Dean's Office Official Model Question Paper

Answer: Business Law (Mercantile Law): That branch of civil law which encompasses statutes, rules, and customs governing commercial transactions, corporate affairs, trade relationships, and mercantile disputes between individuals and business entities.

Primary Sources in Nepal:

1. Statutory Legislation: Enactments passed by the Federal Parliament (e.g., Muluki Dewani Samhita 2074, Companies Act 2063).
2. Precedents (Nazir): Binding legal principles established by the Supreme Court of Nepal published in Nepal Kanoon Patrika (NKP).

Answer:

• Offer: A definite, final expression of willingness by the offeror to enter into a binding contract upon acceptance (e.g., “I will sell you my car for Rs. 500,000”).
• Invitation to Offer: An invitation extended to the public or parties to induce them to make an offer; it is merely an invitation to negotiate, not an offer capable of immediate binding acceptance (e.g., goods displayed with price tags in a department store, display of an auction catalog, or a college admission prospectus).

Answer:

• Privity of Contract: A foundational doctrine stating that only parties to a contract can sue or be sued upon it; a stranger to the contract cannot enforce contractual rights.
• Privity of Consideration: The rule concerning who must furnish the consideration. Under English common law, consideration must move from the promisee alone. However, in Nepal and India, consideration may move from the promisee or any other person (stranger to consideration), provided there is privity of contract.

Answer: Under Section 503 of the Muluki Dewani Samhita 2074, an agreement entered into by a minor (a person who has not completed 18 years of age) is void ab initio (void from the very beginning). A minor has no contractual capacity, cannot be sued for breach, and contracts made during minority cannot be ratified upon attaining the age of majority. However, reasonable reimbursement may be claimed from the minor’s estate for necessities of life supplied.

Answer: Contingent Contract: A contract to do or not to do something if some collateral event does or does not happen (Section 517 of Muluki Dewani Samhita 2074). Essential Characteristic: The performance of the contract depends entirely upon the happening or non-happening of an uncertain future collateral event (e.g., a contract of fire insurance).

Answer: Doctrine of Subrogation: Upon paying off the debt or performing the obligation of the principal debtor, the surety (guarantor) is invested with all the rights that the creditor had against the principal debtor. The surety steps into the shoes of the creditor to recover the settled amount.

Answer:

• Bailment: The delivery of goods by one person to another for some specific purpose upon an agreement that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to directions.
• Pledge (Pawn): A specialized form of bailment where the goods are delivered as security for the payment of a debt or the performance of a promise.

Answer: Doctrine of Caveat Emptor: A fundamental common law doctrine meaning “Let the buyer beware.” The buyer must inspect the goods and purchase at their own risk; the seller is not duty-bound to disclose obvious defects.

Two Exceptions:

1. When the buyer informs the seller of the specific purpose and relies on the seller’s skill or judgment.
2. When goods are bought by description or sample and do not correspond to the sample or are not of merchantable quality.

Answer: Ultra Vires: A Latin phrase meaning “beyond the powers.” Any act or contract entered into by a company that exceeds the scope of powers, objectives, and authority outlined in its Memorandum of Association (MoA) is ultra vires and wholly void ab initio. It cannot be ratified even by a unanimous resolution of the shareholders.

Answer: Arbitration Agreement: An agreement by the parties in writing to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, providing an alternative out-of-court dispute resolution mechanism whose award is legally binding and enforceable.

1. Definition of Contract

Under Section 503 of the Muluki Dewani Samhita, 2074, a contract is defined as an agreement entered into between two or more parties to do or abstain from doing something, enforceable by law. In juristic terms (Sir Frederick Pollock), "Every agreement and promise enforceable at law is a contract."

$$\text{Contract} = \text{Agreement} + \text{Enforceability by Law}$$

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2. Essential Elements of a Valid Contract

For an agreement to mature into a legally binding contract, the following vital elements must coexist:

1. Plurality of Parties: There must be at least two distinct legal persons: an offeror (promisor) and an offeree (promisee). One cannot contract with oneself.

