Dristy Adhikari

Submitted To:

Santosh Barnawal

Faculty of Business Legal Environment & Ethics

Himalayan College of Management

Affiliated to

Infrastructure University

For the degree of

Master in Business Administration

June 2021
 Introduction

A contract, according to the Contract Act of 2056, is an agreement between two entities or people that

specifies and governs the parties' rights and responsibilities, providing legal protection for both parties

involved in a possible trade. A contract is a legally binding arrangement. Two or more parties have a

legally bound relationship. A contract is made with a certain group of people. Objective. One of the

parties must first make his intention known to the other, and after the latter accepts it, a contract will be

formed. Contracting parties must be trustworthy. The availability of the law of the land determines

whether someone is qualified or competent. With one exception, all contracting parties have specific

obligations as well as rights against one another that are enforceable by law. Every contract must take the

parties into account. Contracts must be fulfilled as promised; if there is a violation, the agreed-upon party

will be compensated.

“A contract is an agreement generating and defining obligation between two or more persons by which

one or more persons acquire rights to acts or forbearance on the part of others,” Salmond says. Although

contract law has existed in Nepal since the Lichhavi era, the statute law controlling contracts dates back

to the Muluki Ain and then to the Act Relating to Contract, 2023, which was repealed and replaced by the

Contract Act, 2056. Contracts are presently governed by "general law," i.e. the Muluki Civil Code, which

includes many legal requirements governing contract and liability in Part-V. (Kalika, 2020). The

researcher aims to investigate and evaluate the many components of Nepal's Contract Act, 2056, in order

to determine if the contract legislation is capable of serving the legal needs of the country's population in

this study. Part-V of The National Civil (Code) Act, 2017 (2074), which has 18 chapters, also covers

contract and other responsibilities.

Objective

The following are the primary goals of this research paper:

I Analyze the various clauses of the Contract Act of 2056.

ii) To evaluate the various provisions of the Contract Act of 2056 as well as Part V of the 2017 National

Civil Code.

Significance

i)The researcher's purpose is to provide insight into the Contract Act of 2056's numerous clauses.

ii) The study's findings are expected to be immensely advantageous to people who are involved in certain

contracts, either directly or indirectly.

iii) The study's purpose is to encourage greater research in the field of contract law because the present

literature has mixed results about such implications, demanding further research.

The research's limitations

I This study is entirely based on secondary data gleaned from articles and websites.

Literature Review

The other researcher's complete review of the literature in the same field is covered in this section.

A lot of periodicals and papers have been read and reviewed by the researcher.

In an article titled "An Analysis of Major Provisions of Nepalese Law of Contract (Part-V of Muluki

Civil Code, 2074)," Kalika (2020) aimed to explore the major provisions of Nepal's current law of

contract, analyze the major provisions and jurisprudence of the law of contract, and highlight the

differences between the new and old laws regulating contract in Nepal.
The Major Provision of Contract Act, 2056 is described in Mercantile Law (2014). The current Contract

Act of 2056 has 13 chapters and 90 parts.

In his book ‘Principles of Business Law,' author S.N. Kalika, describes the major provisions among

numerous topics of Nepalese contract law. He discusses several topics of Nepalese contract law.

Research Methodologies

This paper’s purpose is to provide an overview of the data collection strategy used to complete the

project. Different approaches were employed to construct this project because a single source of

information was insufficient. Secondary sources are primarily used to get data. Previous study reports,

published books, written articles and journals, and numerous contract law websites are also secondary

data sources.
 CONTRACT ACT ANALYSIS AND EVALUATION (2056)

Evolution of contract law in Nepal

In 1966, Nepal enacted a rather comprehensive contract law statute, which took effect on December 16,

1966. (According to the Nepalese calendar, this is Poush 1, 2023). A codified law known as Ain, later

known as Muluki Ain, was enacted on Poush 7, 1910 B.S., under the reign of Junga Bahadur Rana. The

Naya Muluki Ain, which was adopted by King Mahendra on Bhadra 1, 2020, and contained many

contract clauses, including Section 4 of Prarambhikko Kathanko Mahal, Section 37 of Lendenko Mahal,

and Section 1 of Naso Dharotko Mahal, was succeeded by the Naya Muluki Ain, which was adopted by

King Mahendra on Bhadra 1, 2020, and contained many contract clauses, including Section 4 of

Prarambhikk.

