Very Short Question Answer
1. When a consent is treated as free?
A consent is treated as free in the following situations:
- If the consent has been given knowingly and freely.
- If the consent is not caused by coercion, undue-influence, misrepresentation, fraud or mistake.
2. When an agreement is enforceable by law?
When an agreement fulfills all the essential elements of a valid contract, it is enforceable by law the essential elements are two parties, intention to create legal relation, offer and acceptance, consent, contractual capacity, consideration, free consent, legality of object, certainty and clarity, possibility of performance, not expressly declared by law and fulfillment of legal formalities. “
3. State two difference between void and voidable contract.
The main two difference between void and voidable contract are as follows:
|Void contract||Voidable contract|
|i. It is not enforceable by law from the beginning.
ii. It does not bind the parties.
|i. It is enforceable until declared as void.
ii. It binds the parties.
4. State any two nature of contract.
- Contract is an agreement.
- It creates legally binding obligation between the parties.
5. State any two difference between void and illegal contract.
The difference between void and illegal contract can be stated as follows:
|Void contract||Illegal contract|
|i. There is lack of one or all the essential elements of a valid contract.||It is against the law.|
|Parties of void contracts are not punished.||ii. The parties of illegal contract are punished.|
Short Question Answer
1. What are void contracts? Explain the contracts that are declared as expressly void.
An agreement to be a valid contract and create a lawful obligation must be supported by the essential elements. In simple words, if one or all the essential elements of a valid contract are not present in an agreement, it is called as void contract or agreement. Void agreements have no legal effect and do not create legally binding obligations between the parties from the very beginning. Agreements, generally, which are illegal, immoral or opposite to the public policy and welfare of state are void. Once, an agreement is void, it is void forever.
There are different types of contracts as expressly declared by law as void which can be stated as follows:
- Agreements made without intention to create legal relation.
- Agreements made by or with a person incapable to make a contract.
- Agreements as against the criminal or other laws.
- Agreements immoral or against the moral rules.
- Agreements impossible to perform
- Wagering contracts
- Uncertain agreements
- Agreements in restraint of trade 9. Agreements in restraint of marriage
- Agreements in restraint of personal freedom.
- Agreements trading with alien enemy 12. Agreements to sell office
- Agreements for marriage brokerage etc.
2. Define the term contract. Discuss its nature and functions.
In general, contract is an agreement made between two or more parties to do or not to do something in a particular way. In every contract, the parties make promised about something which is to be performed in future. These promises or expectations take form an agreement and when this agreement is enforceable or recognized by law, it becomes contract. The agreements creating obligations between the parties if enforceable by law are treated as contract. It binds the parties or creates legal obligations to perform or fulfill the promises made by them. Further, to state the term, contract not an essential.
NATURE OF CONTRACT
The nature of contract can be stated as follows:
- Contract is an agreement between two or more person on a particular matter or matters.
- Contract creates legal and binding obligations between the parties. The parties acknowledge that they are under obligations and ready to perform these obligations.
- Contract establishes a course of actions between the parties which is to be performed by the parties.
- Contract provides certain remedies if things go wrong to the affected party.
- Contract is recognized and enforceable by law i.e. contract law.
FUNCTIONS OF CONTRACT
The functions a contract can be mentioned as follows:
- Contract normally establishes the value of the exchange or transaction i.e. how much is to be paid for the land, goods or services to be provided.
- Contract lays down the respective responsibilities of the parties and the standard of performance to be expected of them.
- Contract enables the economic risks involved in the transactions to be allocated in advance between the parties.
- Contract provides remedies to the affected party if promise is not fulfilled by the other party.
- Contract in effect, the instrument by which the separate and conflicting interests of the participants can be reconciled and brought to a common goal.
Long Question Answer
1. Define contract. Discuss the essentials of a valid contract.
MEANING OF CONTRACT
In general, contract is an agreement between two or more parties. In every contract, the parties of it make promises about something which is to be preformed in near future. Such promises or expectations of the parties form into an agreement and when this agreement is enforceable or recognized by law it becomes a contract which creates legally binding obligation between the parties. Thus, in the words of Salmond ‘contract is an agreement creating and defining obligations between the parties.’
If we analyze the definitions we find that a contract essentially consists of two elements (a) an agreement (b) its enforceability. An agreement which creates obligations between the parties is enforceable by law it becomes a contract. An agreement which does not create obligation, is not the study-matter of contract law. Where certain duties or obligations are created by agreement between the parties, contract law deals with and makes provision thereto.
