Unit 2.

General Contract

2.1 Law of contract (3 LH)

2.1.1 Meaning and definition of contract
2.1.2 Essential elements of a valid
contract
2.1.3 Types of contract
2.1.4 Major provision of Nepal Karar Ain
2056
Dr.Saroj Kumar Timalsina 1
2.1.1 Meaning and definition of
contract
• Simply, contract means meeting of minds.
• In another term contracts refers an
agreement between two or more than two
person to do or not to do something.
• a written or spoken agreement, especially one
concerning employment, sales, or tenancy,
that is intended to be enforceable by law.

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 CON…
• Salmond "An agreement which creates an
obligation or right in-between parties to it.“
• F.Pollock "Every agreement or promise
enforceable at law is a contract.
• Section 1 of the American Restatement of
Contract Act defines a contract as "A promise
for breach of which the law gives a remedy.

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 CON…
• By section, 2(h) of the Indian Contract Act
2056, 2(a) a contract is an agreement between
two or more person to do or not to do
something, which can be enforceable by law.

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 Con…
• Nepalese Supreme court has viewed [Sarki
Kami Vs Kanchha Kami (2048 B.S.)] No matter
on the title of document/agreement if there
are elements of contracts, it should be
recognized as contract.

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 CON…
• To sum up, all contracts are an agreement but all
agreements are not contract because contract
should carry on these factors within it,
1. Should create obligations
2. Should create rights
3. Should be done by two or more than two
parties
4. Should be according to contract/laws
5. Enforceable at law
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 CON…
• However, where an agreement does not create
legal obligation, it will not be contract where as it
becomes domestic, moral , religions agreement.
• For example-
1. Obligation to maintain wife and children,
2. Obligation resulting for judgment of courts even
though they are enforceable.
• Therefore, these are some differences between
contract and agreement.
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Contract ?
Agreement ?
1. Enforceable by laws 1.May not be enforceable by laws
2. Provides remedy 2.No remedy
3. Lawful objects and 3.May be without lawful object
consideration 4.May not have contractual
4. Able parties capacity
5. Legal obligation 5.Does not create legal obligations
6. Free- consent 6.No free consent
7. Defaulter should pay damages 7.No such obligations
8. Difference in 8.No types
contract(direct,indirect,conting 9. May not
ent, quasi,enforceable 10.All agreements are not
uninforceable etc. contracts
9. Creates certain rights 11.Does not show the way to
10.All contracts are agreements fulfill
11.Contract shows the way to
fulfill

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 CON…
• All contracts are agreement but not all agreements are
contract. Mrs. Balfour Vs Mr. Balfour (1919)
• Balfour v. Balfour Citation. 2 K.B. 571 (Court of Appeal
1919)
• Brief Fact Summary. A husband promised to pay his wife a
£30 per month allowance. The wife sued her husband to
enforce the promise.
• Synopsis of Rule of Law. Agreements between husband
and wife to provide money is generally not contract
because generally the “parties do not intend that they
should be attended by legal consequences.”
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 CON…
• Facts. The Plaintiff and the Defendant were a married couple.
• The Defendant husband and the Plaintiff wife lived in Ceylon where
the Defendant worked.
• In 1915, while the Defendant was on leave, the couple returned to
England.
• When it was time to return to Ceylon, the Plaintiff was advised not to
return because of her health.
• Prior to the Defendant returning, he promised to send the Plaintiff £30
per month as support.
• The parties’ relationship deteriorated and the parties began living
apart.
• The Plaintiff brings suit to enforce the Defendant’s promise to pay her
£30 per month.
• The lower court found the parties’ agreement constituted a contract.
• Issue. Does the husbands promise to pay £30 per month constitute a
valid contract which can beDr.Saroj
suedKumar Timalsina
upon? 10
 CON…
• Held. The court first recognized that certain forms of agreements do not
reach the status of a contract.
• An agreement between a husband and wife is often times such a form of
agreement.
• In such agreements, one party is given a certain sum of money on a daily,
weekly, monthly, etc.. basis.
• This agreement is sometimes termed an allowance.
• However, these agreements are not contracts because the “parties did
not intend that they should be attended by legal consequences.”
• One reason the court is hesitant to treat these agreements as contracts,
is that there would not be enough courts to handle the volume of cases.
• Thus, here, the husband’s promise did not rise to the level of a contract.
• Discussion. The court makes an interesting argument in not enforcing
these types of promises. The court argues that if these promises are
treated as contracts the flood gates will open.

