Contract

A contract is a legally enforceable agreement between two or more parties, made with free consent, for a lawful consideration and lawful object, with the intention of creating legal obligations. Section 2(a) of the Contract Act, 2000 (Nepal) defines a contract as "an agreement enforceable by law."

In simple terms, a contract = agreement + enforceability by law.

In law, a minor is a person who has not yet attained the age of majority (legal adulthood) and is therefore not legally competent to enter into a contract.

Under the Nepal Contract Act, 2000 (Muluki Dewani Samhita), a person who has not completed 18 years of age is a minor. A minor's agreement is void from the beginning (void ab initio), so it cannot be enforced by law.

Breach of contract is the failure or refusal of a party to a contract to perform any or all of the obligations imposed on it by the terms of the contract, without any lawful excuse. It may occur by non-performance, defective performance, or by making performance impossible, and it gives the aggrieved party the right to claim remedies such as damages, rescission or specific performance.

Contract of bailment is a contract in which one person (the bailor) delivers goods to another person (the bailee) for some purpose, upon the condition that the goods shall be returned or otherwise disposed of according to the directions of the bailor when the purpose is accomplished.

Example: Giving a bicycle to a repair shop for repair — the shop must return it after repair.

Warranty is a written or expressed guarantee given by the manufacturer or seller of goods to the buyer, promising to repair, replace, or compensate for any defect in the goods within a specified period of time. It is a provision created to cover the cost of repairing or replacing goods sold during the warranty period.

(b) Two features of a company:

1. Separate legal entity: A company is a legal person distinct from its members. It can own property, sue and be sued in its own name, and its existence is independent of its shareholders.

2. Perpetual succession: A company has a continuous existence. Members may come and go, but the company continues to exist until it is legally dissolved.

Private carrier is a transport service operated by an individual or an organisation solely for its own goods or passengers, and not for hire or reward to the general public. It requires no public operating licence and is not open to outside users.

Agent — 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, or who is so represented, is called the principal. The relationship between them is known as agency. (Contract Act, 2000, Section 49)

Intellectual property (IP) refers to the creations of the human mind—such as inventions, literary and artistic works, designs, symbols, names, and images—that are legally protected by law, giving the creator exclusive rights over their use and distribution.

In other words, it is an intangible form of property that results from intellectual effort, and the law protects it through mechanisms like patents, copyrights, trademarks, and trade secrets so that the creator can benefit from their work.

A negotiable instrument is a written, signed document that promises or orders the payment of a certain sum of money, and whose ownership can be freely transferred from one person to another by mere delivery or by endorsement and delivery. The transferee (holder in due course) gets a good title to it, free from the defects of the previous holder's title.

Examples: cheque, bill of exchange, and promissory note.

Rules Regarding Contingent Contract

Meaning

A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. In Nepal, contracts are governed by the Contract Act, 2056 (2000), and the classical rules on contingent contracts (set out below, in the form codified in Sections 31-36 of the Indian Contract Act, 1872, the usual reference text) apply to such agreements. For example, A contracts to pay B Rs 1,00,000 if B's house is burnt. This is a contingent contract, because the payment depends on the happening of an uncertain event — the burning of the house.

The event on which the contract depends is collateral to the contract, meaning it is not part of the consideration itself but is merely a condition that determines whether the contract becomes enforceable. Such contracts are also called conditional contracts, and they cannot be enforced unless and until the specified uncertain event occurs or does not occur.

Rules Regarding Contingent Contract

The following rules apply:

1. Contract on Happening of an Uncertain Event (Section 32)

If a contract is contingent upon the happening of an uncertain future event, it cannot be enforced unless and until that event has happened. If the event becomes impossible, the contract becomes void.

Example: A contracts to pay B Rs 50,000 if B's house is burnt. A is not liable to pay unless the house is actually burnt. If the house is destroyed by an earthquake before it can be burnt, the contract becomes void.

2. Contract on Non-Happening of an Uncertain Event (Section 33)

If a contract is contingent upon the non-happening of an uncertain future event, it can be enforced when the happening of that event becomes impossible.

Example: A agrees to pay B Rs 50,000 if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks, because the event (return of the ship) has now become impossible.

3. Contract on Conduct of a Living Person (Section 34)

If a contract is contingent upon the happening of an uncertain event, and the event is the conduct of a living person, it cannot be enforced until that person's conduct becomes certain. However, if the person does anything that makes the event impossible, the contract becomes void.

Example: A agrees to pay B Rs 50,000 if B marries C. B marries D instead. The contract becomes void, because B's conduct has made the event impossible.

4. Contract on Happening of an Event within a Fixed Time (Section 35, first part)

If a contract is contingent upon the happening of an uncertain event within a fixed time, it becomes void if the event does not happen within that time, or if it becomes impossible before the expiry of that time.

Example: A promises to pay B Rs 50,000 if a ship returns within one year. The ship does not return within one year. The contract becomes void.

5. Contract on Non-Happening of an Event within a Fixed Time (Section 35, second part)

If a contract is contingent upon the non-happening of an uncertain event within a fixed time, it can be enforced if the event does not happen within that time, or if it becomes impossible before the expiry of that time.

Example: A promises to pay B Rs 50,000 if a ship does not return within one year. If the ship does not return within one year, A must pay B.

6. Contract on an Impossible Event (Section 36)

A contingent contract to do or not to do anything if an impossible event happens is void, whether the impossibility is known or unknown to the parties.

Example: A agrees to pay B Rs 50,000 if two parallel straight lines should enclose a space. The agreement is void.

Conclusion

Thus, a contingent contract is enforceable only when the specified uncertain event happens or becomes impossible, as the case may be. If the event becomes impossible, or if it does not occur within the fixed time, the contract becomes void. These rules protect the parties from uncertain and impossible obligations and ensure that a contract is enforced only when the condition on which it depends is fulfilled.

Rights and Duties of Bailor

Bailment (Chapter on Contract of Bailment, Contract Act 2056) is the delivery of goods by one person to another for some purpose, upon a contract that when the purpose is accomplished, the goods shall be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is the bailor, and the person to whom they are delivered is the bailee.