AGREEMENT AND CONTRACT
An agreement an assent between two or more person to do or not to do. Which has a wider meaning. The agreement may be social or legal. The social agreement is not the study of contract law. An agreement to be a contract must comply with certain elements. These elements are essential because the validity of a contract depends upon the presence or absence of these elements. Therefore, an agreement to be a contract must by enforceable by law and the agreement becomes enforceable if the essential elements are present. If an agreement lacks one or all the essential elements the agreement can not be a valid contract. Thus, it is saying that all contracts are agreements but all agreements are not contract.
ESSENTIAL ELEMENTS OF A VALID CONTRACT
An agreement to be a contract the following elements must be present.
- Two parties: In all agreements there must be two parties. One party can not create contract. There must be two parties one having rights and other under obligations.
- Offer and acceptance: Offer is an expression of intention of one party to another to do or not to do something. And if that offer is accepted by another, there is an agreement between the parties, Therefore, the journey of a contract always starts with offer and acceptance.
- Intention to create legal relationship: At the time of entering into an agreement the parties must have intention to create legal relationship between them to avoid all other social and family matters. Eg. ‘A’ a father of a young lady ‘B’, announces that he give 1 lakhs to that who marries to his daughter. ‘C’ marriages to ‘B’ and claims for the amount promised by ‘A’. In such matter ‘A’ is not bound to pay the price to ‘C’ because he had no such intention to create legal relationship while making the promise. Agreement to have a picnic or to go to Cinema are not contracts because of absence of such intention to create legal relationship.
- Meeting of minds: To be a valid contract two or more than two persons must agree upon same thing in the same sense. If ‘A’ want to purchase. ‘X’ car but ‘B’ wants to sell ‘Y’ car, there no contract raised between the parties because there is no meeting of minds.
- Free consent: When the parties of contract agree upon same thing in the same sense, their consent must be free from coercion, undue influence, misrepresentation, fraud and mistake. The consent must be made with knowingly and voluntarily. If the consent is not free the parties can avoid the contract.
- Capacity of parties: The parties of contract must be capable to enter into a contract. If one or both of the parties of a contract do not have contractual capacity, the agreement can not be a valid contract. Under Nepalese Contract Act the persons of minor, the persons of unsound mind and persons disqualified by law can not enter into a legally binding contract.
- Lawful consideration and object: The subject-matter of agreement must be legal or lawful. If the agreement is done for unlawful consideration or object, the agreement is not enforceable by law and thus no contract at all. If there is no consideration no contract this consideration must be lawful. If there is an agreement between ‘A’ and ‘B’ to have a business of prostitution that agreement being unlawful is not enforceable by law and no contract.
- Possibility of performance: The agreement must be such which can be perform in near future. If agreement is made for such acts which can not be performed in practical life such agreements are not contracts. An agreement to bring a star from the sky; to kill a person by magic or to create coins from magic are the example of impossible agreements.
- Not expressly declared void: The parties can not enter into an agreement which is expressly declared void by the contract law and other law-in -force. Agreement to kill the life of other or agreement to steal goods etc. are illegal contracts and void. Similarly, agreement in restraint of marriage, or profession etc. are void.
- Certainly or clarity: The term of an agreement must be clear to know what does it mean and must have practical meaning. The contract which is uncertain due to lack of providing reasonable meaning is void. ‘A’ agrees to ‘B’ he will purchase another car if the first car becomes lucky to him, such agreement can not enforce against A, and B can not claim for another purchase by ‘A’ because the term ‘lucky’ does not have any certain and clear meaning in practical life.
- Legal formalities: Some contracts must be in written form and comply with other legal provisions such as registration in the government office etc.
2.Discuss the major provisions of Nepal Contract Act.
Contract law through is an old branch or part of law and in each and every legal system is firstly introduced in Nepal in the year of 2023. On 2023 B.S. Nepal Contract Act, 2023 was enacted by the parliament with limited provisions and principles of contract law. In the year of 2056 B.S. the old law of contract had been replaced by a new act i:e. the contract Act, 2056. Contract Act, 2056 is a comprehensive law where most of the provisions and principles of contracts are included and codified. With different amendments the act is still operating.
MAJOR PROVISIONS OF NEPAL CONTRACT ACT
The major provisions of the Contract Act, 2056 can be stated as follows:
- Definition: Under section 2 of the Contract Act, 2056. It has been defined the different terms, e.g. Contract, offer, acceptance and consideration. Section 2 (a) 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 2 (b) 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 section 2 (c) which states acceptance is an assent given by the person to whom it is made in the same sense as the offerer has intended. Finally, consideration is a promise to do or not to do something in return of to do or not to do stated in the offer. Therefore, this section is an important provision of the Contract Act 2056.
- Contractual capacity: Section 3 of the Contract Act, 2056 deals with the contractual capacity of the contracting parties persons of minor, persons of le person outh unsound mind and other persons disqualified by law are treated as incapable to enter into a contract.
