective such as business, charity, and research, etc.
The company is a voluntary association of persons formed to run business activities for fulfilling the objective of
earning profits by collecting capital and selling shares. So, the company is an association incorporated by a person
or some person interested to carry on any business of industrial or mercantile activity or other lawful trade with
the motivation of earning profit by contributing money or money’s worth to the company.
The company Act, 2063, section 2(a) states that “A company shall denote the company which is incorporated in
accordance with this Act.”
According to eminent writer, L.C.B. Gower “A company as an association of a number of persons for a common
object that object normally being the economic gain of its member.”
According to Justice James “A company is an association of persons united for common object.”
Chief Justice Marshal defines company as “A person artificial, invisible, intangible and existing only in the eyes of
law. Being a mere creation of law, it possess only those properties which the charter of its creation upon it, either
expressly or identical to its very existence.”
Thus, the term ‘company’ means an association of a number of persons formed for some common purpose and
registered according to the law relating to company.
8.3 Characteristics of Company
1.1.1 a. Perpetual succession:
A company is a corporate body with a perpetual succession system. Death or insolvency of a shareholder does not
affect the existence of the company. It may come to an end only when it is liquidated in accordance with the
company law.
1.1.2 b. Separate existence:
A company is separate and distinct from its members. Company is capable of acquiring, possessing, selling,
disposing of or dealing with in any other manner of its movable or immovable property in its own name. The
company becoming own of its capital and assets enjoys all the rights as an individual. The capital and assets of the
company is generated from the money invested by its own members. The member of the company does not
become owner of company’s property because the company itself is the owner of the whole property belongs to
it.
1.1.3 c. Limited liability:
A company’s shareholders have to bear the liability to the extent of their share amount. The creditor of a company
is not the creditor of its shareholder. So any decisions against the company shall not apply to its shareholder.
1.1.4 d. Transferable shares:
Capital of the company divided into different parts is called shares which are transferable. In case of a public
company the shareholders can transfer their shares or debentures like movable property ever they like. But the
shareholders of a private company cannot freely transfer shares or debentures ownership whenever they like. The
ownership of a private company can be transferred by giving priority to the existing shareholders only.
1.1.5 e. Registered office:
A company has its own registered office from where the company operates its business and can establish branch
office.
1.1.6 f. Common Seal:
A company has a seal which is an evidence of authenticity of it.
1.1.7 g. Voluntary association:
A company is an association of one or more than one person voluntarily agrees upon the establishment of it.
1.1.8 h. Contractual capacity:
As a legal person, a company can enter into a number of contracts for the achievement of its purpose and for the
performance of its duties.
1.1.9 i. Legal person:
A company is not a citizen of a nation but it can enjoy the property right as a legal person.
1.1.10 j. Management by representatives:
All the shareholders is the true owners of a company. Some of the representatives are selected by the true owners
to enjoy the power of the company and to perform the daily administrative functions. The committee of the
representatives is called a Board of Directors. They are selected from among the shareholders.
8.4 INCORPORATION OF A COMPANY
Incorporation of a company means the combination of promoter’s decision to establish and registration of the
company. Registration is a process which gives legal status to the company. Company is a legal institution the
formation of which is known as incorporation that result is the registration in the competent authority as
prescribed by the law of land. A company is incorporated to acquire profit and objectives as stated by its
memorandum of association.
A company denotes a business company which is established under the company Act, 2063 section 3(1); a
company may be either private or public. Incorporation of a company means formation of company according to
company law. The company Act, 2063 section 3 makes the following provisions relating to the incorporation of a
business company.
• Any person who wants to undertake any enterprise with the motive of earning a profit may establish
a one man company personally or joint stock company along with others. According to company Act,
2063 section 166 – A company can be established without making profit. A company can be
established with a motive to serve some common purpose.
• Any foreign who wants to establish company in Nepal must perform the provision of company Act,
2063, section 4(1) g, h, i.
• If the promoter if foreign person, company or body the license for investment, business or
transaction pursuant to the prevailing law must be submitted.
• If the promoter is foreign person an authorized documents to proved that the person holding
particular foreign citizenship.
• If the promoter is foreign company or body a copy of establishment certificate and main document
regarding establishment.
• According to company Act, 2063, there must be necessary at least seven promoters and one Core
paid up capital to establish a public company, but if a company wants to establish another public
company it is not necessary to fulfill the provisions.
In case of a private company any one can establish a one man company and the membership must not exceed 50
shareholders (section 9(1) but this bar does not apply with public company. Whether it is a private or a public
company it must be registered in the government of Nepal Company Registrar office. In this purpose one can apply
with necessary matters and formalities or according to the provisions of section 4 of Company Act, 2063. To
register a company, the following documents including necessary fees, an application form should be submitted in
the office of the company registrar.
 Memorandum of proposed company.
 Articles and regulation of the company.

