a. Dr. Manoj and Dr. Sanjaya entered into a partnership contract to run a clinic in Kathmandu. The agreement…

Question

a. Dr. Manoj and Dr. Sanjaya entered into a partnership contract to run a clinic in Kathmandu. The agreement between them provides that any of them should not practice as a doctor in Kathmandu within the period of two years, and if did so, he should pay Rs. 1,00,000 to another as compensation. But, immediately after six months, Dr. Manoj began to practice as a doctor by next door to the clinic. Dr. Sanjaya, thereupon, sued Dr. Manoj for compensation for the breach of contract between them. If you were a lawyer of Dr. Sanjaya, advise in the following issues: i) What is the legality of this agreement? [2.5] ii) Whether Dr. Manoj is bound to pay compensation to Dr. Sanjaya for the breach of contract? [2.5] b) Janata Jewel store delivers a golden necklace to Yamuna on the basis of 'sale or return' condition for three days. Both the parties agree that 'the ownership will passes after notice of acceptance'. The second day Yamuna sells the necklace to Ganga who buys that Jewel on good faith. But, Yamuna has neither given notice of acceptance nor price to the Janata Jewel store. Answer following questions with reason: i) Whether contract between Janata jewel store and Yamuna valid? [2.5] ii) Whether Ganga acquires ownership of the Jewel? [2.5]

Padhai · Accepted Answer

a. Partnership between Dr. Manoj & Dr. Sanjaya

i) Legality of the non‑competition clause

Requirement under Nepal law	Observation in the agreement	Conclusion
Reasonableness of duration – restraint must be limited to the period necessary to protect a legitimate interest (Contract Act 2064, s 27).	Two‑year ban on practising as a doctor in the whole of Kathmandu.	Excessive; a shorter period (e.g., 6‑12 months) would be considered reasonable.
Reasonableness of geographic scope – restraint must be confined to the area where the employer has a real interest.	Entire city of Kathmandu.	Over‑broad; the clinic’s actual market is likely limited to a neighbourhood.
Public policy – a doctor’s freedom to practise is a matter of public health (Medical Council Act 2075).	Clause completely bars a qualified doctor from serving the public for two years.	Contrary to public policy; courts have held similar restraints void as they impair the public’s right to medical services.
Consideration – there must be adequate consideration for the restraint (Contract Act 2064, s 25).	No separate consideration; the clause is part of the partnership agreement only.	Consideration is nominal; the clause is therefore unenforceable.

Result: The non‑competition clause is void for being unreasonable in duration, geographic scope, and contrary to public policy. It cannot be enforced as a contractual term.

ii) Liability of Dr. Manoj for compensation

Effect of a void clause – Since the restraint is void, the stipulated “Rs 1,00,000” operates as a penalty rather than a genuine pre‑estimated loss (liquidated damages). Under Contract Act 2064, s 28, a penalty clause that is extravagant or unconscionable is unenforceable.
Breach of partnership duties – Dr. Manoj’s act of practising independently breaches the partnership agreement (Partnership Act 2075, s 13 – duty to act in good faith and not to compete with the partnership). The aggrieved partner may claim actual damages for loss of profit or goodwill, not the stipulated fixed sum.
Quantum of damages – The court will assess:
- Loss of income to the partnership during the period of breach.
- Any additional loss suffered by Dr. Sanjaya (e.g., loss of patients).

Advice: The Rs 1,00,000 clause cannot be enforced. Dr. Sanjaya may sue for actual damages proven with accounts of loss; if no loss can be shown, the claim will fail.

b. Sale‑or‑Return of a golden necklace

i) Validity of the contract between Janata Jewel Store and Yamuna

Nature of the agreement – “Sale or return” is a conditional sale; the contract is formed at the time of delivery, but title passes only upon acceptance (Sale of Goods Act 2075, s 30).
Condition precedent – The parties expressly agreed that ownership will pass after Yamuna gives a notice of acceptance. Until such notice, the store retains title.
Essential elements of a contract – Offer (delivery of necklace), acceptance (Yamuna’s promise to consider), consideration (price to be paid later). All are present; therefore the contract is valid, though it is a conditional contract.

Conclusion: The contract exists and is enforceable, but title has not yet transferred because the condition (notice of acceptance) remains unsatisfied.

ii) Ownership of the necklace in the hands of Ganga

Yamuna’s title at the time of resale – Since Yamuna has not given notice of acceptance, she does not own the necklace; she only holds it as a bailee for the store.
Doctrine of “voidable title” – Under Sale of Goods Act 2075, s 35, a seller who obtains goods without title can pass a voidable title to a buyer in good faith. However, this applies only when the seller is a merchant dealing in goods of that kind. Yamuna is a consumer under a conditional sale, not a merchant.
Effect on Ganga – Because Yamuna lacked title, she cannot convey good title to Ganga. Ganga acquires only a right to retain the necklace until the underlying dispute is resolved; she is a sub‑bailee.

Result: Ganga does not acquire ownership of the necklace. She may be entitled to restitution if she acted in good faith, but the legal title remains with Janata Jewel Store until Yamuna fulfills the acceptance condition.

Key points for examiners

Non‑competition clauses are scrutinised for reasonableness; overly broad restraints are void.
Penalty clauses that are not a genuine pre‑estimate of loss are unenforceable; only actual damages may be claimed.
A “sale or return” creates a conditional contract; title passes only upon satisfaction of the stipulated condition.
A buyer in good faith acquires only a voidable title when the seller is a merchant; a consumer‑buyer cannot pass good title.

a. Dr. Manoj and Dr. Sanjaya entered into a partnership contract to run a clinic in Kathmandu. The agreement between them provides that any of them should not practice as a doctor in Kathmandu…