Law of Contract

Scope and Meaning

Law of Contract is the basis for all kinds of business activities in a society. In that sense, it is
the foundation upon which the superstructure of modern business is built. The law of contract is
not only applicable to the business community but also to others. Everyday we enter into a
number of contracts without even realizing their legal implications.

Besides, the law of contract forms the basis for the other branches of business law. Most of
the business law enactments are all founded upon the general principles of contract law. The law
of contract has a major role to play in the business law enactments like Company Act,
Negotiable Instrument Act, Partnership Act, Sale of Goods Act etc. That is why the law of
contract precedes the study of all other branches of Business Law

It differs from other laws like constitutional law, criminal law, etc. in many respects. It
doesn’t not lay down a number of rights and duties, which the law will enforce; it consists rather
a number of limiting principles, subject to which the parties may create rights and duties for
themselves, which the law will uphold.

The parties to a contract, in a sense, make the law for themselves. So long as they do not
infringe some legal prohibition, they can make what rules they like in respect of the subject
matter of their agreement and the law will give effect to their decisions. Contracts are, in a
sense, private law created by the agreement of the parties. The rights and obligations of the
parties are determined by the contract’s terms, subject to limits imposed by relevant statutes
.In Nepal, the history of contract law is not very long. Before the Contract Act was enacted,
some specific provisions of MULUKI AIN, the procedural cum criminal and civil law of Nepal,
governed the practices of contract in day to day life. Since it was not a special law, there were
many shortcomings, which prompted the government to enact the Contract Act of 2023. This act
was also found inadequate in the process of regular practice. Realizing the need to incorporate
many new provisions, Contract Act, 2056 replaced Contract Act, 2023 . It came into force on
Asad 14, 2057. This Act has included many new provisions and has made an effort to cover
wider areas of contract law.

1. What is an Agreement?

Definition ands its Scope

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) A invites B for dinner at home and B accepts the invitation, then, there results a promise
between them
b) 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.

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.

2. What is contract?
A contract means an agreement, which is enforceable by law.
Section 2(a) of the Contract Act 2056 has defined ‘contract’ as an agreement between two or
more persons 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:
1) Agreement
2) Two or more than two parties
3) Subject matter(to do or not to do somethings)
4) Legal obligation or enforceable by law

3. All contracts are agreements but all agreements are not contracts. Discuss.
Agreement and Contract
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. 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. In context of Nepal, all agreements enforceable by law means enforceable by the
Contract Act, 2056 and other existing laws of Nepal.
4. 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

5. Eessential elements of a contract

The essentials needed for a valid contract, therefore, are as under

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.

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.

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
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.

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.
Section 13 of Contract Act, 2056 has clearly prescribed the provisions under which
the agreements become void.

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
Section 3 (1) (a) & (b) of the Contract Act prescribes that every person is competent to
contract if he has attained the age of 16 years and if he is of sound mind. According to
Section 3 (2), a person is competent to contract if he is not disqualified by any existing
laws to which he is subject. An agreement lacking capacity to contract makes it void.

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
 Mistake
If The consent is obtained by any of these flaws, then the contract is not valid.

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. Section 13 of Contract Act of Nepal, 2056 deals with the
void agreements. Agreements in restraint of marriage permitted by law, against the public
utility service, in restraint of trade, occupation or profession permitted by law, in restraint
of legal proceedings are some of the examples under this section.

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.

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, voluntary relinquishment of right over the immovable property etc.,
must be in written and need to be registered at the concerned govt. office under Nepalese
Law.

A contract or an obligation to perform a promise could arise in the following ways

1) By agreement and contract

The most common way of making a contract is through an agreement. The 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.

2) By standard form contracts

In the modern age some persons, institutions or establishments such as the Railways,
Insurance Corporations, Banks, Manufacturers of various goods etc. may have to enter into
a very large number of contracts with thousands of persons. They cannot possibly negotiate
individually with persons with whom the contracts are to be made. Contracts with pre-
drafted matter are generally prepared by one party, which the other has to agree to. They
are as much valid as those entered into through due negotiations.