 Contract papers, if any agreement has been reached among the incorporators before the
incorporation of a public company.
 In case of a private company, agreement copy if any agreement has been reached among the
parties.
After the necessary steps are taken the company registrar office registered the company and issues a certificate in
a prescribed format. The registration of a company by an official procedure is called the incorporation of a
company.
According to company Act, 2063 section 6(1) A, B, C, D, registration may be denied for a company by the office of
the registrar in the following circumstances:
 If a company has already been registered with the same name.
 If the name of a company is not good from the point of view of the social welfare, courtesy, and
good conduct.
 If the objective of a proposed company is against the existing Nepal law and contrary to the public
interest.
 If any of the pre- requisites for the registration of a company are not fulfilled according to this Act.
According to section 6(2) of company Act, 2063, the registrar should send about the refusal of registration with its
cause clearly within 15 days.
8.5 Legal Importance and Formalities of Meetings
The meeting of company means a meeting of its shareholders. Such a meeting selects some representatives to
constitute a board of directors. The Board can get legitimacy to run the company from the meeting of the
shareholders. Role of the company meeting is most important in day to day affairs and management of the
company. Meeting of a company is that, where the persons relating to company gather together and pass decision
by discussing the matters in respect of agenda, future plan and strategy of the company.
The company Act, 2063 provides only two types of general meetings. These are as follows:
1.1.11 a. Annual general meeting:
According to the company Act, 2063 section 76 – Annual general meeting of company is held within one year from
the date of receiving certificate of commencement of business and it shall convene the annual general meeting
every year within six months from the date of expiry of financial year of the company.
The agenda of the annual general meeting is submission of board’s report, the boards of director's election,
remuneration, submission of balance sheet, distribution of profit, appointment of an auditor, remuneration of an
auditor, policy making, and rule making matters are discussed and passed the resolution of this meeting. Agenda
of special general meeting
1.1.12 b. Extra- ordinary general meeting:
All general meetings other than the annual general meetings are called special general meeting. Such meeting may
be called by the company at any time. Basically, It is called in a special situation when an urgent decision has to be
taken.
Extra-ordinary general meeting may be called by the following personalities:-
• By the Board of Directors: In case of a necessity, the board can call a special general meeting.
• By the auditor: In case of any defects in the account of a company, the auditor has to ask the board
of directors. If the board does not call the meeting, the Registrar’s office can call the special general
meeting on the request of the auditor.
• By the shareholders: 10% of paid up capital shareholders or 25% of the total number of shareholders
can call a special general meeting by disclosing the special cause.
According to Company Act, 2068 the following matters shall be presented in the form of special resolution of
general meeting or the agenda of special general meeting of the company.
(a) Matters relating to the increase of authorized capital
(b) Matters relating to the reduction of shake capital or alteration of share capital
(c) Matters relating to the change of name or main objective of the company
(d) Matter relating to merger of one company with another company
(e) Matters relating to issue of share at discount
(f) Matters relating to issue of bonus share
(g) Matters relating to conversion of a private company into a public company and public company
into a private company
(h) Any other matters requiring special resolution under this Act or article of association.
8.6 Importance and Formalities of Meetings
General meeting is the legislature body of the company. It has to elect and appoint the board of directors and the
auditor, and to pass resolutions regarding the policy of the company. That is why, the meeting of the company is
so much important in the each and every aspect to run the company.
Prior to initiating any legal proceedings on any matter relating to meeting, some legal formalities must be satisfied
.If conducted without satisfying such formalities activity as regards meeting may be invalid. Therefore, the meeting
of a company to be valid, following formalities must be satisfied, according to the Company Act, 2063.
(a) To inform all the shareholders of the company before 15 days in the case of a special general meeting
and 21 days in the case of an annual general meeting.
(b) To mention the topics in the agenda to be discussed in the meeting, in the notice (information letter)
and to publish. This notice must publish two times in national newspapers.
(c) To declare the legality of a meeting is the duty of the shareholders. If legal procedures are not
followed by the board of directors of the meeting cannot be valid.
(d) The Quorum of the meeting means minimum number of the shareholders to be present in the
meeting of the company. The quorum for the general meeting of a private company shall be as
provided for the article of association. If otherwise, high number is prescribed in the memorandum of
association, the meeting shall not be held unless at least 3 shareholders is not presented to meet the
50% share among the whole number of share representation of a share distributed public limited
company. If the meeting is postponed due to the not meeting the quorum, another meeting shall be
called by providing 7 days notice and 25% shareholder’s presents is sufficient for such recalled
meeting.
(e) Voting rights are used by all the shareholders members. There is the provision of enjoying voting
rights by proxy also.
In Cousins v. international Brick co. Court held that a proxy is a person representative of a
shareholder at a meeting of a company who may be described as his agent to carry out a course
which the shareholder has himself decided upon. 1
(f) Every public company shall have to submit the details of Annual General Meeting within 30 days
regarding the numbers of shareholder presented, annual financial statement, report of director and
auditor and the decisions made by the meeting (section 80(1).
Unless otherwise provided in the company Act, 2063, the private company shall have to submit a auditor’s verified
copy of its annual financial report within 6 months from the date of completing fiscal year.
8.7 Minutes and Resolutions of a Company
The term “minute” literally means a note to preserve the memory of an event or transaction. Minute is a record of
a meeting. The minute of a meeting is the official record of the matters considered and decision taken at a
meeting. Every company is bound to record the proceedings in a minute book.
A minute means the point written summary of the points discussed at a meeting, a book of record of the decision.
Such a book is of two kinds which is important for official purpose.
• Minutes of the general meeting.