2. Offer and Acceptance (Agreement): There must be a lawful, definite offer made by one party and an unqualified, absolute acceptance of that offer by the other party, establishing consensus ad idem (meeting of the minds).

3. Intention to Create Legal Relations: The parties must intend to generate legal obligations. Purely social, domestic, or religious promises (e.g., an invitation to dinner) lack legal enforceability (Balfour v. Balfour). In commercial agreements, legal intention is strongly presumed.

4. Lawful Consideration: Consideration (quid pro quo — something in return) is the price for which the promise of the other is bought. It must be real, valuable in the eyes of law, and not illegal, immoral, or opposed to public policy.

5. Contractual Capacity of Parties: Parties entering into the contract must be legally competent. Under Nepalese law, a person is competent if:

   • They have completed 18 years of age (majority).
   • They are of sound mind.
   • They are not disqualified from contracting by any applicable law (e.g., undischarged insolvents, alien enemies).

6. Free Consent: Consent must be free and voluntary. Consent is not free when caused by:

   • Coercion (unlawful threat or violence)
   • Undue Influence (domination of will due to fiduciary or authoritative position)
   • Fraud (intentional deception)
   • Misrepresentation (innocent false statement)
   • Mistake of essential fact

7. Lawful Object and Consideration: The objective and purpose of the contract must not be forbidden by law, defeat the provisions of any law, involve injury to the person or property of another, or be regarded by the court as immoral or opposed to public policy.

8. Agreements Not Expressly Declared Void: The agreement must not fall into the statutory categories of agreements expressly declared void by the Code, such as agreements in restraint of trade, restraint of marriage, or wager.

9. Certainty and Possibility of Performance: The terms of the agreement must be clear, unambiguous, and capable of being performed. Agreements to perform impossible acts (physical or legal impossibility) are void.

10. Legal Formalities: Where statutory law mandates writing, registration, stamp duty, or attestation by witnesses (e.g., sale of immovable property under Land Revenue regulations), such statutory formalities must be strictly complied with.

1. Concept of Discharge of Contract

Discharge of contract signifies the termination of the contractual relationship between the parties. When the rights and obligations created by the contract come to an end, the contract is said to be discharged, releasing parties from further performance.

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2. Modes of Discharge of Contract

                     Modes of Discharge of Contract
                                   |
        +--------------------------+--------------------------+
        |                          |                          |
Performance                 Mutual Agreement           Operation of Law
        |                          |                          |
Impossibility of               Breach of                   Lapse of
  Performance                  Contract                      Time

1. Discharge by Performance

• Actual Performance: When both parties perform their respective promises in conformity with the terms, time, and place agreed upon.
• Attempted Performance (Tender): When the promisor offers to perform their obligation, but the promisee refuses to accept performance without valid justification.

2. Discharge by Mutual Agreement (Consent)

Under Section 532 of the Muluki Dewani Samhita 2074, a contract can be discharged by mutual agreement through:

• Novation: Substitution of a new contract in place of the old one between same or different parties.
• Rescission: Cancellation of all or some terms by mutual agreement.
• Alteration: Modification of one or more material terms with the consent of all parties.
• Remission: Acceptance of a lesser sum or lesser performance than what was originally due.
• Waiver: Intentional abandonment of a contractual right.

3. Discharge by Subsequent Impossibility (Frustration)

A contract valid at inception may become void if performance becomes physically or legally impossible without fault of either party due to:

• Destruction of subject matter (e.g., hall destroyed by accidental fire).
• Death or personal incapacity in contracts of personal skill.
• Change of law or government intervention making performance illegal.
• Outbreak of war making trade with alien enemies illegal.

4. Discharge by Operation of Law

A contract is discharged by application of independent legal rules:

• Death: In personal skill contracts, rights and liabilities terminate upon death.
• Insolvency: An insolvent debtor is discharged from unpaid contractual liabilities upon adjudication.
• Merger: When an inferior right merges into a superior right (e.g., a tenant buys the leased property).
• Unauthorized Material Alteration: If one party alters a written contract materially without the other’s consent.

