AN ANALYSIS ON MAJOR ELEMENTS OF A VALID CONTRACT UNDER MULUKI

CIVIL CODE, 2074

Yam Kumar Yonjan*

Abstract:

A contract is a voluntary arrangement between two or more parties that is enforceable at law. It is a legally-
binding agreement that obligates two or more parties to complete certain tasks. It creates rights and
obligations to parties of the contract. A Contract is a promise or set of promises made between two or more
parties which allow the courts to make a judgement. It is a body of law which is concerned with formation
and enforcement of the contract. The formation of a contract generally requires an offer, acceptance,
consideration, certainty, capacity, free consent and a mutual assent of two or more persons to be bound.
The forms of contract may be in written, oral and by conduct. Every agreement must possess the essential
elements for a valid contract. The agreement involves a valid offer by one party and valid acceptance of
the offer by the other party than only that agreement became contract. Those agreement which has
included an essential elements of a valid contract is legally enforceable. In the Muluki Civil Code, 2074 the
offer, acceptance, legal relationship, capacity of parties, free consent, lawful objects, writing and
registration, certainty, possibility of performance and not expressly declared void are considered as an
elements of a valid contract. In the modern age of legal development, the contract law has importance in
every business activities of human society. It is an inevitable subject-matter of business or corporate law.
The law of contract is considered as an important part of business law because the act of transaction is
performed between two or more parties and relationship between them is governed and regulated by the
contract.

1. Introduction
A contract is an agreement enforceable by law. Contract law is the body of law which is related to
making and enforcement of an agreements. Contract law is the area of law that governs making
contracts, carrying them out and fashioning a fair remedy when there’s a breach. Contract is an
agreement entered into between two or more persons or parties subject to certain terms and
conditions for a lawful consideration. A Contract is an agreement between two or more competent
parties, based on mutual promises, to do or to refrain from doing some particular thing that is
neither illegal nor impossible. The agreement results in an obligation or a duty that can be enforced
in a court of law. Both of the agreements in this case resulted in legally enforceable contracts
because the parties agreed mutually satisfactory.1

Over the years, various authors and jurists have tried to define ‘what are contracts’ but none of the
definitions have satisfactorily captured the essence of a contract. Basically, a contract is a bundle

* Advocate and Faculty Member at Nepal Law Campus , Tribhuvan University, Kathmandu Nepal (LL.M.
International Law and Commercial Law)
1
Gordon W. Brown & Paul A Sukys 2001. Business Law (10th edn.). New York: Mcraw-Hill. P. 95.
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of rights and obligations binding parties to one another in exchange of promises with a
consideration. The Muluki Civil Code, 2074 (2017), Section 504 (1) defines, "a contract is an
agreement concluded between two or more than two parties to do or not to do something which is
enforceable at law."2 The Indian Contract Act, 1872 defines contract as “an agreement which is
enforceable by law is a contract.”3 This means that all agreements are not contracts. Only those
agreements which can be enforced by law are contracts. For an agreement to be enforceable, it
must satisfy certain essentials laid out by law to become valid contracts. A contract is a promise
or set of promises for the breach of which law gives a remedy or the performance of which law in
some way recognizes as a duty.4

A contract is a legally-binding agreement which recognizes and governs the rights and duties of
the parties to the agreement.5 A contract is legally enforceable because it meets the requirements
and approval of the law. An agreement typically involves the exchange of goods, services, money,
or promises of any of those. In the event of breach of contract, the law awards the injured party
access to legal remedies such as damages and cancellation.6

Contract law is fascinating as most people will have unknowingly formed a legally binding
contract at some point in their life. This guide will take you on a journey through a contract, giving
comprehensive explanations and guidance on each part of contract law. Simply put, a contract can
be described as a legally binding oral or written agreement which exchanges any combination of
goods, services, money and property. It is a common misconception that a contract may only be in
written form, as oral or conduct agreements can be just as credible in contract formation. A contract
is unique in that unless certain exceptions apply, parties are free to agree to whatever terms they
choose, this is known as the ‘freedom of contract.’7

All agreement is not contract, only those agreements which are enforceable by the law are contract.
The parties of a contract must have to intend that have legal consequences and in case of default
of either party have legal remedies. The scope of an agreement is wider than that of a contract
because a contract must fulfil some essentials elements it has limited scope which exists within
the limitation of legality. Thus all contracts are agreement but all agreements are not contracts.
Contract is an official agreement. It could be written or even be in oral. Contracts can be written
by using formal or informal terms, or entirely verbal or spoken. It is a promise made between two
or more parties that which allow the courts to make judgement. A valid contract which based offer,
acceptance, consideration, intention to create legal relation, certainty and capacity. If the main

