Postal Set 1

Question 1.
1. B. Void agreement
2. A. Agreement
3. B. Void Agreement
4. D. Consideration
5. A. Lawful Consideration
6. C. Fraud
7. A. Void
8. C. Partly Correct
9. A. Valid Contract
10. B. Specific Performance
11. B. Coercion
12. C. Voidable agreement may be Valid
13. B. Consideration should not be illusory.
14. A. True
15. D. Not Affected
16. D. Not Affected.
17. B. Subrogation
18. A. False (it should co-extensive with that of debtor)
19. B.Contract of Guarantee is terminated due to death of guarantor.
20. B. Implied Warranty
21. B. False
22. B. False
23. A. True
24. C. Dormant Partner
25. B. False (true is after the approval of concerned Department)
26. B. False
27. B. Entire assets of partnership
28. C. Partly True
29. B. Not exceeding 10%.
30. B. Pay back value of loss
31. B. Out of Profit only.
32. B. Until he pays said capital.
33. D. (Correct is every partner shall be liable and not the firm)
Q.2. (a)
Every contracts are agreements but every agreements are not contracts
Nepalese contract law applies only to those agreements which are valid and enforceable by law. An agreement
which does not give rise to any legal obligations e.g. marriage, conveyance of gifts, etc., which are not enforceable
by law as contracts. Obligation to maintain one’s wife and children does not arise out of contract. Agreements
which result in the transfer or the destruction of rights are not covered by the, Contract Law.
Meaning and Nature of Contract
A contract has been defined as follows: Salmond defines a contract as “an agreement creating and defining
obligations between the parties”.
Sir William Anson observes, “A contract is an agreement enforceable at law made between two or more persons,
by which rights are acquired by one or more to acts or forbearances on the part of other or others”.
According to Sir Fedrick Pollack, “Every agreement and promise enforceable at law is a contract”. Sec 2(h) of the
Indian Contract Act defines a contract as “An agreement enforceable at law”. These definitions resolve themselves
into two distinct parts: First, there must be an agreement.
Secondly, such an agreement must be enforceable by law and an agreement to be enforceable must be coupled
with obligation.
Thus a contract requires:
(i)  Two Parties : There must be two parties to constitute a contract. A contract can only be bilateral and the same
party cannot be a party from both the sides. Hence, there cannot be a contract between A on one side and A on
the other. Nor can a partner be a servant of his own firm as a man cannot be his own employer. A person cannot
enter into a contract with himself.
The person who makes the promise is known as the “promisor” and the person to whom the promise is made is
known as the “promisee”. As a matter of fact in a contract each party is a promisor as well as promisee. For
example, when a promises to sell his car for a sum of Rs. 20,000 to B, A is a promisor because he has promised to
sell his car while he is also a promisee because there is a promise from B to pay a sum of Rs. 20,000 to him. The
same is the position of B.
(ii)     An agreement: A proposal from the side of one party to do or abstain from doing a particular act and its
acceptance by the other party are the two essential elements of an agreement. An agreement occurs when two
minds meet for a common purpose; they mean the something in the same sense at the same time. The meeting of
the mind is called consensus ad idem, i.e., consent to the matter.
For example, if A says to B that he is willing to sell his car for Rs. 20,000 and B gives his assent to this offer, the
agreement will come into being.
An agreement means every promise and every set of promises, which forms consideration for each other. A
promise means “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to
be accepted. A proposal, when accepted, becomes a promise”. It simply means that an agreement is an accepted
proposal. Therefore, to form an agreement, there must be a proposal or offer by one party and its acceptance by
the other.
(iii)     An Obligation: An obligation is the legal duty to do or abstain from doing something.
An agreement to a contract should give rise to some legal obligation i.e. which is enforceable at law. Agreements
which give rise only to social or domestic obligations cannot be termed as contracts. Thus, an agreement to go to a
picture or attend a dinner is not a contract as it was not intended to give rise to any legal obligation. Similarly, an
agreement to agree in future is not a contract because unless all important terms of the contract are settled, there
cannot be any binding obligation. Such agreements are void for want of certainty. For example, if A agrees to sell
100 bales of cotton to B at a price to be settled in future.
All Agreement are not Contracts
Agreement is a much wider concept than a contract. Agreements in which the intention to create legal obligation is
absent are not contracts. Therefore, agreements relating social matters are not contracts. For example, an
agreement between two persons together for a walk, or a cinema show does not create any legal obligation on
their part to abide by it.
Also, agreements which the parties declaer not to be binding do not constitute a contract. They may be just
“honoured pledges” and expressly stated to “outside the jurisdiction of any court”.  (Rose Frank Co. v. Cromption
Brs.  (1925).
All Obligations also do not constitute contracts
Any obligation, which arises independently of an agreement, cannot be the basis of a valid contract, A domestic
arrangement with no intention to create legally binding relations will not constitute a contract, such as a promise
by a father to pay pocket money to his son. In the words of Lord Atkin, “The most usual form of agreements, which
do not constitute a contract, are the agreements made between husband and wife”. They are not contracts
because the parties do not intend that they should be attended by legal consequences.

Q.2(b)
As per the contract law envisaged in Muluki Dewani Samhita Ain, When a party to a contract has refused to
perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the
contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

Also, A person who rightly rescinds a contract is entitled to compensation for any damage which he has sustained
through the non-fulfillment of the contract.