5. Discharge by Lapse of Time

The Statute of Limitations (Hadd-Myad) prescribes a specific time window within which a contract must be enforced. If the aggrieved party fails to file a lawsuit within the statutory limitation period, the legal remedy is barred and the contract is discharged.

6. Discharge by Breach of Contract

When a party fails or refuses to perform their contractual obligation without lawful excuse:

• Anticipatory Breach: Repudiation of obligation before the due date of performance.
• Actual Breach: Refusal or failure to perform on the due date or during the course of performance.

1. Meaning of Breach of Contract

A breach of contract occurs when a party to the contract fails, refuses, or incapacitates themselves from performing their contractual obligations. When a breach takes place, the innocent (aggrieved) party is entitled to legal redress.

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2. Legal Remedies for Breach of Contract

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3. Classification of Damages

Under Section 537 of the Muluki Dewani Samhita, 2074, damages serve to put the injured party in the same financial position as if the contract had been duly performed (Hadley v. Baxendale rule):

1. Ordinary (General) Damages: Direct and natural consequences of breach occurring in the usual course of things. Measured by the difference between contract price and market price at the date of breach.

2. Special Damages: Losses arising out of special circumstances known to both parties at the time of entering the contract.

3. Liquidated Damages vs Penalty: Pre-agreed reasonable estimate of prospective damages (liquidated damages) vs an excessive, punitive sum intended to compel performance (penalty). Nepalese courts award reasonable compensation up to the agreed amount.

4. Nominal Damages: Awarded when the plaintiff proves a technical breach of contract but has suffered no actual financial loss.

1. Definition and Legal Principle of Agency

Under Section 561 of the Muluki Dewani Samhita, 2074, an agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done is called the Principal.

Maxim: Qui facit per alium facit per se (He who acts through another does the act himself). The principal is bound by all lawful acts of the agent done within the actual or apparent scope of authority.

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2. Modes of Creating Agency

                        Modes of Creation of Agency
                                     |
    +-----------------+--------------+---------------+-----------------+
    |                 |                              |                 |
Express          Implied                         Ratification      Operation of
Agreement        Agreement                             |              Law
                      |                                |
         +------------+------------+                   |
         |                         |                   |
    By Conduct /              Agency by                |
     Estoppel                 Necessity                |

1. Express Agreement: Created by spoken words or written instruments (e.g., a formally executed Power of Attorney / Warisnama).
2. Implied Agreement: Arises from conduct, situation, or customary dealings between the parties:
   • Agency by Estoppel / Holding Out: When a person by words or conduct induces third parties to believe another is their authorized agent.
   • Agency by Necessity: When an emergency arises requiring immediate action to safeguard the principal’s property, and communication with the principal is impossible.
   • Agency by Cohabitation: Presumption that a wife has implied authority to pledge the husband’s credit for household domestic necessaries.
3. Agency by Ratification: Subsequent adoption and confirmation of an unauthorized act performed by someone purporting to act as an agent.
4. Agency by Operation of Law: Arising automatically by legal status (e.g., partners in a partnership firm, promoters of a company).

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3. Termination of Agency

A. Termination by Acts of the Parties

• Revocation by the Principal: The principal may revoke authority before it is exercised, subject to reasonable notice.
• Renunciation by the Agent: The agent may abandon authority upon giving reasonable notice.
• Mutual Agreement: Mutual consent to bring the agency relationship to a close.

B. Termination by Operation of Law

• Completion of the Business: When the specific purpose or venture for which agency was formed is accomplished.
• Expiry of Term: Expiration of fixed duration agreed upon.
• Death or Insanity: Death or mental incapacitation of either principal or agent.
• Insolvency: Adjudication of the principal as insolvent.
• Destruction of Subject Matter: When the commercial property forming the basis of agency is destroyed.