2
Muluki Civil Code, 2074 (2017). Section 504(1).
3
Indian Contract Act, 1872. Section 2.
4
Sir Jack Beatson FBA, Andrew Burrows FBA, QC (Hon), and John Cartwright, Anson's Law of Contract, 2016 (13th edn.), Oxford University
Press. P.2

5
Fergus Ryan. (2006). Contract Law. Dulbin, Ireland: Round Hall LTD. P. 1.
6
"Case Note - Contract Law - Rule of Law Institute of Australia". Rule of Law Institute of
Australia. 2018-05-31. Retrieved 2018-09-14.
7
An Introduction to Contract Law. Available at: https://www.lawteacher.net/modules/contract-law/ (Accessed on
14 August 2018)
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elements are not in contract, it would be an invalid contract.8 Those agreements which are
enforceable in a court of law are contracts. There is a principle of contract law, “all contracts are
agreements, but all agreements are not necessarily contract.”

The law of contract is the basis of business every business activity is determined and guided by
the agreement of the parties concerned. In fact, the law of contract is concerned with everybody
and every aspect of the business to perform any kind of act. And, it is concerned with the rights
and obligations of the parties entering into it. A law of contract is an important part of business
law because the act of transaction is performed between two or more than two parties. And the
relationship between them is regulated by the contract.9

Contractual relations are between individuals, and therefore contract law is a form of civil law.
The dominant source of contract law is common law, whereby the previous decisions of the courts
form part of the current law. Contract law aims to provide an effective legal framework for
contracting parties to resolve their disputes and regulate their contractual obligations. The law of
contract is mostly self-regulatory, with the majority of contracts requiring no intervention. The
courts make no consideration for whether the contract was fair or not if it was agreed, it should be
enforced. Despite this, on some occasions, the courts are willing to depart from the principal of
contractual freedom. This is often where there has been an abuse of bargaining power by one
contracting party.

Contract theory is the body of legal theory that addresses normative and conceptual questions in
contract law. One of the most important questions asked in contract theory is why contracts are
enforced. One prominent answer to this question focuses on the economic benefits of enforcing
bargains. Another approach, associated with Charles Fried, maintains that the purpose of contract
law is to enforce promises. This theory is developed in Fried's book, Contract as Promise. Other
approaches to contract theory are found in the writings of legal realists and critical legal
studies theorists. In the Anglo-American common law, formation of a contract generally requires
an offer, acceptance, consideration, and a mutual intent to be bound. Each party must have
capacity to enter the contract.10 Although most oral contracts are binding, some types of contracts
may require formalities such as being in writing or by deed.11 In the civil law tradition, contract
law is a branch of the law of obligations.12 An agreement which is enforceable at law must possess
the following elements.
 Offers and Acceptance
 Legal Relationship

8
Main Elements constituting A Valid Contract. Available at: https://www.lawteacher.net/free-law-
essays/contract-law/all-the-main-elements-constituting-valid-contract-contract-law-essay.php (Accessed on 12
April 2019).
9
Satya Narayan Kalika. (2004). Business Law. Kathmandu: Buddha Academic Publishers and Distributors Pvt.
Ltd. P. 16.
10
www.lawhandbook.sa.gov.au. (Accessed on 14 August 2018).
11
In England, contracts of employment must be in writing (Employment Rights Act, 1996); and contracts for the
sale of land, and most leases, must be completed by deed. (Law of Property Act, 1925).
12
This category of "obligations" is essentially a fusion of contract and tort, and while cases such as Junior Books
Ltd v. Veitchi Co Ltd promoted this idea, it has fallen out of favor in English legal circles.

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  Lawful Consideration
 Capacity of Parties
 Free Consent
 Lawful Objects
 Writing and Registration
 Certainty
 Possibility of Performance
 Not Expressly Declared void

2. Kinds of Contract

a) On the basis of enforceability

(a) Valid contracts
(b) Void Contracts
(c) Voidable Contracts
(d) Illegal Contracts
(e) Unenforceable Contracts.

b) On the basis of mode of creation

(a) Express Contracts.
(b) Implied Contracts.

c) On the basis of the extent of execution.

