One crucial aspect to keep in mind when starting a business is the importance of contracts. Contracts are legally binding agreements that outline the rights, responsibilities, and obligations of the parties involved.
For any business, the understanding and interpretation of contracts is a basic necessity and forms the crux of any transaction.
→ Why are contracts important?
Contracts provide:
- Legal protection;
- Clarity as well as expectation management;
- Directions toward legal compliance;
- Payment security;
- Confidentiality and protects the interest of the business;
- Record of the consent of the parties.
Until the recent implementation of the Civil Code, 2017, the Contract Act of 2000 was responsible for regulating all matters concerning contracts in Nepal.
A contract is concluded once the person to whom an offer has been made by another person communicates his or her acceptance thereto. Once a contract is concluded, a binding legal relationship is created between the parties to it.
→What are the important clauses a contract should have?
Essentials of a valid contract:
- Plurality of Parties: A contract must involve two or more parties.
- Offer and Acceptance: There must be a clear offer by one party and an acceptance by the other party.
- Lawful Consideration: The contract must involve a lawful exchange of something of value between the parties.
- Lawful Object: The purpose or object of the contract must be legal.
- Capacity of the Parties: The parties involved must have the legal capacity to enter into a contract, meaning they should not be minors, mentally incapacitated, or disqualified by law.
- Contractual Intention: Both parties must have the intention to create legal relations and be bound by the terms of the contract.
- Free Consent: The consent of the parties must be freely given, without being influenced by coercion, undue influence, fraud, misrepresentation, or mistake.
- Not Expressly Declared Void by Law: The contract must not be expressly declared void by law.
- Certainty and Possibility: The terms of the contract must be clear, definite, and capable of being performed.
- Legal Formalities: The contract should fulfill any legal formalities required by law.
These points outline the essential elements and conditions necessary for a contract to be considered valid and enforceable.
What if someone breaches a contract?
If a party to a contract fails to fulfill their obligation or notifies the other party that they are incapable of performing as agreed, it will be considered a breach of the contract. In the event of such a breach the affected party has the right to seek compensation from the breaching party for the actual loss or damage incurred due to the breach.
The National Civil Code of 2017 covers a wide range of topics related to civil law just as contracts. It consolidates and modernizes various civil laws including laws related to family, property, and other civil matters. It is a comprehensive legal framework that governs civil relationships and transactions in Nepal. Some of the key areas addressed by the code include:
- Personal Status: The code addresses matters related to personal status, such as marriage, divorce, adoption, guardianship, and inheritance.
- Property Law: It provides regulations concerning property rights, ownership, transfer of property, easements, mortgages, tenancy, and leases.
- Tort Law: It deals with civil wrongs and liabilities, including issues such as negligence, defamation, trespass, and damages.
- Family Law: It covers matters relating to families, such as parentage, custody, maintenance, alimony, succession, and family dispute resolution.
