What is an Agreement?

OFFER+ ACCEPTANCE = AGREEMENT

 Every promise and every set of promises forming the consideration
for each other is an agreement. A promise is a result of an offer
(proposal) by one person and its acceptance by the other.
For example:
• A invites B for dinner at home and B accepts the invitation, then,
there results a promise between them
• A makes a proposal (offer) to sell his radio to B for Rs 500/- and B
accepts his proposal, there, results a promise between the two
persons.
 
 Cont…
Thus, when there is proposal from one side and
the acceptance of that proposal by the other
side, it results in a promise. This promise from
the two parties to one another is known as an
agreement. That means, they both must be
thinking of the same thing in the same sense.
In other words, there must be consensus-ad-
adem.
 
 What is contract?

Section 504(1) of Muluki Civil Code 2074, define contract as “ Contract means
an agreement between two or more person to do or not to do something,
which can be enforceable by law.”

LEGALLY ENFORCEABLE AGREEMENT = CONTRACT

• An agreement consists of reciprocal promises between the two parties. In
case of contract, such party is legally bound by the promise made by him.
Thus, According to Nepalese Contract Act, contract consists of four elements:
• Agreement
• Two or more than two parties
• Subject matter(to do or not to do somethings)
• Legal obligation or enforceable by law
 
 Nature of Contract
a) Contract is private law created by contracting
parties and therefore binds only to the
parties to the contract.
b) Contract is only enforceable to the
contracting parties.
c) A person who is not a party to a contract
cannot claim a benefit.
d) Meeting of minds
 All contracts are agreements but all
agreements are not contracts.
The most common ways of making a contract is
through an agreement. The two parties may
agree to something through a process of
mutual negotiations. When one party makes
an offer and the other accepts the same, there
arises an agreement, which may be
enforceable by law. Therefore, an agreement
enforceable by law is a contract.
 Cont…
But every sort of agreement does not create legal
obligation. So where the parties make a binding
contract, they create rights and obligations
between themselves. Thus, all contracts are
agreements but all agreements are not
contracts because some agreements cannot be
enforced by law.
Agreements lacking legal enforceability are known
as social agreements or domestic agreements.
 Eessential elements of a contract

1. An agreement between the two parties:

An agreement is the result of proposal or an
offer by one party followed by its acceptance
by the other. The party making an offer is
known as ‘offeror’ and the party to whom the
offer is made is known as the ‘offeree’. They
both must be thinking of the same thing in
the same way.
 Cont..
2. Intention to create legal relationship:
There should be an intention on the part of the parties to
the agreement to create a legal relationship. The
relationship which is enforceable by the law is known as
legal relationship. Generally, in all forms of commercial or
business agreements it is presumed that the parties have
the intention to create legal relationship. However, an
agreement of a purely social or domestic nature is
presumed not to have an intention to create legal
relationship.
 
