Business Law 2080 Board Question Paper

Free Consent

Free consent is the voluntary, uncoerced agreement of two or more contracting parties upon the same thing in the same sense (consensus ad idem).

• Under Section 506 of the National Civil Code, 2074, consent is not free when obtained through coercion, undue influence, fraud, misrepresentation, or bilateral mistake.

Contractual Capacity

Contractual capacity is the legal competence of a person to enter into a binding, enforceable contract. Under Nepalese law, an individual has contractual capacity if they have completed 18 years of age (majority), are of sound mind, and are not legally disqualified by statute.

Anticipatory Breach of Contract

An anticipatory breach of contract occurs when a promisor, prior to the scheduled date of performance, either explicitly declares their refusal to perform or voluntarily disables themselves from performing their contractual obligations, giving the promisee the immediate right to treat the contract as repudiated and sue for damages.

Two Duties of a Principal

1. Duty to Pay Agreed Remuneration / Commission: Must pay the agent agreed commission or reasonable remuneration upon completion of agency services.
2. Duty to Indemnify the Agent: Must indemnify the agent against all lawful acts, liabilities, and expenses incurred in good faith within the scope of agency authority.

Finder of Lost Goods

A finder of lost goods is a person who finds physical goods belonging to another and takes them into custody. The finder assumes the same legal status and responsibilities as a bailee under a quasi-contract, bound to take reasonable care of the goods and make bona fide efforts to trace the true owner.

Two Features of a Bill of Lading

1. Document of Title to Goods: Enables the lawful holder to claim delivery or transfer ownership of the underlying cargo by endorsement and delivery.
2. Official Cargo Receipt: Serves as a formal written acknowledgement signed by the master or shipowner confirming the quantity, condition, and marks of goods received on board.

Charter Party

A charter party is a formal maritime contract of affreightment by which a shipowner agrees to lease or hire an entire vessel (or a principal part of it) to a merchant/charterer for the conveyance of goods for a specified voyage (Voyage Charter) or a specified period of time (Time Charter).

Insolvency

Insolvency is the commercial and financial condition where an individual or corporate enterprise is unable to meet its financial obligations and pay debts as they mature in the regular course of business, or where total liabilities exceed the fair realizable value of assets.

Two Functions of an Arbitrator

1. Administering Fair Hearing: Receiving written claims, defense statements, examining witness evidence, and upholding principles of natural justice.
2. Issuing Final Arbitral Award: Rendering a written, reasoned final determination of dispute liabilities and damages within the statutory deadline.

Foreign Investment

Foreign investment refers to the investment of foreign capital, equity shares, reinvested earnings, lease financing, or technology transfers made by a foreign investor (individual or enterprise) into a domestic industry or business undertaking pursuant to the Foreign Investment and Technology Transfer Act (FITTA).

Sources of Law

A source of law refers to the authoritative origins, institutional mechanisms, and recognized processes from which legal rules derive their validity and binding enforceability:

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Major Sources of Law

1. Legislation (Statutory Law):

   • The primary, direct, and most prolific source in modern democratic states.
   • Refers to formal statutes enacted by Parliament (e.g., National Civil Code 2074, Company Act 2063). It possesses supreme authority over other sources except the Constitution.

2. Judicial Precedents (Case Law / Decided Cases):

   • Judicial rulings delivered by the Supreme Court of Nepal under the doctrine of stare decisis (to stand by decided matters).
   • Once the apex court establishes a legal principle in a decided dispute, it becomes binding law for all subordinate High and District Courts.

3. Customs and Commercial Usages:

   • Longstanding, ancient, and reasonable community or commercial practices observed continuously without interruption. When recognized by courts, customs acquire the force of law provided they are not contrary to statutory legislation.

4. Treaties and International Conventions:

   • Bilateral and multilateral treaties ratified by the state (e.g., WTO agreements, Paris Environmental Accord, WIPO conventions), creating statutory domestic obligations pursuant to the Nepal Treaty Act.

