Assignment of Business Law

Chapter 1
Introduction to Law
Brief Answer Questions
1) Define law with example.

Ans : Law is defined as a set of rules of conduct established by government for all members of society to
obey and follow. For example: juvenile law, road rules, civil law wtc.

2) Mention the characteristics of law

Ans: The characteristics of law are as follows

 Equality
 Changeable
 Promulgation of law

3) Mention the types of law.

Ans: The types of law are mentioned below:

 Civil and criminal law

 National and international law
 Substantive and procedural law
 Public and private law

Descriptive Answer Questions

1) What is law? Define the different perceptions about law with suitable example.

Ans: Law is a set of rules of conduct established by government for all members of society to obey and
follow. For example: juvenile law, law about marriages, road rules, etc.

The different perceptions about law are as follows:

 Individuals says, a set of rules or police is law,

 Practitioner lawyers may say law is a vocation,
 Legislator claims that law is something created by him,
 Judges say that law is the guiding principle,
 Business owner or professional says that law is the regulator of protector of trade.

Due to these vary perception; the definition of law is not uniform because law is not static. Definition of
law varies from person to person and time to time. There are so many laws. Among them civil law,
criminal law, mercantile law, industrial law, cyber law, air and space law, etc. are the example of these
vary laws.

2) Explain the sources of business law.

Ans: In Nepal, there are various sources of business law. Some of them are explained below:

a) Tradition, custom and usages: In ancient period of time, people use various ways to trade the
things. For example: barter system. There is uniqueness in traditional ways of trading of goods,
e.g. trading with Tibetan people for this reason tradition, custom and usages plays important
role in the development of business law.
b) Law made by parliament: Parliament makes or enacts that law which enhance or promotes the
business. It will also amend or repeal those laws that are not necessary. In other words,
legislation is the main source of law. Law made by the legislative body and enforced upon public
by sovereign although in the country is called the statutory law. This law is recognized by the
courts as the major source of law. In democratic country, there is a legislative body which is
entitled and reportable to make laws for different activities.
c) Precedent: It is earlier decision of the supreme court which can be used in the later case of
similar nature. The court while deciding the disputes may put forward some interpretation of
law of decide some dispute fact by applying rational principles that could be used in the similar
nature of case.
d) Treaties and Agreement relating to business: Bilateral or Multilateral Agreement or treaties are
another important source of business law. WTO, SAFTA are the example of the agreement which
have great impact upon the business law.
e) Laws of other countries: British mercantile law is considered as the source of Nepalese business
law. It is recognized all over the world that England was the first country to develop its market
economy in the world, it is because of number of favorable law that was enacted by England for
its industry.

Comprehensive Answer Question

1) Illustrate the hierarchy of Nepalese System and explain the jurisdiction of Supreme Court, High
Court and District Court respectively.

Ans: The constitution provides three tiers of courts which include the Supreme Court, High Court (Court
of Appeal) and the District Courts. In addition, judicial bodies may be formed at the local level to try
cases under municipal law or other bodies as required to pursue alternative dispute settlement
methods. There is no distinction between the criminal and civil court other than some basic procedures.

a) Supreme Court: According to the article 133 of the Nepalese Constitution provides for the
Jurisdiction of the Supreme Court. Supreme Court shall have an extra-ordinary power to declare
that law to be void either ab initio or from the date of its decision if the law appears to be so
inconsistent [Article 133 (1), The Constitution of Nepal, 2015].
The Supreme Court shall, for the enforcement of the fundamental rights conferred by the
constitution or of any other legal right for which no other remedy has been provided or for
which the remedy even though provided appears to be inadequate or ineffective or for the
settlement of any constitutional or legal question involved in any dispute of public interest or
 concern, have the extra-ordinary power to issue necessary and appropriate orders, provide
appropriate remedies, enforce such right or settle such dispute [Article 133(2), The Constitution
of Nepal, 2015].
The Supreme Court has both judicial and extra judicial powers. Under the extra-ordinary
jurisdiction, the Supreme Court may issue appropriate orders and writs including the writs of
habeas corpus, mandamus, certiorari prohibition and quo warranto [Article 133(3), The
Constitution of Nepal ,2015].
Subject to this Constitution, the Supreme Court shall, as provided in a Federal law, have the
power to originally try and settle cases, hear appeals, test judgements referred for confirmation,
revise cases, hear petitions or review its judgements or final orders, Judges other than those
having handed down the previous judgement shall make such review [Article (133(4), The
Constitution of Nepal, 2015].
b) High Court: According to the article 144 of Nepalese Constitution, the court of appeal is
empowered to hear appeals against the judgement delivered by the District Courts and various
quasi-judicial bodies, issue the writs of Habeas Corpus and Mandamus in the cases of violation
of civil rights of individual and try certain cases under their respective jurisdiction. Similarly, the
court may issue an order of injunction for this purpose. The court of Appeal has the power to try
certain cases as specified by law and to try cases transferred by the Supreme Court (from among
the cases filed in the District Courts) taking into consideration the complexity of the issue, or to
provide speedier justice in prolonged disputes.
c) District Court: According to the article 151 of Nepalese Constitution, the district courts are
responsible for trying all the civil and criminal cases Section 7 of the Administration of Justice
Act of 1991 has empowered the District Courts to try all the cases under shall their respective
jurisdiction. District Court shall have the power to originally try and settle all cases under its
jurisdiction, to try petitions under law, including petition of habeas corpus and prohibition, hear
appeals under law from decisions made by quasi-judicial bodies, hear appeals from decisions
made by Local level judicial bodies formed under the State law, institute contempt proceedings
and punish for contempt under the Federal law if anyone makes obstruction in the dispensation
of justice by, or disregards any order or judgement by, it or any of its subordinate courts.