3) By promissory Estoppel
Ordinarily, a contractual obligation arises by reciprocal promises made by the two
contracting parties. In some cases, however, a person may be bound by the promise not on
the basis of a contract entered into by him with the other party, but on the basis of the
application of the law of estoppel against him. When one party has made a promise or
given an assurance and the other party has acted to his prejudice on the same, the
former would be liable by the promise made by him on the basis of the application of
the law of estoppel against him.

6 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
 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 14
(a), (b), (c) and (d) deal with voidable contracts. It deals with coercion, undue influence,
fraud and misrepresentation.

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 13 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.

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.

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. Section 13 of Contract Act deals with the illegal agreements.

B) On the basis Formation there are two types of contracts

a)Express Contract
b)Implied Contract

C) On the basis Performance there are two types of contracts

a)Executed Contract
b)Executory Contract

D) On the basis libility there are two types of contracts

a)Unilateral Contract
b)Bilateral Contract

E) On the basis legal formalities there are two types of contracts

a)Formal Contract
b)Informal Contract

upto …..
 Offer and Acceptance

According to Section 2(a) of Contract Act 2056, ‘contract’ as an agreement between two or
more persons to do or not to do something, which can be enforceable by law Therefore, an
agreement between the parties is one of the essentials for creating a contract. An agreement
arises by an “offer” or proposal by one of the parties and the “acceptance” of such offer by the
other.

Offer or Proposal

7. Define the term ‘offer’ or ‘proposal’ and elaborate its essential elements for its legal validity?

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. This promise from the two parties to one another is known as an agreement. Therefore, an
offer is a very important part of an agreement.

According to Section 2 (b) of the Contract Act 2056 of Nepal, ‘offer means a proposal put by
a person to another with a hope to get an assent from him for doing or not doing something’.
Proposer or offeror expresses:
1) the willingness to do or
2) not to do something
The proposal or the offer must be made with a view to obtaining the assent of the other party
thereto. A person making the proposal or offer is called ‘promisor’ or ‘offeror’. The person to
whom the offer is made is called the ‘offeree’.

For example
1) A makes a proposal (offer) to sell his bicycle to B for Rs500/- and B accepts to purchase the
same, amounts to proposal by A for the sale of the bicycle. Here A is making an offer to do
something positive (to do)
2) A offers not to file a suit against B, if the latter pays A the amount of Rs500/- outstanding.
Here the act of A is negative one i.e. he is abstaining from filing a suit. (not to do something)

Rules regarding a valid offer

A valid offer must be in conformity with the following rules:

1. An offer may be express or implied

An offer may be made either by words or by conduct. An offer which is expressed by words,
spoken or written is called an ‘express offer’ and the one which is inferred from the conduct
of a person or the circumstances of the case is called an ‘implied offer’

2. The offer must be made with a view to obtain acceptance

 Casual inquiries or mere intentions to do or not to do may not constitute an offer. For e.g. “I
may sell this radio if I get Rs.500/- for it” is not an offer. But the statement “I will sell this
radio for Rs.500/- to you” is an offer with an object of obtaining the assent of the other party.

3. Intention to create legal relationship

In order that an offer, after acceptance can result in valid contract it is necessary that the
offer should be made with an intention to create legal relationship. Sometimes the parties
may expressly mention that it is not a formal or legal agreement whereas in some other cases
such an intention could be presumed from their agreement. For example, an agreement to go
for a walk, to go for a dinner etc.

The test to know the intention of the parties is objective and not subjective. Merely, because
the promisor contends that there was no intention to create legal obligation would not
exempt him from liability.

In commercial and business agreements the law will presume that the parties entering into
agreement intend that those agreements to have legal consequences. However, this
presumption may be negative by express terms to the contrary. Whereas in the case of
agreements of purely domestic and social nature, the presumption is that they do not give
rise to legal consequences but can be proved the opposite.

4. The terms of the offer must be certain and not vague

The terms of the offer must be clear, definite and certain. If they are vague, then, it will not
amount to valid offer. Unless all the material terms of the contract are agreed, there is no
binding obligation.