1. Difference between Sale and Agreement to Sell

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2. Implied Conditions in Sale of Goods

A Condition is a stipulation essential to the main purpose of the contract, the breach of which gives the aggrieved party the right to repudiate the contract and claim damages:

1. Condition as to Title: Implied condition that the seller has the right to sell the goods.
2. Sale by Description: Goods delivered must correspond with the commercial description.
3. Sale by Sample: Bulk must correspond with the sample in quality, and buyer must have reasonable opportunity to compare.
4. Condition as to Quality or Fitness: Implied when buyer informs seller of the specific purpose relying on the seller’s skill/judgment.
5. Condition as to Merchantability: Goods must be commercially saleable under the description.

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3. Implied Warranties in Sale of Goods

A Warranty is a stipulation collateral to the main purpose, the breach of which gives rise to a claim for damages, but not a right to reject goods:

1. Warranty of Quiet Possession: Buyer shall enjoy undisturbed possession of the purchased goods.
2. Freedom from Encumbrances: Goods are free from any charge or encumbrance in favor of a third party.
3. Disclosure of Dangerous Nature: Seller must warn buyer of known inherent dangerous properties of the goods.

1. Definition and Legal Characteristics of a Company

Under Section 2(a) of the Companies Act, 2063, a company means a company incorporated under the Act. Juridically, a company is an incorporated association which is an artificial legal person, having a distinct legal entity, perpetual succession, and a common seal (Salomon v. Salomon & Co. Ltd.).

Key Features:

• Separate Legal Entity
• Limited Liability of Shareholders
• Perpetual Succession
• Transferable Shares (in Public Limited Companies)
• Capacity to Sue and Be Sued

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2. Incorporation Procedure under Companies Act, 2063

                   Company Registration Steps in Nepal
                                    |
                    1. Name Reservation (OCR Online)
                                    |
               2. Drafting MoA, AoA & Promoters' Agreement
                                    |
          3. Submission of Application to Office of Company Registrar
                                    |
           4. Verification and Payment of Statutory Registration Fee
                                    |
             5. Issuance of Certificate of Incorporation
                                    |
     6. Post-incorporation Formalities (PAN/VAT, Bank, Business Start)

Step 1: Application for Name Approval

Promoters submit an online application via the Office of Company Registrar (OCR) web portal proposing 1 to 3 distinct names. The registrar verifies that the name is not identical or deceptively similar to existing registered companies.

Step 2: Preparation of Core Constitutional Documents

1. Memorandum of Association (MoA - Prabandha Patra): Defines objectives, authorized capital, share structures, and liability.
2. Articles of Association (AoA - Niyamawali): Contains internal regulations, rules for board meetings, share transfers, and governance.
3. Promoters’ Agreement: Mandatory where promoters agree to specific covenants.

Step 3: Formal Submission to OCR

Under Section 4 and 5, an application is submitted along with:

• Approved name reservation slip.
• Two physical/notarized copies of MoA and AoA signed by all promoters.
• Attested copies of Citizenship Certificates (or passports/incorporation documents for foreign entities).
• Consent of proposed directors and authorization letters.

Step 4: Verification and Registration Fee

The Registrar examines documents within 15 days. Upon satisfying legal requirements and receiving the statutory capital-based registration fees, registration is completed.

Step 5: Issuance of Certificate of Incorporation

Under Section 5(2), the OCR issues the formal Certificate of Incorporation. From this date, the company comes into legal existence as a corporate body.

Step 6: Post-Incorporation Compliances

• Permanent Account Number (PAN/VAT) registration at Inland Revenue Department (IRD).
• Corporate bank account opening and capital deposit.
• Commencement of Business Approval (for Public Limited Companies under Section 63).

1. Conceptual Foundation of Quasi-Contract

A Quasi-Contract is not an actual contract created by mutual agreement or offer and acceptance, but a legal obligation imposed by law in the absence of an agreement to prevent unjust enrichment.

Theoretical Foundation (Doctrine of Unjust Enrichment): Propounded by Lord Mansfield in Moses v. Macferlan (1760): "No person shall be allowed to enrich himself unjustly at the expense of another." The obligation is founded upon equity, natural justice, and moral restitution rather than consensual intent.