2) Distinguish between substantive and procedural law.

Ans: The distinguition between substantive law and procedural law are as follows

Substantive law Procedural law

It deals with the rights, duties and liabilities. It deals with the process of remedy.

It has only prospective effect. It has a retrospective effect

This is a doctrinal or major part of law. This is supplementary part of substantive law.

It regulates only relation between the parties of the It regulates the relationship between parties and
case. parties and the court.

It defines human conducts a crime. It deals about to prove the crime.

It determines the amount of punishment. It determines the method to impose the

 punishment.

It is supreme in conflict with procedural law. It is not supreme in conflict with substantive law.

Chapter 2
Nepalese Contract Law
Brief Answer Question [ 5*2=10]
1) Define contract.

Ans: Contract is defined as an agreement between two or more parties to do or not to do something.

2) What is an agreement?

Ans: An agreement is a manifestation of mutual assent by two or more persons to one another. It is a
meeting of the minds in common intention and is made through offer and acceptance.

3) Who can accept the offer?

Ans: Offer can only be accepted by the person it was made to. No third person without the knowledge of
the offeree can accept the offer.

4) Mention the meaning of Roman Maxim ‘ex mudo non oritur action.’

Ans: The meaning of Roman Maxim ‘ex mudo non oritur action’ means ‘no consideration no contract.’

5) What are the factors that hamper the free consent of contracting parties?

Ans: The factors that hamper the free consent of contracting parties are:

 Coercion
 Undue influence
 Misrepresentation
 Fraud
 Mistake

Descriptive Answer Question [ 5*10=50]

1) Define consideration and explain the exceptions to the rule “No consideration no contract.”

Ans: Consideration is one of the essential elements of a valid contract. It is rightly said, when there is no
consideration, there is no contract. So, the consideration is necessary condition except some
expectations. Generally, without consideration no contract is regarded as valid. Therefore, it is said that
“no consideration no contract.” The principal of consideration is based on Roman Maxim ‘es mudo
nonoritur action.” It means, no pact come into action without consideration.
Generally, it is assumed that ‘no consideration no contract’ but there are some certain exceptions to this
rule. This exception provide validity to the contract without having consideration. Under such exceptions
even in the case where a contract does not carry consideration, the contract remains valid.

a. Natural love and affection

b. Past voluntary act or service
c. Contract to pay time barred debt
d. Gift
e. Agency
f. Charity
g. Agreement as specified by law.

2) Who is minor? Explain and mention rules regarding minor agreement.

Ans: Minor is a child, it refers an infant person who has not attained certain age as specified by law for
certain purpose. Minority is a stage, where a person has not attained the age of majority. Age bar to
become a major differs from country to country according to their respective rules and regulation. In
Nepal, the age of majority is 20 years to the both bride and bridegroom for marriage. For this purpose of
contract, Sec.2(e) of Muluki Civil Code,2074 expressly provides that a minor is a person who has not
completed the age of 18 years.

There are certain rules regarding the agreement with the minors, they are:

 An agreement with or by a minor is void.

 A contract which is beneficial to minor is not void.
 Rules regarding compensation and restitution.
 A contract once declared void is void forever.
 Minor can be made partner.
 Minor can be an agent.
 Minor can be shareholder.
 Minor cannot be declared insolvent.

3) Define contract of guarantee and explain its types.

Ans: The contract of guarantee refers to the contract between three parties namely surety, principal
debtor and creditor. Thus, the contract of guarantee is called three party contract.

The types of guarantee are explained below:

 Prospective and retrospective guarantees:

The guarantee is given for future transaction between principal debtor and
creditor that may be one or more transactions, then it is called prospective guarantee. If the
guarantee is given for past and present transaction between principal debtor and creditor, then
it is called retrospective guarantee.
 Limited and unlimited guarantees:
 If the guarantee given by the surety is for limited time, money and liability,
then it is called limited guarantee. While if the guarantee given by the surety is for unlimited
time, money and liabilities, then it is called unlimited guarantee.
 General and special guarantee:

Guarantee that can be accepted by the general public is called general

guarantee and the guarantee that can be accepted only by the particular person is a special
guarantee.