A. Rights of Bailor

1. Right to enforce the terms of bailment — The bailor can compel the bailee to use the goods only for the agreed purpose and in the agreed manner.
2. Right to terminate the bailment — If the bailee uses the goods inconsistently with the terms of bailment, the bailor may terminate the contract and claim compensation for any loss.
3. Right to demand return of goods — The bailor is entitled to get back the goods, on the expiry of the period or on fulfilment of the purpose, in the same condition, subject to normal wear and tear.
4. Right to claim increase or profit — Any accretion or profit arising from the goods during bailment belongs to the bailor.
5. Right to claim damages — If the bailee mixes the bailor's goods with his own, or wrongfully withholds them, the bailor can sue for damages and for the separation or value of the goods.
6. Right to sue for loss caused by unauthorised use — Where the bailee uses the goods for a purpose other than the agreed one, the bailor can recover compensation for any damage arising from such use.
7. Right to recover expenses (in gratuitous bailment) — In a gratuitous bailment, the bailor can recover from the bailee necessary expenses incurred for the preservation of the goods.

B. Duties of Bailor

1. Duty to disclose faults — The bailor must disclose to the bailee all known faults in the goods which are likely to interfere with their use or expose the bailee to extraordinary risk. If he fails, he is liable for the resulting damage.
2. Duty to bear extraordinary expenses — In gratuitous bailment, the bailor must bear extraordinary expenses incurred for the safe custody and preservation of the goods.
3. Duty to indemnify the bailee — The bailor must indemnify the bailee for any loss suffered because the bailor was not entitled to make the bailment, or because the bailee had to return the goods to the true owner.
4. Duty to indemnify for premature termination — If the bailor terminates a gratuitous bailment before the agreed period, he must indemnify the bailee for any loss suffered in excess of the benefit derived from the bailment.
5. Duty to repay necessary expenses — Where the bailee has incurred necessary expenses for the preservation of the goods, the bailor must repay them.
6. Duty to take back the goods — The bailor must take delivery of the goods when the purpose of bailment is accomplished or the period expires.
7. Duty to pay the agreed remuneration — In bailment for reward, the bailor must pay the bailee the agreed amount of remuneration or service charge.

Conclusion

The rights and duties of the bailor are correlative: for every right he enjoys, he owes a corresponding duty to the bailee. The Contract Act 2056 balances the interests of both parties so that the bailor gets back his goods in proper condition and the bailee is protected against loss caused by the bailor's fault or misrepresentation.

Difference between Condition and Warranty

Under the Sale of Goods Act, the terms of a contract of sale are classified into conditions and warranties according to their importance and the consequences of their breach.

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

Warranty: A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives the aggrieved party a right to claim damages only, and not to repudiate the contract.

Points of Difference

Conclusion

Thus, the basic test to distinguish between a condition and a warranty is the effect of the breach on the main purpose of the contract. If the breach defeats the very purpose of the contract, it is a condition; if it merely causes loss or inconvenience without defeating the main purpose, it is a warranty.

Delegation of Authority

Meaning: Delegation of authority is the process by which a superior (manager) assigns a portion of his or her authority to a subordinate and grants that subordinate the right to take decisions and act within specified limits. The superior remains accountable for the final result, but the subordinate becomes responsible for the assigned task. It is the downward transfer of authority from a higher level to a lower level in the organisational hierarchy.

Definitions:

• Koontz and O'Donnell: "Delegation of authority is the process of entrusting duties and authority to subordinates by a superior."
• Louis A. Allen: "Delegation is the entrustment of responsibility and authority to another and the creation of accountability for performance."

Elements / Steps of Delegation:

1. Assignment of duties (responsibility): The superior defines and assigns the specific task or work to be performed by the subordinate.
2. Grant of authority: The superior gives the subordinate sufficient authority — the right to use resources, issue instructions and take decisions — to carry out the assigned duty.
3. Creation of accountability: The subordinate is made answerable to the superior for the proper performance of the delegated duty. Accountability cannot be delegated; it flows upward.

Principles of Delegation:

• Principle of parity of authority and responsibility: Authority granted must be equal to the responsibility assigned.
• Principle of unity of command: A subordinate should be accountable to only one superior.
• Principle of absolute responsibility: The superior remains ultimately responsible for the acts of subordinates.
• Principle of exception: Only exceptional or critical matters should be referred to top management; routine matters are decided at lower levels.

Importance / Advantages:

• Reduces managerial burden: The manager is relieved of routine work and can concentrate on important, strategic issues.
• Enables effective supervision: A manager with fewer direct tasks can supervise and guide subordinates better.
• Develops subordinates: It gives subordinates the opportunity to take decisions, build confidence and prepare for higher positions.
• Motivates employees: Trust and authority given to subordinates raise their morale and job satisfaction.
• Quick decisions: Decisions are taken at the point of action, so work is completed without delay.
• Facilitates growth and expansion: Large and complex organisations can be managed only through delegation.
• Improves organisational efficiency: Work is distributed according to ability, so resources are used efficiently.

Barriers to Effective Delegation:

• On the part of the superior: Fear of losing control or power, lack of confidence in subordinates, perfectionism ("I can do it better myself"), and inability to explain duties clearly.
• On the part of the subordinate: Fear of criticism or of making mistakes, lack of self-confidence, unwillingness to accept additional responsibility, and inadequate skill or information.
• Organisational barriers: Lack of clear policies, poor communication, absence of a proper reward system, and over-centralisation of authority.

Conclusion: Delegation of authority is not the surrender of authority but its sharing. It is the key to sound organisation, because no single manager can perform all tasks alone. Effective delegation balances authority with responsibility, develops subordinates and increases the overall efficiency of the enterprise.

INCOTERMS 2010

Meaning: INCOTERMS stands for International Commercial Terms. They are a set of standard international trade terms published by the International Chamber of Commerce (ICC), Paris, which define the rights and obligations of buyers and sellers in international trade. The version effective from 1 January 2011 is known as INCOTERMS 2010.

Purpose / Importance:

1. They clearly fix who arranges and pays for carriage, insurance, and other costs.
2. They determine the point at which risk of loss or damage passes from seller to buyer.
3. They specify who is responsible for export and import clearance and payment of duties.
4. They reduce misunderstandings and disputes by giving a uniform, internationally accepted language.
5. They help in accurate costing, quotation, and pricing of export/import goods.