On Poush 1, 2023, B.S., this was soon replaced by the Act Relating to Contracts, 2023, which became

Nepal's first specific contract legislation. As a result of this effort, the regulation of business transactions

has improved, and it has been done in accordance with common law principles. The Contract Act of

2056, which repealed and replaced the Act Relating to Contracts, 2023, as well as the Naso Dharot of

Muluki Ain, 2020, entered effect on Ashadh 14, 2057 B.S. Any deed in which both parties agree on a

term is deemed a contract, according to the Nepalese Supreme Court. A contract is an act of commission

or omission for the purpose of obtaining a certain consideration. Although contract law has existed in

Nepal since the Lichhavi era, the statute law controlling contracts dates back to the Muluki Ain and then

to the Act Relating to Contract, 2023, which was repealed and replaced by the Contract Act, 2056.

1) Special to General Law

2) Creation of Liability

3) Inclusion of new Law of Contract

4) Definitions of Terms

5) Essential Elements of Valid Contract

 6) Autonomy of Parties

7) Void and Voidable Contracts

8) Formation and enforceability of Contract

9) Indirect Contract

10) Contingent Contract

11) Provisions on Specific Contracts

12) Frustration and Suspension of Contract

13) Performance and Assignment of Contract

14) Breach of Contract and Remedies

15) Statute of Limitations

16) Drawbacks

Provision related to definitions: In section 2, definitions of contract, proposal, acceptance, and

consideration are provided. A contract is a legally binding agreement between two or more parties for the

performance or nonperformance of work. A proposal is a request made by one person to another with the

goal of securing his or her permission to do or not do something. Consent refers to the acceptance of a

proposal by the person to whom it is delivered in the same sense as the offer. The pledge to do or not do

any work in exchange for doing or not doing any task listed in the proposal is referred to as consideration.

As a result, it is the Contract Act's most important feature.

2) Contracting Parties' Qualifications: Section 3 of the Contract Act 2056 deals with the legal standing

of the contracting parties. There are lawsuits in court over the parties' qualifications and disqualifications.

As a result, this legislation specifies who can and cannot conclude a contract. Because anyone can enter

into a contract, there is a requirement for a person's qualification. It's also a crucial feature. To enter into a

contract, one must be of legal age, of sound mind, and not be disqualified by applicable law. The

competency and incompetency of the party are discussed non length in section 3 of the contract statute.
3) Autonomous Parties Provision: This is one of the most important provisions in the Contract Act

2056, and it has a lot of weight. "The parties to a contract, subject to this act, shall be free to choose the

form and content of the contract, as well as to determine consideration and its amount," says section 4 of

the Act. the contract's terms and conditions, as well as the nature of the remedy in the event of a breach,

and to identify the measures for resolving contract disputes." This clause has been judged extremely

essential. As a result, it might be used as a part of the performance.

4) General Contract Provisions: The Act contains general contract provisions that run from section 1 to

14. With the exception of the unique terms of specific contracts, this act covers both general and specific

contracts. Proposal, consent, consideration, qualification of the parties, autonomy of the parties,

communication of the proposal and its consent, quasi contract, assignment of contract, performance and

breach of contract, legal remedy, and stated time limit are all covered by the Contract Act, 2056.

5) Provision related to specific Contract : The Contract Act 2056 envisions the nature, form, and

process of general and specific contracts. It is, without a doubt, a crucial provision. Except for specialized

contracts, all other contracts fall under the general contract umbrella. Bailment, pledge, agency,

indemnification, guarantee, sales of products, conveyance of goods, and so on are all included in a

specific contract. The contract act's most significant provisions include general and particular contracts.

6)Provision related to suspend and alteration of contract: The provision of contract suspension and

alteration is one of the most essential provisions of the Contract Act 2056. "All or any of the components

of the work to be performed under the contract may be modified or revised if the parties to the contract

agree," says Section 81 (1). The contract may be suspended by not making it necessary to execute any

work under the contract for a period of time, the work listed in the contract may be substituted by another

job, or a new contract may be negotiated in place of the previous contract." "In the event of any change or

alteration to the contract, a new contract shall be regarded to have been signed, and the contract shall

come into force accordingly," says clause (2). If a new contract is signed in this area, the original

contract's liability does not have to be carried unless the contract expressly states otherwise.
7) Provisions Relating to Performance, Breach and Legal Remedy of Contract: The Contract Act of

2056 contains detailed provisions on contract performance. This act also covers the cause and

consequences of contract breaches, as well as the legal remedies available in the event of a violation. All

of these things are connected, and there is a general and specific contract that is a silent provision.