 Absolute and conditional guarantee:

If a person gives guarantee to perform the contract unconditionally upon
the failure of performance by the principal debtor, then it is called absolute guarantee. If a
person gives guarantee to perform the contract upon the failure of performance by the principal
debtor by giving some condition, then it is called conditional guarantee.
 Specific and continuing guarantee:
When the guarantee is given by the surety cover as a single transaction
between principal debtor and creditor it is called specific guarantee. Such a guarantee comes to
an end when the transaction stops or discharged or the promise is duty performed. When the
guarantee given by the surety continues for a series of transaction between principal debtor and
creditor, it is called continuing guarantee. Such type of guarantee is of prospective nature in its
operation.

4) What do you mean by finder of lost goods? Write down its rights and duties.

Ans: When a person finds some goods lost by another and take them into his custody, it is said to be the
finder of lost goods. It indicates that an innocent person who find the goods lost by others.

Rights of the finder of lost goods:

 Right to possession.
 Right to compensation but no right to sue for compensation.
 Right to sue for the reward.
 Right to sell the goods.

Duties of the finder of lost goods:

 To try to find out the true owner of goods.

 To return the goods to the true owner after he is find out.
 To take proper care of goods until the true owner is find out.
 Not to mix the goods found with own goods.
 Not to treat the goods as his own.

5) Distinguish between Bailment and pledge.

Ans:
 BAILMENT PLEDGE

When the goods are temporarily handed over When the goods are delivered to act as security
from one person to another person for a against the debt owed by one person to another
specific purpose, it is known as bailment. person, it is known as the pledge.

Section 148 of the Indian Contract Act, 1872. Section 172 of the Indian Contract Act, 1872.

The person who delivers the goods is known as The person who delivers the goods is known as
the Bailor while the person to whom the goods Pawnor while the person to whom the goods are
are delivered is known as Bailee. delivered is known as Pawnee.

May or may not be present. Always present.

The party whom goods are being delivered has The party whom goods are being delivered as
no right to sell the goods. security has the right to sell the goods if the party
who delivers the goods fails to pay the debt.

The party whom goods are being delivered can The party whom goods are being delivered has no
use the goods only, for the specified purpose. right to use the goods.

Safe keeping or repairs, etc. As security against payment of debt.

Comprehensive Answer Question [5*15=75]

1) Define the term Contract. Explain the classification of contract on the basis of validity.

Ans: Contract is defined as an agreement between two or more parties to do or not to do something
and it is legally enforceable.

Contract can be classified on different bases into various types.A particular contract may be classified
differently on a different basis. On the basis of validity,there are six types of contract. They are:

 Valid contract: A valid contract is a contract that comprises the all necessary elements to be a
valid one. In this contract, no one can find any lacking and it is absolutely enforceable by a court
of law. For example: A offers to B to sell his car to B by receiving Rs. 2000000/- from B. B accepts
the offer. It is a valid contract.
 Voidable contract: Voidable contract is relating to the free consent of the contracting party
which is one of the essential elements of a valid contract. Free consent means the voluntary
consent of a party which is not caused by any one or more of the coercion, undue influence,
fraud, misrepresentation or mistake. A contract formulated without free consent is known as a
 voidable contract. For example: if A obtains acceptance from B by coercion to sell his car to B for
Rs. 2000000/-. In this case, B has the right to convert this contract as void or valid. If he takes
legal action against the contract, it becomes void otherwise, after the expiry of the limitation, it
remains valid.
 Void contract: A contract that loses its enforceability is known as a void contract. At the time of
formation, it may be valid but later on, it becomes void due to a change in law or
circumstance.For example: A and B enter into a contract that A provides Rs. 50000/- to B for
receiving water to make his house from the B’s well. Later on, B’s well become dry and he was
unable to supply water to A. In this case, the contract is regarded as voiddue to a change in
circumstance.
 Void Agreement: The agreement, which is not enforceable by law, is known as void agreement.
It is void ab initio (from the time of formation). It is not possible to change into a valid one. It
never exist in the viewpoint of law and it cannot create rights and obligations for the parties.
 Illegal Agreement: If an agreement is found by incorporating illegal or restricted work it is known
as illegal agreement. An illegal argument is that agreement that consists of illegal work under it
and is regarded as void ab initio. For example: A provides Rs. 20000/- to B for beating C. Here,
the act to beat C is illegal and the agreement is invalid.
 Unenforceable Contract: Apart from all necessary elements of a contract, the legal formalities
are essential for enforcing a contract by the court. Although a contract has fulfilled all necessary
conditions but if it has not fulfilled some procedural or technical requirement then it is regarded
as an unenforceable contract. For example: A and B make a contract for selling A’s house to B
for Rs. 2000000/-. But they do not register the contract document in the land Revenue Office as
prescribed by law. This becomes an unenforceable contract.

2) Define offer and acceptance with its rules.