(a) Executed Contracts.
(b) Executory Contracts.

The Contracts which are enforceable in a court of law are called Valid Contracts. If one party to
the contract has the option of enforcing a contract by law, but not at the option of the other or
others, it is a voidable contract. Void contract, an agreement may be enforceable at the time when
it was entered into but later on due to certain reasons, for example impossibility or illegality of the
contract, it may become void and unenforceable. If the contract has unlawful object it is called
Illegal Contract. A contract which has not properly fulfilled legal formalities is called
unenforceable contract. That means unenforceable contract suffers from some technical defect like
insufficient stamp etc. After rectification of that technical defect, it becomes enforceable or valid
contract. All illegal Contracts are void, but all void contracts are not illegal.

Express contract, where the offer or acceptance of any promise is made in words, the promise is
said to be express. For example: A has offered to sell his house and B has given acceptance. It is
Express Contract. An implied contract is one which is inferred from the acts of the parties or course
of dealings between them. Sitting in a Bus can be taken as example to implied contract between
passenger and owner of the bus. In case of Quasi Contract there will be no offer and acceptance
so, actually there will be no Contractual relations between the partners. Such a Contract which is
created by Virtue of law is called Quasi Contract.

Executed contract, in a contract where both the parties have performed their obligation. Unilateral
contract, in a contract one party has performed his obligation and other person is yet to perform
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his obligation. Bilateral contract, It is a contract where both the parties are yet to perform their
obligation. Bilateral & Executory are same and inter-changeable.13

3. Essential Elements of Valid Contract

a. Offer
Contract is a written or spoken agreement intended to be enforceable by law. At the inception of
every agreement, there must be a definite offer by one person to another and its unqualified
acceptance by the person to whom the offer is made. An offer is a proposal made by one party to
another indication a willingness to enter into a contract. The person who makes an offer is called
the offeror. The person to whom the offer is made is the offeree. The making of the offer is actually
the first step in creating the contractual relationship between the two parties. Because of this
position of importance the offer must be seriously intended, clear and definite and freely
communicated to the offeree. If these requirements are meet it is then up to the offeree to accept
or to reject the offer.14

The first element in a valid contract would be offer. An offer or a promise or an agreement needs
to be in contract because if there is no offer than there will be no contract. It is one of the elements
to make sure that the contract is legally valid or acceptable. In a contract, it is very important that
a party would make an offer. There is a difference of offer between an advertisement and an option.
To make an offer, there should be at least two parties or even more so that it would be legally
capable of entering into a contract. If the offer is accepted than it would constitutes to a legally
valid contract. When an offer is being made, the other party or person would know what is being
offer and what the person or party who made the offer expect to have in return. According to
oxford’s dictionary: "Offer is to put something to be considered so it can be either accepted or
refused."

According to Black's Law Dictionary: "Offer is 'the act or an instance of presenting something for
acceptance the prosecutor's offer of immunity." According to Muluki Civil Code, 504(3) (1): An
offer is a proposal presented by one person to another with the intention of obtaining his assent for
performing or not performing any work.15 Indian Contract Act, 1872 Section 2(a): When one
person signifies to another his willing ness to do or to abstain from doing anything, with a view to
obtaining the assent of that other to such cut or abstinence, he is said to make proposal.16

Rules Regarding offer

An offer to be enforceable
An offer must create legal relations and enforceable at law. An offer for social or moral purpose is
no offer. The offered must intend to create legal relations. After the acceptance of the offer it
amounts to a legal obligation. Example: 'A' invites 'B' for lunch and failed to arrange the same but

13
Essential elements of a Valid Contract. Available at: http://newhorizonindia.edu/nhc_kasturinagar/wp-
content/uploads/2018/05/CHAPTER-2-Contract-Laws-Indian-Contract-Act1872.pdf (Accessed on 14
August 2018).
14
Gordon W. Brown & Paul A Suky’s. (2013) Business Law. (10th edn.). New York: McGraw-Hill. P. 97.
15
Muluki Civil Code, 2074 (2017). Section 504(3) Sub Section (1).
16
Ashis Adhikari & Sudeep Gautam. (2006). Business Law in Nepal (2nd edn.). Kathmandu: Dhaulagiri books and
Stationeries. P. 29.
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'B' cannot sue 'A' because there is no intention to create legal relationship.17 Balfour v. Balfour
(1919) 2 KB 5717 he defendant in the instant case was a civil servant at Ceylon. When he left for
England he promised his wife to send 30 pounds per month. But he did not send the amount as
promised. The plaintiff (wife) filed a suit against her husband. In that case, the court dismissed the
above suit as it is not actionable maintainable on the ground that it does no give rise to legal
consequences.