5. An invitation to offer is not offer

A proposal or an offer has to be distinguished from an invitation to treat. Sometimes a
person may not offer to sell his goods but make some statement or give some information
with a view to inviting others to make offers on that basis.
For example
a) A book-seller sends catalogue of books indicting prices of various books to many
persons. This is not an offer but an invitation to treat.
b) A prospectus issued by a college for admission to various courses is not an offer.
c) A display of goods with a price on them in a shop window is construed an invitation to
offer and not on offer to sell
d) A prospectus issued by a company for subscription of its shares by the public.

Therefore, if a statement is made without any intention to obtain the assent of the other party
thereto, that cannot be termed as proposal. Thus, an offer is the final expression of
willingness by the offeror to be bound by his offer should the other party choose to accept it.
6. An offer may be specific or general
An offer is said to be specific when it is made to a definite person or persons. Such an offer
can be accepted only by the person or persons to whom it is made. A ‘general offer’, on the
other hand is one which is made to the world at large or public in general and may be
accepted by the any person who fulfils the requisite conditions.
Ref. Case : Carlill v Carbolic Smoke Ball Co.

7. Communication of offer
Section 7 (1) of Contract Act deals with the communication of offer. An offer is effective
when, and not until, it is communicated to the offeree. It means that the offer has to be
communicated to the offeree in order that the offeree can accept it. Therefore, the
communication of a proposal is complete when it comes to the knowledge of the person to
whom it is made. If an offer has not yet been communicated, even if somebody acts
according to the terms of the offer, he cannot be deemed to be the acceptor of that offer.
Acting in ignorance of an offer does not amount to the acceptance of the same.
An offer can be made by an act in the following ways:
a) by words (written or oral). The written offer can be made by letter telegrams, telex.
The oral offer can be made either in person or over phone
b) by conduct. The offer may be made by positive acts or signs, so that the person acting
or making signs means to say or convey. However silence of a party can in no case
amount to offer by conduct.

Ref. case: Lalman Shukla v Gauri Dutt

8. Communication of special terms

The special terms forming part of the offer must be duly brought to the notice of the offeree
at the time the offer is made. If it s not done, then there is no valid offer and if the offer is
accepted and the contract is formed, the offeree is not bound by the special terms which were
not brought to his notice. Therefore, the special terms and conditions become binding as part
of the contract only if they are brought to the notice of the acceptor before or at the time of
contract. A subsequent communication will not bind the contracting party unless he has
assented thereto.
The terms of the offer may be brought to his notice either:
a) by drawing his attention to them specifically
b) by inferring that a person of ordinary prudence could find them by exercising ordinary
intelligence
Ref. case: Parker v South Eastern Railway Co.

9. An offer can be made subject to any terms and conditions

An offeror may attach any terms and conditions and also the mode of acceptance to the offer
he makes. The offeree has to accept all the terms of the offer otherwise there cannot be a
contract.
 10. Two identical cross-offers do not make a contract
When two parties make identical offers to each other, in ignorance of each other’s offer, the
offers are cross offers. They do not constitute acceptance of one’s offer by the other and
there is no acceptance of each other’s offer.

Different kinds of offer:

1) Cross Offer
Where two parties make identical offers to each other, in ignorance of each other’s offer,
the offers are known as cross-offers and neither of the two can be called an acceptance of
the other and therefore there is no contract.

2) Specific and General Offer – Section 10 (1)

An offer can be made either
a) to a definite person or a group of persons
b) to the public at large
In case of the specific offer, it may be accepted by that person or group of persons to
whom the same has been made. The general offer may be accepted by any one by
complying with the terms of the offer.
Ref. Case : Carlill v. Carbolic Smoke Ball Co.

3) Standing, Open or Continuing Offer

An offer, which is allowed to remain open for acceptance over a period of time is known as
standing, open or a continuing offer.