Ans: Offer is the first important element of a valid contract, we know that for making an agreement,
there must be at least two parties so, when one party puts a proposal to the other party with a hope of
getting assent from the other party, then such proposal is regarded as offer, so if the offer is made
without the hope of getting assent from the other, it will not be regarded as a valid offer. According to
the explanation of section 504(3)(1)of the Civil Code, 2074 “Offer means an offer made by one person to
another person with the intent of obtaining his or her acceptance to do or abstain from doing any act.”

Rules regarding offer are as follows:

 Express and implied offer

 Positive or negative offer
 Clarity and certainty
 Conditional and unconditional
 Must be communicated
 Specific or general officer
 Invitation to offer is not an offer

Acceptance is an equally important essential to form a valid contract as an offer. It is a reaction to the
offer. The term ‘acceptance’ means assent or consent or an affirmative answer to an offer. An act of
expressing assent to the offer by the party to whom it is made is called an acceptance. It is the
expression of willingness of the offeree party to be bound by the terms and conditions incorporated in
the offer.

Rules regarding acceptance are as follows:

 Express or implied acceptance

 Acceptance must be given only by the person to whom and offer is made
 Acceptance must be absolute and unconditional
 Knowledge of offer
 Mode of acceptance must be as prescribed
 Acceptance must be communicated
 Acceptance must be given within a fixed time or reasonable time
 Acceptance must be given after receiving the offer
 Once an offer rejected by the offeree can be accepted later
 Acceptance must be given before the lapse of the offer

3) What do you mean by free consent. Describe the conditions that affect the free consent.

Ans: Free consent is one of the necessary elements of a valid contract. For a contract to be valid, both of
parties involved in the contract must have given their consent freely according to their full desire, own
will and conscience. So, if a person makes a contract under the undue pressure of other, it becomes
voidable. Consent means desire or will of person to do or not to do something. A person is said to be
consent, if he agrees upon the proposal in the same sense put to him by the other. So, if a person gives
his consent according to his own will and full desire uncaused by coercion, undue influence,
misrepresentation and fraud or mistake, it is said to be free consent.

Free consent is caused by the following points:

 Coercion: Coercion means to force or threaten someone to do or not to do something against

someone's own will and full desire. The person who are caused coercion has to do the things
because of the fear of the threatening. In other word, coercion denotes a situation under which
a person is compelled to do or not to do something as against his willingness or judgement. The
agreement made by coercion is voidable at the option of the party whose consent is so caused.
 Undue influence: Undue influence is a voidable contract. If a party enters into a contract under
any kind of influence, mental pressure or persuasion, which prevent such party from exercising a
free and independent decision, is known as undue influence.
 Misrepresentation: Misrepresentation is one of the factors that affect the free consent of the
contracting parties. A misrepresentation is a representation that is untrue in reality. Innocent
misrepresentation is a misstatement made by a party innocently and with an honest belief as to
its truth. Thus, misrepresentation is a false statement made by a person innocently without any
intention of deceiving(misleading) the other party but it is not true in reality and the person who
makes it, does not know about its truth.
 Fraud: It is a willful misrepresentation made by a party with an intent to deceive another party
through inducing such party into the contract believing that a thing is true which is untrue or
false in reality. A fraud is an untrue statement made knowingly, or without belief in its truth, or
recklessly, carelessly whether it be true or false.
  Mistake: Mistake is a wrong conception of something. Relying on such false conception as to the
subject matter of contract if parties enter into a contract that is a mistake.

4) Explain performance of contract and termination of contract.

Ans: A contract is formed for fulfillment of the obligation not to breach. The contract is performed when
both the parties do what they had agreed to do in contract. This is called the performance of obligation
by its parties. When both the parties have performed their respective application the contract is said to
be discharged by performance. In other words, performance is the fulfillment of respective promises by
the concerned parties on a matter as designed in the contract without making any variation in its terms
and conditions is called performance or execution of contracts.

There are two types of performance of contract. They are:

 Actual performance (as per actual mentioned in contract)

 Attempt of tender of performance
(i) tender of goods or service
(ii) tender of money.

There are many importance of performance of contract. Some of them are:

 Performance promotes the good relationship between the parties.

 The good performance encourages the parties to further transaction.
 Both the parties feel greater profit and lesser loss from the consequences of performance.
 The parties have no further risk of disputing and invoking remedies.
 Both the parties are standing in winning position since get what they want.
 The performance opens the furtheropportunity of exploring new areas of transactions.
 The purpose of making contract is fulfilled by the performance as expectations and nothing
remain to do between its parties.

The termination of contract: We know that a contract creates legal relationship between the contracting
parties with some rights and obligations. The parties remain liable under the contract until it comes into
an end. The contractual relationship is terminated when the rights and obligations arising out of such
relationship. The termination of the contractual relationship is called discharge of contract.

There are various modes of termination of contract. They are:

 Termination of contract by performance

 Termination of contract by mutual consent/agreement
 Termination of contract by laps of time
 Termination of contract by operation of law
 Termination of contract by impossibility of performance
 Termination of contract by breach.