8) Provision of Transferring Title and Obligation of Contract: The Contract Act 2056's provisions for

transferring title and liability are essential aspects. "In the event that a party to a contract dies or loses his

or her senses," says Section 76 of the legislation. The heir to his or her property receives the rights arising

from the contract, and the heir also bears liability to the extent covered by the property inherited by him

or her. However, the rights and duties arising from personal skills and qualifications do not pass to such

an heir. "However, the important point is that the contract is not awarded to another person based on

personal skill efficiency and qualification."

9) Quantum Merit Provisions: The Contract Act of 2056 contains a quantum merit clause, which is an

important characteristic. The injured party is entitled to a reasonable sum of compensation under section

85 of the act. Section 85 provides for his/her bestowing of service, cash, or products to the second person.

If the contract is dissolved due to the other party's fault at a time when he or she has already completed or

was executing the work under the contract, and if the other party uses the service or commodity that was

supplied to him or her without the clear intention of giving it away for free. In fact, the clause prevents

the party from obtaining undue enrichment and ensures that the aggrieved party receives proper

compensation.

10) Specified Time Period Provision: Another unspoken component of the Contract Act of 2056 is the

provision of a specified time frame, which is found in section 89. (1). "Such time limits shall apply

whenever existing law prescribes any specified limitation in respect of any specific contract or any

specific matter connected to contracts. "The law of limitation, as established in the contract legislation,

allows any party to seek legal redress”

11) Contract Under Guarantee: One of the key aspects of the Contract Act of 2056 is the Contract

Under Guarantee. It's a one-of-a-kind contract, as defined by Section 15 of the Act. It is assumed to be a

contract of guarantee if a person does not pay back the loan or the liability assumed by him/her, or does

not fulfill the obligation to do so whereby a third party assumed such loan or liability to pay back or

fulfill. If a debtor fails to repay the loan under any circumstances, the guarantor is obligated to repay the

loan. This contract guarantees and protects the creditor's loan.

12) Indemnification Contract: An indemnity contract is also a particular contract. Nobody can deny its

essential importance in the 2056 Contract Act. Section 22 of the act contains this clause. An

indemnification contract is one in which the contractual parties agree that if any harm is caused to any

party or to a third party as a result of the activity, the contracting parties will bear the cost of the

compensation. A contract of indemnity is sometimes known as a compensation contract.

13) Contract of Subrogation: Sections 23 and 24 of the Contract Act of 2056 contain provisions for

contract of subrogation. It is included in the main provision. The loss or damage must be in accordance

with the parties' signed contract. If the amount is not specified in the contract, it must be reasonable or

appropriate, or compensation must be paid or arrangements made for payment to the party who has been

partially harmed or to his or her heir if such damage or loss has occurred. In accordance with section

23(a) of the act, the person paying the amount is regarded to have subrogated the person who has borne

the loss or damage, and the subrogate or may have compensation in consideration of such damage

recovered from the party who causes such loss. Previously, such a legal provision did not exist.

14) Contract of Bailment: A contract of bailment exists when one person provides property to another

on a returnable basis or for the purpose of handling it over to another person or selling it as commanded

by him. Any property worth more than $5,000 must be bailed with a deed, according to the law. The

spoken deed made while bailing is void. The term "property" refers to any transportable assets as well as

the title to those goods. Section 25 of the Act mentions it as a major provision
15) Possession of Found Goods After Alerting the Police: If a person discovers any property in any

fashion, he or she may keep it safely with him or her until the owner is located after notifying the police.

The costs of locating the true owner of the property and maintaining it shall be met by the true owner, and

the individual may keep the property until the owner pays the costs. Section 31 of the Act contains this

provision. It's a crucial provision.

16) Contract Relating to Pledge: The contract relating to pledge is discussed in section 35 of the

Contract Act 2056. It's a unique arrangement. A contract relating to pledge will be assumed to have been

made if any person has received a pledge while providing credit to anybody as a security for that credit or

has received any property as a deposit in the form of a guarantee to perform any work while having any

work performed. Any moveable or immovable property, as well as any title or document establishing title

to such property, is referred to as the pledge property. The legislative provision makes borrowing easier

for both the debtor and the creditor.