Classification under INCOTERMS 2010: The 11 terms are divided into two groups.

A. Terms for any mode of transport (7 terms):

B. Terms for sea and inland waterway transport (4 terms):

Classification by obligation:

• E-term: EXW — seller's obligation is minimum.
• F-terms: FCA, FAS, FOB — main carriage not paid by seller.
• C-terms: CFR, CIF, CPT, CIP — seller pays main carriage but risk passes early.
• D-terms: DAT, DAP, DDP — seller's obligation is maximum (delivery terms).

Conclusion: INCOTERMS 2010 provides a uniform, simple, and internationally recognised set of rules that make international trade smooth, safe, and dispute-free by clearly dividing cost, risk, and responsibility between exporter and importer.

a. Trade Mark

A trade mark is a distinctive sign, symbol, word, name, logo, design, phrase, or a combination of these that identifies and distinguishes the goods or services of one business from those of its competitors. It is a form of intellectual property that gives the owner the exclusive right to use the mark in connection with particular goods or services.

Key features:

• Distinctiveness: A trade mark must be capable of distinguishing the goods or services of one undertaking from those of others. Generic or purely descriptive words (e.g., "soap" for soap) cannot normally be registered.
• Exclusive right: Registration grants the owner the sole right to use the mark and to prevent others from using a confusingly similar mark.
• Source identification: It identifies the origin or source of the product, helping consumers recognise the brand.
• Legal protection: In Nepal, trade marks are protected under the Patent, Design and Trade Mark Act, 2022 (1965) and registered with the Department of Industry. Registration is valid for 7 years and can be renewed repeatedly for further 7-year periods.
• Transferability: A trade mark can be sold, licensed, or assigned like other property.

Examples: Coca-Cola, Nike, Samsung, and in the Nepali context, brands like Wai Wai, Rara, and Gorkha Beer.

Importance: It protects brand identity, prevents unfair competition, builds consumer trust, and adds commercial value to a business.

b. Arbitrator

An arbitrator is a neutral third party appointed by the disputing parties (or by an appointing authority) to hear and settle a dispute outside the ordinary courts through the process of arbitration. The arbitrator acts as a private judge, and the decision given by the arbitrator is called an award, which is generally binding on the parties.

Key features:

• Neutral and impartial: The arbitrator must be independent and free from bias toward either party.
• Appointment by agreement: Arbitrators are usually chosen by the parties themselves as per the arbitration agreement, or appointed by a designated authority if the parties fail to agree.
• Qualification and expertise: Arbitrators are often experts in the relevant field (law, commerce, engineering, etc.), which helps in technical and commercial disputes.
• Quasi-judicial role: The arbitrator conducts proceedings, hears both parties, examines evidence, and gives a reasoned decision.
• Binding award: The award is final and enforceable, and can be challenged only on limited grounds (e.g., misconduct, exceeding jurisdiction).
• Legal framework in Nepal: Arbitration is governed by the Arbitration Act, 2055 (1999) and the UNCITRAL Model Law principles.

Duties of an arbitrator:

1. To act fairly and impartially.
2. To give each party a reasonable opportunity to present its case.
3. To decide the dispute according to law or equity, as agreed.
4. To give a reasoned and enforceable award within the stipulated time.

Advantages: Speedier resolution, lower cost, confidentiality, expert decision-making, and flexibility of procedure compared to litigation.

Free Consent and Its Flows

Meaning of Free Consent

Consent means the parties to a contract agree upon the same thing in the same sense (consensus ad idem). Section 13 of the Contract Act, 2000 (Nepal) defines consent as the agreement of two or more persons upon the same thing in the same sense. However, consent is not enough by itself — it must be free.

Free consent means consent that is not caused by coercion, undue influence, fraud, misrepresentation, or mistake. Section 14 of the Contract Act provides that consent is free when it is not caused by:

1. Coercion (Section 15)
2. Undue influence (Section 16)
3. Fraud (Section 17)
4. Misrepresentation (Section 18)
5. Mistake (Sections 19–20)

When consent is free, the contract is valid and binding. When consent is not free, the contract becomes either voidable or void, depending on the defect.

Flows (Forms) of Free Consent

1. Consent Given Without Coercion

Coercion means committing or threatening to commit any act forbidden by the law, or unlawfully detaining or threatening to detain any property, to make a person enter into a contract. Consent is free only when no such pressure is applied. A contract caused by coercion is voidable at the option of the aggrieved party.

2. Consent Given Without Undue Influence

Undue influence arises where one party is in a position to dominate the will of the other and uses that position to obtain an unfair advantage. Such dominance may arise from a fiduciary relationship, mental or bodily distress, or superior authority. Consent is free when the parties deal on equal footing and the dominant party does not misuse its position. A contract caused by undue influence is voidable.

3. Consent Given Without Fraud

Fraud means a false statement made knowingly, without belief in its truth, or recklessly, with the intention to deceive the other party. Consent is free when there is no concealment of facts, no false representation, and no intention to cheat. A contract caused by fraud is voidable, and the aggrieved party may also claim damages.

4. Consent Given Without Misrepresentation

Misrepresentation means a false statement made innocently, without any intention to deceive. Consent is free when the statements made by the parties are true to the best of their knowledge. A contract caused by misrepresentation is voidable, but the aggrieved party cannot claim damages.

5. Consent Given Without Mistake

Mistake means an erroneous belief about a fact. A mistake may be of two kinds:

• Mistake of law — generally does not affect the validity of the contract, except a mistake of Nepali law.
• Mistake of fact — may be bilateral or unilateral. A bilateral mistake of fact as to the subject matter makes the contract void, while a unilateral mistake generally does not affect the validity of the contract.

Consent is free when both parties correctly understand the essential facts of the agreement.