5. Professional Juristic Writings and Equity:

   • Scholarly treatises by eminent jurists and principles of natural justice, equity, and good conscience applied by judges when statutory codes are silent.

Contingent Contract vs. Wagering Contract

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Conceptual Definitions:

• Contingent Contract (Section 515, Civil Code 2074): A contract to do or not to do something, if some event collateral to such contract does or does not happen (e.g., an insurance contract). It is completely valid and legally enforceable.
• Wagering Agreement (Section 517, Civil Code 2074): A speculative promise to pay money or money’s worth upon the determination or ascertainment of an uncertain future event, where neither party has any commercial interest other than the stake. It is illegal and void ab initio.

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Differences Between Contingent and Wagering Contracts

Concept and Definition of Contract of Agency

Under Section 564 of the National Civil Code, 2074, a contract of agency is a contract whereby one person (the Principal) employs another person (the Agent) to represent the principal in dealings with third parties or to bring the principal into legal contractual relations with third parties (Qui facit per alium facit per se - “he who acts through another does the act himself”).

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Modes of Creating Agency

Agency can be created through several recognized legal modes:

1. Agency by Express Agreement:
   • Created through explicit spoken words or formal written contracts (e.g., executing a formal Power of Attorney / Warisnama specifying authorized powers).
2. Agency by Implied Agreement:
   • Arises from the conduct, situation, or relationship of the parties:
     • Agency by Estoppel: When a principal by words or conduct induces a third party to believe that a person is their authorized agent, the principal is estopped from denying agency.
     • Agency by Holding Out: When a principal consistently permits someone to act on their behalf in prior dealings.
3. Agency by Necessity:
   • Created by an urgent commercial emergency where a person is forced to act on another’s behalf to protect property from destruction without waiting for instructions (e.g., ship captain selling perishable cargo damaged at sea).
4. Agency by Ratification:
   • Arises when an agent acts without prior authority, but the principal subsequently approves and confirms the unauthorized act with retroactive validity.
5. Agency by Operation of Law:
   • Formed automatically by statutory provisions (e.g., partners acting as mutual agents for the firm under the Partnership Act).

Special Features of a Contract of Sale of Goods

Under the National Civil Code, 2074 (Chapter on Sale of Goods):

1. Two Distinct Parties: Involves a buyer and a seller; a person cannot sell to themselves.
2. Movable Goods Subject-Matter: Deals exclusively with movable property (tangible goods, commodities, machinery, crops), strictly excluding immovable land or actionable claims.
3. Monetary Price Consideration: Consideration must be monetary (Price); pure barter of goods is not a contract of sale.
4. Transfer of General Property (Ownership): Involves absolute transfer of general legal title in goods, not mere custody.

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Types of Conditions in a Contract of Sale

A condition is a vital stipulation essential to the main purpose of the contract, the breach of which gives the aggrieved party the right to repudiate the contract and reject the goods.

1. Express Conditions:

• Explicit stipulations written or spoken directly into the contract agreement (e.g., stipulating delivery of Grade-A Himalayan Organic Tea).

2. Implied Conditions (Imposed by Law):

1. Condition as to Title: Implied that the seller has the legal right to sell the goods.
2. Condition in Sale by Description: Goods must correspond exactly with the commercial description.
3. Condition in Sale by Sample: The bulk must match the sample in quality, and the buyer must have an opportunity to compare.
4. Condition as to Quality or Fitness: When a buyer discloses the specific purpose to the seller and relies on the seller’s skill, the goods must be reasonably fit for that purpose.
5. Condition as to Merchantability: Goods purchased from a commercial dealer must be of merchantable, usable quality.
6. Condition as to Wholesomeness: In food items, goods must be fit for human consumption and free from dangerous contamination.

Differences Between Private Carrier and Public (Common) Carrier

Major Provisions of the Patent, Design and Trademark Act, 2022 (1965)

The Patent, Design and Trademark Act, 2022 is the principal statutory enactment protecting industrial intellectual property in Nepal, administered by the Department of Industry:

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1. Provisions Regarding Patents (Sections 3-11):

• Definition & Criteria: Protects novel, industrially applicable inventions created through scientific research.
• Term of Protection: Granted for an initial period of 7 years from registration, renewable twice for 7 years each (maximum 21 years).
• Grounds of Refusal: Inventions contrary to public health, morality, or lacking novelty cannot be patented.