5) Write down the meaning and remedies of breach of contract.

Ans: Generally, a contract is formed for the fulfillment of its terms and conditions but all contracts are
not fulfilled by its parties. This non-fulfillment of respective contractual obligations by its parties on the
stipulated date, time and manner is known as breach of contract. In other word, when any party fails to
fulfill or refuse to fulfill the contractual obligation within prescribed or reasonable time or manner it is
the state of breach of contract.

The remedies of breach of contract are:

In general sense contract is a private law made and applicable by the contracting parties. The minimum
condition of the contract must be made accordance with law. It means contract create legal obligation
between the parties. When the terms of contract breach by one party then the aggrieved party can
enjoy the following legal remedies mentioned in the Muluki Civil Code, 2074:

 Right to rescission/cancel of the contract (sec.535.2)

 Right to claim compensation (sec.537.1-3)
a) If actual loss: The same amount of actual loss.
b) If mentioned in contract: The same amount mentioned in contract.
c) If no mentioned in contract: The reasonable amount suffered by him.
 Right to sue for usual performance (sec.540)
 Right to sue for injunction (sec. 541.1-3)
 Right to claim for quantum meruit

Chapter 3
Sale of Goods
Brief Answer Question [3*2=6]
1) Define the contract of sale of goods.

Ans: Contract of sale of goods means a contract under which a party sells or agrees to sell his goods to
the other party for price and the other party agrees to pay money as the price for the goods purchased
to the former party.

2) Define condition

Ans: Condition is a requirement or limitation involved in a contract, trust, law or other legally recognized
document that changes the rights and duties of those involved.

3) Mention in brief about the doctrine of caveat emptor.

Ans: The phase of doctrine of caveat emptor is a Latin word and reflects for “Let the buyer beware” in
English glossary.

Descriptive Answer Question [3*5=15]

1 )Define the meaning and features of contract of sale of goods.

Ans: Contract of sale of goods is defined as a contract under which a party sells or agrees to sell his
goods to the other party for price and the other party agrees to pay money as the price for the goods
purchased to the former party. In other words, sale of goods refers to the transfer of ownership of
goods against a price from one person to another.
The features of contract of sale of goods are as follows:

a) Buyers: Buyer is a person who agrees to purchase the goods offered by the seller or buyer is the
one whom the ownership of goods is transferred.
b) Seller: Seller is a person who agrees to sell the goods to the buyer or seller is the one who
agrees to transfer his ownership of goods.
c) Goods: Goods refer to the movable property which can be easily purchased and sold. This
means immovable property is not included under goods because they cannot be easily
separable.
d) Money: Money refers to the legal tender and it is not considered as goods. It is only a means to
buy and sell the goods.

2) What are the types of goods?

Ans: Goods can be classified into three types as regard to the sale point of view. They are:

a) Existing goods:
Existing goods are those goods which are already in existence and physically exist in
same person’s possessions and ownership. Thus, existing goods must be in existence at the
time of purchase and sale of goods and must be delivered immediately.
 Specific goods:
Specific goods are those goods which can be clearly identified and recognized as
separate things. For example: a particular furniture, photos of a person, etc.
 General goods:
General goods are those goods which can be indicated only by description and
cannot be identified as separate things. For example: if a person agrees to save a bag
of rice from his farm to a buyer, it is the sale of general goods because it is not certain
which bag will be delivered for sale.
b) Future goods:
The goods which are not in existence at the time of contract or sale, but will be
acquired, purchased or manufactured by the seller at a later date after making the contract of
sale is known as future goods.
c) Contingent goods:
Contingent goods are those goods which are not in existence at the time of contract of
sale and even after making the contract, it is not certain that the seller will acquire, produce or
manufacture the goods.

3) Who is unpaid seller? Describe about suits of breach of contract.

Ans: When the seller does not get the whole payment from the buyer on the stipulated date or if the
negotiable instrument received for payment is dishonored the seller is called an unpaid seller. Unpaid
seller arises only in credit sells.

Suits of breach of contract

If the goods has been already received by the buyers and the payment has not been made,
the seller enjoy the following rights against the buyer.
 1. Right to suit for price:
If the goods are already passed to the buyer but the buyer neglects to pay for the price,
the seller can sue the buyer in the law court for receiving the price. The seller can even enjoy
the rights if the goods are still in his possession.
2. Right to suit for damages
If the buyer refuses to accept the goods, the seller can file a suit in the court to law to
recover the damages caused to the seller due to the out of buyer.
3. Right to suit for interest
If the buyer file to make payment on the date prescribed. In the contract, the seller can
claim interest at a reasonable sale for the time delayed.

Comprehensive Answer Question [3*15=45]

1) Define contract of guarantee. Describe the rights and duties/ liabilities of surety.

Ans: Contract of guarantee is a contract to perform the promise, or discharge the liability of a third
person in case of his default. In another words, it means a contract of taking responsibility to another
person in his default to perform the promise.

