• Background

Contract law is a branch of business law. It is related with transaction of services and goods. Services and goods are very essential matter for human being. These are daily consuming commodity or service of human society. Though, there was not developed the formal contract law at the beginning stage of the human civilization, but there may be regulated contractual behavior in at any name. So, we can imagine, there was practice of contractual behavior at the very beginning of human civilization in Nepal.

Obviously, we have not long written legal history, but in practice we have long lasting customs and usages even till date. Still now, we are in initial stage of industrialization. So, we have not long written history of business law as well as the contract law.

Nepalese first formal written law was Civil Code, 1910 B.S. which was promulgated of the resign of King Surendra Bikram Shah. Such civil code was repealed in time to time and finally that was replaced by the Civil Code 2020. Civil Code 2020 is prevailing till now.

  • Civil Code 1910

 This was the first codified law of Nepal. This code introduced the concept of contract on the name of Shahu- Aasami ko Mahal and Lenden Byabahar. (Section of Creditor and Debtor and Money Transaction of Civil Code 1910) Such code was repealed by the Civil Code 2020.

  • Civil Code 2020

 First time, this code introduced the concept of agreement. Rule 37 of Lenden Byabahar first time incorporated the provisions in regard to the agreement of other transaction except the historical money transaction one. Rule 37 stated that; "Not belongs with other provisions of this code, any written agreement or the subject matter of such agreement is not against the prevailing law, could be in according with written agreement". Similarly rule 39 of that code was incorporated the provisions for the limitation of remedy of the breaching of an agreement. But there were not particular provisions about contract, contractual liability, contractual capacity, right and obligation, remedy for the breaching of contract etc.

  •  Contract Act, 2023

 Before the promulgation of this Act, there was introduced the only concept of contract under the general law. But contract Act, 2023 was the first and specific law in regard to control and regulated the contractual behavior in Nepal. The first time that Act defined about the terms contract, proposal and acceptance, qualification of parties, types of contract, performance of contract, breach of contract and limitation of remedy, under the 19 sections of Contract Act, 2023. But that was not complete law and there were some lacunas, ambiguity and not covered the overall subject matter of contract law.

  • Nepal contract Act, 2056

 Contract Act, 2023 was replaced by the Nepal Contract Act, 2056. The contract Act, 2023 was not complete in different sense. There were not any provisions about the special contract like contract on indemnity, guarantee and bailment and so on. Similarly there was not clarity about the various aspect of contract law. On this situation, Nepal Contract Act, 2056 was promulgated with various new concepts and provisions about the contract law. Nepal Contract Act, 2056 divided in to 13 chapters and 90 sections.

  • Majors Provisions of Nepal Contract Act, 2056

 The law relating to the contract Act plays significant role to conduct the human behavior. Specially, in the business transactions, the contract law plays very important role by providing validity and enforceability. Any transactions to be regulated in reliable way the parties of it enter in to an agreement and such agreement made by the business parties must be supported by the contract law. To carry any business transaction, person should enter firstly in some contract without law no person can carry out the business transaction.

Most of the countries of the world have been made the laws relating to contract as their need for maintaining the business. Nepal is also not remaining in isolation in the modern context. Recently, she has entered into WTO as other country which is international treaty concerning to the international trade. As the need of nation and international obligation to the treaty, Nepal has to make or amend several legal frameworks to meet the standard of the treaty. Although Nepal has no long history of contract law but nowadays she has separate contract law as a special law “the Contract Act 2056”. Including several specific area of contract, Nepal Contract Act, 2056 has attempted to modify and remove the lacunas of previous Act by adopting different contemporary aspects of Contract Law. It seems highly influenced by the Indian Contract Act, 1872. The major provisions of Nepal Contract Act, 2056 are as below:

The present Nepalese Contract Act, 2056 has made for the fulfillment of current requirement of the business environment. It divided in 13 chapters and contained 90 sections including the several specific area of contract. Most of the provisions seem similar to the Indian on Contract Act. The provision of the Act discussed under the relating headings. These are given below:

a. Provision relating to definitions:

The Act has defined various terms like contract, sale of goods, offer and acceptance, agencies etc which contain specific meaning in contract. They are defined under section 2, 15, 25, 35, 40, 56 and 65 of the Act respectively.

b. Provision relating to contractual capacity of the parties:

Section 3 of the Act has made the provision relating to the contractual capacity of the parties. According to this provision the person who is : (a) major by age (b) of sound mind and (c) not declared disqualified for contracting by any law prevalent in the country, are deemed to be competent to the contract.

c. Provision relating to the autonomy of the parties:

The parties to a contract are free to choose the form of the contract and its subject matter and determine:

  • the consideration and its extent 
  • the terms and conditions of the contract
  • the nature of the remedy in case the contract is breached and
  • the measures for resolving disputes under the contract.

d. Provision relating to place of the contract:

Section 6 of the Act is relating to it. According to it, if the place is mentioned by the offer to make acceptance for his offer, the contract is supposed to be concluded in the same place, but if the place is not mentioned in the offer, the contract is supposed to be concluded at the place where he receives the consent from the offeree.

e. Provision relating to void and voidable contracts/agreements:

Section 13 and 14 of the Contract Act have made the provisions relating to the conditions which a contract becomes void and voidable at the option of aggrieved party.

f. Provision relating to contract of sale of goods:

The provisions relating to contract of sale of goods is new one for the Nepalese context. This provision was not comprised by the former Act and none of the current law comprises such provision. Under the chapter 7 sections 40 to 55 of the Act are concerned to this matter. Under which the provision regarding nature of property (goods) determination of price of goods, mode of selling and transferring goods, risk and examination goods, performance of sale, damage, conditions of invalidation of the contract etc are stipulated.

g. Provision relating to Contingent Contract:

The provision regarding contract made for performing or not performing any work if any event happens in some future time, rights and liabilities of the parties arising out there from in case event specified in the contract happens or not happens are mentioned under section 12 of the Act.

h. Provision relating to contract of bailment:

It is also a new provision incorporated under this new Contract Act 2056. Under the chapter 5, sections 24 to 34 of the Act are concerned to this provision. Section 25 has defined the term ‘contract of bailment’ and rest services have made the provision as regards to the rights and duties of the bailor and bailee and the conditions at which the contract of bailment becomes void.

i. Contract of agency:

This new Act of contract has made the provision in the area of contract of agency, in addition to the provision of Nepal Agency Act 2014 & Rules 2019. The Act has made the provision, under the chapter 8, sections 56 to 64, relating to the appointment, function, right and duties and liability of the agent, conditions of appointing sub agent, termination of agency etc

j. Provisions relation to offer and acceptance:

Section 7, 8 and 9 of the Act, are relating to it. Likewise, sub-section 2 of this section has stated that the acceptance. And the other provisions are relating to revoke and lapse of the offer and acceptance.

k. Contract of guarantee and indemnity:

Section 15 to 24 of the Act, have dealt with the various rules regarding in this respects.

l. Provisions relating to contract of sale of goods:

Provision relating to breach of contract and remedies section 82 to 87, under the chapter - 12 have made the provisions for breach of contract and remedies available to the injured party in case of such breach.

m. Provisions of limitation period:

The limitation period means the period within which the case must be brought in the court, otherwise the court does not hear the case. This provision is formulated on the basis of doctrine of limitation, which provides certainty in the case, section 89 of the Act has made this provision.