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2. Provisions Regarding Industrial Designs (Sections 12-15):

• Definition & Criteria: Protects unique aesthetic shapes, patterns, or ornamentations applied to industrial articles.
• Term of Protection: Granted for an initial period of 5 years, renewable twice for 5 years each (maximum 15 years).

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3. Provisions Regarding Trademarks (Sections 16-21):

• Definition & Criteria: Protects distinctive marks, logos, brand names, or symbols used to distinguish goods or services.
• Term of Protection: Granted for 7 years from registration, renewable indefinitely every 7 years upon payment of statutory renewal fees.
• Grounds of Refusal: Marks damaging national sovereignty, hurting religious sentiments, or deceptively resembling existing registered brands are refused.

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4. Enforcement and Infringement Penalties:

• Unauthorized commercial copying, counterfeit manufacturing, or trademark infringement is punishable with confiscation of goods and statutory fines.

Changing Dimensions of Nepalese Business Law & Constitutional Provisions

Nepalese commercial jurisprudence has evolved from ancient customary edicts (Muluki Ain) into a modern, constitutional, and codified legal architecture that protects free-market enterprise while ensuring social equity.

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1. Constitutional Foundations (Constitution of Nepal, 2072)

The 2072 Constitution establishes the socio-economic framework governing commercial activity:

• Article 17(2)(f) - Freedom of Profession & Trade: Guarantees every citizen the fundamental right to practice any profession, carry on any trade, industry, or business.
• Article 25 - Right to Property: Guarantees the right to acquire, own, sell, and conduct commercial transactions in property; the state cannot expropriate property without lawful public purpose and fair compensation.
• Article 51 - Directive Principles on Economic Policy: Enshrines a three-pillar economic model—fostering coordination among public, private, and cooperative sectors for balanced national prosperity.
• Fiscal Federalism Provisions: Division of taxation and industrial regulation powers across Federal, Provincial, and Local tiers.

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2. Changing Dimensions in Commercial Enactments

1. Unification and Codification (National Civil Code, 2074):
   • Replaced fragmented statutes, providing comprehensive codified chapters on General Contracts, Sale of Goods, Agency, Bailment, Guarantee, and Quasi-Contracts.
2. Shift from Discretionary Controls to Automated Clearances:
   • Industrial Enterprises Act 2076 and FITTA 2075 established the One-Stop Service Center, automatic foreign investment routes, and guaranteed repatriation rights.
3. Rehabilitation in Corporate Bankruptcy:
   • Insolvency Act 2063 introduced modern corporate restructuring and moratorium mechanisms before liquidation.
4. Labor Flexibility with Social Security Protection:
   • Labour Act 2074 eliminated rigid permanent hiring rules, introducing contract flexibility alongside mandatory 31% contributions to the Social Security Fund (SSF).
5. Electronic Commerce & Digital Legal Validity:
   • Electronic Transactions Act 2063 legally recognized digital signatures, electronic contracts, and online payment evidence.

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Critical Challenges:

1. Federal Jurisdictional Overlap: Duplicate local taxation creates commercial compliance frictions.
2. Judicial Backlogs: High Court Commercial Benches face delays in resolving complex corporate disputes.

Major Provisions of Contract and Other Liabilities under Muluki Dewani Sanhita, 2074

Part 5 of the National Civil Code (Muluki Dewani Sanhita), 2074 represents a modern, comprehensive codification of contract law and non-contractual civil liabilities in Nepal, replacing the old Contract Act, 2056.

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Core Provisions of Contract and Other Liabilities

1. General Principles of Contract Formation (Sections 503-514):

• Definition: An agreement enforceable by law between two or more parties.
• Essentials: Free consent, lawful consideration, competent parties, lawful object, certainty, and possibility of performance.
• Offer and Acceptance: Clear rules governing postal and electronic communication, revocation, and standing offers.

