Chapter 2

Law of Contracts
CHAPTER 2
Synopsis
1. Meaning, Nature and Functions of Contract
2. Essential Elements of a Valid Contract
3. Difference between a contract and agreement
4. Classification of Contracts
5. Brief introduction to the Civil Code, 2074
Meaning of Contract
The agreements creating obligations between the parties if
enforceable by law are treated as contracts. The contract in juristic
concept consists of two constituent elements, viz; Agreement and
Obligation.
Sir John Salmon: Contract is an agreement creating and defining
obligations between the parties.
David Walker: Contract is an agreement between two or more
persons intended to create a legal obligations between them and
to be legally enforceable.
Sir Willian Anson: It is A legally binding agreement made
between two or more persons by which rights are acquired by one
or more to acts or forbearances on the part of the other or others.
Civil Code, 2074: Contract means an agreement, enforceable by
law, between two or more parties to do or forbade doing
something.
Nature of Contract
1. Contract is an agreement between two or more person on a
particular matter or matters.
2. Contract creates legal and binding obligations between the
parties.
3. Contract establishes a course of actions between the parties
which is to be perform by them.
4. Contract provides certain remedies if things go wrong to the
affected party.
5. Contract is recognized and enforceable by law, i.e., contract
law.
Functions of Contract
1. Contract normally establish the value of the exchange or
transaction.
2. Contract lays down the respective responsibilities of the
parties and the standard of performance to be expected of
them.
3. Contract enables the economic risks involved in the
transactions.
4. Contract provides remedies to the affected party if promise is
not fulfilled.
5. Contract, in effect is the instrument by which the separate and
conflicting interests of the participants can be reconciled and
brought in to a common goal.
Essential Elements of A Valid
Contract
1. Two parties
2. Offer and Acceptance
3. Intention to create legal relationship
4. Meeting of minds or consensus-ad-idem
5. Consideration
6. Free consent
7. Contractual capacity of the parties
8. Legality of object
9. Not expressly declare void
10. Possibility to perform
11. Certainty and clarity
12. Legal formalities
Types of Contract
1. On the basis of enforceability 3. On the basis of existing duty
contracts under a contract
a. Valid contract a. Unilateral contract
b. Void contract b. Bilateral contract
c. Voidable contract 4. On the basis of performance of
d. Unenforceable contract contracts
e. Illegal contract a. Executed contract
2. On the basis of formation b. Executory contract
contracts 5. On the basis of future
a. Express contract contingency of contracts
b. Implied contract a. Simple contract
c. Quasi contract b. Contingent contract
The Civil Code, 2074: A Brief
Introduction
The reasons for the development of contract law in England and central Europe do have
meaning for us. The Nepalese legal system in its history and still in the present time have
influenced by the Hindu philosophy and rules. The Sruties and Smrities of different 'Munies
like Narad, Yanjbalkya, Manu, etc. have enlisted the various provisions relating to the
contract and obligations of the contracting parties. Customs and usages depended upon
Hindu religion were the main laws to deal the contractual relations. But lack of certainty,
generality and efficiency of those rules, the government of Nepal in the time of RANA reign,
at the first time Muluki Ain, 1910 was introduced where few provisions were made for
contracts. The 'Ain' was repealed and new Muluki Ain, 2020 was introduced with provisions
for contract. Until 2023, we did not have a separate law for contracts and this necessity was
fulfilled in the year of 2023 by enacting the Contract Act, 2023 by the parliament. This
contract law also was not effective and sufficient to deal the problems. The provisional
insufficiency, principle defects and traditional approaches of the Act led to necessity of
another contract law which was complete in the year of 2056, where the Contract Act, 2023
replaced and the contract Act, 2056 enforced. While drafting a unified Civil Code, the
provision of a contract laws are codified under the Civil Code, 2074 and the Contract Act,
2056 has been repealed. The Civil Code, 2074 fromally known as Muliki Devani Samhita,
2074 and its English translation the National Civil Code, 2074, has incorporated the modern
and developed principles of contracts enshrined in English laws and Indian laws. Chapter 5
of the Code has provided the provision of law of contracts and other types of liability. For our
convenience, in this book, the Muliki Devani Samhita, 2074 has been stated as the Civil
Code, 2074.
Major Provisions of the Civil Code
The major provisions of the Civil Code, 2074 relating to contract law
can be stated as follows:
1. Definition
2. Contractual capacity
3. Autonomous of parties
4. Offer and acceptance
5. Contingent contract
6. Void and voidable contracts
7. Specific contracts
8. Performance of contract
9. Breach of contract and remedies
10. Limitations
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Law of Contracts

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