Flow Diagram of Free Consent

                         CONSENT
                            |
            +---------------+-----------------+
            |                                 |
      FREE CONSENT                     NOT FREE CONSENT
            |                                 |
     (Valid contract)    +--------+-------+---+-----+------------------+
                         |        |       |         |                  |
                     Coercion  Undue   Fraud  Misrepresentation     Mistake
                               Influence                                |
                         |        |       |         |          +-------+-------+
                     Voidable Voidable Voidable  Voidable   Bilateral     Unilateral
                                                                |               |
                                                              Void       Generally valid

Conclusion

Consent is free only when it flows from the free will of the parties, unaffected by coercion, undue influence, fraud, misrepresentation, or mistake. Free consent is the foundation of a valid contract; its absence makes the contract voidable or void. Hence, the five flows of free consent — absence of coercion, undue influence, fraud, misrepresentation, and mistake — together ensure that the agreement is genuine and legally enforceable.

Who Can Employ an Agent? Modes of Creating Agency

1. Who Can Employ an Agent

Under the Contract Act, 2000 (2056 B.S.), any person who is competent to contract may employ an agent. Section 44 provides that the principal must be of the age of majority, of sound mind, and not disqualified by law from contracting. The agent himself need not be competent to contract — Section 45 states that no consideration is necessary to create an agency, and even a minor can act as an agent, though he is not responsible to the principal. The legal maxim is "qui facit per alium facit per se" — he who acts through another acts himself. Thus, a person of unsound mind or a minor cannot appoint an agent, but anyone competent to contract — an individual, a firm, a company, or the government — may do so.

2. Modes of Creating Agency

Agency may arise in the following ways:

(a) By Express Agreement Where the principal expressly appoints the agent by words spoken or written. A written instrument is called a power of attorney. This is the most common mode.

(b) By Implied Agreement Agency may be implied from the conduct, situation, or relationship of the parties. For example, a partner is the implied agent of the firm; a wife who purchases necessaries is the implied agent of her husband.

(c) By Necessity In an emergency, a person may act as agent without authority to protect the principal's property. Example: a carrier selling perishable goods to save the owner from loss. The agent must act in good faith and only in urgent situations.

(d) By Estoppel Where the principal, by his conduct or words, leads a third party to believe that a certain person is his agent, he is estopped from denying the agency. Example: if a person allows another to order goods in his name, he cannot later deny liability.

(e) By Holding Out A person who by his words or conduct holds out another as his agent is bound by the acts of that agent. It is similar to estoppel but applies where the principal creates a false impression of authority.

(f) By Ratification Where a person acts on behalf of another without authority, the principal may later ratify the act, either expressly or impliedly. Ratification relates back to the date of the original act. Conditions: the act must be done on behalf of the principal, the principal must have full knowledge, and the act must be lawful and capable of ratification.

Conclusion

Agency is a legal relationship created by agreement, necessity, estoppel, holding out, or ratification. Only a person competent to contract can employ an agent, while the agent need not be competent. The modes of creating agency ensure flexibility in commercial transactions and protect the interests of both principal and third parties.

Arbitration is a private, consensual method of settling a dispute in which the parties refer it to one or more neutral persons (arbitrators) of their choice instead of the court. The arbitrator hears both sides and gives a binding decision called an award. In Nepal it is governed by the Arbitration Act, 2055 (1999). The statement that it is an inbuilt component of business law holds because commercial contracts routinely contain an arbitration clause, which gives quicker, cheaper, confidential and expert settlement than litigation.

Features: consent of the parties; a neutral third party; a private, flexible procedure; a final and binding award.

How an award is made valid and enforceable

1. Valid arbitration agreement - a written agreement between the parties to refer present or future disputes to arbitration.
2. Properly appointed, competent arbitrator - appointed as agreed (or by the court if the parties fail to agree); impartial, of sound mind, not insolvent and not convicted of an offence involving moral turpitude.
3. Natural justice - proper notice to both parties and a fair opportunity to present their case and evidence.
4. Within the time limit - made within the time agreed, or within 6 months of the arbitrator taking up the reference, unless validly extended.
5. Proper form - in writing, dated and signed by the arbitrator(s); where there are several arbitrators, the majority view prevails.
6. Reasons stated - unless the parties have agreed otherwise.
7. Registration - the award is filed with the competent court within 30 days of receiving notice of it, after which it has the status of a court decree.
8. Free from grounds for setting aside - such as incapacity of a party, invalid agreement, lack of notice, going beyond the scope of the reference, improper composition of the tribunal, a non-arbitrable subject matter, or conflict with public policy.

Enforcement: once registered, the award is final and binding and is executed like a court decree.

Business Law is the branch of law that governs the rights, duties and obligations arising out of business activities and commercial transactions between individuals, business organisations and the state. It consists of the body of legal rules relating to trade, commerce and industry — such as contract, agency, partnership, company, sale of goods, negotiable instruments, insurance and insolvency — which regulate the formation, operation and settlement of disputes in business dealings.

Coercion is the act of compelling a person to enter into a contract by means of unlawful pressure — threats, violence, or unlawful confinement — so that the person's consent is not free. Under the Contract Act, 2000 (Nepal), a contract caused by coercion is voidable at the option of the aggrieved party.

A minor is a person who has not completed the age of majority, i.e., who is below 18 years of age as per the prevailing law of Nepal (Muluki Civil Code). Such a person is legally incapable of entering into a valid contract, as a contract with a minor is void from the beginning (void ab initio).

Quasi contract is a contract that is not created by the express or implied agreement of the parties, but is imposed by law to prevent unjust enrichment. It is based on the principle that no person should be allowed to enrich himself at the expense of another.

For example, if A pays money to B by mistake, B is bound to refund it to A even though there was no agreement between them.

Pledge

A pledge is a bailment of goods as security for the payment of a debt or the performance of a promise. In a pledge, the borrower (pledgor) delivers possession of movable goods to the lender (pledgee) as security, but ownership of the goods remains with the pledgor. If the debt is not repaid, the pledgee has the right to sell the pledged goods after giving reasonable notice to the pledgor.

A negotiable instrument is a written, signed, unconditional document that promises or orders the payment of a certain sum of money to a specified person or to the bearer, and whose ownership can be freely transferred from one person to another by mere delivery or by endorsement and delivery.

Examples: cheque, bill of exchange, and promissory note.

An auditor is an independent and competent person appointed by the owners or the concerned authority to examine the books of accounts and financial statements of an organization, verify their accuracy and fairness, and report his or her opinion on whether the financial statements present a true and fair view of the financial position and operating results.