Offer must be express or implied

An offer may be express or implied. If the offer is made by words, it is called 'express offer' If the
words are spoken it is called 'oral offer'. If the words are written, it is called written offer. in case,
no words are used, but the offer is derived from the conduct of the parties, it is called, implied
offer whether it is express or implied it is valid it may be oral or written.18

Terms must be clear and certain

The terms of the offer must be clear and certain. To constitute a valid contract, there must be clear
and certain terms. An offer of latent ambiguity creates confusions. It does not convey the exact
meaning and an offer can be made to the particular person or to a definite group of person in
general.19 Example: X offers to sell 100 tons of oil here the offer is no clear, since the kind of oil
viz groundnut oil or sunflower oil etc. is not mention. In the case of Taylor v. Potingtion, the
plaintiff in the instant case (A) Promised to take defendant (B)'s house on lease for a period of
three years provided, it is thoroughly repaired and the drawing rooms are decorated according to
the present style. It was held to be not enforceable, since the terms one too vague and uncertain.

It may be specific or public when an offer is made to a person or group of person it is called
'specific offer. If it is made to the public in general or society or community as a whole it is called
' public offer' the specific offer can be accepted by the person or persons to whom. It is made, the
general offer can be accepted by any person. In the case of Carlill v. carbolic Smoke Ball Co.1893
1 QB 256, the defendant Co. advertised a reward of 100 pounds to any person who suffers from
influenza even after using their 'Smoke Ball' medicine as per printed directions. For this purpose,
they deposited 1,000 pounds in a bank. The plaintiff sued the defendant for the reward. Held that
the defendant was liable.20

Invitation to offer is no offer

Invitation to offer differs from offer. It is an offer to receive an offer. Persons make offers. To
purchase on seeing such price lists show cases, tenders etc. A person on seeing an article in a show
case enters into that shop and offers to purchase, then the shopkeeper may accept to sell or refuse
to sell it. If the shopkeeper refuses to sell, he can't be sued. The reason is, the act of shopkeeper in
placing the article in a show case is not an offer but invitation to offer. Thus, an invitation to offer
is something precedent to offer.21 Invitation to offer is only statement of intention, which differs
from a valid offer because there is no intention of the offeror to obtain assent of the propose or

17
Satya Narayan Kalika. (2004). Business Law. Kathmandu: Buddha Academic Publishers and Distributors Pvt.
Ltd. P. 50.
18
Dr. Rega Sury Rao. (2001). Lectures on Contracts. Hyderabad: Asia law house. P. 13.
19
Ibid.
20
Dr. Rega Sury Rao. (2001). Lectures on Contracts. Hyderabad: Asia law house. P. 13.
21
Dr. Rega Sury Rao. (2001). Lectures on Contracts. Hyderabad: Asia law house. P. 14.
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client and to create a legal relationship with the party. In the case of Harvey v. Facie22, the plaintiff,
Harvey wanted to purchase bumper hall' pen from facie and enquired its price as 900 pounds. The
plaintiff communicated telegraphically to purchase it, but, there was no reply from the defendant
(Facie). In an action against the defendant for specific performance, it was held not actionable on
the ground that 'informing the price telegraphically is not an offer, but it is an invitation to the
offer.'

It must be communicated
An offer is valid, when it is communicated to the acceptor. The communication may be express or
implied. It may be communicated by means of words of mouth, telegram messenger etc.
Communication of offer is complete, when it comes to the knowledge of the offeree.23 In the case
of Lalman v. Gauri Dutt (1913)24 the defendant sent his servant in search of his missing nephew.
Later, he announced a reward to one, who could hand over his missing Nephew. The plaintiff
brought him and claimed the reward. In an action, against the defendant, it was held not
enforceable on the ground that the offer was not communicated to the offeree.

b. Acceptance
After having an offer in the contract, there should be acceptance. For a contract to be made there
should be acceptance from the other party or person. When the other party is clear with the offer,
there would make an acceptance once they are clear with the rules and regulations being offer in
the contract. There will be no contract if the parties are still negotiating or discussing and have not
made accept the offer. The person or party can accept the offer being made in writing or orally
which is made verbally or being spoken out. Accepting another party’s offer makes a contract
complete. The party that accepts the offer must accept it on the same terms as the terms of the
original offer. They must make sure that the other side knows they accept it. According to S.W.
Anson- "Acceptance of an offer is the expression, by words or conduct of assent to the terms of
the offer in the manner prescribed or indicated by the offerer." According to Nepalese Muluki Civil
Code, 2074 - "Acceptance means in which sense the terms of proposal is made by the offerer to
offeree in the same prescribed manner assent is given by accepter."25

c. Consideration
No consideration no contract is a fundamental principle of contract law. Consideration means to
get something in exchange or something in return. Consideration is also a very important element
in the contract. Consideration in a contract would mean the other person would be giving back
something in return. It would be consider as an exchange which would be made between the
promises and promisor. There should be consideration in a contract so that it would be legally
valid.

A valid contract requires each party to give something up which is called consideration. Regarding
the consideration of the Muluki Civil Code, 2074 (2017) is silent, but Indian Contract Act, 1872
has clearly defined that the consideration is an essential element of a valid contract. Although, In

22
Dr. Rega Sury Rao. (2001). Lectures on Contracts. Hyderabad: Asia law house. P. 15.
23
Dr. Rega Sury Rao. (2001). Lectures on Contracts. Hyderabad: Asia law house. P. 15.
24
Ibid. P. 16.
25
Muluki Civil Code, 2074 (2017). Section 504(3) Sub-Section (2).
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the case of Chitra Bahadur Karki v. Maniram Agrawal Supreme court of Nepal has said that the
consideration is an essential element of valid contract.26

d. Intention to Create Legal Relations

It is essential to have this element in a contract. This element would have an agreement which is
not a contract in the strict sense unless it is the common intention of the parties that it should be
legally enforceable. If there is no intention to create legal relations in a contract, the contract could
be subject to a lawsuit. For example, when there is a contract or an agreement made between the
parent and the children. If the parent passes away, the children would have whatever property or
possession which is left by the parent.

e. Certainty
Another main element in a contract is certainty. The terms and regulations being made in a contract
should be stated clearly and understood by the parties of the contract. If the agreement is not
certain, it would be no longer valid.

f. Contractual Capacity
Contractual capacity is a legal ability, competency and qualification of the parties of a contract.
The capacity of the parties in a contract must have the legal capacity to do so. Minors who are
people below the age of eighteen have no capacity to enter into contracts. Therefore, insane people
or people with unsound minds also cannot enter into any valid contracts. The Muluki Civil Code,
2074 (2017) Section 506 (1): (a) Minor (under the age of 18 years), (b) Unsound Mind, and (2)
person disqualified by the law.27

g. Free Consent
The term free consent refers to meeting of free and fresh minds of two parties of an agreement
when two parties take and understand, purpose, subject matter and terms and conditions of the
agreement in the same sense it is free consent. Both of them must take things in the same way.
They must not understand it in different way. An agreement which is made freely it becomes a
valid contract due to presence of free consent of both the parties. In any of the free consent of both
there will no free consent in the agreement. For a contract to be valid, the consent of the parties
must be genuine. The principle of consensus-ad-idem is followed which means that the parties
entering into the contract must mean the same thing in the same sense. The parties to the contract
must have the same understanding in regards to the subject matter of the contract.

Mere consent is not enough for a contract to be enforceable the consent given must be free and
voluntary. The definition of free consent is provided under the Muluki Civil Code, 2074 (2017)
section 518(2) (a) Coercion (b) Undue Influence (c) Misrepresentation (d) Fraud.28 A Consent that
is free from Coercion, Undue Influence, Fraud, and Misrepresentation. Consent is said to be so
caused when it would not have been given but for the existence of such coercion, undue influence,
fraud, misrepresentation and mistake but regarding the mistake Muluki Civil Code, 2074 (2017) is
silent.

26
NKP, 2071 B.S. No. 9, Decision No. 9264, P. 1712.
27
Muluki Civil Code, 2074 (2017). Section 506(1)(a)(b) & (2).
28
Muluki Civil Code, 2074 (2017). Section 518(2)(a)(b)(c)(d).
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Coercion
According to the Muluki Civil Code, 2074 (2017), Section 518(2)(a), coercion is defined as
“coercion’ is threatening to detain, any property, threatening to cause life, dignity and prestige to
and any act forbidden by the law or the unlawful detaining, or threatening, with the intention of
causing enter into an agreement against the will of any person.”29 The burden of proof in cases of
coercion lies on the party whose consent was coerced. When consent of a party was obtained
through coercion, the contract becomes voidable at the option of the party whose consent was so
obtained.

Undue Influence
When the parties to the contract are in relationships in such a way that one party can dominate the
will of the other and uses the unfair advantage so gained to obtain the consent of the other party,
then the consent is said to have been obtained by undue influence. The Muluki Civil Code, 2074
(2017) defines, "Undue Influence means influence made to any person who is under their own
influence and Act can be done according to their interest, with an intention of unjust advantage for
their benefit and interest."30

The Indian Contract Act, 1872 also provides instances where a person can dominate the will of
another. These instances are, where a person has a real or apparent authority over the other. Where
a person has a fiduciary relationship with the other. Where a person enters into a contract with
another whose mental capacity is affected, either temporarily or permanently.

When a party who in a position to dominate the will of the other, enter into a contract and the
contract prima facie appears to unconscionable, then it is the burden of the party who in a position
to dominate, to prove that consent has not been obtained by undue influence. When the consent of
the party to the contract has been obtained through undue influence, then the contract becomes
voidable at the option of the party whose consent has been so obtained.

Fraud
Consent is not said to be free when it has been obtained by means of fraud. In such cases, the
contract becomes voidable at the option of the party whose consent was obtained by means of
fraud. Moreover, fraud is also a tort where action for damages can lie. The Muluki Civil Code,
2074 (2017) gives the definition of the fraud- "Fraud means one contractual parties or the
representative creates a belief on untruth of anything with an intention of deceiving or any action
to establish a belief or knowingly non-disclosement of facts or any action which is considered
fraud by law to other parties or representative of the contract."31

The Indian Contract Act, 1872 gives the definition of the term ‘Fraud’. The law provides five acts
which when committed either by the party or with his assistance or by his agent, with the intention
to deceive the other party, amounts to fraud. Those acts are, a suggestion as to a fact which is false,
by a party who believes it to be false. An active concealment of a fact by a party. A promise made
without any intention of fulfilling it. Any other act which can deceive. Any act or omission which
the law specifically provides to be fraudulent.

29
Muluki Civil Code, 2074 (2017). Section 518(2)(a).
30
Muluki Civil Code, 2074 (2017). Section 518(2)(b).
31
Muluki Civil Code, 2074 (2017). Section 518(2) (C).
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Mere silence about facts which can affect the willingness of a person to enter into a contract does
not amount to fraud, but if there is a duty to speak upon the person who is keeping silent, then it
becomes a fraud. Example of such cases is Contracts Uberrima fides, also known as Contracts of
Utmost good faith where full disclosure is expected. The burden of proof in cases of fraud lies on
the party who alleges it. The party has to prove the circumstances which can lead to the existence
of fraud. Merely making a mention of fraud in the pleadings is not enough. If the party, whose
consent has been obtained through fraud, had the opportunity or means to discover the truth with
ordinary diligence, then the contract will not be void.

Misrepresentation
According to Muluki Civil Code, 2074 (2017) misrepresentation refers, "to give false description
or a fact without any reasonable basis, to procure any aggrieved party, to make fault on subject
matter of the contract and contract made in another subject by creating belief on one subject."32

Misrepresentation under the Indian Contract Act, 1872 has an exhaustive definition and can be
divided into three types which are, the first type is when a statement is made by a person, about a
fact which is not true, though he believes it to be true. Secondly when there is a breach of duty by
a person who is making the false statement and he gains some kind of advantage even though it
wasn’t his intention to deceive the other party. The third is the type where if one party acting
innocently, causes the other party to make any mistake with regards to the subject matter of the
agreement. As can be seen from above, the three types of misrepresentation have one very
important thing in common, the intention of the party which misrepresents is innocent; it is not to
deceive the other party into entering the contract. The intention of the party who makes the false
statement is the difference between misrepresentation and fraud. The burden lies on the party
claiming misrepresentation to avoid the contract to prove that misrepresentation was used to obtain
the consent. When consent was obtained through misrepresentation, it becomes voidable at the
option of the party whose consent was so obtained.

Mistake
When one of the parties has given its consent to the contract under some kind of misunderstanding
then the consent is said to be have been given by mistake. If it wasn’t for the misunderstanding the
party would not have entered into the agreement. Under contract law, a mistake can of two kinds:
(1) mistake of law, and (2) mistake of fact.

Mistake of Law
When the party has any misunderstanding with regards to the legal provisions, it is called Mistake
of Law. Now, the party can be confused regarding the law of the Homeland or law of a foreign
land. If it is a mistake regarding the law of the homeland, the contract cannot be avoided. The party
cannot take the plea of having no knowledge of laws of his homeland. But if it is a mistake
regarding the law of a foreign country, he can be excused.

Mistake of Fact
When the parties have any misunderstanding regarding the subject matter or terms of the contract,
it is said to be a Mistake of fact. The misunderstanding can be on the part of one party or both of
32
Muluki Civil Code, 2074 (2017). Section 518(2) (d).
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them. The Nepalese civil code, 2074 has not been incorporated to the mistake as an element of free
consent, so, Muluki Civil Code is silent regarding to the mistake.

Bilateral Mistake – When both the parties are under any misunderstanding/mistake relating to a
matter of fact essential to the agreement, the agreement becomes void.

Unilateral Mistake – When the misunderstanding/mistake is on the part of one party to the
contract, the agreement remains valid. Only when the party is mistaken about the parties to
agreement or nature of the transaction, the agreement becomes void.

Free consent is absolutely essential to make an agreement a valid contract. The importance of free
consent cannot be stressed enough. Consent of the parties to the contract must be free and
voluntarily. Consent to the contract has to be given without any kind of pressure or delusions. It is
important that the consent given by the parties is free as this can affect the validity of the contract.
If the consent to the agreement was obtained or induced by coercion, undue influence, fraud,
misrepresentation or mistake, then it has the potential to make the agreement void.

Clearly, free consent means the absence of any kind of coercion, undue influence, fraud,
misrepresentation and mistake. When the consent which is given is affected by these elements it
calls into question whether the consent given was free and voluntary. The objective of this principle
is to ensure that judgment of the parties while entering into the contract wasn’t clouded. Therefore
consent given under coercion, undue influence, fraud, misrepresentation and mistake has the
potential to invalidate the contract.

h. Specific performance
Specific performance is an equitable remedy in the law of contract, whereby a court issues an order
requiring a party to perform a specific act, such to complete performance of the contract. It is
typically available in the sale of land, but otherwise is not generally available if damages are an
appropriate alternative. Specific performance is almost never available for contracts of personal
service, although performance may also be ensured through the threat of proceedings for contempt
of court.

Specific performance is commonly used in the form of the fulfillment of contractual liability by
the parties of the contract. The specific performance can be in the form of any type of forced action,
it is usually to complete a previously established transaction, thus being the most effective remedy
in protecting the expectation interest of the innocent party to a contract. It is usually the opposite
of a prohibitory injunction, but there are mandatory injunctions that have a similar effect to specific
performance. The Civil Code, 2074 Sections 521, 522, 523, 524, 525, 526 and 527 are related to
specific performance of contract.33

At common law, a claimant's rights were limited to an award of damages. Later, the court of equity
developed the remedy of specific performance instead, should damages prove inadequate. Specific
performance is often guaranteed through the remedy of a right of possession, giving the plaintiff
the right to take possession of the property in dispute. As with all equitable remedies, orders of
specific performance are discretionary, so their availability depends on its appropriateness in the
33
Muluki Civil Code, 2074 (2017). Sections 521, 522,523,524,525,526 & 527.
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circumstances. Such order are granted when damages are not an adequate remedy and in some
specific cases such as land (which is regarded as unique). In practice, specific performance is most
often used as a remedy in transactions regarding land, such as in the sale of land where the vendor
refuses to convey title. The reason being that land is unique and that there is not another legal
remedy available to put the non-breaching party in the same position had the contract been
performed.

However, the limits of specific performance in other contexts are narrow. Moreover, performance
based on the personal judgment or abilities of the party on which the demand is made is rarely
ordered by the court. The reason behind it is that the forced party will often perform below the
party's regular standard, when it is in the party's ability to do so. Monetary damages are usually
given instead.

