In general, a contract is a legal agreement between two or more parties. Any agreement between two or more people to do or not to do any act enforceable by the law is deemed as a contract. The Supreme Court of Nepal in one of its decisions has described a contract as a deed where both parties agree for a commission or an omission of an act for a certain consideration of something. Hence, the contract includes of agreement with parties that are two or more people who agree to conduct or not conduct any act. All the agreements signed between two people are valid and enforceable by law considered contracts.
Validity and voidness
For a contract to be valid, it should be free from the following mentioned things:
Section 517 of the Civil Code 2017 considers the contract not valid as a void contract. Sub-section 2 of the same section provides a list of contacts that are void. The following mentioned contracts are void contracts.
- A contract that restraints anyone from exercising any profession, trade or business prohibited by law
- A contract in restraint of a marriage other than one prohibited by the law
- A contract restraining any one from enjoying the facilities being enjoyed by the public
- A contract restraining legal right of any person from being enforced by a court
- A contract concluded contrary to law or on a matter prohibited by the law in force
- A contract made for an immoral purpose or against public order or public interest
- A contract that cannot be performed because the parties thereto do not exactly ascertain or know about the matter in relation to which it has been concluded
- A contract for the performance which is impossible at the time of its conclusion or a fictitious contract
- A contract which is vague because of its subject matter being incapable of giving a reasonable meaning
- A contract concluded by a person not competent to make the contract
- A contract with an illegal purpose
- A contract concluded by mistake of both parties as to the essential fact of the contract at the time of its conclusion.
Voidable contract
Further, section 518 of Civil Code 2017 discusses a voidable contract, which at the initiation of its party may be declared void by the court. The provision provides that the contracting party has a right to make a particular contract void or valid. In case the party chooses to enforce it, it will function as a valid contract and if the party declines to enforce it, it will be a void contract. Additional to this, sub-section 2 of the aforementioned section lists contracts which can be regarded as a voidable contract:
- Contract concluded by coercion: When a person detains or threatens to detain any property of another person or threatens to put that other person’s body, life or prestige in peril or commits or threatens to commit any other act forbidden by law, with the intention of causing that other person to enter into a contract against his or her will, the person is said to commit coercion.
- Contract concluded by undue influence: Undue influence means an influence exercised by a person over another person who is under his or her influence or who may be employed, or in guardianship or curatorship according to his or her will with the intention of taking any unfair advantage for his or her interest or concern.
- Contract concluded by fraud: A party to a contract is said to commit fraud when he or she, with an intent to deceive another party thereto, makes the suggestion, as to a fact, of that which is not true which he or she does not believe it to be true or does any act that is likely to make the other party believe it, or knowingly conceals a fact which is in his or her knowledge or does any such act as the law declares to be fraudulent.
- Contract caused by misrepresentation: Misrepresentation means any of the following acts:
- Presenting a false description of any matter or fact on without reasonable basis
- Misleading any party to his or her detriment
- Causing a mistake as to any matter of the contract
- Making assurance to have concluded a contract in one subject but causing to enter into it in another subject.