Award is a formal judgment or decision given by an arbitrator or a tribunal (such as a labour court or arbitration panel) that settles a dispute between parties. In the context of industrial relations, it refers to the final decision or settlement pronounced by an arbitrator or adjudicator on a dispute referred to them, which is binding on both the employer and the employees.

Bill of Lading

A bill of lading is a document issued by a carrier (shipping company) to the shipper acknowledging that specified goods have been received on board for carriage to a stated destination and undertaking to deliver them to the consignee or order.

It serves three functions:

1. Receipt — evidence that the goods have been received/loaded.
2. Contract of carriage — evidence of the terms of transport between shipper and carrier.
3. Document of title — it is transferable by endorsement, so the holder can claim the goods.

Contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. Section 124 of the Contract Act defines it as "a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person."

In such a contract, the party who promises to compensate the loss is called the indemnifier, and the party whose loss is compensated is called the indemnity-holder. For example, if A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of Rs 500, the contract is one of indemnity.

Remedies for Breach of Contract

When one party fails to perform their obligations under a contract, the aggrieved (innocent) party has the right to seek remedies. The main remedies available are:

1. Rescission of the Contract

The aggrieved party may cancel (rescind) the contract and refuse to perform their own obligations. The party is then freed from all future obligations under the contract. This is available where the breach is fundamental or the other party repudiates the contract.

2. Damages

The aggrieved party may claim monetary compensation for the loss suffered due to the breach. Damages may be of the following types:

• Ordinary (general) damages — compensation for the natural and direct loss arising from the breach.
• Special damages — compensation for indirect or consequential loss that was within the knowledge of the parties at the time of contracting.
• Nominal damages — a small symbolic sum awarded where a breach is proved but no actual loss is suffered.
• Exemplary (vindictive) damages — awarded to punish the guilty party, e.g., in cases of breach of promise to marry.
• Liquidated damages and penalty — where the contract itself fixes a sum payable on breach. If it is a genuine pre-estimate of loss, it is enforceable as liquidated damages; if it is excessive and intended only to deter, it is treated as a penalty and not enforced in full.

3. Specific Performance

Where monetary compensation is not an adequate remedy (e.g., contracts relating to the sale of land or unique goods), the court may order the defaulting party to actually perform the contract as agreed.

4. Injunction

The court may issue an order restraining a party from doing something that violates the contract — particularly in contracts involving negative covenants (e.g., an agreement not to compete).

5. Quantum Meruit

Literally meaning "as much as earned," this remedy allows a party who has partly performed the contract to claim reasonable remuneration for the work actually done, where the contract is discharged by the other party's breach or is found void.

6. Restitution

Where one party has received a benefit under the contract and then breaches it, the aggrieved party may recover the benefit or its value to prevent unjust enrichment.

Conclusion: The choice of remedy depends on the nature and seriousness of the breach. Damages are the most common remedy, while specific performance and injunction are granted where damages are inadequate. The aggrieved party may also combine remedies where the circumstances permit.

Rights and Duties of a Finder of Lost Goods

1. Meaning

A finder of lost goods is a person who finds goods belonging to another person, which have been lost or accidentally dropped, and takes them into his custody. He does not become the owner of the goods; he is only a custodian of them. The law treats him as a bailee by operation of law, i.e., he is deemed to hold the goods in trust for the true owner. His position is governed by the bailment provisions of the Contract Act, 2056.

The finder acquires only a possessory title (special property) over the goods. This title is good against every person except the true owner. Therefore, if a third person wrongfully takes the goods from the finder, the finder can sue that third person for the goods or for damages.

2. Duties of the Finder of Lost Goods

(a) Duty to take reasonable care of the goods The finder must take as much care of the goods as a person of ordinary prudence would take of his own goods of the same bulk, quality and value. If he is negligent and the goods are lost or damaged, he is liable to compensate the true owner.

(b) Duty not to use the goods for his own purpose He must not use the goods for any purpose inconsistent with the terms of the bailment. For example, if he finds a bicycle, he cannot use it for his own riding. If he uses it without authority, he is liable for any loss or damage.

(c) Duty not to mix the goods with his own goods The finder must keep the lost goods separate from his own goods. If he mixes them without the owner's consent and the goods cannot be separated, he must compensate the owner for the loss of the latter's goods.

(d) Duty to make reasonable efforts to trace the true owner He must make reasonable efforts to find out the real owner of the goods and to inform him about the finding. If he knows the owner or has the means of identifying him, he must communicate with him.

(e) Duty to return the goods He must return the goods to the true owner as soon as the owner is traced. If he refuses to return them, he commits criminal misappropriation and loses his right of lien over the goods.

(f) Duty to deal with the goods according to law when the owner is not found If the true owner cannot be traced within a reasonable time, the finder must deposit the goods with the prescribed authority or, in the case of perishable goods, sell them and account for the proceeds. He cannot keep the goods as his own property.

3. Rights of the Finder of Lost Goods

(a) Right of lien (right to retain the goods) The finder has a particular lien on the goods. He may retain the goods until he receives compensation for the trouble and expense incurred in preserving the goods and in tracing the true owner. However, he has no lien merely for a reward, unless a specific reward has been offered.

(b) Right to sue for a specific reward offered If the owner has offered a specific reward for the return of the goods, the finder may sue the owner to recover that reward. He may also retain the goods until the reward is paid to him. But he cannot demand a reward if no reward was offered, and he cannot fix a reward himself.

(c) Right to sell the goods The finder may sell the goods in the following circumstances:

• where the goods are commonly on sale in the market; or
• where the owner cannot be found with reasonable diligence; or
• where the owner, though found, refuses to pay the lawful charges of the finder; or
• where the goods are in danger of perishing, or of losing the greater part of their value.

In such cases, if the goods are not commonly on sale in the market, the sale must be made by public auction after giving reasonable notice. The finder must account to the true owner for the proceeds of sale after deducting his lawful charges and expenses.

(d) Right to recover expenses He is entitled to be reimbursed for all reasonable expenses incurred in the preservation of the goods and in tracing the owner.

(e) Right to sue third parties As he has a possessory title, he can sue any person who wrongfully deprives him of the goods, even though he is not the owner.