8. Explain how can an offer be lapsed or terminated?

Termination or lapse of an offer

1) An offer lapses by revocation (by notice) – Section 8(1)
2) An offer lapses after stipulated or reasonable time – Section 9 (a) & (b)
3) An offer lapses by the death or insanity of the offeror of the offeree before acceptance –
Section 9 (c) and (e)
4) Counter offer – Section 9(f)
If the offeree changes some conditions and accepts or puts some conditions and accepts.
5) Revocation by non-fulfillment of a condition precedent to acceptance – Section 9(g)
6) An offer lapses when rejected by the offeree.
Express rejection by words or writing, counter offer and conditional acceptance.
7) An offer terminates by not being accepted in the mode prescribed or if no mode is
prescribed, in some usual and reasonable manner.
8) A conditional offer terminates when the condition is not accepted by the offeree.
9) An offer lapses by subsequent illegality or destruction of subject matter.
 Acceptance

9. Define acceptance. Discuss the rules regarding a valid acceptance.

According to Section 2 (c) of the Contract Act, 2056 ‘Acceptance’ means giving an assent
to the offer by an offeree in the same sense as the offeror intends it to be.

“Acceptance of an offer is the expression, by words or conduct, of an assent to the terms of

the offer in the same manner prescribed or indicated by the offeror.”

A proposal when accepted results in an agreement. It is only after the acceptance of the proposal
that a contract between the two parties can arise. When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted
becomes a promise. The person making the proposal does not become bound thereby until
acceptance. As soon as his proposal is accepted that is known as promise whereby both the
parties become bound.

The assent may be express or implied.

a) The assent may be express when the acceptance has been signified either in writing or by
word of mouth or by performance of some required act.
e.g. Carlill v Carbolic Smoke Ball Co.
b) Acceptance is implied when it is to be gathered from the surrounding circumstances of the
conduct of the parties. Section 7(3)
E.g. if a passenger travels in a passenger bus, then the law will imply his acceptance from
the very nature of the circumstances.

Effects of Acceptance
A contract is created only after an offer is accepted. Before the acceptance is made neither party
is bound thereby. At that stage the offeror is free to revoke or withdraw his offer, and the offeree
is free not to accept the offer or to reject the same. After the offer has been accepted it becomes
a promise, which if other conditions of a valid contract are satisfied binds both the parties to the
promise. After acceptance each party becomes legally bound by the promise made by him
through the medium of offer and acceptance of it.

Rules regarding a valid acceptance

In order that acceptance of an offer can result in a contract the acceptance must satisfy the
following requirements:
1. Acceptance must be given only by the person to whom the offer is made
In the case of specific offer, it can only be accepted by that person to whom it is made. The
rule of law is that if A wants to enter into a contract with B, then C cannot substitute
himself for B without A’s consent. Similarly, an offer made to a class of persons can be
accepted by any member of that class. An offer made to the world at large can be accepted
by any person who had knowledge of the existence of the offer.
E.g (a) Boulton v Jones
 (b) Carlill v Carbolic Smoke Ball Co.

2. Acceptance should be absolute and unqualified

The general rule of the acceptance is that it must be absolute and must correspond with the
terms of the offer. Conditional or qualified acceptance is not the proper acceptance for the
creation of a valid contract. An acceptance with a variation however slight is no acceptance
and may amount to a mere counter offer, which the original offer may or may not accept.
However a mere variation in the language, which does not involve any difference in
substance, would not make the acceptance ineffective. Also if some conditions are implied
as part of the contract and offeree accept the offer subject to those conditions, the
acceptance will be treated as valid.
In the following cases, valid contract does not take place
a) Rejection and counter offer
b) Change of terms
c) Equivocal or qualified acceptance

3. Acceptance should be expressed in usual or prescribed manner

Usual and reasonable manner of acceptance means the manner, which is usually adopted in
a particular kind of transaction according to the usage or custom of trade. Acceptance by
words of mouth or by conduct or by post, telegram, telephone, or through personal
messenger may be considered to be usual manner of acceptance. If the proposal prescribes
any particular manner of acceptance, the acceptance must be made in that manner. If such
conditions are not fulfilled, that will not amount to a valid contract.

Acceptance can be express or implied. Implied acceptance may be given either by doing
some required act, for example tracing the lost goods for the announced reward or by
accepting for some benefit or service for example stepping in a public bus by a passenger.