• Minutes of the board of directors meeting.
1
Cousins v. international Brick co.
When discussion held on the agenda come to end, they are passed in accordance with the law, by a simple
majority, or a special majority. They are recorded in a book that is called a minute.
The following matters must be included in the minutes of a general meeting:
• How the notice of the general meeting was published?

• How many shareholders were presented?
• What percentage shareholders were presented out of total numbers?
• What were the decisions made?
• If the poll has been made, what was result?
Such minutes of the company shall have to either sent to the shareholders within 30 days or publish in national
newspaper.
Resolution is the proposal for deciding at the meeting of a company. There are two types of resolution i.e.
Ordinary resolution and special resolution.
An ordinary resolution is a resolution other than special resolution. A resolution shall be an ordinary resolution
when the votes in a general meeting cast in its favour are more than votes against it. In other words, if the
resolutions require only majority vote to pass it is called an ordinary resolution. If any member has a different idea
or a disagreement on the subject matter, he can write a note of dissent that also should be mention in the minute
book.
8.8 Legal Provisions Regarding to Board's Report
Board of directors is the supreme executive body of the company. It must manage all the affairs of the company,
exercise power and perform duties within the scope of Company Act, and in accordance with the memorandum of
association and articles of the company, and the decisions of the general meetings.
Being the representatives of the shareholders, the board of directors should present an actual picture of the
company (regarding profit and loss and the economic condition) to the shareholders. According to the company
Act, 2063, section 109, this kind of report should be prepared before 30 days from the date of annual general
meeting.
The board of director has to prepare a financial report including:-
• Balance sheet of end of the year.

• Yearly profit and loss account.
• Yearly cash flow report.
• Section 109(4) (a) evaluation of the last year's transactions.
• Board’s opinion about the running year and future plan.
• Business relation with other organizations.
• The focusing points affecting the company’s transaction.
• Profit report and percentage to be distributed to the shareholders.
• The total management expenses in the previous financial year.
Every company has to prepare and submit a report to the office of the Registrar in accordance with the company
act 2063, section, 78. The report must approve board of directors and company auditor must certify.
8.9 Appointment of Auditor, Removal of an Auditor
Every company, whether private or public, has to audit accounts of its affairs. All the actual information can be
obtained from the audit of the accounts about income, achievement, objectives fulfillment and financial status of
the company.
So auditor is in the most important position in a company. The company Act, 2063 Section 110-119 provides the
provisions, regarding the appointment, removal and duties of an auditor every company must have an audit report
by a registered auditor. He must have a certificate issued by the Department of Auditor General and renewal of
every year. According to the company Act, 2063 section 110 (1) each company shall have to appoint an auditor in
accordance with this Act to audit its accounts.
8.9.1 An auditor can be appointed in the following ways:
(a) By annual general meeting of shareholder: An auditor is appointed by the annual general meeting of
shareholders of a public company for one year. It is possible to continue to make re-appointments in
the same way.
(b) By the board of directors: The board of directors can appoint an auditor before the first annual
general meeting of the company, but in the case of private company it will be in accordance with the
memorandum and unanimous agreement. The auditor appointed by the board of directors shall
remain until next annual general meeting is held.
(c) By the office of the registrar of company: According to the to the company Act, 2063 Section (113)
the office of the registrar of the company many appoint an auditor in case the Annual General
Meeting of the company fails to appoint an auditor, or the general meeting could not be held or the
auditor appointed in accordance with this Act, is terminated for any reason the office of the registrar
may appoint another auditor at the request of the Board of directors of the company.
8.9.2 Removal of an Auditor
The following modes of removal of an auditor in accordance with the Company Act and rule regarding company.
According to the Company Act, 2063, Section (119) the auditor under this chapter shall not be remove before the
completion of audit of any financial year for which he was appointed.
Not with standing anything contended in sub-section (1) of the section (119) the auditor may be remove to giving
prior information to Nepal Charted Accountants Institute, an obtaining approval from the regulatory authority
relating to the business of the company, if the exists of such authority and in the absence of such authority with
approval of the office of the registrar by adopting the same procedure with which he was appointed.
(a) If such an auditor breaches the code of conduct of an auditor.
(b) If he acts against the interest of the company appointing him as an auditor or commits any acts
against the law.
The auditor shall be given a reasonable opportunity to defense while removing him.
8.9.3 Rights and Powers of an Auditor
According to the Company Act, 2063 the following rights and powers are give to the auditor of a company:
• Right to ask for submission of books of account for auditing with the related officers of the company.
• Right to ask the directors and officers to give him explanation for his questions.
• Right to visit all the branches of the company, to check the account, books and documents for
auditing.
• Right to request the board of directors to call a extra-ordinary general meeting of the company, if the
board does not called the extra-ordinary general meeting according to the company Act. He ca can all
the extra-ordinary general meeting with the help of the company registrar office and makes the share
holders familiar with the real financial picture of the company.
• Right to seek legal and technical counseling from the experts.
• Right to remuneration for his services provided to the company
• Right to prepare and submit an audit report to concerned party freely.
8.9.4 Dissolution of the Company
Dissolution of the company means an ending or breaking the termination of legal existence and legal personality of
company by closing it's transaction. The life and death of the company depends upon the law.
The dissolution of company, the process of collecting it's assets and distributing the liabilities among the creditors
and shareholders in accordance with the company Act.
The general meeting of the shareholders or the office of the registrar of the company can dissolve a company in
accordance with the Company Act, 2063.
1.1.13 Modes of Winding up
Modes of winding up of a company are provided n the Company Act, 2063 (Section 126 to 137). They are as
follows:
(a) Voluntary winding up (liquidation) of company: According to the company Act, 2063 section 126 (1)
except in case where a company has become or insolvent under the law relating to insolvency. The
shareholders may liquidate a company either by special resolution adopted in the general meeting or
as a provided for in the memorandum of association or the unanimous agreement or Article
Association for this purpose the general meeting may pass a special resolution in the following
circumstances:
• If the determined time to run the company has already passed.