4. Conclusion

A finder of lost goods occupies a dual position — he has rights as a bailee, but he also carries the duties of a trustee. He cannot treat the goods as his own, but he is protected in his possession and is entitled to compensation for his trouble and expense. Thus, the law balances the interest of the true owner with the honest efforts of the finder.

Modes of Creating Agency

An agency is the legal relationship whereby one person (the agent) is authorised to act on behalf of another (the principal) and to create legal relations between the principal and third parties. Under the Contract of Agency (Chapter on Agency, Contract Act 2056), an agency may be created in the following modes:

1. Agency by Express Agreement

This is the most common mode. The principal expressly appoints the agent, either orally or in writing, and the agent accepts the appointment. When the authority is given in writing and signed, it is called a power of attorney. Here the intention of the parties to create the agency is clearly stated.

Example: A appoints B as his agent by a written power of attorney to sell his land.

2. Agency by Implied Agreement

An agency may arise by implication from the conduct, circumstances or relationship of the parties, even without any express words. If a person behaves in a manner showing that he is acting on behalf of another, and the other accepts such conduct, an implied agency is created.

Example: A repeatedly allows B to buy goods on his behalf from a certain shop; B's authority to buy on credit is implied.

3. Agency by Necessity

This arises in an emergency where the agent has no time to obtain the principal's instructions. The law presumes that the principal would have authorised the act if he had been present. Conditions required:

• There must be a real and urgent necessity.
• It must be impossible to communicate with the principal.
• The agent must act in good faith and in the interest of the principal.

Example: A consigns perishable goods to a carrier; the carrier, finding the goods about to rot, sells them. He becomes an agent by necessity.

4. Agency by Estoppel (Holding Out)

When a person, by his words or conduct, leads a third party to believe that a certain person is his agent, he is estopped from denying the agency later. Even if no agency actually existed, the principal becomes bound towards the third party who acted on that belief.

Example: A tells C in the presence of B that B is his agent; later A cannot deny B's authority as against C.

5. Agency by Ratification

When a person acts on behalf of another without authority, and the latter later approves or adopts the act, an agency is created retrospectively. The ratification relates back to the date of the original act. Conditions:

• The act must be done on behalf of the principal.
• The principal must have full knowledge of the facts.
• The principal must have the capacity to ratify, and the act must be lawful.

Example: B buys goods for A without authority; A later accepts the goods — agency by ratification.

6. Agency by Operation of Law

Agency may also arise by operation of law without any agreement, such as a guardian acting for a minor, or a legal representative acting for a deceased person's estate.

Conclusion: Thus, agency may be created expressly, impliedly, by necessity, by estoppel, by ratification, or by operation of law. Whatever the mode, the essential element is that one person is authorised to act on behalf of another and bind him legally.

Rights and Duties of an Unpaid Seller

Meaning

A seller is an unpaid seller when (i) the whole price has not been paid or tendered, or (ii) a bill of exchange or other negotiable instrument was taken as conditional payment and has been dishonoured. This applies whether or not the property in the goods has passed to the buyer.

Rights of an Unpaid Seller

A. Rights against the goods

1. Right of lien — The seller who is still in possession may retain the goods until the price is paid or tendered, where:

   • the goods were sold without any stipulation as to credit;
   • the goods were sold on credit but the credit period has expired; or
   • the buyer becomes insolvent.

   Lien is a right to retain possession only, not to sell. It is lost when the seller delivers the goods to a carrier for the buyer without reserving the right of disposal, when the buyer or his agent lawfully obtains possession, or by waiver.

2. Right of stoppage in transit — If the buyer becomes insolvent and the goods are in transit, the seller may stop them, resume possession and keep them until the price is paid. It is exercised by taking actual possession or by giving notice to the carrier. It ends once the buyer or his agent takes delivery.

3. Right of resale — The seller may resell the goods where they are perishable, or where he gives notice to the buyer of his intention to resell and the buyer does not pay within a reasonable time. He may recover any loss on resale from the original buyer, and the new buyer gets a good title.

B. Rights against the buyer personally

1. Suit for price — where the property has passed and the buyer wrongfully refuses to pay, or where the price is payable on a fixed day irrespective of delivery.
2. Suit for damages for non-acceptance — where the buyer wrongfully refuses to accept and pay for the goods.
3. Suit for repudiation — where the buyer repudiates the contract before the delivery date, the seller may treat the contract as ended and claim damages, or wait until the due date.

Duties of an Unpaid Seller

The law does not create a separate set of duties for an unpaid seller. His rights above are limited by the ordinary duties of a seller:

1. Deliver on payment — once the price is paid or tendered, he must deliver the goods, and his lien or right of stoppage ends.
2. Give notice before resale — for non-perishable goods he must notify the buyer, failing which he cannot claim damages for loss on resale.
3. Not resell after losing the right — if he has delivered the goods or waived the lien, he cannot resell them.
4. Act in good faith — the rights must be used only to secure payment of the price.

Conclusion

An unpaid seller is protected by rights against the goods (lien, stoppage in transit, resale) and against the buyer personally (suit for price, damages, repudiation), but he must exercise them lawfully and deliver once the buyer pays.

Legal Importance and Formalities of a General Meeting

Legal Importance

A general meeting is a meeting of the shareholders of a company, and it carries the following legal importance:

1. Exercise of shareholder control: It is the only forum where shareholders can exercise control over the management, since ownership and management are separated in a company.
2. Appointment and removal of directors: Directors are appointed in the annual general meeting, and they can be removed only through a general meeting.
3. Approval of financial statements: The audited financial statements, directors' report and auditors' report must be presented and approved by shareholders in the annual general meeting.
4. Declaration of dividend: Dividend cannot be declared by the board alone; it must be approved by the shareholders in the general meeting.
5. Appointment of auditors: Auditors are appointed by shareholders in the general meeting, which keeps a check on the accounts.
6. Amendment of the memorandum and articles of association: Any change in the memorandum or articles requires approval of shareholders in a general meeting.
7. Legal validity of decisions: Decisions taken in a properly convened general meeting are binding on all shareholders, whether present or absent.
8. Protection of minority interests: It provides minority shareholders a platform to raise questions and protect their interests.
9. Compliance with the Companies Act: Holding general meetings is a statutory requirement, and failure to hold them attracts penalties.