Rights of surety

A surety has certain rights against the creditor principal debtor and co-sureties. These are given
below:

A. Surety’s rights against creditor

 Right to benefit of creditor’s security
The security entitled to demand from the creditor, at the time of payment, all the
securities that the creditor has against the principal debtor at the time when the contract of
suretyship was entered into or subsequently acquired.
 Right to claim set off, if any
Set-off refers to a counter claim or deduction from the amount of loan. The surety
is also entitled to the benefit of any set off or counter claim, which the principal debtor might
posses against the creditor in respect of the same transaction.
B. Surety’s right against the principal debtor:
 Right to subrogation
Subrogation means supersede. The surety has the right to be placed in the seat
of the creditor. When the surety pays off the debt on default of the principal debtor, he
invested with all the right that the creditor had against the principal debtor.
 Right to claim indemnity
In every contract of guarantee there is an implied promise by the principal
debtor to indemnify the surety, and the surety is entitled to recover from the principal
debtor whatever sum he has rightfully pain under the guarantee, but no sums which he
had paid wrongfully.
C. Surety’s right against the co-sureties
Where a debt is guaranteed by more than one surety, they are called co-sureties. In such
a case all the co-sureties are liable to contribute towards the payment of the guaranteed debt as
per agreement among them.
 Duties and liabilities of surety

The nature of liability of a surety according to the contract of guarantee is given below:

 Primary or co-extensive nature of liability

The liability of the surety is secondary and co-extensive with that of the
principal debtor unless it is otherwise provided by the contract. In general terms the
quantum of the obligation of a surety will neither be more nor less than that of the
principal debtor.
 Secondary and contingent nature of liability
The liability of the surety is liable only when the principal debtor fails to fulfill a
promise made to the creditor.
 Limited nature of liability
When a security and guarantee both are given as a consideration for the debt
or liability, the surety will not be liable to the extent of the security.

2) Explain condition and warranty. Differentiate between them.

Ans: Condition and warranty plays an important role in the contract of sale, before performing the
contract, the parties involved in the contract should fulfill these conditions and warranties without
fulfilling these things, the contract is impossible to be performed.

Condition: Conditions are the factors as stipulation of the contract of sale contract. In every contract,
there is contract either expressed or implied. It is important for the existence of contract condition
cannot bebreached by a party and if it is breached by a party the other parties will enjoy a right to claim
for damage. For example: A motorbike sells 100cc bike with an announcement of 125 cc power to its
customer. Thus, it is a breach of contract and it can be repudiate by the aggreived party.

Warranty: Warranty is also the stipulation of the contract of sale but it is secondary to the main purpose
of the contract. If a party breaches the warranty, the aggrieved party can only claim for the damages but
he neither can reject the goods nor can reputed the contract. Warranty is necessary but not urgent.
Hence, for the performance of contract, it is not urgent to fulfill the warranty. For example: A dealer of
PANDA electronics sells a 21” color TV to B with a warranty of the repairing the TV if it gets damage
within two years. After one year if it gets damaged he can claim for the damage but cannot reject the
goods and cannot repudiate the contract.

The difference between Condition and Warranty are as follows:

Condition Warranty

Condition is a fundamental nature Warranty is of a subsidiary of inferior character.

Condition is essential to the main purpose of the Warranty is only collateral to the main purpose of
contract. the contract.

If there is breach of condition, the aggrieved party In case of breach of warranty, the aggrieved party
can repudiate the contract. can claim damages only.

A breach of condition may be treated as a breach of A breach of warranty, however, cannot be treated
 warranty. This would happen where the aggrieved as a breach of condition.
party is contented with damages only.

3) Explain the term transfer of Ownership. What are the rules regarding transfer of ownership?

Ans: Transfer of ownership is the means by which the ownership of a property is transferred from one
hand to another. This includes the purchase of a property, assumption of mortgage debt, exchange of
possession of a property or any other land trust device. Whenever a seller sells his goods to the buyer,
his ownership of goods is transferred to the buyer. Indeed, the contract of sale is said to be performed
by only when the ownership of goods passes from seller to the buyer. Ownership and risks moves
simultaneously. It means whenever the ownership of goods is transferred from a seller to the buyer, risk
also pass at the same time.

There are certain rules regarding transfer of ownership. They are:

a) Transfer of ownership of specific or certain goods:Regarding the transfer of ownership of

specific or certain goods, following rules are applied:
 When there is a contract for the sale of specific goods which are in a deliverable state,
the ownership is transferred to the buyer at the time of contract. Time is not important
as for as the delivery and payment of price is concerned.
 When 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.
 When 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.
b) Transfer of ownership of general or uncertain goods: The goods which have not been
particularized but only described by name are called general or uncertain goods. This kind of
sale is not an actual sale. It is an agreement to sale. The transfer of ownership is not possible in
this situation. Only when the goods are certain after the act of deliverable state or a necessary
measurement then transfer of ownership will be actual.
c) Transfer of ownership after approval or acceptance of goods: When the goods are delivered on
the approval or acceptance of the goods by the buyer, then the transfer of ownership will be
regarded on the following circumstances:
 When a notice of acceptance is given by the buyer to the seller.
 When goods are received by the buyer.
 When the buyer acts in acceptance like sale of goods or pledge of goods.
 Whom the goods are stored as if they are as per the contract.

