An Assignment on Business Law

Case study and Long Question Answer

Abish Dahal

LC00016000024

IV-Semester

Nepal Business College

Biratnagar-15

Author Note

This research paper is based on the research done in Business law regarding the case studies,
Long question answer which was assigned by Prof Dr Devi Bahadur Thapa .

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 Case Study Solution

1. Kathmandu Institute of technical science (KITS) calls tender for the supply of
certain health Appliance, which it may require from time to time. Mr . X submits the
tender application with quotation promising to go on supplying the appliance as and
when KITS requires. KITS accepts the tender of a Mr.X. But during the whole year
period, it does not make any order for the goods due to which X has to suffer a huge loss
because of X unnecessary capital blockage. Mr.X sues KITS claiming compensation for
loss caused to him because of no order being placed by the latter. Besides, the above case
on the basis rules regarding standing contract.

A. Should KITS be liable to make order for goods?

Ans: According to rules regarding standing contract, I think KITS will not be liable to
make order of goods. Similarly, standing contract means those type of contract where the
offerer will be actively participate in order to fulfill his/her obligation but the Acceptor may
not the liable to fulfill the obligation at the same time where offerer wants to offer goods to
acceptor. Moreover, the acceptor accepts when he/she wants. So, because of this the KITS
should not be liable to make order for goods. He can order the goods form Mr. X on that say
when he/she wants. Not compulsorily the KITS should receive the contract when Mr. X wants;
it is to KITS who can order at any time when he/she wants it. So, if KITS should make order
for goods, if is not KITS will be forced, it is because KITS wants it. After all, the contract
between KITS and Mr.X is standing contract.

B. Should KITS be made liable to compensate Mr.X as per his claim?

Ans: In general, standing contract is quite different then other contract because in
general contract we find that time, place and legal obligation between the contracting parties
matter much. So, if any one violates this general contract, they should claim compensation to
suffering party. However, in case of standing contract, yes there is legal obligation but it is not
compulsory to fulfill the obligation at the same when one party fulfills his/her obligation. For
example, under standing contract, a contract between Hari and Ram is made and the subject
matter is to sell electric appliances for 5 years. Here, Hari is acceptor or buyer and Ram is
offerer or seller. Suppose, a year has passed and Hari had made no order from Ram. Hence in
this case even Ram bear the loss but he cannot claim to Hari for his compensation because in
standing contract the fixed time and fixed place does not matter much. On contrary, if Hari
order appliance from Ram, he should fulfill hi obligation at the same time when the order by
Hari is been made.

So, with the help of these explanation, even though the seller i.e. Mr, X bear loss, cannot
claim for compensation for his claim because there is no such provision for seller in the case of
Standing contract. Therefore, KITS will not be liable to compensate Mr. X as per his claim.
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2. A sold cistern oil to B. For delivery of it, A had to fill oil into casks and filling into
casks and filling into casks, B have to them away. Some of the casks were filled in the
presence of B, but before filling remaining casks a fire broke out and entire volume of oil
got destroyed.

A. Who should bear the loss, A or B or Both?

Ans: In my opinion, I think A should bear the loss. In fact, A is completely liable for
this and has to bear loss. In the case, even though A sold goods to B, it does not means that
B will be liable for this destruction because in this case selling of goods takes place not the
delivery of goods. So, if the good will be completely delivered to B, then there seems the
transfer of owner ship. We know that ownership transfer is the ultimate right of the person to
his good.
Since, in this case, selling of goods takes place not the transfer of ownership. So, due to
complete undelivered of goods to B, there seems A still has ownership of goods with him.
So, because of this, A is completely liable for the loss.

B. If both should bear the loss, how should they bear it?
Ans: Well, if we analyze the contract of sales, we find that A is completely liable for this loss
because the goods is still not delivered to B. But if both agree to bear the loss on mutual
agreement, the extent of loss that B is going to bear is quite small then the extent of A. It is
so because A had failed to deliver the goods to B completely. So there is no complete transfer
of goods. Therefore, the extent of loss bear by B is small than A.