Formalities of a General Meeting

The following formalities must be fulfilled to make a general meeting valid:

1. Proper authority to convene: The meeting must be convened by the board of directors or by the person authorised by the articles or the Companies Act.
2. Notice: At least 14 days' notice (or as prescribed) must be given to every member, director and auditor, stating the date, time, place and agenda of the meeting.
3. Quorum: A minimum number of members must be present. If no quorum is present, the meeting cannot transact any business.
4. Place and time: The meeting must be held at the registered office or a place specified in the notice, during business hours and on a working day.
5. Chairperson: A chairperson must be elected or appointed to conduct the meeting.
6. Agenda: Only the business mentioned in the notice can be discussed and decided.
7. Quorum and voting: Resolutions must be passed by the required majority — ordinary resolution by simple majority and special resolution by two-thirds majority.
8. Proxy: A member may attend and vote through a proxy if permitted by the articles.
9. Minutes: The proceedings of the meeting must be recorded in the minute book and signed by the chairperson.
10. Filing of resolutions: Special resolutions must be filed with the Registrar within the prescribed time.

Conclusion: A general meeting is the supreme authority of the company. It must be convened and conducted strictly according to the legal formalities; otherwise its decisions may become invalid.

Differences between Contract of Indemnity and Contract of Guarantee

1. Meaning

• Indemnity: A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person (Section 124).
• Guarantee: A contract to perform the promise, or discharge the liability, of a third person in case of his default (Section 126).

2. Number of parties

• Indemnity: Two parties — indemnifier (promisor) and indemnity-holder (promisee).
• Guarantee: Three parties — creditor, principal debtor and surety.

3. Number of contracts

• Indemnity: Only one contract between the indemnifier and the indemnity-holder.
• Guarantee: Three contracts — (i) between creditor and principal debtor, (ii) between creditor and surety, (iii) between surety and principal debtor (implied).

4. Nature of liability

• Indemnity: The liability of the indemnifier is primary and independent; it arises on the happening of a contingency.
• Guarantee: The liability of the surety is secondary and collateral; it arises only when the principal debtor defaults.

5. Request of the debtor

• Indemnity: There is no such request; the indemnifier acts on his own.
• Guarantee: The surety gives the guarantee at the request of the principal debtor.

6. Purpose / object

• Indemnity: To compensate the promisee for a loss suffered.
• Guarantee: To give security to the creditor for repayment of the debt.

7. Right to sue

• Indemnity: The indemnifier cannot sue a third party in his own name unless he has an interest in the subject matter.
• Guarantee: After paying the debt, the surety can sue the principal debtor in his own name (right of subrogation).

7. Interest of the parties

• Indemnity: The indemnifier has no existing interest in the transaction; his interest arises only on the contingency.
• Guarantee: The surety has an existing interest in the transaction, as he is bound to pay on default.

8. Number of liabilities

• Indemnity: Only one liability, that of the indemnifier to the indemnity-holder.
• Guarantee: More than one liability — the principal debtor's liability to the creditor and the surety's liability to the creditor.

9. Right of recovery

• Indemnity: The indemnifier, after paying the loss, has no right to recover it from the promisee.
• Guarantee: The surety, after paying the creditor, has the right to recover the amount from the principal debtor.

10. Time of liability

• Indemnity: The liability arises only when the loss actually occurs.
• Guarantee: The liability arises immediately on the principal debtor's default, even before the creditor suffers actual loss.

Conclusion Thus, indemnity is a two-party, single-contract arrangement for reimbursement of loss, whereas guarantee is a three-party, multi-contract arrangement for securing the performance of another's obligation.

Contract

Meaning: A contract is a legally enforceable agreement between two or more parties. Section 2(a) of the Contract Act, 2000 (Nepal) defines a contract as "an agreement enforceable by law." In simple words, when an offer made by one party is accepted by another party with free consent and lawful consideration, and the parties intend to create legal relations, the agreement becomes a contract. Every contract is an agreement, but every agreement is not a contract — only those agreements that satisfy the essentials of a valid contract are enforceable by law.

Example: Ram agrees to sell his motorcycle to Shyam for Rs 200,000, and Shyam agrees to buy it. This is a contract, and if either party breaks it, the other can go to court.

Essential Elements of a Valid Contract

Section 10 of the Contract Act provides that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. The essential elements are explained below:

1. Two or More Parties

A contract requires at least two parties — one making the offer (offeror) and the other accepting it (offeree). A person cannot enter into a contract with himself. The parties must be competent to contract.

2. Offer and Acceptance

There must be a lawful offer by one party and a lawful acceptance of that offer by the other party. The acceptance must be absolute, unconditional, and communicated to the offeror in the manner prescribed. A conditional acceptance or a counter-offer does not create a contract.

3. Intention to Create Legal Relations

The parties must intend to create legal obligations. Social or domestic agreements (e.g., an invitation to dinner) are generally not contracts because the parties do not intend legal consequences. Commercial agreements, on the other hand, are presumed to create legal relations.

4. Free Consent

Consent means agreeing to the same thing in the same sense (consensus ad idem). Consent must be free — it should not be obtained by coercion, undue influence, fraud, misrepresentation, or mistake. If consent is not free, the contract becomes voidable at the option of the aggrieved party.

5. Competency of Parties

Section 11 requires that the parties must be competent to contract. A person is competent if he:

• has attained the age of majority (18 years),
• is of sound mind, and
• is not disqualified by law from contracting.

Agreements with minors, persons of unsound mind, or disqualified persons are void.

6. Lawful Consideration

Consideration is "something in return" — the price for which the promise of the other is bought. It must be lawful, real, and not illusory. An agreement without consideration is void, except in certain cases such as love and affection, past voluntary services, etc. Consideration need not be adequate, but it must exist and be lawful.

7. Lawful Object

The object of the agreement must not be illegal, immoral, or opposed to public policy. Agreements whose object is forbidden by law, would defeat the provisions of law, are fraudulent, or injure the person or property of another are void.

8. Certainty of Terms

The terms of the contract must be clear, definite, and certain. An agreement with vague or uncertain terms (e.g., "to sell 100 tons of oil") cannot be enforced because the court cannot ascertain the intention of the parties.

