The Law of Contracts in Nepal was governed by The Contract Act of 2056 B.S. (2000 A.D.) up until recently when the new Muluki Civil (Code) Act, 2074 B.S. (2017 A.D.) and, Muluki Civil Procedure (Code) Act 2074 B.S. (2017 A.D.) were introduced for settling civil disputes amongst the public.

These codes have made significant changes in the contract laws of Nepal and also, have defined the forms of contractual relationships, and also relationships arising out of deeds and other agreements.

Obligations

An obligation is created in the following circumstances:

  • Through Law,
  • Through contract/s,
  • Through Indirect Contract, or, a quasi-contract,
  • Through unjust enrichment,
  • Through the unilateral commitment of any person to assume an obligation,
  • Through an act to be treated as a tort under the law,
  • Through an act to be treated as a quasi-tort under the law.

The codes specifically provide that obligations are transferred onto the successor to the property of the person who had originally assumed such obligation/s.

Formation of Contract

Property and Family related disputes are two of the major civil disputes that are settled through regular court proceedings aside from arrangements that are made through written deeds or contracts.

These Disputes are governed through/by the Muluki Civil (Code) Act, 2074 B.S. (2017 A.D.) (hereinafter referred to as the “Civil Code”).

The Code provides time limitations for filing legal suits on each related dispute.

Disputes arising out of contractual breaches

The formation of a contract is based upon a valid offer and acceptance. These offers and acceptances can be canceled through notices. These notices of revocation are to be submitted before the notices of offers and acceptances are acknowledged by the receiver of such notices.

Validity

  • Contracts are not to be made in such an order so as to limit or restrain a party to exercise their constitutional and statutory rights.
  • No contracts can be against public order or interest.
  • No contracts can be declared to have been concluded under diminished free will.
  • Contracts are to be made in such a way that they have the possibility of enforcement through courts or any other dispute settlement bodies.

Performance

  • Contractual obligations are to be fulfilled as they have been stated unless changes/amendments are made through mutual understanding.
  • The performance of contractual clauses is to be reciprocal. If one party fails to fulfill his/her obligation then the other shall not be liable to fulfill his/hers’.
  • Performance shall be completed within the time and according to the manner stipulated in such contracts. If the time and manner are not stipulated then the performance shall follow reasonable actions.

Non-performance of a contract is accepted under the following circumstances:

  • If one party releases the other of their obligations.
  • If in case a voidable contract is declared to be void.
  • In case of a breach.
  • In accordance with the code.
  • In case the contract is unenforceable because of an event that brings out fundamental changes in the circumstances.

Breach and Remedies

  • A party can revoke the contract through a notice if the other does not perform or comply as stipulated.
  • Actual loss or damage suffered may be realized.
  • Provisions of Liquidated damages.
  • Entitlement is to be paid on a Quantum Meruit basis.
  • Claims for Specific Performance may be made.
  • A suit for Injunction may be filed.

Formalities or Basic Requirements of Legal drafts

  • Amounts should be in figures and words both.
  • For a corporate signing, the name, registration number, and address of the entity should be clearly stated. The person authorized by the Board of Directors or a person who has received the Power of Attorney to sign such contracts is entitled to sign and put stamps on behalf of the entity.
  • At least two witnesses are necessary for the execution.

We provide the following related services:

  1. Contract Drafting and Review.
  2. Due Diligence.
  3. Contract-related Advice.

Note: This write-up should not be considered an expert legal opinion. This has been drafted only for the purpose of a general understanding of the subject matter.

  • For Details Please Contact
  • Atit Babu Rijal
  • Commercial Litigation Lawyer
  • Partner
  • A.H.N. Legal Pvt. Ltd
  • atit@ahnlegal.com
  • +977 9851243536