Contract Law in Nepal – Easy guide to Karar Kanoon 2081

This article will guide you through all the provisions of contract law in Nepal.

This law is guided by Muluki Civil Code 2074.

If an agreement enforceable by law is concluded between two or more persons to do or abstain from doing any act, a contract is said to be concluded.

A contract is a voluntary arrangement between two or more parties that is enforceable by law as a binding legal agreement. A contract is a promise (or a set of promises) that is legally binding.

Contract Law in Nepal

Contract enforceable by law – Contract Law in Nepal

A contract concluded in fulfillment of the following conditions shall be deemed to be a contract enforceable by law:

  • The consent expressed by a person to a contract to bind himself or herself,
  • Capacity or qualification of a person to a contract to conclude the contract,
  • Certain matters for the creation of an obligation,
  • Lawful obligation.

Every person other than the following persons shall be competent to conclude a contract:

  • One who is a minor,
  • One who is of unsound mind.

Offer in Contract

A contract lies on the basic block called offer. An Offer is usually understood as a Proposal. A Proposal and its acceptance is the universally acknowledged process for the formation of an agreement.

Section 504 (Explanation 1) defines ‘proposal’ as follows:

Proposal means “a proposal presented by one person to another with the intent of obtaining his/her consent to do or not to do any work.”

To form a contract, one of the parties must make an offer, the other party must accept the offer, and consideration, or something of value, must be exchanged.

Termination of Offer

Termination of the offer is the expiration of the period of time during which the offer is to remain in effect. Offers may be terminated in any one of the following ways:

  • Revocation of the offer by the offeror;
  • Counteroffer by offeree;
  • Rejection of offer by offeree;
  • Lapse of time;
  • Death or disability of either party; or
  • Performance of the contract becomes illegal after the offer is made;
  • Failure of a condition precedent.

Acceptance in Contract

Acceptance means the signification by the offeree of his willingness to enter into a contract with the offeror on the terms offered to him. Without an acceptance, there can be no contract.”

Acceptance need not always be direct and can, in certain circumstances, be implied by conduct. Acceptance has been defined in our Civil (Code) Act 2074, under section 504 (Explanation 2) as ‘Consent’ which means the consent given by the person to whom a proposal has been presented in the same meaning as that offer.

Provisions Relating to Breach of Contract and Remedies

In the event that any party to a contract comes up short to fulfill the commitment beneath the contract or gives a take note to the other party that he or she will not perform the act to be performed by him or her beneath the contract or his or her activity and conduct illustrate that he or she is unable of performing the act beneath the contract, the party might be considered to have breached the contract.

In the case of breach of a contract beneath Section 535, the party abused by it should be entitled to recoup from the party in breach of the contract harms for the real misfortune or harm caused by the breach or such misfortune or harm which the contracting parties knew when they made the contract to be likely result from the breach.

Power of Court to make Order

If the performance of a contract is not possible because any party to the contract is about to perform any act or conduct which is contrary to the nature of the contract,
the party aggrieved by such an action or conduct may file a complaint in the court to prevent such an act or conduct.

If a complaint is filed pursuant to sub-section (1), the court may issue an appropriate order to any party to immediately stop his or her particular action or conduct, subject to the settlement of the dispute arising out of that contract in accordance with such a contract or law.

Provisions Relating to Contracts of Guarantee

If a contract is concluded under which a third party undertakes to repay the loan
borrowed by or discharge the liability promised by a person in case of that person’s default, a contract of guarantee shall be deemed to be concluded.

If a third party gives the guarantee pursuant to subsection (1) and the person bound to repay the loan or discharge the liability fails to repay or discharge such loan or liability, the person giving the guarantee (the surety) to such loan or liability shall repay the loan or discharge the liability according to the terms and conditions of the contract.

Statute of Limitation

A person who is aggrieved from an act done or action taken under this Chapter may make a lawsuit within two years after the date of the accrual of the cause of action.

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