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2. Distinction between Contract and Quasi-Contract

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3. Relations Resembling Contractual Obligations under Muluki Dewani Samhita, 2074

                  Types of Quasi-Contractual Relations
                                    |
   +--------------------+-----------+------------+--------------------+
   |                    |                        |                    |
Claim for           Payment by an           Obligation of          Finder of
Necessaries         Interested Party       Non-Gratuitous Act        Goods
   |                                                                  |
   +--------------------------- Money Paid by Mistake ----------------+

1. Claim for Necessaries Supplied to Incapable Persons (Section 524)

• When a person incapable of entering into a contract (such as a minor or lunatic) or their legal dependents are supplied by another with necessaries suited to their condition in life, the supplier is entitled to reimbursement from the property of such incapable person.
• The person is not personally liable; only their estate can be attached.

2. Reimbursement of Person Paying Money Due by Another (Interested Party)

• A person who has a genuine financial interest in the payment of money which another is legally bound to pay, and who therefore pays it, is entitled to be reimbursed by the other.
• Example: A tenant pays local property tax arrears to avoid wrongful seizure of rented premises by municipal authorities; the tenant can lawfully deduct the amount from future rent.

3. Obligation of Person Enjoying Benefit of Non-Gratuitous Act

• Where a person lawfully does anything for another person, or delivers anything to them, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the beneficiary is bound to make compensation or restore the thing delivered.
• Example: A logistics delivery agent mistakenly drops off commercial goods at Merchant B’s warehouse. Merchant B sells the goods treating them as stock; Merchant B must compensate Merchant A.

4. Responsibility of Finder of Lost Goods

• A person who finds goods belonging to another and takes them into custody is subject to the same responsibility as a bailee.
• Rights & Duties:
  • Must take reasonable care of the goods as an owner of ordinary prudence.
  • Must make reasonable efforts to trace the true owner.
  • Has a lien for necessary preservation expenses.
  • May sell the goods if they are perishable or when lawful expenses equal or exceed two-thirds of the goods’ value.

5. Liability of Person to Whom Money is Paid by Mistake or Coercion

• A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.
• Example: An account holder mistakenly inputs the wrong IBAN/account number during an online interbank transfer. The recipient cannot retain the funds and must return the principal sum upon discovery.

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4. Critical Analysis in Nepalese Commercial Context

The statutory incorporation of quasi-contractual remedies under the Muluki Dewani Samhita, 2074 bridges gaps in formal commercial agreements. With rapid growth in electronic payments (ConnectIPS, QR merchants) and supply chain logistics in Nepal, quasi-contractual doctrines ensure commercial honesty, safeguard vulnerable parties, and provide speedy legal remedies against wrongful retention of assets without requiring cumbersome formal contracts.

1. Distinction: Independent Contractor vs Servant (Master-Servant Relationship)

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2. Definition and Characteristics of Bailment

Under Section 545 of the Muluki Dewani Samhita, 2074, a Bailment is the delivery of goods by one person (Bailor) to another (Bailee) for some specific purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the bailor.

Key Requisites:

1. Delivery of possession of movable goods (actual or constructive).
2. Retention of ownership by the bailor.
3. Delivery for a specific purpose.
4. Obligation to return the identical goods or dispose of them as instructed.

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3. Rights and Duties of Bailee

A. Duties of Bailee

1. Duty to take Reasonable Care (Section 547): The bailee is bound to take as much care of the goods bailed as a man of ordinary prudence would take of his own goods of similar value and quality under similar circumstances.
2. Duty not to make Unauthorized Use: If the bailee uses the bailed goods for a purpose inconsistent with the bailment agreement, the bailee is liable for all damages, even if arising from inevitable accident.
3. Duty not to Mix Goods: The bailee must not mix the bailor’s goods with their own goods without consent. If mixed without consent and separation is impossible, bailee must compensate for the loss.
4. Duty to Return Goods: The bailee must return or deliver the goods according to the bailor’s directions without demand upon expiration of the period or fulfillment of purpose.
5. Duty to Deliver Accretion (Natural Increase): The bailee must deliver to the bailor any natural profit or increase that has accrued from the bailed goods (e.g., a cow giving birth to a calf during the bailment period).