It should be noted that law does not allow an offeror to prescribe silence as the mode of
acceptance. Thus a person cannot say that if within a certain time acceptance is not
communicated the offer would be considered as accepted. It is so because in the absence of
such a rule the offerees will be at the mercy of offerors, unless they reply all such offers in
negative which will certainly be causing a lot of inconveniences and financial burden to
them. Therefore, this rule is based on the theory of consensus ad idem or identity of minds.

4. Acceptance should be made while the offer is still subsisting

It is important that that the acceptance should be made while the offer is still alive and
subsisting. Acceptance after the lapse of the offer cannot give rise to a contract.

To be legally effective acceptance must be given within the specified time limit, if any, if
no time is stipulated, acceptance must be given within a reasonable time because an offer
cannot be kept open indefinitely. Again the acceptance must be given before the offer is
revoked or lapses by reason of offeree’s knowledge of the death or insanity of the offeror.
5. Communication of acceptance by the offeree to the offeror - Section 7(2)
It has been noted that when the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. It means that the offeree must signify his
assent, or communicate the acceptance. Acceptance must be something more than a mere
mental assent. Acceptance means, in general, communicated acceptance. Mental
acceptance is ineffectual.

When the contracting parties are face to face and negotiate in person there is instantaneous
communication of offer and acceptance and valid contract comes into existence the
moment the offeree gives his absolute and unqualified acceptance to the proposal made by
the offeror. The question of revocation of either offer or acceptance does not arise, for, in
such cases a definite offer is made and accepted instantly at one and the same time.

In Nepal, the courts have interpreted communication of an acceptance in a different

manner. A letter containing the acceptance of the offeree is not complete till it is
received by the offeror and comes to know about it. Simply by posting a letter
containing the acceptance by the offeree, the process of acceptance is not complete.
The offeror has to receive the letter, then, only the acceptance is considered to be
complete. The same principle applies in the case of revocation also.

6. Communication must be made by the offeree or his authorised agent

In order that the acceptance can be treated as valid it is necessary that the same must be
communicated to the offeror either by the offeree, or by some duly authorized person on
his behalf. For e.g. Powell v Lee

7. Communication of acceptance by conduct - Section 7(3)

It has been noted that as a general rule no contract can arise unless and until the acceptance
has been communicated to the offeror. In exceptional cases the terms of the offer may be
such that they waive the requirement of communication of acceptance. In such a case a
certain kind of conduct on the part of offeree may be treated sufficient to create a contract.
If that is so, the contract can be created even without communication of acceptance.
 Carlill v Carbolic Smoke Ball Co.
 Felthouse v Bindley
 Powell v Lee
 Consideration

10. Define consideration. Discuss the rules regarding consideration.

Section 2 (d) of Contract Act, 2056 defines consideration as “a promise made by the offeree to
do or not to do something in return for the promise made by the offeror to do or not to do
something mentioned in the offer”

In Black Law Dictionary ‘consideration’ has been defined as ‘the inducement to a contract.
The cause, motive, price or impelling influence which induces a contracting party to enter into a
contract.’

According to Pollack, “Consideration is the price for which the promise of the other is bought”

Presence of consideration is one of the essentials of a valid contract. Consideration means

something in return for the promise. It may be either some benefit conferred on one party
or some detriment suffered by the other. Consideration means the price paid for the
promise

Adequate consideration is a benefit or detriment, which a party receives which reasonably and
fairly induces them to make the promise or contract. For example a promise without
consideration is purely gratuitous and it cannot create legal obligation. Promises which are
purely gifts are not considered enforceable because the personal satisfaction the grantor of the
promise may receive from the act of giving is normally not considered adequate consideration.

The rules regarding consideration are as follows:

1) Consideration to be given at ‘the desire of the promisor’.

In order to constitute legal consideration, the promisee must have done some act at the
desire or request of the promisor. Acts done or services rendered voluntarily, or at the
desire of third party, will not amount to valid consideration so as to support a contract.
Although the promisee must give consideration at the desire of the promisor, it is not
necessary that the promisor himself should benefit by the consideration. The promise
would be valid even if the benefit accrued to a third party.