• If the company is unable to pass it's liabilities.
• If a company is at a loss or if it is not possible to run it continuously.
• Any other causes may lead to a shut down of the company
• The company shall submit to the office of the company registrar a copy of special resolution and
written declaration made directors on voluntarily (winding up) in a period of 7 days adopting
such a resolution.
(b) Winding up by the office of the registrar: According to the Company Act, 2063 (section 132 to 136)
the office shall issue an order that the company has been dissolved in accordance with this Act.
In accordance with the Company Act, 2063
The office of the registrar may dissolved a company in the following circumstances:
• If the promoter of the company has applied to the office of the registrar to dissolved the
company because it fails to commence the business of the company.
• If the company defaults to submit to the office of the registrar the details and defaults in paying
fine under section 80, 81 or the financial years.
• If in the course of administration of the company the office of the registrar has reasonable
ground to believe that the company is not carrying on business or is not operated in this situation
the office of the registrar shall issue an order to dissolved the company in accordance with this
Act.
1.1.14 Short Answer Questions
1. What is arbitration? What are the powers and duties of an arbitrator? [4+6]
2055
2. Define arbitration. Who can refer the disputes to arbitration? [5+5]
2056
3. What are the major provisions of 'Nepal Madhyasthata Ain? Explain. [10]
2057
4. What is arbitration? Who can refer to arbitration? [4+6]
2059
5. What is arbitration? Who can refer disputes to arbitration? [4+6]
2061
6. Who can refer disputes to arbitration? Also explain what may be referred to arbitration.
[5+5]
2062
7. What is arbitration? Explain the powers and duties of arbitrator. [3+7]
2063
8. What is bill of lading? Explain the power and duties of arbitrator. [3+7]
2063
9. What is arbitration? Describe the provisions relating to arbitration in Nepal. [3+7]
2064
10. Define arbitration. Explain the provisions relating to 'Madhyasthata Ain' in Nepal. [10]
2065
11. What is arbitration? Why is arbitration important in modern business world? [4+6]
2066
12. The process of arbitration has been an inbuilt component of business law. In the light of the statement define
arbitration and discuss the part who can refer to arbitration. [10+10]
2060
13. What is arbitration? Explain its importance to business community. [3+7]

2068
1.1.15 Comprehensive Question
1. Who can appoint an arbitrator? What are the right and duties of an arbitrator? How an award given by an
arbitrator can be made void? Discuss. [5+10+5]
2067