Chapter 4
Agency and business Organization
Brief Answer Question [3*2=6]
1) What do you mean by Agency?
Ans: Agency is a special nature of contract that governs the special relationship between the two parties
namely principal and agent.

2) What are the elements of Agency?

Ans: The elements of agency are as follows:

 Representation
 Appointment of agent
 Delegation of Authority
 Purpose of Appointment
 Contractual Capacity
 Consideration is not compulsory

3) Define termination of agency.

Ans: Termination of agency means bringing the relationship between a principal and an agent to an end.

Descriptive Answer Question [3*5=15]

1) Define the agency and explain the characteristics of agency.

Ans: Agency is a special nature of contract that governs the special relationship between the two parties
namely principal and agent.

The characteristics of agency are explained below:

a) Representation: The principal employs agent so that he can carry on the business by being
representative of the principal. Hence, the act performed by the agent represents the principal.
b) Appointment of agent: It means the power of attorney is handed over to the agent by principal.
It can be expressed or implied.
c) Purpose of appointment: It is established legal relationship between principal and agent and
third parties as well.
d) Delegation of authority: Simply asking or ordering an agent to perform a work does not
constitute the contract of agency. Instead the principal should delegate all his authority to the
person whom he employs as agent.

2) Differentiate between sub-agent and substituted agent.

Ans: The differences between sub-agent and substituted agent are as follows.

Sub-agent Substituted ag

A sub-agent is appointed by an agent based on necessity as per the custom of the trade or the nature A substituted a
of the agency. his principal.
 Sub-agent works under the control of the agent, he is the agent of original agent. He works unde

Only a part of the duties can be delegated to the sub-agent. The whole task

He has no independent power to work. He has depend

The agent is responsible to the agent, who appoints him. The substitute

He cannot be sued for goods in stock by the principal. He can be sued

3) Explain the personal responsibility or liability of agent.

Ans: Except otherwise mentioned in the contract the agent is personally liable towards his principal for
the transactions made by him in the following circumstances:

 If the agent concludes a contract with any third person.

 If the agent act on behalf of the principal not identified.
 In case the agent has signed the contract in his own name.
 In case the agent has performed his work beyond the terms of the contract or beyond his
authority.
 In case the agent has committed fraud or cheating in the course of transaction.
 In case the interest of agent is not matched in the business.
 If the agent has to be personally liable according to the nature of business.

Comprehensive Answer Question [3*15=45]

1) Define agency. Explain the modes of creating agency.

Ans: Agency is a special nature of contract that governs the special relationship between the two parties
namely principal and agent. An agency can be created by the modes of creating agency that are as
follows:

a) Agency by express agreement: Generally, the agency contract is created by the express
agreement between the agent and the principal. The agreement may be either in written form
or verbal form. If the agency is created by the express agreement, the rights, duties and
liabilities of both the agent and principal will be mentioned in the contract and to which both
the parties should follow. It meansthe power of attorney of the principal transferred to the
agent. As per the terms and condition of express agreement, there are three types of scope of
authority. They are:
 A general power of attorney: This authorized an agent all dealings as principal.
 A special power of attorney: This authorized an agent for specific transaction like sale
the house or borrowing loan.
  A particular power of attorney: This authorized an agent to submit any document to the
court or any single work has been completed.
b) Agency by implied agreement: Agency by implied agreement refers to the agency created either
by the conduct of the parties or by the relationship created between them. We can take
example of the agreement between a husband and his wife as a master and his servant. A wife
and a husband or a master and a servant are an implied agent each other. The various kinds of
agency come under this category. They are discussed below:
 Agency by estoppels: It is a legal doctrine which prevent the person from the denying
the fact. If a person by his words or conduct, induces other to believe that certain
person is his agent. Then the other person can continue contract with the person who
has been recognized as agent and this agency created in this way is called agency
created by appeals.
 Agency by holding out: Master is liable to servant’s work.
 Agency by necessity: Sometimes a person may be compelled to act on behalf of another
person without any express authority from the latter person. The contract created in
such a state is called contract of agency by necessity. There are four conditions for the
agency by necessity. They are:
i. The agent is not in a position to communicate with the principal or it is
impossible to get instruction from the principal.
ii. There must be actual necessity for the agents to act promptly.
iii. The agent must have taken all the reasonable and necessary steps to protect
the interest of the principal.
iv. The agent must have the act in bonafide a manner.

c) Agency by ratification: Ratification refers to the acceptance and adoption of at originally done by
a person without instruction or authority of other. This means when a person except the act of
other, who acted as his agent without the instruction and authority of the principal, the contract
of agency is said to be created by ratification. Following conditions should be presence at the
contract of ratification.
i. The principal must be in existence at the time when the contract is made.
ii. The agent must have given the identification of principal to the third person.
iii. The principal must be competent to the contract.
iv. The object and consideration of the contract must be lawful.
v. Ratification must be made within fixed or within a reasonable time.
vi. Ratification must be unconditional.
vii. Ratification must be communicated.
viii. Ratification must not injure the third party.