2) Consideration to be given ‘by the promisee’ or any other person

Although it is necessary that consideration must move at the desire of the promisor, it may
be supplied either by the promisee or any other person. Thus as along as there is
consideration for a promise, it is immaterial who has furnished it. This means that even a
stranger to a consideration can sue on a contract, provided he is a party to the contract.
This is sometimes called ‘Doctrine of Constructive Consideration’. In India, a stranger to
consideration may maintain a suit but it is not possible in England. In England, the rule is
that the consideration must move from the promisee and nobody else. Stranger to a
 contract cannot sue in England as well as in India. However in Nepal, a beneficiary can
also sue even if he is a stranger to a contract as per section 78 of the Contract Act of 2056.

3) Consideration need not be adequate

A contract which is supported by consideration is valid irrespective of the fact that the
consideration is inadequate. The parties are free to make any contract of their choice. With
free consent, if the parties strike a bargain where the consideration is to high or too little,
the courts will not go into the question of adequacy or inadequacy of consideration, but it
may be a factor which the court may take into consideration to know whether the consent
of a party was free or not.

4) Consideration must be something of value

It must be ‘something which is of some value in the eye of the law.’ It should be real and
competent and should not be unsubstantial. Consideration must not be
a) Physically impossible
b) Legally impossible
c) Uncertain

5) Consideration may be Past, Present or Future

a) Present or Executed Consideration

Consideration which moves simultaneously with the promise is called present
consideration. Cash sales provides an excellent example of the present consideration.

b) Past Consideration
When something is done or suffered before the date of the agreement, at the desire of
the promisor is called past consideration.

c) Future or Executory Consideration

When the consideration on both sides is to move at a future date, it is called future
consideration. It consists of exchange of promises and each promise is a consideration
for the other.

11. Discuss the exceptions to the rule ‘No consideration no contract’

Consideration being one of the essential elements of a valid contract, the general rule is that “ an
agreement made without consideration is void’ But there are few exceptions to the rule, They
are as follows:

1. Agreement made on account of natural love and affection

An agreement made without consideration is enforceable, if it is
a. expressed in writing
b. registered under the law for the time being in force for the registration of documents
c. made on account of natural love and affection and
 d. between parties standing in near relation to each other

2. Agreement to compensate for past voluntary service

A promise made without consideration is also valid if it is a promise to compensate wholly
or in part a person who has already voluntarily dome something for the promisor or done
something which the promisor was legally compellable to do.

3. Agreement to pay a time barred debt

Where there is an agreement made in writing and signed by the debtor or by his authorized
agent to pay wholly or in part a debt barred by the law of limitation the agreement is valid
even though it is not supported by any consideration. A time barred debt cannot be recovered
and therefore a promise to repay such a debt is without consideration.

4. Completed gift
A gift does not require consideration in order to be valid. As between the donor and the
doneee any gift actually made will be valid and binding even though without consideration.
In order to attract this exception, there need not be natural love and affection or nearness of
relationship between the donor and donee. The gift however must be complete.

5. Contract of agency
No consideration is necessary to create an agency.

6. Remission by the promisee or of performance of the promise

For compromising a due debt i.e. for agreeing to accept less than what is due, no
consideration is necessary. Similarly an agreement to extend time for performance of a
contract need not be supported by consideration.

7. Contribution to the charity

A promise to contribute to charity though gratuitous would be enforceable if on the faith of
the promised subscription, the promisee takes definite steps in furtherance of the object and
undertakes a liability to the extent of liability incurred not exceeding the promised amount of
subscription.