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3. Bhanubhakta school of Kathmandu is in need of English teacher and therefore, the
school calls, through advertisement application from the public. Pashupati, a resident of
pokhara comes to Kathmandu and applies for the post. The management committee
decided to approve this application for the post but that decision was not communicated
to Pashupati. One of the members of the management committee in his individual
capacity and without any authority informs the pashupati about the decision.
Subsequently, the management committee cancelled the decision and appointed another
teacher in his place. Ascertaining the fact, pashupati filled suit against the management
committee for the breach of contract and claim the compensation for Rs. 5,000.

A. Can the committee have the right to conceal the approval of pashupatis application
on the ground that he is not formally communicated about his appointment?
Ans: No, the management committee has no right to conceal the approval of Pashupatis
application on the ground that he is not formally communicated about his appointment. It is
against the principal of contract. However, the management committees need to forward the
result of pashupati within reasonable time so that he will not suffer. Here, in this case, we
find that the committee on his own intention had not provides any results to pashupati which
may cause the loss to pashupati. This shows the committee is diverted from their duty and
responsibility which shows the intention of breaching the contract. So, because of these the
management need not conceal application even though he is not selected. After all, it our
rights to know about the result and this should not be concealing. If someone does so, he will
be punishing legally.

B. Can communication made unauthorized by a member of committee of be valid?

Ans: Yes, the communication made by unauthorized by a member of committee is valid because
the members provide the information to the applicant Pashupati which he deserves to get the
information. Similarly, the member has flow the correct information which is meant to be flow
by the committee to the applicant Pashupati. So, because of this member it seems that the
committee has fulfilled his obligation but unfortunately the applicant of pashupati has been
cancelled by management committee.

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1. A contract of Agency is also a contract made by an Agent for the principal. Do you
agree with it and also explain the obligation of the principal in the context of this
statement.

Ans: In general, contract of Agency means the appointment of an Agent by principal in order
to perform work by Agent on the behalf of principal. During this process, the authority is
delegated from principal to an Agent. Moreover, Nepalese contract act 2000, under section 56
defines an Agent as Any person may appoint any other person as his/her agent to do anything
on his/her behalf, except something connected with his/her personal skills or to conduct
business as his/her agent of may transaction with a third person on his behalf or to represent
himself to such person, or to establish any of legal relation with the person appointing an agent
and a third person, and in case an agent is so appointed, a contract relating to agency shall be
deemed to have been concluded.
The definition signifies that an Agency is a legal relationship between the principal and the
agent for doing any work on behalf of the principal except the work relating his/her personal
capacity. The function of an agent is to bring about contractual relations between the principal
and the third parties. Therefore, the agent is a contracting person between the third parties.
Therefore, the agent is a contracting person between the principal and third parties. The work
of Agent within the power possessed makes the principal responsible to the third parties for his
conduct. It is necessary to take into account that every person who works for another is not an
Agent.
On contrary, contract of Agent means the appointment of sub-agent or substituted Agent
by Agent himself/herself under certain terms and condition, which ultimately work for
principal who is responsible to appoint an Agent. The term sub-agent and substituted agent
are different.
Sub-agent is a person who is appointed by and acting under the control of, the original agent in
the business of agency is known as sub-agent. The sub-agent is appointed under the
exceptional rule on non-delegation of authority.
Some of the exceptional rules are:

Agent can delegate authority to another person in the following conditions:

1. Where the principal has given express consent to him for the delegation of his/her
authority.
2. Where the principal impliedly, by his conduct allows the agent to delegate his authority
to any person he/she likes.
3. Where the agent is appointed according to ordinary custom of trade.
4. Where appointment of sub-agent becomes urgent because of happening of unforeseen
emergencies.
5. Where the nature of work is such that is necessary to appoint a sub-agent for the
performance of agency business.
6. But the agent cannot delegate his authority to another person for the work done only by
personal efficiencies.
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 Thus, the agent can appoint sub-agent to act on the behalf of the principal but the
agent, not the principal, will be liable for the work done by sub-agent.