2) Describe about rights and duties of agent.

Ans: The rights of agent are described below:

 Right to claim reimbursement for expenses: While working on behalf of his principal, the agent
might incurred expenses. He can recover such expenditures from his principal. If he has received
 a sum from some third parties, he can remit it to his principal by deducting his share of
expenses; the principal cannot claim to remit all the sums from him.
 Right to receive remuneration: Since the agent always works for commission. After the
completion of the performance of contract, he enjoys the right to receive his share of
commission but he can claim remuneration only when he carries on the agency business in full.
 Right to indemnification against the consequences of all lawful acts: During the performance of
the contract, if the agentsuffers loss or damages, he enjoys that right to claim full compensation
from the principal for the loss or damage caused to him. But if he suffers loss because of his own
faults or mistake, he cannot indemnify such loss from the principle.
 Right to indemnification against the contract consequences of acts done in good faith: The agent
has a right to be indemnified against the consequences of the acts done in good faith.
 Right of particular lein: After the performance of contract if the agent didn't get his
remuneration, reimbursement of expenses and compensation of loss, than the agent has a right
to retain the property of the principal as long as he didn't get the sums receivable.
 Right to stoppage of goods in transit: An agent has a right to stop the goods in transit if he come
to know that the agent has become insolvent after he dispatch the goods to the agent which he
purchasewith his own money or by incurring his personal liability.

The duties of agent are discussed below:

 To follow the principal’s instructions: It is the first duty of agent to obey to the terms and
conditions of the contract and follow all the instructions of the principal in performing the
contract. If the agent performs his activities neglecting the principal’s instructions and loss
occurs as result, then the agent himself is held liable towards such loss.
 To act with diligence and skill: An agent has to act with reasonable care, diligence and skill.He
should take as much care to the principal’s work as to his own business. If in case due to his
negligence or carelessness the principal suffer loss, the agent will be held liable to pay
compensation to such loss.
 To send proper accounts: It is always necessary for the principal to know about how much of the
work has been undertaken by agent what sum of money agent has spent in respect to the
agency service and many more. Such matters can be revealed only through the account
maintained by the agent. Hence, the agent should supply such account to the principal as
whenever demanded by the principal.
 To communicate to the principal: In case of performing agency contract, if agent felt any
difficulties or requires further instruction from the principal, he should communicate such
matter to the principal as soon as possible.
 Not to deal on his own account: An agent must not deal his account with the transactions of his
principal unless he gets consent from his principal to do so. In these circumstances, the principal
may.
 To pay to the principal’s sums received by him from the third parties: In course of agency
contract, if the agent receives the sum from the third parties on the account of his principal, he
must remit all such sums to his principal. He can deduct his share of commission and expenses.
 Not to delegate his authority and responsibility: In authority and responsibility transferred from
his principal to the agent should not be furthertransferred to some other persons by the agent.
But there are exceptions to this law.
 i. If consent is given expressly by the principal; or
ii. If consent is given in an implied manner; or
iii. If it is necessity; or
iv. If it is as per the law; or
v. If it is the duty of pure administration
 Duty to the principal’s death or insanity: Agency comes to an end automatically by the death or
insanity of principal. However, the agent should take necessary and reasonable steps in order to
project interested of principal, in such case.

3) Define the termination of agency. Explain the procedure of Registration of Agency in Nepal.

Ans: Termination of agency means bringing the relationship between a principal and an agent to an end.
When the power of attorney is withdrawal by the principal the agency is said to be termination.
According to Section 597, 598 and 600 of MCC, 2074 the contract of agency may be terminated either by
the acts of the parties or by the operation of law.

Procedure of registration of agency in Nepal: Before the enactment of Act, 2014, agency business was
operated by Agency Istihar of 1992 BS. In 2014 Agency Act has been promulgated and is still operation
and for clarification of the provisions. The Agency Rules 2019 has been made in 2019 BS. In addition to
this MCC, 2074 has also incorporated some provisions regarding Agency. There is separate legal
framework about the agency but in real sense it is not operated and captures the present situation of
agency business. At present in Nepal MCC, 2074 sec. 591 to 601 are the main legal framework to govern
the matters of agency. The Agency Act, 2014 is old one and it is 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 aspect of agency. The MCC, 2074 is a new one and it deals with reveral provisions of agency.
It deals the definition of agency, principal, agent and sub-agent and makes provision relating to the
rights and duties of them, as well as the modes of creation and termination of agency.