9. Arbitration
9.1 Meaning and Definition of Arbitration
Simply, the term ‘arbitration’ is a process of settling disputes. Arbitration means the settlement of disputes by the
decision of the person. It is a method of settlement of disputes and differences by referring them to a neutral third
party who decides the issues after hearing both sides in a quasi-judicial manner. Thus it is a means of the
settlement of disputes between the parties, where a person gives his decision after hearing the disputing parties as
neutral as the judge of the general court of law does.
The Nepalese Arbitration Act, 2055, has not defined the term ‘arbitration’ but defined the term ‘agreement’. This
term denotes the arbitration agreement. According to section 2(a) of the Act, ‘agreement’ means a written
agreement made between parties for settlement by arbitration of a dispute which has arisen at that time or which
may arises in future in respect to a defined legal relationship contractual or not contractual.
According to M.R. Romily, ‘arbitration is the reference to the decision of one or more persons, either with or
without an umpire of a particular matter on differences between the parties.’
According to M.C. Kuchhal, ‘Arbitration is the settlement of disputes and differences relating to civil matters (eg.
Money, property, or breach of contract ) between one party and another in a judicial manner by the decision of
one or more persons called arbitrators, appointed by the contending parties, without having recourse to a court of
law.’
From the definitions of arbitration, arbitration agreement and agreement stated above it follows that arbitration is
a process of the settlement of dispute.
9.2 Essential of Valid Arbitration Agreement
1.1.1 (a) The agreement must be in written form:
The arbitration agreement or the submission of arbitration must be made in a written form and it may be made
before or after the disputes arises.
1.1.2 (b) No need to mention name:
A person who decides dispute referred to him under arbitration is called arbitrator. The parties may name
arbitrator in agreement or not. Even after concluding agreement name of the arbitration can be determined.
1.1.3 (c) All the essentials of valid contract:
All the essential elements of the valid contract must be present in the arbitration agreement (i.e., competent
parties, free consent, certainty and clarity, legal object, consideration etc.) and it should follow the law of contract
and customs of the business.
1.1.4 (d) Binding force of award:
Award made by the arbitrators is binding to the parties. The decision made by the arbitrator (award) concerning
the dispute between agreed parties has a fully binding force.
1.1.5 (e) Procedural simplicity:
The procedure for the arbitration is to be brief and simple because the main purpose of arbitration is to avoid the
lengthy procedure of the regular courts. There is no complex and more formal process.
9.3 Importance of Arbitration
Today business is being more and more complicated day by day due to increasing number of transactions. The
parties have no time to go to the court to settle of the differences arising in the field of business. It is a popular
way among the alternative settlement of dispute.
• Prompt decision: The decision given under arbitration is prompt because the law relating to
arbitration has also specified time limit to provide decision. In the context of Nepal, arbitrator has to
decide the case within 120 days after the submission of document.
• Privacy and close hearing: The dispute which is referred to arbitration follows the secret research
method and close hearing, which do not make the dispute public and is far from unnecessary rumor.
• Expertise service: The arbitration may be from the same field as that of a dispute, the expert who has
specialized and is experienced in the subject matter is appointed by the concerned parties.
• Less expensive: Simple procedure and prompt settlement of the dispute makes the case less costly.
• Convenient for international business disputes:
The law of land is limited within the national territory, but the law of arbitration has emanated from the
international trade law and business, and disputes can be settled by international institution which is convenient
to the business persons and firms of different nations and societies.
9.4 Who is an Arbitrator?
An arbitrator is a person appointed by mutual consent of the concerning parties to settle a controversial issue
between them. The arbitrator is a tribunal chosen by the consent of the disputing parties.
9.5 Number of Arbitrator
The number of arbitrator is determined by the agreement between the parties. If the number of arbitrators is fixed
in the agreement it is as per agreement. If it is not fixed the number of arbitrator of arbitration shall be three as
determined by the Section 5(1) of the Arbitration Act.
Except otherwise is agreed in contrary, each concerned party will appoint one arbitrator and appointed arbitrators
will appoint a third person as arbitrator.
There are two ways of appointing an arbitrator.
• By the concern parties: Each centered party will appoint one arbitrator and appointed arbitrator will
appoint third person as arbitrator.
• By the court: In any of the following circumstances party to the agreement can file application in the
appellate court for appointment.
(a) In case the arbitrator cannot be appointed in accordance with the provision prescribed in the
agreement.
(b) in case nothing is prescribed in the agreement as regarded to the appointment of the
arbitration.
9.5 Who can Refer Disputes of Arbitration?
As a general rule, capacity to submit disputes to arbitration is co-extensive with capacity to contract. While
performing the contract if there arises some disputes or differences between the parties, any of the parties may
refer such disputes to the arbitrators. There are certain conditions at which even the parties to the contract can
not refer disputes to the arbitrations.
Generally only those persons can refer disputes to arbitrators who are legally competent to contract. One who is
incompetent to contract can not refer disputes to the arbitrators either. Hence disputes may be referred only by
the person who is competent and upon whom the decision of the arbitrator may be imposed. The following
persons may not generally refer disputes to arbitrators:-
1.1.6 (a) Minor or a lunatic person:
A minor or a lunatic (unsound) person is not legally competent to contract, he cannot refer any dispute for
arbitration, but his natural or legal guardian can, on his behalf, refer disputes bonafide for his benefit and interest.
1.1.7 (b) Agent:
An agent cannot refer dispute to arbitration unless he is given a special right to do so by his principal.
1.1.8 (c) An attorney or solicitor:
They cannot refer dispute to arbitrator unless the client gives special authority to do so.
1.1.9 (d) Partner:
Generally, a partner in a business has no right to refer disputes but he can do it if he is given this right by the
partnership agreement or by usage, by custom of trade, on behalf of his partnership.
1.1.10 (e) Trustee:
The trustee enjoys a right to refer dispute to arbitration for protection and improvement of such property.
9.6 What may be referred to Arbitration?
All matters in dispute which can be decided by a civil court may be referred to arbitration. Disputes relating to
matters which are purely criminal in nature can not be referred to arbitration.
It is clear that any dispute mentioned in the agreement must be referred to the arbitration and any dispute of civil
or commercial nature which is under consideration of the court can also be referred to the arbitration.
Generally, what types of matter may or may not be referred to the arbitration is discussed below separately:
9.7 Matters may be Referred to the Arbitration
• Matters of civil nature such as disputes concerning property, money or concerning the amount
payable for breach of contract etc.
• Matters relating to personal rights between the parties, question of validity of marriage or
maintenance payable to wife, terms of separation between husband and wife etc.
• Disputes as to dignity and respects or reputation.
• The matters relating to the operation of a private trust also is referred to arbitration.
• Disputes between insolvent and creditor.
• Other civil cases, which are out of jurisdiction of the court of law, may be referred to arbitration.
9.8 Matters may not be referred to the Arbitration
• Disputes relating to matrimonial relations such as a suit for divorce or for restitution of conjugal
rights.
• Testamentary matters such as validity of a will of paper.
• Matters relating to public charities and charitable trust.
• Matters relating to insolvency to declare one as insolvent.
• Matters relating to guardianship of a minor and other disable person.
• Matters of criminal nature and disputes.
• Matters relating to dissolution or winding up of a company.
• Execution proceedings of cases.