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 Elements of valid Contract
1. Plurality of parties
2. Offer and Acceptances [Clause4 (1), Contract law]
3. Competent parties (not below 16 Years)
4. Legal relationship - (aim to est. Legal relation, Get together, cinema hall,
To harm anybody is his property, Social, family and domestic agreement
are not contract)
5. Free consent (No fraud, Cheat, lure, tempted)
6. Lawful consideration
7. Not expressly declared void (clause 8) [No punishment by law]
8. Written and registered (sale deed) No Registration
9. Possibilities of performance (Accident after breach of court)
10. Certainty (Meaning, Spirit, motive) Folly Vs Clcpsique (1934)
11. In future if the term of contract has to be accepted, it will not be
contract.
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12. Lawful objective- Not against public interest (Gambling)
 1.Offer

• An offer acts as a promise to do or not do something in exchange for

something else.
• Your offer should be firm, not ambiguous or vague, and include the duties
and responsibilities of each party.
• These duties may be explained further in the terms and conditions of the
agreement.
• An offer doesn’t technically exist until it’s received by the requesting party.
When it’s received, the offer can be accepted, altered, revoked, or
terminated.
• If a counter-offer is made, the original offer is terminated, and the parties
will have to enter into negotiation once more.
• An invitation to treat, while it looks like an offer, isn’t.
• An invitation to treat is an invitation to another party to make an offer and
is common in real estate, marketing, and auto sales.
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 2. Acceptance

• After an offer, acceptance of the offer comes shortly after.

• You can accept the terms of a contract either verbally (also known as an
oral contract) or in writing (also known as a written contract), and
inaction cannot be considered acceptance.
• Most states follow the “mailbox rule,” meaning any offer that’s accepted
via email or snail mail is considered “officially accepted” the moment a
person sends the email or puts the acceptance letter in the mailbox.
• For a valid acceptance to occur, the parties must:
1. Agree to all of the contract’s terms without any changes or conditions.
2. Wait until all the recipients of the offer mutually agree.
3. have the capacity to enter the contract
4. Accept the terms within a reasonable time frame.
5. Understand the risks they’re incurring when they sign

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 Con…
• Certain vitiating factors can void a contract, so you have to make sure the terms
of your contract are agreed upon.
• You can streamline this process by doing the following:
1. Check the document for proper grammar and spelling.
2. Restate the terms of your contract and receive a verbal acceptance.
3. Place the acceptance statement at the beginning of the agreement.
4. State verbally what the parties need to do to accept the agreement.
5. Seek help from a law firm that can guarantee everyone’s acceptance.
6. Remember that a written document is more enforceable and clear. It can be
referred to if anyone claims to misunderstand the terms of your contract.
• Plus, the courts take a contract more seriously when it’s in writing, so opt for a
professional document when asking for acceptance.
• If you want to implement contract risk management across your company, all of
your agreements must be written.

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 3. Consideration

• To have a valid legal agreement, one party must

exchange something of value with another party.
• A contract may offer things like products, protection,
property, or services in exchange for money.
• Basically, the offer being made has to come with a
price tag, or it lacks legality.
• In instances where neither party is exchanging money,
the parties must ensure the court views what they’re
trading (their consideration) as valuable.

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 4. Meeting of the minds

• At this stage, both parties have recognized the contract

and have agreed to enter into its obligations.
• The “meeting of the minds” may also be referred to as a
genuine agreement, mutual assent, mutual agreement, or
consensus ad idem.
• Regardless of what you call it, you can only reach this stage
if all parties pass the consideration, acceptance, offer, and
identification stages.
• Once the meeting of the minds is complete, the contract
can only be voided via discharge, vitiating factors, or a
mutual amendment.
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 5. Competency and capacity

• Before entering into a contract, the parties

involved must have the capacity to do so.
• Also known as “consideration capacity,” a
person who knowingly enters into a contract
with a person who doesn’t have the capacity
to sign the document could receive legal
repercussions.

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 Con…
• The courts may take a “consideration
capacity” breach on a case-by-case basis,
especially if the person who drafted the
contract couldn’t guarantee the signer was
incapacitated.

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 Con…
• Examples of this include a person signing a
document online while they’re inebriated or
under some undue influence.
• However, the courts will be less generous if
they conclude that a person used the signer’s
incapacitated state to coerce one of the
parties to sign the document.

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 6. Legality

• One of the most essential elements of a

contract is its legality.
• The whole point of contract law is to protect
others from contracts that could be
considered unconstitutional or illegal.
• Since contracts require all participating parties
to take on some degree of risk, it’s vital that
the law protect those who mistakenly enter an
agreement.
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 Con…
• A person can’t enter into a deal with minors
under the age of 18 or break any other laws in
the process of forming the contract.
• Otherwise, it becomes void.
• To protect your own rights, you should always
use a written contract and include a dispute
resolution clause in case a disagreement arises
between the parties.

