Contract Drafting in Nepal: A Complete Guide with Template

1. Introduction of Contracts

Contracts are legally binding agreements that specify the rights and responsibilities of each party between two or more parties. An offer, assent, consideration, legal capacity, and a lawful purpose are customary components that are generally included in a contract. It specifies the conditions and circumstances by which the parties consent to continue doing business. In addition to business agreements, employment contracts, and real estate transactions, contracts may also pertain to a vast array of other types of relationships or transactions.

1.1 Contract Deemed to be Made

A contract is deemed to be formed when two or more parties come to an agreement that is legally enforceable to perform or refrain from performing an action. Once an offer has been made and accepted by the recipient, a contract is deemed to have been formed. A legally binding relationship between the parties to a contract shall be formed upon its conclusion.

1.2 Contract Enforceable by Law

A contract shall be deemed to be enforceable by law if it is entered into in fulfilment of the following conditions: (a) The consent of the party to bind himself or herself; (b) Capacity or qualification of the party to enter into the contract; (c) Specific matter for the creation of an obligation; and (d) Legal obligation.

2. Laws Governing Contracts in Nepal

The provisions pertaining to Contracts and Other Liabilities are found in Part 5 of the National Civil (Code) Act, 2017 (2074). Within this section, the Code delineates provisions concerning the formation, validity, performance, breach, and remedies for breaches of contract. Prior to the Code, Nepal’s Contract Law was governed by the Contract Act of 2000 (2056), which defined a contract as an agreement that was legally binding and enforceable between two or more parties for the performance or non-performance of work.

3. Types of Contracts in Nepal

3.1 Void Contract

A contract is deemed to be void if it is not legally valid. Void contracts have no legal ramifications, rights, or obligations for the parties, and are therefore void from the beginning. A contract’s remaining provisions remain legally enforceable notwithstanding the nullification of any portion thereof. The following types of contracts are deemed null and void:

  1. A contractual agreement that restricts the practice of a non-prohibited trade, profession, or enterprise.
  2. In the absence of legal prohibitions, contracts that restrict matrimony.
  3. Lease agreements that prohibit individuals from using public facilities.
  4. Agreements that prohibit a court from enforcing the legal rights of an individual.
  5. Agreements reached in violation of laws in effect or concerning subjects that are prohibited by law.
  6. Agreements made in violation of public policy or the interests of the public.
  7. Obligations that are unfulfillable on account of ignorance or ambiguity regarding the contract.
  8. Entirely illegitimate contracts.
  9. Agreements reached by an individual lacking the requisite expertise to bind a contract.
  10. Parties enter into contracts in error with respect to material information.

3.2 Voidable Contracts

A contract is deemed voidable if, at the request of one of its parties, the court may declare it void. Contracts entered into under duress, deceit, deception, or misrepresentation are all elements that may lead a court to declare them void. At the request of the party who is being wronged, the court may nullify voidable contracts. In addition to waiving the contract, the aggrieved party may request the reinstatement of their position. Vanishable contracts are enforceable in the same manner as valid contracts prior to their voidance. Acts performed under a contract prior to its voidance are unaffected. Voidification does not prejudice the legal rights of legitimate third parties.

3.3 Unenforceable Contracts

Unenforceable contracts are those that fail to satisfy the requirements for court enforcement. Contracts that fail to satisfy certain formalities or procedures, are executed in a manner not authorised by law, or are not made in writing when such action is required, are deemed unenforceable.

4. Conclusion

Essential elements of contracts comprise offer, acceptance, consideration, and legal capacity; they constitute legally binding agreements between parties. Conditions of formation, performance, validity, and remedies for transgression are all regulated by the National Civil (Code) Act of 2017. This legislation oversees contract law in Nepal. Void, voidable, and unenforceable contracts are among the contracted types, and each has unique attributes and legal ramifications. Unenforceable contracts lack the ability to be enforced by a court. Void contracts are inherently invalid. Voidable contracts may be declared void under certain conditions.

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