 Cont…
3. Lawful consideration
The agreement must be supported by consideration on both sides. Each party
to the agreement must give or promise something or and receive something
or a promise in return. Consideration is the price for which the promise of
the other is sought. However, the price need not be in terms of money. It
may be tangible or intangible. In case the promise is not supported by
consideration, it will be a bare promise and not enforceable at law. This
consideration has to be lawful unless
• it is forbidden by law or
• is of such a nature that, if permitted, it would defeat the provisions of law or
• is fraudulent or
• involves or implies injury to the person or property of another or
• the court regards it as immoral or opposed to public policy.
 Cont…
4. Lawful object in respect of that agreement:
The object of the agreement must be lawful and not
something which the law disapproves. The object must not be
another.
a. it is forbidden by law or
b. is of such a nature that, if permitted, it would defeat the
provisions of law or
c. is fraudulent or
d. involves or implies injury to the person or property of another
or
e. the court regards it as immoral or opposed to public policy.
 Cont…
5. Parties competent to contract:
For a valid contract both parties to the agreement must be
capable of entering into a contract which means that they
must have qualification prescribed by law. According to the
Contract law prescribes that every person is competent to
contract;
a) If he has attained the age of 18 years
b) if he is of sound mind
c) if he is not disqualified by any existing laws to which he is
subject. An agreement lacking capacity to contract makes it
void.
 Cont…
6. Free and genuine consent of the parties
The consent of the parties to the agreement must be free
and genuine. The consent of the parties should not be
obtained by,
• Misrepresentation
• Fraud
• Undue influence
• Coercion
If The consent is obtained by any of these flaws, then the
contract is not valid.
 Cont…
7. Agreements not expressly declared void or illegal:
There are certain agreements, which have been
expressly declared illegal or void by the law. In such
cases, even if the agreement possesses all the
elements of a valid agreement, it will not be
enforceable at law. Sec 517 of Muluki Civil Code
2074, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k) and
(l) specify certain types of agreements which have
been expressly declared to be void.
 Cont…
8. Certainty of meaning:
For a valid contract, the terms of the agreement
must not be vague or uncertain. It must be
possible to ascertain the meaning of the
agreement, for otherwise it cannot be enforced.
For e.g. A agrees to sell 100 metres of cloths but
doesn’t mention its type. The agreement is not
enforceable for want of certainty of meaning.
 Cont…
9. Possibility of performance : The terms of the agreement must
be capable of performance. If the act is impossible in itself,
physically or legally, the agreement cannot be enforced.
10. Necessary legal formalities: A contract may be oral or in
writing. If, however, a particular type of contract is required by
law in writing, it must comply with the necessary formalities as
to writing, registration and attestation, if necessary. Otherwise it
cannot be enforceable at law.
For e.g. many contracts relating to mortgaging of immovable
property, the sale of the immovable property, must be in
written and need to be registered at the concerned govt. office
under Nepalese Law.
 Types of contract
A. On the basis Validity there are Four types of
contracts: a)Valid Contract
b)Void contract
c)Voidable contracts
d)Unenforceable
e)Illegal
 Cont…
a. Valid Contract : A contract to be valid, it must have all the essentials
elements discussed earlier. If one or more of these elements is/are
missing, the contract is voidable, void, illegal or unenforceable.
b. Voidable Contract : A voidable contract is one, which may be
repudiated at the will of one of the parties, but until it is so
repudiated it remains valid and binding. If it is affected by any flaw
(e.g. misrepresentation, fraud, coercion, undue influence) and the
presence of any one of these defects enables the party aggrieved to
take steps to repudiate the contract. Thus, a voidable contract is one,
which is enforceable by law at the option of one of the parties.
Section 518 of Muluki Civil Code 2074, (a), (b), (c) and (d) deal with
voidable contracts. It deals with coercion, undue influence, fraud and
misrepresentation.
 Cont…
c. Void Contract : Void literally means ‘not binding in law’.
An agreement, which is not enforceable by either of the
parties, is void. Thus, a void agreement does not give
rise to any legal consequences and is void ab-initio.
Certain agreements have been expressly declared void
in the Contract Act under section 517 of Muluki Civil
Code 2074, e.g. agreements in restraint of trade,
marriage and legal proceeding which are clearly
permitted under the law, agreements with unlawful
consideration or objects etc.
 Cont..
d. Unenforceable contract : An unenforceable
contract is one, which is valid in it, but is not
capable of being enforced in a court of law
because of some technical defect such as
absence of writing, registration, etc. Thus, it is
neither void nor voidable but only
unenforceable.
 Cont…
e. Illegal agreement : Illegal means contrary to law. Therefore, illegal
agreement is one the consideration or object of which
1. is forbidden by law e.g. an agreement to run prostitution, or
commit a robbery
2. defeats the provisions of any law
3. is fraudulent e.g. an agreement to sell a land to B acquired by
fraud
4. involves or implies injury to the person or property of another
5. the court regards it as immoral or opposed to public policy

A contract cannot be illegal because contract means an agreement

enforceable by law. But an agreement can be illegal.
 Cont..
B) On the basis Formation there are two types of contracts:
a)Express Contract: express manner by use words,
spoken or written.
b)Implied Contract: by conduct.
C) On the basis Performance there are two types of contracts:
a)Executed Contract: both parties have done what
they were to do under contract.
b)Executory Contract : still to perform or remain to
do something to be done under the contract on bothsides.
 Cont…
D) On the basis obligation there are two types of
contracts:
a)Unilateral Contract: one side contract in which only
one party has to perform his promise or obligation.
b)Bilateral Contract : both party has to perform his
promise or obligation.
E) On the basis legal formalities there are two types of
contracts:
a)Formal Contract
b)Informal Contract
 Void and Voidable Contract
Void Contract :
 Void contract means those contracts which
have no validity at all; it will have no effect
upon the parties.
 This is void ab initio, i.e from the very
beginning no existence at all.
 parties con not seek or claim remedy from
these kind of contract.
 Cont..
 Void contract means those which is treated as
if it never existed.
 In one case Supreme Court has held that, “Any
deed which is against the principles of
contract is void.”
 According to sec.517 of Muluki Civil Code
2074, the following contracts shall be void.
1. Contract preventing any one from engaging
himself in any occupation, profession or
trade not prohibited by current Nepal law.
Exception:
i) good will
ii) partnership agreement(during and after)
iii) Exclusive service contract
 Cont…
2.Contract restraining marriages of the kinds
other than those prohibited by current Nepal
law.
3. Contract preventing any person from enjoining
the privileges facilities already being enjoyed by
general public.
4. Contract seeking to prevent the legal rights of
any person from being made applicable by any
government office or court.
 Cont..
5. Contract concluded in violation of current
Nepal law.
6. Contract arranged for immoral purpose or
concluded in disregard of public morality or
public interest.
7. Contract which can not be carried out because
the parties thereto do not exactly know about
the subject matter in relation to which it has
concluded.
 Cont…
8. Contract work in respect to which is considered
impossible at the time it is concluded.
9. Contract which is not explicit because there is
lack of a reasonable interpretation thereof.
10. Contract concluded by persons who are
disqualified to conclude contract.
11. Contract with illegal consideration or
objectives.
 Voidable Contract
Section 518 of Muluki Civil Code 2074, if contract is
made by following; then the contract is voidable at
the option of the aggrieved party.
i.Coercion
ii.undue influence
iii.Fraud
iv.Misrepresentation and