In case where the sub-agent is appointed improperly or without authority, the

following consequences emerge:
A. The principal is not liable and not bound by the works of sub-agent.
B. The agent is himself fully liable for principal, third party and sub-agent.
C. The sub-agent is not liable to the principal in any circumstances including fraud
or willful wrong.
According to Nepalese contract Act 2000, it is prohibited to appoint sub-
agent for the work to which has been appointed or to represent or work
personally to the principal.

Similarly, substituted Agent, if an original agent appoints an agent in his place he/she is
known as substituted agent. It is also known as co-agent. After appointing such an agent
the original agent or first agent retires and free from the further liability towards his
principal and the contractual relationship is established between him and the principal. The
original agent must act with reasonable care in selecting a substituted agent. If he/she
makes the selection carelessly, he becomes liable to the principal for the negligence of the
agent so chosen. Indian contract Act, 1872 has defined substituted Agent as, a person
appointed by the agent according to the express or implied authority of the principal, to act
on behalf of the principal in the business of agency.
Therefore, under these terms and condition, we can say that, A contract of Agency is
also a contract made by an Agent for the principal. After all, contract of Agency means an
appointment of an agent by principal and contract made by agent means appointment of
sub-agent by an agent which is ultimately works for welfare of principal.
Likewise, following are the legal duties or liability of the principal to his/ her agent.
They are:
a) To provide remuneration: Although it is the matter between the principal and
agent but the principal has to provide remuneration or commission as mentioned in
the contract if any. If not mentioned in contract, the principal should provide
reasonable commission to his agent.

b) To reimburse money: The principal is liable for repaying or reimburse money

which spent by the agent to preserve the goods or performance of contract.

c) To give the notice: The principal is bounded by the notice given to or information
obtained by the agent in the course of the agency business. Knowledge of the agent
is said to be knowledge of principal. The principal cannot get rid of obligation by
stating he us not bound by the notice served to the agent.

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 d) To give reasonable compensation: In case, where the principal removes his agent
without any reason and prior notice, he must provide compensation to the agent for
his loss.

e) To be responsible: The principal must be responsible for any loss or damages

caused by the lack of skill or efficiency that agent has no such thing in respect of
any subject.

Moreover, these are the different forms of the compensation that is in favor of Agent. To
sum up, as the reference of above explanation we can say that A contract of Agency is also a
contract made by Agent for the principal.

2. What is meant by the termination of contract? Point out the various modes in which a
contract may be discharge and discuss the case impossibility of performance on modes
that discharge the contract?

Ans: The termination of contract means the termination of contractual relationship. The
contractual relationship is terminated when the rights and obligations arising out of such a
relationship are extinguished. A contract is said to be terminated or discharge when the rights and
obligations created by it come to an end. In some certain cases, other rights and obligations may
arise as the result of termination of contract but such rights and obligations are independent from
the original contract. Even in this case the original contract is terminated. It means the
termination of contract leaves nothing to do the parties. A contract may be terminated or
discharge by any one of its several modes. A contract creates legal relationship between the
parties arising some rights and obligations. The parties remain liable under the contract until it
comes into an end.

Likewise, some of the modes on which the contract get terminated or discharge are as follows:
1. By performance.
2. By agreement.
3. By lapse of the time.
4. By operation of law.
5. By Breach.
6. By impossibility of performance.

1. Termination by performance:
Each party to a contract is bound to perform his/her part of the obligation. After
parties have made due performance of the contract, their liability under the contract
comes to an end. In such case, the contract is said to be terminated or discharge by
performance. This is the most obvious and usual mode of termination of contract. In this
case, what the contracting parties had contemplated at the time of entering into contract
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 is fulfilled duly in expected manner. In such termination of contract, the object for which
a contract is made is accomplished; nothing remains to be done for the parties. But if
only one party performs the promises, he/she alone is discharged from the liability and is
entitled to sue against the other party who does not perform his/her promise.