9.9 POWER AND DUTIES OF ARBITRATOR
An arbitrator has some rights or powers and also some duties. The Nepalese Arbitration Act, 2055, Section 21 has
made some provision in this regard, they are as follows:
1.1.11 (a) Rights or powers of Arbitrator:
An arbitrator is a person who is appointed for the settlement of disputes between the parties. After getting
appointment, he enjoys and exercises some rights and powers along with the obligation of performing duties. So
rights or powers of the arbitrator means those rights and powers which the arbitrator is entitled to exercise in the
course of settling disputes submitted before him. In general, the arbitrator has the following rights and powers:-
• To administer oath to the parties and witness appointing before him.
• To administer interrogatories a necessary.
• To take counsels from experts or the Appeal Court, in case the majority of arbitrators can not take
decision.
• To ask the concerned parties to appear before him and submit documents and give particulars
according to need.
• To appoint an expert on any specific issue to examine and get his opinion on it.
• To take a guarantee of property or bank guarantee in case one of the parties is foreign national.
• To order for specific performance of the contract under some special circumstances.
• To enjoy and follow the powers given by the law.
• To inspect the disputed place, product, production process, structure and other things.
• To exercise the special power given by the concerned parties, if any.
• To issue certified copies of document and award.
9.10 Duties of Arbitrator
In the course of arbitration proceedings the arbitrator need to perform some duties along with the exercise of
rights or powers. The primary function of the arbitrator is to settle dispute referred to him for the settlement.
After getting appointment, the arbitrator or the umpire is in the capacity of the judge of the regular court. To hear
both of the parties, to examine documents, to read out the award judicially, etc. are some of the examples of the
arbitrator’s duties.
• To act judicially: Due to holding position of the arbitrator, the primary function of the arbitrator is to
render justice to the parties of dispute. He must be fair and impartial and decide the dispute in the
quasi-judicial manner. He must follow all the arbitration clauses very strictly.
• Not to do misconduct: The arbitrator must act in good faith and must not misconduct through him
or by others. Not to perform duties as he was expected to perform duty is his misconduct.
• Not to act as an advocate or an agent: He shall not act as an agent or an advocate of any party to the
dispute.
• To perform all the functions personally: An arbitrator can not delegate his powers to others.
• To provide equal opportunity to the parties: An arbitrator has to give equal opportunity for the
disputing parties to appoint legal practitioner, and an opportunity to submit their claims.
• Not to cross jurisdiction: The arbitrator has to work within the scope of authority. If he crosses the
jurisdiction his verdict will be null or void.
• To make award within the time: The arbitrator is bound to render his award (decision) within the
time prescribed in the agreement. The arbitrator must make award generally within 120 days from
the date of submission of the claim.
• To inform the parties of an award and to provide the copies.
• To sign the award and mention its place and date.
• The arbitrator should not take gift and charity from the party.
• To keep the file safe: - The arbitrator must safely keep the file of the arbitration proceedings. He
must prepare the file mentioning depositions of the parties, documents and evidences received from
them, date and time respectively. Lastly, he must refer the file to the district court for safe custody.
9.11 Revocation of Arbitrator's Authority
Revocation of arbitrator’s authority means to restrict a person appointed as an arbitrator from initiating arbitral
proceedings. It is also termed as revocation of an arbitration agreement. Because of this, right of the arbitrator to
arbitrate gets discharged. The parties and the court in the following circumstances may revoke the authority of an
arbitrator.
1.1.12 (a) Revocation by the mutual agreement of the parties:
If both parties so like, they may instead of referring disputes to the said arbitrator, settle such dispute by mutual
compromise. In this situation, the arbitrator’s authority is supposed to be revoked. Furthermore, if the both parties
like, even after submission of disputes to the arbitration, they may, by their mutual agreement, and in this way
too, the arbitrator’s authority may be revoked. It should, however, be noted that they cannot revoke his authority
after award being issued by him.
1.1.13 (b) Revocation by permission of the court:
The parties to the arbitration agreement may be revoking the arbitrator’s authority also by the permission of the
court. But, only on some specific circumstances, the court allows them to revoke the arbitrator’s authority.
According to see 11 (2) of the Act the parties may apply to the arbitrator within 15 days from the date of irregular.
The court may give permission to the parties to revoke or remove an arbitrator’s on the following circumstances:-
 Appointment of the arbitrator without free consent of the party.
 If the arbitrator acts partially in a biased manner.
 If the arbitrator acts against the natural law of justice or judicial principles or the existing law.
 When an unreasonable absence in the meetings.
 If an arbitrator continuously commits irregularity and mistakes.
 If an arbitrator is not qualified or loss his qualifications.
9.12 The Award
Judgment or final decision of an arbitrator or arbitrators on all matters referred to arbitration is called the arbitral
award or award. The document containing the decision of the arbitrators is also called award. The general rule is
that, the award will be enforceable on all the disputed parties. The award made by the arbitrator or the arbitration
tribunal is regarded as the final decision as of the verdict of the court of law.
In Krishna Chandra Jha Vs. Dinesh Bhakta Shrestha court held that Arbitrator can not go beyond the terms of the
1
contract while delivering the award.
9.12.1 Essentials of Valid Award
1.1.14 (a) The award must be made in written form (Sec. 27)
The award must be made in written form. Although there is not a particular format of award but it should contain
the following things under it:
 Brief statement of the matters referred.
 Decision of the arbitrator and its basis and ground.
 Existence of jurisdiction, if it is questioned by the party.
 Matters as regards to the amount to be realized or compensated.
 Signature of the arbitrators.
 Place and date of award etc.
1
Krishna Chandra Jha Vs. Dinesh Bhakta Shrestha
1.1.15 (b) Time limitation for making award
The award must have been made within 120 days from the date of reference. Unless otherwise mentioned in the
agreement, the arbitrator should pronounce his award ordinarily within that prescribed time period and the award
must be issued within 30 days after completion of oral hearing of the dispute.
1.1.16 (c) The award must be certain and final