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 Types of Contract
• Express and Implied Contracts
• An express contract has terms that are stated
expressly, or openly, in either writing or orally,
at the time of contract formation.
• These are the kinds of contracts that most
people think of when they think of contracts.

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 Con…
• Implied contracts, on the other hand, have
terms that must be inferred by actions, facts,
and circumstances that would indicate a
mutual intent to form a contract.

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 Con…
• Such contracts may be as binding as express
contracts, despite their lack of formal
agreement, although if a court perceives
doubts in minds of the parties as to whether
or not a contract existed, it may choose not to
enforce such a contract.

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 CON…
• Unilateral and Bilateral Contracts
• Unilateral contracts involve only one party
promising to take an action or provide
something of value.
• These are also known as one-sided contracts,
and a common example of them is when a
reward is offered for something being found:
the party to whom the reward is offered is
under no obligation to find the lost item, but if
they do find it, the offering party is under
contract to provide the reward.
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 Con…
• Bilateral contracts, on the other hand, involve
both parties agreeing to exchange items or
services of value.
• These are also known as two-sided contracts,
and are the kind of contract that is most
commonly encountered.

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 CON…
• Valid: Fulfills all legal requirements imposed by law,
and therefore enforced by courts of law
• Voidable: Contract is valid, but one party can
exercise right to avoid or set aside contracted
obligations
• Unenforceable: Contract is valid, but not recognized
by courts if legal action is sought in courts
• Void: Contract is NOT valid, and not recognized by
courts of law

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 CON…
• Classification By Party
• Bilateral: Agreement made between two or more
people
– One party makes an offer (promise) to second party
– Second party accepts
– Bilateral contract formed
• Unilateral: Offer (promise) made by one party to
another
– One party makes an offer (promise) to a second party, and
second party receives the benefit of the promise contingent
upon the performance of the offer (promise)
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 CON…
• Types of Contracts – Based on Validity
• Now that you know what a contract is, can
you identify the various Types of Contracts?
• Proper knowledge of the types of contracts is
essential as it will allow you to decide the legal
ramifications of an agreement.
• Here we will see the different Types of
Contracts classified as per their validity.

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 Con…
• Types of Contracts On The Basis Of Validity
• Chapter 2 of the Indian Contract Act, 1872
discusses the voidable contracts and void
agreements.
• On the basis of validity or enforceability, we
have five different types of contracts as given
below.

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 Con…
• Valid Contracts
• The Valid Contract as discussed in the topic on
“Essentials of a Contract” is an agreement that
is legally binding and enforceable.
• It must qualify all the essentials of a contract.

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 CON…
• Void Contract Or Agreement
• The section 2(j) of the Act defines a void
contract as “A contract which ceases to be
enforceable by law becomes void when it
ceases to be enforceable”. This makes all
those contracts that are not enforceable by a
court of law as void.

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 Con…
• We have already stated examples of these
kinds of contracts in the “Essentials of a
Contract”.
• Example: A agrees to pay B a sum of Rs 10,000
after 5 years against a loan of Rs. 8,000.
• A dies of natural causes in 4 years.
• The contract is no longer valid and becomes
void due to the non-enforceability of the
agreed terms.
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 CON…
• Voidable Contract
• These types of Contracts are defined in section 2(i) of
the Act: “An agreement which is enforceable by law
at the option of one or more of the parties thereto,
but not at the option of the other or others, is a
voidable contract.”
• This may seem difficult to wrap your head around
but consider the following example:
• Suppose a person A agrees to pay a sum of Rs.
10,0000 to a person B for an antique chair. This
contract would be valid, the only problem is that
person B is a minor and can’t legally enter a contract.
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 CON…
• So this contract is a valid contract from the
point of view of A and a “voidable” contract
from the point of view of B. As and when B
becomes a major, he may or may not agree to
the terms. Thus this is a voidable contract.