17) Contract of Sale of Goods: Section 40 of the act contains a contract of sale of goods provision. It's a

crucial provision. Only the movable property is considered excellent in this case. It has nothing to do with

immovable property. A contract for the sale of products is assumed to have been created when a seller

promises to hand over goods to a buyer immediately or in the future in exchange for a price. This contract

can be both conditional and unconditional. This contract might be made with the intention of selling

products that the seller currently owns or that he or she will manufacture or acquire in the future.

18) Contracts with Agencies: Contracts with Agencies are also subject to unique rules. It's a one-of-a-

kind contract made possible by section 56 of the statute. Any person may appoint another person as his or

her agent to perform any act on his or her behalf, except something related to his or her personal skills, or

to conduct business as his or her agent in any transaction with a third party on his or her behalf, or to

represent himself or herself to such person, or to establish any kind of legal relationship between the

person appointing an agent and a third person. If an agent has been appointed, it is assumed that the
contract relating to agency has been signed. In such a contract, the principal has his or her agent do a

legally valid work. The agent establishes legal ties between the main and a third party.

19) Contract for the Carriage of Goods: Contracts for the carriage of goods do indeed fall under

significant provisions. Such a law effectively controls the exchange of products. This clause is found in

Section 65 of the statute. If the contract provides for the transportation of products from one location to

another, it is judged to be valid. There is no other arrangement that allows things to be imported and

exported from one region of the world to another. Goods can be transported using a variety of methods.

20) Provision Regarding Quasi Contract: Quasi Contract is covered by the Act's main provision. This

provision is found in Section 11 of the Contract Act of 2056. The contracting parties' written deed is not

considered quasi-contractual. In other terms, a quasi-contract or indirect contract is a deed that is not

expressed in writing by the parties but is produced by the law and obligates another party to fulfill.

Despite the fact that it is not an express or recorded deed, it plays a significant role. In summary, indirect

contract refers to the establishment of an obligation without the use of a true contract.

21) Contingent Contract Provision: If a contract is created to perform or not perform any job, and an

event occurs in the future, the contract does not create any responsibility until that event occurs. Section

12 of the statute has such a provision. It's a crucial provision. If a contract is made with the condition that

a person does certain work in the future, and he fails or is unable to do so owing to an unanticipated

incident, no liability is created. However, if a contract is made with a provision to execute any job if a

future event occurs, responsibility will arise if the event is impossible to occur.

22) Appellate Court Orders: Section 87 of the Act states that if one party is unable to perform the

contract, the other party may pursue legal action. As a result, he or she can move to appellate court to

seek justice under the contract they made. A party who has been harmed by such action or conduct may

bring a lawsuit in court to have the action or conduct stayed. It's quite relevant and significant. In the

event that the aggrieved party files a lawsuit in court, the court may issue an appropriate order compelling
any party to immediately cease any specific action or conduct in order to resolve the dispute and provide

relief to the aggrieved party.

23) Specific Performance of Contract Clause: One of the important provisions of the Act in section 86

is the specific performance of contract provision. If the cash recovery paid in consideration of the real

loss suffered by the aggrieved party as a result of the breach of contract is insufficient, the party in loss

may, instead of filing a claim for compensation, demand that the contract be performed according to a

specified specific performance clause. However, such a requirement cannot be made in all instances. If

the scenario arises when the contract cannot be fulfilled or the contract's subject is destroyed. Essentially,

precise contract performance entails carrying out the deal exactly as written. But it isn't doable in every

circumstance.

24) Prevailing Law Provision: Section 88 of the Act provides that if the existing law specifies that a

specific procedure must be followed for the execution of a specific contract, or that a specific must be

registered at any governmental office, a contract signed without complying with such formalities shall be

void. It is a vital requirement for the contracting parties to construct a valid contract; it concentrates on

the legal formalities that must be followed, such as the use of a postal ticket, an official seal, and

registration with the Land Revenue Office.

25) Public Offer Provision: Section 10 of the Contract Act of 2056 has a provision for making a public

offer. If any person advances a proposal in the public by an advertisement to the effect that he or she will

give a specified prize to any person who performs any task mentioned in the advertisement, and if any

person performs the work mentioned in the advertisement. The individual who responds to the

advertisement will receive the prize specified in the advertisement. However, if a person performs the

service without being aware of the advertisement, he or she is not entitled to any compensation or

incentive. Because the recompense indicated for a specific purpose must bear its promise, it is assumed

that this provision is vital.