The award must not be vague and unclear. It must be certain and final because a repetition of award is not
accepted in accordance with the Sec. 29, except correction of a normal error. In case of any difference in opinion
of members of arbitration may put a note of decent.
1.1.17 (d) Binding force
The award has a fully binding force to the disputing parties.
1.1.18 (e) The award should not be repeated
Generally award should not be repeated, otherwise it becomes void. But if a party dissatisfied with the award
made, he may, according to the Sec. 30 (1), apply appeal in the appellate court within 35 days from the date of
hearing or receiving a copy of award, for allowing permission to revoke it and the court may ask the arbitrator to
make the award void or to repeat the decision so made.
9.12.2 Execution of Award
The award has a fully binding force. The concerning parties must perform or follow the award in time. Execution of
award is enforced in the following modes:
1.1.19 (a) Execution by the parties (Sec. 31):
The award is obeyed by the disputing parties morally and legally. The parties have to execute the award within 45
days from the date of receipt of a copy of the award.
1.1.20 (b) Execution of award by the court (Sec. 32) :
In case of failure of the parties to execute the award within 45 days, either party can file an application to the
District Court within 30 days from the date of expiry of time limit prescribed for the purpose for having the award
executed. And on receipt of such application filed in this way, the District Court has to execute or enforce the
award ordinarily within 30 days as its own judgment.
9.12.3 Execution of Foreign Award (Sec. 34)
Any party which wishes to have an award made in a foreign county enforced in Nepal shall submit a petition to the
Appellate Court, along with the following documents:
 The original copy of the arbitrator’s award or a certified copy.
 The original copy of the agreement or a certified copy.
 In case the arbitrator’s decision is not in the Nepali Language, an official translation thereof in the
Nepali language.
9.13 The Provisions Relating to Madhyasthata Ain in Nepal (Arbitration Act, 2055)
Nepal Madhyasthata Ain, 2055 is the law relating to Arbitration, 2055 in Nepal. It has been applied since the date
of promulgation. It has six chapters and 44 sections. The Act has the following provisions:
1.1.21 (a) Definitions:
The Act has defined a number of technical terms under section 2 used in the Act and can be used while handling
case of arbitration. Accordingly, the terminologies such as district and appellate court, dispute, counter claim,
rejoinders arbitrator etc. have been defined for the arbitration context.
1.1.22 (b) Arbitral dispute:
The act has categorized civil matters of commercial nature in arbitral dispute and can be taken out from the court
for settlement through arbitration. It has restricted to refer non- arbitral disputes to arbitration.
1.1.23 (c) Number of appointment:
As provided in Sections 5-8 under the Arbitration Act, the number of arbitrator should be odd and normally, 3 but
1 is also allowed where the parties determine so. The Act has clearly recognized the provisions under section 11
upon which an arbitrator’s authority can be revoked, and his position could be made vacant.
1.1.24 (d) Provision as to oath and qualification:
The act has made some provisions under Sections 9 and 10 in this regard. The arbitrator has to take oath and has
to hold essential qualification under law and agreement. The qualification of law is to have contractual capacity,
not to be punished under law on criminal charges, not to be insolvent etc.
1.1.25 (e) Rights or powers and duties of arbitrator:
The Act has fixed a number of rights or powers and duties of arbitrator. Some of the powers of the arbitrator are
to have submission, to determine the jurisdiction and procedure, to fix the venue, to seek the assistance of the
court, to issue different kinds of award and the like. Similarly, some of the duties are to be fair, impartial to respect
the principles of natural justice, to take oath etc.
1.1.26 (f) Working procedures:
The Act has dealt with some provisions in this respect. The arbitrator has to work in line of procedures that have
been fixed by the agreement or by the Act in the silence of the agreement. He must hold the office immediately
after his appointment or submission of dispute in case where he is named in the agreement.
1.1.27 (g) Provision as to award:
As stated in Section 24, award must be made within one hundred and twenty days from the date of submitting
rejoinder. Furthermore, the majority decision is regarded as award and the decision of the umpire is recognize as
valid in case where different opinion arise between the parties.
1.1.28 (h) Invalidity of award:
As dealt with under different section of the Act, the party dissatisfied with the award of arbitrator can file petition
in the Appellate Court for invalidating it within 35 days from the date of receipt of award, by supplying a copy of
application to the arbitrator and other party. The Court can uphold or nullify the decision by ordering to settle it
again by a fresh decision to the arbitrators. The grounds upon which it can be invalidated are incompetence of
parties to sign an agreements, it is unlawful, or unclear, excess exercise of jurisdiction, against agreement, non-
arbitrary, against public policy or morality etc.
1.1.29 (i) Miscellaneous provisions:
The Act provides other more provisions under this chapter 6. The Arbitration must refund payment where no
proceeding is held or his position falls vacant for any reason. The liability of the parties falls into the heirs in case of
death or insanity.
In conclusion, the present Arbitration Act, 2055, has help business community by stipulating proper legal
provisions. However, the Act is silent on definition of arbitration. The timely reform of such shortcoming will prove
the Act successful.
Law of Carriage
1. Why is it important to study the law relating to carriage? What are the rights commonly possessed by a
common carrier? [4+6]
2055
2. What is a carter party? What matters are dealt with by the clauses of charter party? [4+6]
2056
3. Who are common carriers? What are their liabilities? [4+6]
2057
4. What is bill of lading? What are its character? [4+6]
2058
5. Define the term common carrier and point out the duties of a common carrier. [4+6]
2058
6. State and explain the rights and duties of a common carrier. [5+5]
2059
7. Write a note on charter party. [10]
2060
8. Give the classification of carriers and explain the importance of law of carriage. [4+6]
2061
9. State and explain the rights and duties of a common carrier. [5+5]
2062
10. Define common carrier. Distinguish between common carriers and private carriers. [4+6]
2064
11. What is contract of affreightment? Explain the implied conditions in contract for carriage of goods by sea.
[3+7]
2065
12. Define the term common carrier. How do you distinguish between common carriers and private carriers?
[3+7]
2066
13. Who is a common carrier? Describe the rights and duties of a common carrier. [3+7]
2067
14. Define contract of affreightment and provide a classification of carriers. [3+7]
[2068]