12. Explain ‘Doctrine of Privity of Contract”

The ‘Doctrine of Privity of Contract’ provides that a contract cannot confer rights or impose
obligations arising under it on any person or agent except the parties to it. It means that only
those persons who are parties to the contract should be able to sue to enforce their rights or
claim damages as such. A stranger to the contract cannot enforce a contract even though the
contract may have been entered into for his benefit. Foe e.g. if in a contract between A and B
some benefit has been conferred upon X, X cannot file a suit to enforce the contract because A
and B are the only parties to the contract whereas X is a stranger to the contract. However in
Nepal, as per section 78 of the Contract Act of 2056, apart from a party to the contract, a
beneficiary of the contract can also sue.
The above rule has certain exceptions as follows:
1. Where an express or implied trust is created
2. Family settlement
3. Where the defendant constitutes himself as the agent of the third party
4. In case of agency
5. In case of assignment of rights under a contract

However, the doctrine has proven problematic due to its implications upon contracts made for
the benefit of third parties who are unable to enforce the obligations of the contracting parties.
 Capacity to Contract

13. What is capacity to contract? Discuss the laws relating to minors.

Or
Who are competent to contract? Discuss minor.

One of the essentials of a valid contract is that the parties to the contract should be competent to
make the contract. Every person is competent to contract who is of the age of majority
according to the law to which he is subject and who is of sound mind and is not disqualified
from contracting by any law to which he is subject.

It means that the following three categories of persons are not competent to contract:
1) A person who has not attained the age of majority , i.e. one who is a minor
2) A person who is of unsound mind
3) A person who has been disqualified from contracting by some law.

Section 3 (1) (a) (b), (2), (3) and (4) of Contract Act of Nepal deals with the capacity to
contract. It has clearly provided that the persons who have completed 16 years of age, who are
of sound mind and who are not disqualified by the existing laws of Nepal are only eligible to
enter into contract.

Section 13 (j) has again clearly provided that agreements executed by the ineligible persons as
mentioned under section 3 are void ab-initio.

At the same time section 3 (3) also provides that guardians can execute an agreement on behalf
of a minor or person of unsound mind so as to protect the interest of these persons. If it is not in
the interest of these persons, then the contracts executed by guardians will be void ab-initio.

But Section 11 (a) provides that if a person incapable of entering into contract or any one whom
he is legally bound to support, is supplied or provided by another person, as a social
responsibility, with necessaries or service suited to his conditions in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable person

Section 3(a) of the Contract Act 2056 has clearly laid down that any person other than the
person who has not attained the age of 16 years of age is capable of entering into contract.

Under Labour Act 2048 B.S. of Nepal, a minor having attained the age of 14 years can enter
into contract and work in any factory.

The laws regarding to minor’s agreement are as follows:

1. An agreement with a minor is void

Law acts as the guardian of minors and protects their rights because their mental faculty is
not mature – they do not possess the capacity to judge what is good and what is bad for
 them. Accordingly, where a minor is charged with obligations and the other contracting party
seeks to enforce those obligations against minor, the agreement is deemed as void ab-initio.

2. A contract which is beneficial to a minor is not void

During his minority, a minor cannot bind himself by a contract but there is nothing in the
Contract Act, which prevents him from making the other party to the contract to be bound to
the minor. Therefore the court protects the right of minors. Accordingly any agreement
which is of some benefit to the minor and under which he is required to bear no obligation is
valid. In other words a minor can be a beneficiary.

3. No ratification of an agreement with minor

A minor’s agreement being void ab-initio, neither he can himself enter into contract nor
authorize an agent to do so on his behalf. Ratification means the subsequent adoption and
acceptance of an act or agreement. A minor's agreement being a nullity and void ab-initio
has no existence in the eye of law. It cannot be ratified by the minor on attaining the age of
majority, for an agreement void ab-initio cannot be made valid by subsequent ratification.
Section 13 (j) of Contract Act 2056 has clearly provided that such contract with minor is
void ab-initio. A minor cannot ratify acts done on his behalf because the whole question of
ratification is based on the assumption that authority could have been conferred by the
person ratifying the acts at the date when the acts were performed.

4. Doctrine of estoppel does not apply to a minor

The rule of estoppel does not apply to a minor i.e. a minor is not estopped from pleading his
infancy in order to avoid a contract, even he has entered into an agreement by falsely
representing that he was of full age.

5. Minor's liabilities for necessaries

Section 11 (a) of Contract Act 2056 has a provision for minor's liabilities for necessaries. It
says that if a person incapable of entering into a contract or any one whom he is legally
bound to support is supplied by another person with necessaries suited to his social
conditions in life like articles of daily needs or services, the person who has furnished such
supplies is entitled to be reimbursed from the property of such incapable person. Thus
section 11(a) confers a quasi-contractual right on the supplier of necessaries to a person
incapable of entering into a contract or to any one who he is legally bound to support.