9. Possibility of Performance

The contract must be capable of being performed. An agreement to do an impossible act (e.g., to bring a dead person back to life) is void under Section 56.

10. Free Consent Not Declared Void

The agreement must not be one that the law expressly declares void, such as agreements in restraint of marriage, restraint of trade, restraint of legal proceedings, or wagering agreements.

11. Legal Formalities

Where the law requires a contract to be in writing, registered, or stamped (e.g., sale of land), these formalities must be complied with. Oral contracts are valid unless a specific law requires writing.

12. Capacity to Create Legal Relationship

The parties must have the legal capacity to enter into a binding relationship, and the agreement must not be barred by any legal disability.

Conclusion: Thus, a valid contract comes into existence only when there is a lawful offer and acceptance, free consent of competent parties, lawful consideration and object, certainty of terms, possibility of performance, and compliance with legal formalities. If any of these elements is missing, the agreement becomes void, voidable, or unenforceable.

Contract of Carriage

A contract of carriage is an agreement between a carrier (transporter) and a consignor (sender) or passenger, under which the carrier undertakes to transport goods or persons from one place to another in return for payment of freight or fare. It is a species of contract of bailment and, where goods are carried for reward, it is also a contract of a commercial nature governed by the general law of contract together with the Carriage of Goods Act and other applicable laws.

Essential features:

1. Two parties — the carrier and the consignor/passenger (or consignee).
2. Lawful consideration — freight or fare.
3. Lawful object — carriage of goods or persons, not prohibited by law.
4. Free consent and capacity of the parties.
5. Transfer of possession, not ownership — the carrier gets custody of the goods for the purpose of carriage only.
6. Delivery at destination — the carrier must deliver to the consignee or at the place agreed.

The carrier's liability under such a contract is that of a bailee, and in the case of a common carrier it is stricter — that of an insurer of the goods, except for the statutory exceptions (act of God, inherent defect in the goods, act of the consignor, and act of a public enemy).

Differences between Common Carrier and Private Carrier

Explanation of the main points

1. Public character. The distinguishing test of a common carrier is that he holds himself out to the public as willing to carry for all. A private carrier, on the other hand, deals with particular persons only. If a person carries goods only for a few selected customers, he remains a private carrier even if he does so for reward.

2. Liability — insurer vs. bailee. A common carrier is liable for the safety of the goods entrusted to him as an insurer, i.e. he must make good the loss or damage even if he was not negligent. His liability is excused only on the four common-law exceptions — act of God, inherent vice of the goods, fault of the consignor, and act of a public enemy. A private carrier, being only a bailee, is liable only when he fails to take reasonable care; if he has taken due care, he is not liable for loss or damage.

3. Freedom to contract. A common carrier cannot pick and choose his customers — he must carry for anyone who tenders goods, subject only to want of space or a lawful excuse. A private carrier is free to accept or reject any offer of carriage.

4. Right of lien. A common carrier has a particular lien on the goods carried for the recovery of freight due. A private carrier has no such general right unless the contract expressly grants it.

5. Statutory control. Common carriers are heavily regulated — they must hold a licence, follow published tariffs, maintain insurance and observe safety rules. Private carriers are governed mainly by the terms of their own contract and general contract law.

Conclusion. The essential distinction lies in the public nature of the common carrier's business and the consequent stricter (insurer's) liability, whereas a private carrier carries selectively and is liable only for negligence as a bailee.

Arbitration

Definition: Arbitration is a dispute resolution process in which the parties to a dispute agree to submit their disagreement to one or more neutral third persons (called arbitrators), who hear both sides and give a binding decision called an award. It is an alternative to litigation in the regular courts. In Nepal, arbitration is governed mainly by the Arbitration Act, 2055 (1999) and the UNCITRAL Model Law framework.

Section 2(a) of the Arbitration Act, 2055 defines arbitration as the process of settling a dispute through an arbitrator or arbitral tribunal. Key features:

• It is based on the consent (agreement) of the parties.
• The arbitrator is a neutral third party chosen by the parties.
• The decision (award) is binding on the parties and enforceable like a court decree.
• It is faster, cheaper, more flexible and confidential than court litigation.
• The arbitrator decides on the basis of law, and may also decide ex aequo et bono (according to justice and fairness) if the parties so authorise.

Who Can Refer Disputes to Arbitration

1. General rule — parties to a dispute

Any person who has the legal capacity to contract (i.e., is competent to enter into a contract under Section 11 of the Contract Act, 2000) may refer a dispute to arbitration. This includes:

• Natural persons who are of sound mind and have attained majority (18 years).
• Business firms, companies, partnership firms, cooperatives and other legal persons, acting through their authorised representatives.
• Government and public bodies, in matters of a commercial or contractual nature.

The reference may be made in three ways:

1. By an arbitration agreement — a clause in the contract itself (arbitration clause), or a separate agreement signed before or after the dispute arises.
2. By submission agreement — when no prior clause exists, the parties may agree to refer an already-arisen dispute to arbitration.
3. By order of the court — where a party files a suit in court despite an arbitration agreement, the other party may apply to the court, and the court refers the dispute to arbitration.

2. Persons who cannot refer disputes to arbitration

• Minors and persons of unsound mind (no contractual capacity).
• Insolvent persons in matters relating to their insolvency.
• Disputes that are not arbitrable by law.

3. Non-arbitrable matters (cannot be referred even by consent)

• Criminal offences and matters of public policy.
• Matrimonial disputes such as divorce, maintenance and restitution of conjugal rights.
• Insolvency and bankruptcy proceedings.
• Disputes relating to guardianship, succession and adoption.
• Matters within the exclusive jurisdiction of special courts/tribunals (e.g., revenue, labour, land, tax).
• Disputes relating to patents, trademarks and copyrights where the law vests exclusive jurisdiction elsewhere.
• Anti-trust/competition and consumer protection matters of a public nature.

4. Examples

5. Conclusion

Thus, arbitration is a consensual, binding and speedy method of dispute resolution. Any person having contractual capacity — individuals, firms, companies, cooperatives and government bodies — may refer an arbitrable dispute to arbitration, either through an arbitration clause, a submission agreement, or an order of the court. However, minors, persons of unsound mind, and disputes of a criminal, matrimonial, insolvency or public-policy nature cannot be referred to arbitration.