B. Rights of Bailee

1. Right to Recover Necessary Expenses: In gratuitous bailment, the bailee can recover reasonable preservation expenses incurred.
2. Right to Lien:
   • Particular Lien: Right to retain the specific goods until lawful charges for labor, skill, or service expended upon them are paid (e.g., watchmaker retaining a repaired watch).
   • General Lien: Right of bankers, factors, and advocates to retain any goods as security for a general balance of account.
3. Right to Sue Wrongdoers: If a third person wrongfully deprives the bailee of possession or damages the goods, the bailee has the right to bring an action against that third person.

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4. Rights and Duties of Bailor

A. Duties of Bailor

1. Duty to Disclose Faults in Goods: The bailor must disclose known material defects in the goods. In non-gratuitous bailments, bailor is liable whether aware of the fault or not.
2. Duty to Reimburse Extraordinary Expenses: The bailor must repay extraordinary expenses incurred by the bailee for preserving the property.
3. Duty to Indemnify Bailee: The bailor must indemnify the bailee for any losses sustained due to defective title of the bailor.
4. Duty to Receive Back Goods: The bailor must accept the goods when tendered at the end of the bailment term.

B. Rights of Bailor

1. Right to Terminate Bailment: Bailor may terminate bailment if bailee does any act inconsistent with the bailment conditions.
2. Right to Claim Compensation: Right to sue for damages caused by negligence, default, or wrongful retention by the bailee.

Analysis of Practical Legal Case Studies

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Case A: Contract Formation and Counter-Offer

1. Issue

Whether an offeree who has rejected an original offer by making a counter-offer can subsequently revive and accept the original offer to form a binding contract.

2. Relevant Legal Provisions and Principles

• Under Section 504 and 505 of the Muluki Dewani Samhita, 2074, an acceptance must be absolute, unconditional, and unqualified (consensus ad idem).
• Doctrine of Counter-Offer: When an offeree introduces a variation, qualification, or price reduction to the original offer, it operates as a counter-offer.
• Legal Effect of Counter-Offer: A counter-offer operates as an automatic rejection and destruction of the original offer (Hyde v. Wrench, 1840). Once destroyed, the original offer cannot be subsequently accepted unless renewed by the offeror.

3. Application to Facts

• A offered to sell land for Rs. 5,000,000.
• B’s response agreeing to buy at Rs. 4,500,000 was a counter-offer, which extinguished A’s original offer.
• When B later sent a letter agreeing to pay Rs. 5,000,000, this was not an acceptance; rather, it constituted a fresh offer made by B to A.
• A has complete liberty to accept or reject this new offer.

4. Conclusion & Legal Advice to A

A is not legally bound to sell the land to B. A may lawfully refuse to sell without incurring any contractual liability.

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Case B: Termination of Agency and Apparent Authority

1. Issue

Whether a third party who deals in good faith without notice with a dismissed agent can enforce the contract against the principal under the doctrine of apparent/ostensible authority.

2. Relevant Legal Provisions and Principles

• Under Section 572 of the Muluki Dewani Samhita, 2074, the termination of the authority of an agent does not take effect against third parties until it becomes known to them.
• Doctrine of Holding Out and Ostensible Authority: When a principal has historically held out a person as an authorized agent, the principal remains bound by transactions entered into by that agent with third parties acting in good faith who have not received actual or constructive notice of revocation.

3. Application to Facts

• X was historically the authorized purchasing officer of the company.
• Y Grain Suppliers had regular commercial dealings with X as the company’s purchasing representative.
• The company dismissed X privately but failed to issue public notice or direct notice to active suppliers like Y.
• Y supplied 200 bags of rice on credit in good faith, relying upon X’s apparent authority.

4. Conclusion & Legal Advice to Y

Yes, the company is legally bound to pay Y Grain Suppliers for the 200 bags of rice. The company is liable under the doctrine of holding out because the revocation of X’s agency was never communicated to Y. The company may, however, initiate separate legal proceedings against X for fraud and recovery of damages.