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Business Law - Complete Notes | www.edunepal.

1 1.1 Meaning and Nature of Law

2 1.2 Definition of Law

3 1.3 Origin and Nature of Law

4 1.4 Purpose of Law

• To maintain the peace and security in society.

• To maintain the social solidarity and harmony in the society.

5 1.5 Types of Law

1.5.1 From the point of view of creation and nature of law

5.1.1 a. Substantive Law:

5.1.2 b. Procedural Law

Differences between Substantive Law and Procedural Law

Substantive law Procedural Law

1. It is known as law of the rights and duties. It is known as remedial law.

2. It is the end of the law It is the means of the law.

parties. parties to a particular case.

1.5.2 From the point of view of jurisdiction

5.1.3 a. Criminal Law:

5.1.4 b. Civil Law:

1.5.3 From the point of view of legal effect

5.1.5 a. Private Law:

5.1.6 b. Public Law:

6 1.6 Sources of Law

According to Salmond there are following sources of law:-

7 1.7 Meaning of Business Law

1.7.1 Features of Business law

Basic features of business law are as follows:

• Business law is the fast growing part of law.

1.7.2 Importance of Business Law

• To establish and run the business activities.

8 1.8 Sources of Business Law

8.1.1 a. Law made by Parliament:

8.1.2 b. Custom and Usages:

8.1.4 d. English Mercantile Law:

8.1.5 e. Opinion of Professional and Experts:

8.1.6 f. Business agreements and Conventions:

8.1.7 Short Questions

4. Explain the nature and sources of Nepalese business law. [5+5]

5. Explain the nature and sources of Nepalese business law. [10]

9. What is business law? Explain the sources of business law. [3+7]

11. Define business law. Explain its importance. [3+7]

2. Meaning, Nature and Essentials of

2.1.1 Definition of Contract

• Two or more than two parties

2.1.2 Nature of Contract

1.1.1 a. Civil Nature:

1.1.2 b. Social and Business Nature:

1.1.3 c. Autonomous Nature:

1.1.4 d. Limited Nature:

1.1.5 e. Relating to promise and obligation:

2.1.3 Essentials of Valid Contract

2.1.4 Followings elements are essential for a valid contract:

1.1.6 a. Plurality of parties:

1.1.7 b. Proper offer and acceptance:

1.1.8 c. Intention to create legal relationship:

1.1.9 d. Lawful Consideration:

1.1.10 e. Free Consent:

1.1.11 f. Capacity of the parties:

1.1.12 g. Lawful Object: