UNIT 2 legal precision regarding business and environment

Notes

1. UNIT 2 GENERAL LAW OF CONTRACT

2. LAW OF CONTRACTS

3. Meaning of contract Simply, a contract is a legal agreement created by an exchange of promises between two or more parties to do or not to do something. Contract is an agreement between at least two parties to do or to abstain from doing something and creating contractual rights and obligation of themselves which the law will enforce is called contract . According to Salmond, “ A contract is an agreement which creates and defines obligation between two parties”. The Contract Act 2056 has defined the term contract under Section 2(a) according to this “A contract is an agreement between two or more person to do or not to do something, which can be enforceable by law”. The Supreme Court of Nepal has defined the contract as “An agreement of two or more parties with condition”.

4. 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. In the form of equation it can be shown as under:- Contract= Agreement +Enforceability of an agreement by law Now, the question arises what is an agreement and what is enforceability of an agreement in the court of law.

5. Agreement = A proposal when accepted becomes a promise and every set of promise forming the consideration for each other is an agreement Enforceability of an agreement by law= An agreement is said to be enforceable by law if it creates some legal obligation, in other words, the parties to an agreement must be bound to perform their promise and in case of default by either of them must intend to sue. From this it appears clear that a contract is a valid or legal agreement enforceable at law. It is conducted between two or more parties upon a consideration to do or to abstain from doing some act which not only creates rights but also defines obligation between them. A contract is therefore a fusion of an agreement and its enforceability.

6. ESSENTIAL ELEMENTS OF A VALID CONTRACT Most people assume that once one party has made an offer and the other party has accepted, a contract has been formed. However, there is more to a valid contract than this, and it has nothing to do with how formal the agreement is. A contract can be formal or informal, written or even oral . Here are the some of the key components that transform a mere agreement into a legally binding contract : Offer : A contract begins with an offer. This is when one party expresses a desire (or need) for something and outlines the terms. The offer must demonstrate an exchange of value, which could be money, services, or other considerations. Importantly, an offer only exists once it reaches the other party (the offeree). Before acceptance, the offer can be revoked, altered, or terminated. If the offeree proposes changes, it becomes a counteroffer . Acceptance : Once the offer is presented, the offeree can either accept or reject it. Acceptance can be explicit (verbal or written) or implied through actions. For instance, shipping unsolicited materials doesn’t constitute acceptance. Interestingly, inaction (such as silence) doesn’t count as acceptance either. The famous 19th-century British case of a man buying a horse illustrates this principle: assuming acceptance based on silence is insufficient to create a contract. Awareness : All parties involved must be aware of both the offer and its acceptance. Transparency ensures that everyone understands their rights and obligations. Without awareness, a contract lacks validity. Consideration : Consideration refers to the exchange of value between the parties. It could be monetary compensation, services rendered, or any other benefit. Essentially, both sides must give something of value for the contract to be valid.

7. 5. Formalities- The agreement must comply with the necessary formalities as to writing, registration, sampling etc , if any required, in order to make it enforceable in the court of law. 6. Capacity of parties : For a contract to be legally binding, the parties must have the legal capacity to enter into it. This means they must be of sound mind, not under duress, and not minors (unless specific exceptions apply). 7. Legality : Finally, the contract’s purpose and terms must be legal. Contracts involving illegal activities or violating public policy are unenforceable. 8. Intention to create legal relationship- The relationship which is enforceable by the law is known as legal relationship. In absence of such intention on the part of the parties between them there is no contract between them. 9. Clarity and Certainty- The terms of the agreement must be clear i.e. it should not contain any words which has double meaning. As well as it be made with the intention to do within certain time period. 10. Possibility of Performance- The agreement must be capable of being performed. An agreement to do impossible thing in itself is not valid. 11. Lawful object- Object refers to the objective or the purpose for which the contract was made. It should not be illegal or opposed to public policy etc. for example an agreement made with the object of gambling purpose is an illegal agreement.

8. TYPES OF CONTRACT Contracts are a fundamental part of business and legal interactions. Some of the important classifications of contracts are discussed as follows. 1. On the basic of Validity/ Enforceability a. Valid Contract- A valid contract is a comprehensive agreement that adheres to all legal prerequisites. It’s a mutual understanding where both parties are bound to fulfil their respective commitments. If one party fails to uphold their end, the other can pursue legal remedies, as the contract is enforceable by  law. Example:  Mark agrees to lease his apartment to Lisa for $1,200 per month for one year. Both are of legal age, the terms are clear, and the agreement is in writing, making this a valid contract. b. Void Contract- A contract which is valid at the time of its formulation but becomes void to be unenforceable subsequently is known as void contract. Basically the change in law or destruction of subject matter makes a contract void. Example:  Two individuals form an agreement to book a hall. But due to sudden changes the program is cancelled then the contract is void.

9. c . Voidable Contract A voidable contract is initially valid and enforceable. However, one party can rescind or enforce the contract due to certain circumstances, such as misrepresentation, undue influence, or lack of capacity. If not rescinded, it remains valid. Example:  A contract signed under duress, where John is coerced into selling his car to Mike for a significantly lower price, is voidable. John can later opt to void the contract due to the undue pressure. d. Unenforceable Contract An unenforceable contract may have all the elements of a valid contract, but it cannot be enforced in a court of law due to some technicalities or legal deficiencies. The contract is neither void nor voidable, but the law denies enforcement. Example:  An oral agreement to sell real estate is typically unenforceable in many jurisdictions because the law requires such contracts to be in writing .

10. e. Illegal Agreement- If the contract is made between two or more parties to do something prohibited by the prevailing law of Nepal or immoral or opposed to the public policy is called illegal agreement . Example: Two individuals form an agreement to commit a bank robbery. Since the subject matter is illegal, the contract is void 2. On the basic of formulation or creation a. Express Contract An express contract is formed when the parties explicitly state the terms and conditions, either in writing or verbally. The intentions and commitments of both parties are clearly articulated, leaving little room for ambiguity. Example:  Jane offers to buy Tom’s laptop for $500, and Tom explicitly agrees, either by saying, “I accept your offer,” or by providing a written receipt. Their mutual understanding and clear terms form an express contract

11. b. Implied Contract An implied contract is not expressed verbally or in writing but is inferred from the parties’ actions, behaviour , or circumstances. The law derives the existence of an agreement based on the parties’ conduct or the situation’s inherent fairness. Example:  When a person visits a doctor, there’s an implied contract that the doctor will provide medical services, and in return, the patient will pay for those services, even if no explicit agreement was made beforehand. The act of seeking and providing the service implies a contract. C. Quasi contract : under certain circumstances a person may receive a benefit from other for which the law considers he should pay to the other person even though there is no contract between the parties. Such relations are termed as quasi contracts. Example : If Person A mistakenly pays Person B's debt, Person B might be required to reimburse Person A, even though there was no agreement between them.

12. 3 . On the basic of Performance of Contract /Execution: a. Executed Contract- An executed contract is an agreement where both parties have fulfilled their obligations. In other words, the contract terms have been fully carried out, and there’s nothing left to be done by either party. Example:  Sarah pays $20 to buy a book from a bookstore. Once she pays and receives the book, the contract is executed, as both parties have met their obligations — Sarah has paid, and the bookstore has provided the book. b. Executory Contract – An executory contract is one where one or both parties still have obligations to perform in the future. The contract remains in place until all parties meet all terms and conditions. Example:  John leases an apartment to Emily for a year. After signing the lease and moving in, Emily is obligated month, and John must provide the apartment for the lease’s duration. The contract remains executory until the lease ends, and all payments are made.

13. 4 . On the basis of Obligation/ existing duty under a contract/Contractual Liability a. Unilateral Contract A unilateral contract involves an obligation for only one party. One party makes a promise in exchange for a specific act by the other party. The party making the promise will fulfil it once the other party completes the requested act. Example:  A “reward” poster for a lost pet is a unilateral contract. If Alice offers a $100 reward for returning her lost cat, she must pay once someone returns the cat, but no one is obligated to search for the cat. b. Bilateral Contract A bilateral contract involves mutual promises made by both parties. Each party is a promisor (making a promise), and a promisee (receiving a promise), and both have obligations to fulfil under the contract’s terms. Example:  If Bob agrees to sell his car to Susan for $5,000, Bob promises to deliver the car, and Susan promises to pay the $5,000. Both have obligations to meet for the contract to be fulfilled.

14. 5. On the basis of future contingency of contracts: a. Simple Contract A simple contract is a type of contract where the performance of the obligations by the parties is not dependent on any future event or condition. The terms of the contract are clear and unconditional. As soon as the contract is formed, the obligations of the parties are fixed, and they must fulfill their promises according to the agreed terms. Example : A contract to buy a house where the buyer agrees to pay a specific amount and the seller agrees to transfer ownership on a specified date . b. Contingent Contract A contingent contract, on the other hand, is a contract where the performance of the obligations is dependent on the occurrence or non-occurrence of a future uncertain event. The obligations under a contingent contract are not absolute but are conditional upon the happening of a particular event . Example : An insurance contract where the insurer agrees to pay a certain amount of money upon the occurrence of an insured event, like a fire or theft. (assignment- find example for each terms of contract)

15. THE LAW RELATING TO CONTRACT IN NEPAL (THE CIVIL CODE , 2074) (HISTORICAL BACKGROUND OF CONTRACT LAW IN NEPAL) The Nepalese legal system in its history and still in the present time have influenced by the Hindu philosophy and rules. In Nepal, contract law was formally born in the Rana regime and got opportunity to be developed as a separate law after the advent of democracy in 2007 B.S. 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.

16. 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 formally 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 with the motive of addressing modern transaction related problems in the codified form.

17. MAJOR PROVISIONS OF THE CIVIL CODE The major provisions of the Civil Code, 2074 relating to contract law can be stated as 1. Definition : The Civil Code, 2074, has defined the different terms, e.g., Contract, offer, acceptance and other specific contracts. Section 504 (1) states 'a contract is an agreement to do or abstain from doing something between two or more parties which is enforceable by law. Similarly , section 504 clarification (1) defines an offer as a proposal made by one to another with a view to obtain assent from that another. The term acceptance is defined by clarification (2) which states acceptance is an assent given by the person to whom it is made in the same sense as the offerer has intended. Similarly, under each chapter of part 5 of the civil code , 2074 has defined the various terms used in the code which are important to interpret the relevant provisions of the code. 2. Contractual capacity: Section 506 of the Civil Code, 2074 deals with the contractual capacity of the contracting parties, persons of minor, persons of unsound mind and other persons disqualified by law are treated as incapable to enter into a contract. Section 32 has defined the term minor and section 33 has given the meaning of unsound mind.

18. 3. Autonomous of parties: Section 507 of the Code declares that the contracting parties have right to choose the subject matter of contract, to fix the nature and amount o consideration, the terms and conditions and the remedies for the breach of contract and th procedures to decide the dispute between them. 4. Offer and acceptance: Section 508 to 512 of the Act deal with the offer and acceptance their communication, revocation, the different consideration when an offer and acceptance is treated as revoked, general offer, and the place of contract . 5. Contingent contract: Section 513 provides the various provisions to the contingent contract with rules regarding the performance of contingent contract. 6. Void and voidable contracts : Section 517 has given a list of contract which are declared by law as void. For example agreement in restraint of trade or profession agreement in restraint of marriage, agreement opposite to the public policy and welfare of state, agreement for unlawful object and consideration etc. Similarly, section 518 has stated that different cases where a contract becomes a voidable contract.

19. 7. Specific contracts: It is an important features of the Code that it has provided the different provisions for general and specific contract. Chapter 6 to Chapter 14 are related to the different contracts, like, indemnity and guarantee, Bailment and pledge sale of goods, agency carriage of goods, lease, hire-purchase and contract labour , etc. where the various specific provisions are made relating to these contract. 8. Performance of contract: Under section 521 to 534 the Code has provided the different provisions relating to the ways and manner of performance, time date and place of performance, persons who are bound to perform a contract, who can demand for performance and the conditions where a contract need not to perform etc. 9. Breach of contract and remedies: Chapter 5, section 535 to 544 the Code is related to the breach of a contract and the different remedies available to the injured party in case of breach or non-performance of contract where a contract has been breached by one the another party can apply before the court for the rescission of contract damages, specific performance, quantum- meruit and injunctions. 10. Limitations : In each chapter of the code has provided the provision of the limitation which determines the time within which an injured party must file a case before the court for justice in case of breach of contracts or reasons to go to the court. Injured party to get remedies must go to court within the same time as fixed by the law otherwise , he cannot get remedies.