Performance may be:

I. Actual performance, or
II. Attempted performance.

A party is said to have actually performed his promise when he has fulfilled his entire
obligation under the contract. But when the parties offer to perform their respective
promises, it is called attempted performance. Where a promisor has made offer to
perform which the promisee does not accept, the promisor is excused from performance
and becomes entitled to sue promise for the breach. Thus, performance relieves the
promisor from his obligation under the contract and the contract is terminated or
discharged.
However, a contract also gets terminated under actual performance where both party
fulfill their contractual obligation.

2. Termination by Agreement:
The rights and obligations emerged by an agreement can discharged without
performance by means of another agreement between the parties which provides for the
extinguishment of the earlier rights and obligations. A contract may also be rescinded by
mutual agreement between the parties. In such cases the original contract need not be
performed. Again by agreement some important changes may be terms of the contract.
Likewise, they may also be situation where the parties may be changed, the contract
remaining the same. In all cases, the original contract is terminated or discharged. In
simple words, the original contract is discharged when the parties enter into fresh
contract in place of the original several forms of agreement. They as follows:

Discharge of contract by agreement

Novation Remission Waiver Rescission Alternation

Change of Change of
parties Agreement
I. Novation: When the parties to a contract to substitute the existing contract by
new one that is called novation. Such a new contract may either between the same
parties or between the difference parties. The old contract gets terminated and
need not be performed. It was stated that novation may involve either change of
parties, the contract remaining the same, or change of contact between the same
parties. Hence, novation is of two kinds:

a. Involving change of parties: There may be case that one party to the
contract may be substituted by another person. The original contract
remains the same. The person so substituted need not perform the contract
but the person substituting him will perform the contract. In such cases,
the concurrence of all the parties is necessary. The novation of this kind
takes place when a new partner is admitted into an existing firm or firm is
reconstituted after retirement of a partner.

b. Involving substitution of a new contract in place of an old one: The

parties may enter into a new contract and the old contract is substituted by
a new contract between the same parties. The original contract therefore
discharged and need not be performed. But it is necessary that original
contract must be substitution is not possible. Moreover, the new agreement
should be valid.

The following conditions must be fulfilled to make a valid novation:

The original contract must be subsisting and undertaken. Novation

should be made before the breach of original contract.

All the parties must give their consent to novation.

The new contract should be valid and enforceable.

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 II. Remission: Remission means the part sacrifices of the contractual rights given to
a party by the contract. It is an acceptance of amount less than what was
receivable according to contract. If the promisee accepts fewer amounts in full
satisfaction of whole amount, no further consideration is required for the same
contract to discharge. If promisee once accepted, he cannot claim such amount
later on and the promisor is released from his obligation of the contract so
concluded. The original contract comes to an end.

III. Waiver: Waiver denotes the full sacrifice of rights resulted from the contract to its
party. If a party waives all the rights acquired under the contract, the other party is
released at the very moment from the obligations. The consideration becomes
irreverent for its validity. The original contract is terminated by this conduct. It is
distinct from remission in the degree of rights left.

IV. Rescission: Rescission is the cancellation of all or some terms of the contract. If
the parties agree to rescind their original contract before the date of performance,
such contract is said to be terminated as a result of former contract. It also takes
place in the case of failure of one party to perform obligation on his side. In this
situation, the aggrieved party also can rescind the contract and can claim
compensation for breaching of contract. It occurs in the case of a voidable
contract too. The party, whose consent was not obtained freely, has right to avoid
the contract and if he does so the contract is terminated. It seems similar to
novation as a mode of termination but in this case, there is no new contract
concluded to rescind the original contract.