2. Vitiating Factors and Contract Validity:

• Explicitly classifies contracts into Valid, Void, and Voidable:
  • Voidable Contracts (Section 516): Contracts caused by coercion, undue influence, fraud, or misrepresentation.
  • Void Contracts (Section 517): Agreements lacking consideration, in restraint of trade/marriage, or with unlawful objects.

3. Special Contracts Codified:

1. Contract of Sale of Goods (Sections 536-563): Distinction between sale and agreement to sell, transfer of property, implied conditions, and unpaid seller rights.
2. Contract of Agency (Sections 564-590): Creation, agent duties, principal indemnities, delegation, and termination of agency.
3. Contract of Bailment and Pledge (Sections 591-619): Care by bailee, return of goods, lien, and pawnee rights.
4. Contract of Indemnity and Guarantee (Sections 620-638): Co-extensive liability of surety, discharge of surety, and rights against debtor.

4. Performance, Discharge, and Breach of Contract:

• Discharge Modes: By performance, mutual consent, impossibility (doctrine of frustration), lapse of time, or breach.
• Remedies for Breach: Compensatory damages (Hadley v. Baxendale principle), restitution of benefits, quantum meruit, and specific performance.

5. Other Civil Liabilities (Non-Contractual & Quasi-Contracts):

• Quasi-Contractual Obligations (Sections 639-650): Claims for necessaries supplied to incompetent persons, reimbursement of money paid for another, obligations of finders of lost goods, and recovery of money paid under mistake.
• Law of Torts and Product Liability: Codified liabilities for tortious harm, negligence, consumer defect damages, and strict liability.

Legal Importance of Annual General Meeting (AGM)

The Annual General Meeting (AGM) is the supreme statutory gathering of company shareholders. Under the Company Act, 2063, the AGM embodies shareholder democracy, enabling owners to review executive stewardship, exercise governance oversight, and direct corporate affairs.

Core Legal Importance:

1. Upholding Corporate Accountability: Forces executive directors and management to present audited financial statements and justify corporate actions directly before shareholders.
2. Protecting Minority Shareholders: Provides an open legal forum for minority shareholders to ask questions, challenge board mismanagement, and vote on resolutions.
3. Approving Fundamental Decisions: Key corporate matters (dividends, director elections, auditor appointments) cannot be lawfully executed without AGM approval.

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Legal Formalities for Convening and Conducting an AGM (Sections 67-76, Company Act 2063)

1. Statutory Timetable:

   • The first AGM must be held within one year of incorporation.
   • Subsequent AGMs must be convened every year within six months of the close of the financial year (extensions require Company Registrar approval).

2. Mandatory Notice of Meeting (Section 67):

   • Written notice must be dispatched to all shareholders at least 21 days in advance for public companies (15 days for private companies).
   • Notice must clearly specify the date, time, venue, and explicit agenda (ordinary and special business), accompanied by audited balance sheets and the directors’ report.
   • For public companies, notice must be published twice in national daily newspapers.

3. Quorum Requirements (Section 73):

   • For a public company, shareholders representing at least 51% of total voting shares must be present in person or by proxy. If quorum is not met, the meeting is adjourned and reconvened under relaxed statutory quorum rules.

4. Business Transacted at the AGM:

   • Ordinary Business:
     • Discussion and approval of the Board of Directors’ annual report and audited balance sheet/P&L.
     • Declaration of annual dividends.
     • Election and appointment of directors.
     • Appointment of the statutory auditor and fixing their remuneration.
   • Special Business: Amendments to Memorandum/Articles of Association, corporate mergers, capital increases, or share buybacks.

5. Minutes and Regulatory Filing (Section 76):

   • Detailed minutes of discussions and resolutions must be recorded and signed.
   • Certified copies of the approved balance sheet, auditor’s report, and attendance rosters must be filed with the Office of the Company Registrar (CRO) within 30 days.