In given question, Mrs. Sharma, a singer has agreed to singh in Theatre of Mr. Singh for 3 nights in every week
during the period of next six months and Mr. Singh agrees to pay her Rs. 500 for each night’s performances. On the
tenth nigh, Mrs. Sharma intentionally absents herself and hence Mr. Singh rescinds the contracts and refuses to
pay for the days which has already performed.

In line with provision of contract law as mentioned in first and second paras above, Mr. Singh can rescind the
contract and he is entitled to claim compensation for the damage which he has sustained through the non-
fulfillment of the contract.

However, When an agreement is discovered to be void, or when a contact becomes void, any person who has
received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to
the person from whom he received it.

Hence, Mr Singh has to pay Mrs. Sharma for the 9 nights for her performances.

So, Mr. Singh’s ground for non-payment is not tenable and he has to pay for the performance she has performed.

Q.3 (a) Coercion

Coercion in law of contract means threats or actual harm was used to force someone into entering into a contract.
If coercion is involved in the formation of a contract, the agreement will not be legally enforceable.

As per Section 518(2)(a) Muluki Ain , A person shall be deemed to have indulged in coercion if he, with the
objective of compelling any person, to accept any contract against his will, withholds or threatens to withhold
property belonging to him, or threatens to defame him or his life or body, or takes or threatens to take any other
action in contravention of prevailing law.
Thus, "Coercion" is
- the committing any act forbidden by the law or
- or threatening to commit any act forbidden by the law or
- the unlawful detaining, or threatening to detain any property,or
- threatening to detain any property,
- to the prejudice of any person whatever, with the intention of causing any person to enter into an
agreement.

Effect of Coercion:
1. Aggrieved party has right to rescind (avoid/cancel) the contract.
2. Obligation of aggrieved party to restore benefit
3. Obligation to other party to repay or return.

For example,

- A threatens to hurt B if he does not sell his house to A for 5 lakh rupees. Here even if B sells the house to A, it
will not be a valid contract since B’s consent was obtained by coercion.

- An agent refused to hand over the books of accounts of business to the new agent sent in his place, unless
the principal release him from all liabilities. The Principal give a release deed as demand. It was held that
the release deed was voidable at the instance of principal who was made to execute the release deed
under the coercion.

Q.3.(b) Cancellation of Registration of Partnership Firm:

As per sec 11B subsection (1) The concerned Department may cancel registration of a firm which is registered
under this act in the following conditions;
(a) If a firm registered for commercial business fails to cause to effect renewal of the firm within
stipulated time.
(b) If the partners submit an application to terminate the registration of the firm upon setting out
reasonable reasons thereof to the concerned Department.
(c) If a firm fails to submit the particulars sought by the concerned Department pursuant to section
11a within prescribed period.
(d) If an industry related firm closes down the operating industry, whether by providing notice
thereof to the concerned Department or not.
(e) If an industry related firm fails to cause to effect the renewal of the firm within the prescribed
time from the expiry of validity period to renew the firm; or fails to submit the written progress
report on the action as may be required to be taken for the construction of factory, purchase of
machinery or tools or equipment and operation of the industry in order to establish and operate
the industry as per the condition of the license despite the firm has been renewed.
(f) If a firm commits an act in contravention of this Act or Rules framed hereunder.

The concerned Department shall give a reasonable opportunity to the concerned firm to submit it's clarification
before canceling the registration of that firm pursuant to Clauses (a), (c) (d) (e) or (f) of Subsection (1).

If the concerned Department cancels the registration of a firm pursuant to Clauses (a), (c), (d) (e) or (f) of Sub-
section (1), no any other firm which carries the same objectives shall be registered in the name of such partners of
that firm for a period of one year.

Q.4.(a) Refer page 64 of my book point no 8.1.3.

Q.4.(b) Dormant Vs. Nominal Partner
1. Dormant partner is a partner that does not participate in the daily functioning of the partnership firm,
i.e. he does not take an , part in the daily activities of the firm where as a partner that does not have any
real or significant interest in the partnership is known as nominal partner.

2. Dormant partner will make capital contribution but nominal partner will only lend the name and not any
capital.

3. Dormant partner will continue to share the profits and losses of the firm where nominal partner will not
share any profits.

4. No public notice is required on retirement of dormant partner however in case of nominal partner public
is required on his retirement.

Q.5. (a) According to Section 37 of Nepalese partnership Act, 2020, Subject to the agreement
concluded among the partners and the provisions contained in Section 32 of the Act, the accounts of a firm which is
dissolved shall be cleared off in the following manner:
1. To convert the estate of a firm in to monetary value,
2. Losses including deficiencies of capital shall be paid firstly out of profits secondly out of capital if it is not
sufficient and lastly out of the individual assets of every partner.
3. The assets of the firm including to make up deficiencies of capital shall be applied in the following manner and
order:
 In paying the debts of the firm to the third parties;
 In paying to each partner proportionately (Damasahi) what is due to him/her from the firm for the
debt as distinguished from capital;
 In paying to each partner proportionately (Damasahi) what is due to him/her on account of capital;
and
 The residue, if any, shall be divided among the partners in the proportion which they were entitled
to share profits.
Despite any agreement between partners no assets of the firm shall be divided between/among the
partners without paying the debt of the firm.

Q.5.(b)
According to section 34(1) of Contract Act, 2056,

In case it is proved that any property has been bailed with the intension of avoiding a partition of
property or payment of any government charge or any amount involved in any claim or to be paid to
anybody, or with any other illegal motives, the contract relating to such bailment shall be void.

In case the bailee does not keep the bailed property according to the term and conditions of the
contract, the bailer may get back the bailed property at any time.