Traditionally, equity would only grant specific performance with respect to contracts involving
chattels where the goods were unique in character, such as art, heirlooms, and the like. The
rationale behind this was that with goods being fungible, the aggrieved party had an adequate
remedy in damages for the other party's non-performance. Anyone who conducts business uses
contract law. Both companies and consumers use contracts when they buy and sell goods, when
they license products or activities, for employment agreements, for insurance agreements and
more. Contracts make these transactions happen smoothly and without any misunderstandings.
They allow parties to conduct their affairs confidently. Contracts help make sure that the parties
to a transaction are clear on its terms.34

4. Emerging issues and legal practices in contract law

The contract law is an important subject matter of Business law and economic activity. The nature
of contract law is an adjective and practical. The scope of contract law is wider and dynamic. The
legal practice of contract law is emerging as a specific area of the law as per the requirement of
the changed context of modern age of development of science and technology.

In recent years, the practice of contract law is to identify the current emerging issues and
advocating for client to conduct a business in a more favorable and convenient manner. To practice
in the field of contract law, lawyers should understand about the basic knowledge of drafting and
the way of evaluation of contracts. Lawyer are required is sincere on both the substantive and
procedural law aspects of the contract law. Lawyer should be aware on issues of law of the place
of action, choice of law, jurisdiction for enforcement and mandatory clauses of the arbitration for
the practice. To practice in contract law refers to know how to draft a contract, enforceability and
terms and conditions of the contract which are acceptable and valuable to the client.

The lawyer could specialize in contract law as a private legal practitioner and might work as an in-
house lawyer for a corporation. A Contract lawyers might work as a sole practitioners and they
work at the largest law firms. They might practice contract law exclusively and as a part of the
diverse area of legal practice.

34
https://legalcareerpath.com/what-is-contract-law (accessed on 14 April 2019)

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In legal practice, when a contract dispute arises, lawyers work to help their client resolve the matter
and advocate for the best possible result. Sometimes that means writing demand letters and
contacting the other party in order to work towards a resolution. In other cases, it means litigating
the matter in court. Some contract disputes rely on methods of alternative dispute resolution such
as an arbitration and mediation. Lawyers who practice contract law might do some or all of these
tasks on behalf of their clients.

In a contract, words may have a multiple meaning. The meaning of the words are interpreted as
per the intention of the parties of the contract. Each and every word is important and even critical
for the benefit of client. Lawyers those who draft a contract and negotiate in contracts help to
clients to conduct business in good terms. Lawyers help clients to understand the meaning of the
language of the contract. They help to their clients to make the best possible choices of the law for
the remedy. In this regard, a contract lawyers help businesses and individuals to perform
transactions in a sound, favorable beneficial way.

For lawyers those who is interesting in writing and enjoy the details of the practice, the contract
law is a good choice. When the dispute arises between the parties of the contract, lawyers who
enjoy litigation and arbitration could help to resolve the disagreements of the client. The contract
lawyers have direct relation with the people and business companies to conduct business. It is
important to work in the field of contract law because the focus on contract law is often the
cornerstone of a sound career. Contract law is concerned to conduct business. Contracts law is a
common part of business and economic activity of day to day life.

5. Conclusion
Contract is an agreement between two or more than two party to do or not to do something which
is enforceable at law. A contract is legally binding agreement between the parties. It creates rights
and obligations to parties of the contract. The forms of contract may be in written (express), oral
(implied) and by conduct. All agreement is not a contract, because there is a principle of contract
law "all contracts are agreements but all agreements are not a contract." Only these agreements
which are enforceable by law are contract. Those agreement which has included an essential
elements of a valid contract is legally enforceable. The Muluki Civil Code has defined clearly to
the concept of contract. It has tried to address precisely to both theoretical and practical aspects of
the contract law. Regarding to an essential elements of valid contract Muluki Civil Code has clearly
mentioned and described to it.

The definition of an offer and acceptance, contractual capacity, free consent, specific performance,
remedy to breach of contract, void and voidable contract is clearly incorporated in the Muluki Civil
Code. In the same way, the absence of a coercion, undue influence, fraud, misrepresentation and
mistake is essential to the free consent to be a valid contract. Muluki Civil Code has ignored define
to the absence of mistake in the free consent. The consideration is also an essential element of
valid contract but Muluki Civil Code has not incorporated to consideration as essential element of
valid contract. So, our law is silent on it.

The contract law has importance in every business activities. The law of contract is an important
part of business law because the act of transaction is performed between two or more parties and
relationship between them is regulated by the contract. Every agreement must possess the essential

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elements for valid contract. The legal relationship, lawful consideration, capacity of parties, free
consent, lawful objects, writing and registration, certainty, possibility of performance and not
expressly declared void are essential elements of a valid contract. The agreement which involves
an essential elements of a valid contract is enforceable at law.

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