V. Alteration: The term alternation signifies change in one or more terms or

condition of the contract. In such cases, the original contract is not wholly
rescinded. Only some terms of the original contract are varied and made
inoperative. The alternation is valid when it is made with the consent of all the
parties. A valid alternation discharges the original contract and parties become
bound by a new contract.

3. Termination of contract by Lapse of time: Every contract must be performed with in a

fixed or reasonable time that depends on the terms of the contract. If the contract is not
performed within the time fixed in the contract or reasonable, the right to take legal
action against the breaking party by the aggrieved party is started. In this case if the legal
action is not taken by the promise within the period of limitation, he loses his remedy
under the contract. In case of contracts, the period of limitation is two years. If a party
does not file a suit to enforce his right within the prescribed period, the remedy becomes
time barred. After the expiry of the time limitation period courts will not entertain a law
to enforce the contract. In this way a valid contract is converted into unenforceable
contract and the contract is discharged.
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4. Termination of contract by operation of Law: In some certain cases the contract is
terminated by operational of law automatically and as a result of such termination, the
rights and liabilities arising out of the contract are extinguished. It denotes that the law
considers that the contract is terminated. In the following cases such happens:

I. Death of the promisor: If the contract is formulated on the basis of personal skill,
interest or qualification of the promisor, he must perform it. If he dies before the
performance, the contract also is terminated with his death.

II. Insolvency: Sometimes a person is declared insolvent by the court of law. After
being adjudged insolvent he is released from all his liabilities. After getting a
certificate of discharge, all his liabilities are extinguished which existed prior to
his adjudication as insolvent.

III. Merger: Sometimes a person enters into a contract by which he gets certain rights
which are superior to some rights possessed by him under a contract already
entered into by him. In such case the inferior rights of a person merge into his
superior rights. On merge the inferior rights vanish and that contract is
discharged.

IV. Unauthorized material alteration: In case where contract is contained in a

written document and if the promisee or his agent makes alteration, without the
consent of the other party the contract is discharged. The contract is discharged
when:

Alteration is made by a party to the contract.

It is made without consent of the other party, and

It is material alteration.

Material alteration is one which varies the rights and liabilities or legal position of
the parties. Alteration which are not material and which do not affect the rights
and liabilities of the parties or which are made to carry the rights and liabilities of
the parties or which are made to carry out the common intention of the parties of
which are consented by the parties do not affect the validity of a contract.

5. Termination of contract by impossibility of performance: It is important that a

contract at least should be capable for its validity since the law does not compel to person
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 to do impossible work. If the parties enter into a contract to do something impossible the
agreement is void. Sometimes the parties may find that due to change in the
circumstances or law, the performance of the contract becomes impossible. This is called
subsequent impossibility of performance or doctrine of supervening impossibility. In this
sense the impossibility may be either initial or subsequent.

I. Initial impossibility: It is the impossibility that exists at the time of making the
contract. This initial impossibility may be known or unknown to the parties at the
time of making an agreement. In case of known impossibility the agreement is
void. Unknown impossibility is that where the parties are not aware about the
impossibility, later on it comes to the knowledge of parties. In such the contact
becomes void when such impossibility is discovered because parties are under
mutual mistake of fact. For example: A agreed to sell his horse to B. But unknown
to both parties that the horse had already died. Here, the contract is void on the
ground of impossibility since the subject matter of contract is already destroyed.

II. Subsequent impossibility: In some case, it may happen that the performance of
contract becomes impossible subsequently to the formation of a contract. At the
time of forming a contract it was possible to perform but the occurrence of change
in law or circumstances, the performance becomes impossible. This is called
subsequent impossibility of performance or supervening impossibility and in such
case, parties are discharged from the further performance. When performance
becomes impossible, the contract comes to an end.

6. Termination of contract by Breach: In contract, each party must perform his promises.
When any party fails to perform it the contract is deemed to have been violated and it comes
to an end. In the case of breach of contract, the contract is terminated at the very moment of
breaking.

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