- Autonomous of parties: Section 4 of the act declares that the contracting parties have right to choose the subject matter of contract, to fix the nature and amount of consideration, the terms and conditions and the remedies for the breach of contract. Similarly, the procedures to decide the dispute between them.
- Offer and acceptance: Section 5 to 9 of the act deal with the offer and acceptance their communication, revocation and the different consideration when an offer and acceptance is treated as revoked.
- Indirect and contingent contract: Section 11 is related to the indirect contract and has stated the different conditions where a contract is made. Similarly, section 12 provides the various provisions to the contingent contract.
- Void and voidable contracts: Section 13 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 tat-the public policy and welfare of state, agreement for unlawful object and consideration etc.
- Specific contracts: It is a important features of the Contract Act 2056 that is has provided the different provisions for general and specific contract. Chapter 4, section 15 to 70 are related to the different contracts, like, indemnity and guarantee, Bailment and pledge sales of goods, agency, carriage of goods etc. where the various provisions are made relating to these contract.
- Performance of contract: Under section 71 to 81 the act 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.
- Breach of contract and remedies: Chapter 12, section 82 to 87 the act 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.
- Limitations: Section 89 of the act is concerned with 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 contract or reasons to go to the court. Injured party to get remedies must go to court within the time as fixed by the law otherwise, he cannot get remedies.
3. A lawful contract has to comply a number of elements. In the light of the given statement, discuss the essential elements of a contract. “All contracts are agreements but all agreements are not contract.” Discuss.
ESSENTIAL ELEMENTS OF A VALID CONTRACT
There may be different agreements between the parties. For example, ‘A’ and ‘B’ entered into an agreement of sale of goods. Where ‘A’ will provide 50 wheel chairs to ‘B’, for Rs. 2,000 per peace within 7 days. ‘B’ pay 50% of the whole amount in advance at the time of agreement and remaining 50% of the amount at the time of delivery made by ‘A’ within the 7 days.
In such a case if ‘A’ or ‘B’ fails to perform their respective responsibilities, the other party has right to enforce the contract. The agreement between ‘A’ and ‘B’ is enforced by law or the courts. Each party has right to claim for damages or for performance according to the agreement or law.
In another case, ‘A’ and ‘B’ agreed to make a contract, where ‘A’ promised that if ‘B’ remains unmarried for a life he will give him all his assets/ property. In another case, ‘A’, a manager of a company ‘B’, enter into a contract with ‘B’ at the time of his appointment) that A will not join another company of some business during and after 3 years of his departure from the office.
In the first case, if ‘A’ or ‘B’ fails to perform their respective responsibilities, the other party not in breach has right to enforce the contract. The party must perform the obligations as per contract, otherwise the other party can claim for damages or specific performance. Agreement between ‘A’ and ‘B’ is a contract.
In second case, however, the parties ‘A’ and ‘B’ both are not bound by their contract. If ‘B’ remains unmarried for whole life he cannot claim the assets of ‘A’. Similarly if ‘B’ gets marriage contrary to his promise ‘A’ cannot compel ‘B’ to remain unmarried. The law doesn’t recognized and enforce such agreement. This is only agreement because it is not enforceable by law.
In the third case, if ‘A’ joins other companies having same business. Which is restricted, before his resignation of immediately after his departure from the company, ‘B’ can enforce the contract. He has right to claim for damages or specific performance. ‘A’ is bound by his promise, he cannot leave the B’s company. This agreement between A and B is a contract.
Here it is a primary question before us that why the first and third case is a contract and second case is not. Primarily, we can say that the first and third case is enforceable by law thus a valid contract. But, in the second case, the contract between ‘A’ and ‘B’ is not enforceable by law thus, not a contract at all.
This answer is quite unsatisfactory for us as a student of Business Law. Then a specific question arises that why or when an agreement is enforceable by law and becomes a contract; and why or when an agreement is not enforceable by law and remains an agreement only, not a contract. The enforceability of every agreement depends upon the essential elements of a valid contract. There are various elements; which are essential for a valid contract because if, in an agreement, these elements are present, that agreement in enforceable by law or a contract. If not present it is not enforceable by law-not a contract. An agreement between the parties becomes a contract when all the essential elements are present. If an agreement lacks or absence or not presents one or all of the essential elements, the agreement cannot be a valid contract. Thus, it saying that, “all contracts are agreements but all agreements are not contacts”.
The essential elements of a valid contract are as follows:
- Two parties
- Intention to create legal relationship
- Meeting of minds or consent
- Free consent
- Capacity of the parties
- Legality of object
- Not expressly declare void
- Possibility to perform
- Certain and clear
- Legal formalities