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 Con…
• A voidable contract is a Valid Contract.
• In a voidable contract, at least one of the parties
has to be bound to the terms of the contract.
• For example, person A in the above example.
• The other party is not bound and may choose to
repudiate or accept the terms of the contract.
• If they so choose to repudiate the contract, the
contract becomes void.
• Otherwise, a voidable contract is a valid contract.
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 CON…
• Illegal Contract
• An agreement that leads to one or all the parties breaking a
law or not conforming to the norms of the society is deemed
to be illegal by the court.
• A contract opposed to public policy is also illegal.
• Several examples may be cited to illustrate an illegal contract.
• For example, A agrees to sell narcotics to B.
• Although this contract has all the essential elements of a valid
contract, it is still illegal.
• The illegal contracts are deemed as void and not enforceable
by law.
• As section 2(g) of the Act states: “An agreement not
enforceable by law is said to be void.”
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 CON…
• Thus we can say that all illegal contracts are void
but the reverse is not true.
• Both the void contracts and illegal contracts can’t
be enforceable by law. Illegal contracts are actually
void ab initio (from the start or the beginning).
• Also because of the criminal aspects of the illegal
contracts, they are punishable under law.
• All the parties that are found to have agreed on an
illegal promise are prosecuted in a court of law.

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 CON…
• Unenforceable Contracts
• Unenforceable contracts are rendered unenforceable
by law due to some technical. The contract can’t be
enforced against any of the two parties.
• For example, A agrees to sell to B 100kgs of rice for
10,000/-.
• But there was a huge flood in the states and all the
rice crops were destroyed.
• Now, this contract is unenforceable and can not be
enforced against either party.
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 Con…
• Solved Examples on Types of Contracts
• Q1: List the main differences between a void and a voidable contract?
• Answer: The following table will illustrate the major differences between a void and a
voidable contract.
• Void Contract Voidable Contract "A contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable”.“An agreement which is enforceable by law at the
option of one or more of the parties thereto, but not at the option of the other or others, is a
voidable contract.”A contract becomes void if either it lacks the essential elements, the law
changes drastically or the terms of the contract change such that it is no longer possible to
enforce the contract in a court of law. A contract becomes a voidable contract when at least
one of the parties reserves its consent or the consent of one of the parties was not free at
the time of the formation of the contract. Void contracts can’t be fulfilled. The validity and
enforceability of the voidable contract depend on the choice of the unbound party. If the
unbound party decides to repudiate the contract it becomes void. This type of contract can’t
grant any rights or considerations to any of the involved parties. The right to rescind a
voidable contract is retained by the unbound party.

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 Nepalese Contract Act -2056

• Human being needs different transactions

• The law of contract is made to regulate such transactions
• Most of the countries have their own contract law.
• Nepal has also made its own contract law but its history is not long.
• In 1910 BS for the first time, the first written law 'civil code' issued.
• Which was based on usages and customs
• It has made contractual provision under the chapter of 'creditor and
Debtor.
• In 1992 BS provision of registration exchange, mortgage
• In 2020 BS Civil Code based on equality introduced
• It made provision on types of agreements
• Contract law introduce in 2023BS
• And in 2056 BS New contract law made which replace earlier (2023) One.
•
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Major provision of the Nepalese Contract
Act 2056
1. The present Nepalese contract act 2056 has 13 chapters and 90 sections. Its major provision
is discussed below-
2. Definition:- In section 2, 15, 25, 35, 40, 56, and 65, have defined contract offer, acceptance,
contract of guarantee bailment pledge/pawn (collector or deposit) sales of goods agency
and carries of goods etc.
3. Consideration: - (not enough problems)
4. Contracting parties- Section 3 has defined the qualification of contracting parties.
5. Autonomy :- Section 4 freedom of selecting subject matter
6. Contract to be dermal to have concluded (section 5)
7. Contract of sales of goods
8. Contract of agency (8 parts)
9. Contract of carriage of goods
10. Time manner and plane for performing custom
11. Performance of contract and obligation arising out there of
12. Breach of contract and remedies
13. Observation of law enforce
14. Observation of law in tree
15. Limitation (void-any time voidable 1year)
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 Con…
• Place of contract:- Section 6 from the place where the
promiser advances on offer expecting consent is deemed the
place of making contract.
• Offer and acceptances:- Section 7, 8, 9
• Contract according to the offer made to public (Section 10)
• Indirect contract (Quasi) (Section 11)
• Contingent contract (Section 12)
• Void and voidable contract (Section 14)
• Contracts of Guarantee, Indemnity and subrogation (Chapter 4)
• Contract of Bailment (more than 5000 bailment)
• Contract of pledge/person (deposit) (Part 6)

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 POSSIBLE QUESTIONS
• Define the term "Contract' in accordance to Contract
Act, 2056.
• Define contract? Explain five important essential
elements of a valid contract?
• Cite any three examples of void agreements.
• Define valid contract
• ? What are the essentials of valid contract?
• Give two differences between void and illegal
agreements
• Define contract and write about the elements of a
valid contract.
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Dr.Saroj Kumar Timalsina 46
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PLEASE WITHOUT HESITATION

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