But a minor is not personally liable, if he has not property. In that case the supplier will
loose the price of necessaries. Even where a minor has own property, the supplier will get a
reasonable price and not the price agreed to by the minor. What is necessary article is to be
determined with reference to the status and circumstances of the particular minor.

6. No specific performance
Specific performance means the actual carrying out of the contract as agreed. Since an
agreement by a minor is absolutely void, the court will never direct specific performance of
such an agreement by him. But a contract entered into on behalf of a minor by his guardian
 or by the manger of his estate is binding on the minor and can be specifically enforced by or
against the minor, provided: (a) contract is within the authority of the guardian or manager
and (b) it is for the benefit of the minor.

7. Minor can be agent

A minor can be an agent. He shall bind the principal by his acts done in the course of such an
agency, but he cannot be held personally liable for negligence or breach of duty.
8. Minor's act cannot bind his parent or guardian
9. Minor cannot be declared insolvent
10. Minor can be made partner
11. Minor shareholder

14. Who is a person of unsound mind? Discuss it in detail.

Persons of Unsound Mind

In Contract Act of Nepal, there is no definition of unsound mind and there is no provision,
which states under what circumstances a person is said to be of unsound mind. But in the Indian
Contract Act, sound mind has been defined as follows:
 A person is said to be of sound mind for the purpose of making a contract, if at the time
when he makes it, he is capable of understanding it and of forming a rational judgment as to
its effects upon his interests.

It also provides that

 A person is said to be of unsound mind for the purpose of making a contract if at the time
when he makes it, he is incapable of understanding it and of forming a rational judgment as
to its effect upon his interests.
 A person who is usually of unsound mind but occasionally of sound mind may make a
contract when he is of sound mind.
 A person, who is usually of sound mind but occasionally of unsound mind, may not make a
contract when he is of unsound mind.

Therefore, it is obvious that soundness of mind of person depends on two facts:

1) His capacity to understand the terms of the contract, and
2) His inability to form a rational judgment as to its effect upon his interests.
If a person is incapable of both, he suffers from unsoundness of mind. Idiots, lunatics and
drunken persons are examples of those having an unsound mind.

The position of contracts by persons of unsound mind if given below:

a) Idiots
An idiot is a person who is permanently of unsound mind with no intervals of saneness. The
mental powers of an idiot are completely absent because of lack of development of the brain.
Thus he is incapable of entering into a contract and therefore a contract with an idiot is void.
But he can be a beneficiary.
b) Lunatics
It is a disease of the brain. However, have some intervals of sound mind. He is not liable for
contracts entered into while he is of unsound mind. But regarding to the contracts entered
during lucid intervals, he is bound.

c) Drunken persons
It produces temporary incapacity till the drunkard is under the effect of intoxication provided
it is so excessive as to suspend the reason for a time and create impotence of mind.

Effects of agreements made by persons of unsound mind

An agreement entered into by a person of unsound mind is treated on the same footing as that of
minor’s and therefore an agreement by a person of unsound mind is absolutely void and
inoperative as against him but he can derive benefit under it.

Disqualified Persons
1) Alien enemies
2) Foreign sovereigns and ambassadors
3) Convict
4) Married women
5) Joint Stock Company and corporation incorporated under a Special Act.

In Contract Act of Nepal, it is not mentioned who constitute disqualified persons in the eyes of
law.
 Free Consent

15. What is free consent? Discuss the elements that make a contract voidable.

Two or more persons are said to consent when they agree upon the same thing in the same
sense. Thus the consent involves the identity of minds or consensus ad idem i.e. agreeing upon
the same thing in the same sense. One of the essentials of a valid contract is that the parties
should enter into the contract with their free consent. Consent is said to be free when it is not
caused by,
 Coercion
 undue influence
 fraud
 misrepresentation and
 mistake of law
Any party wanting to prove that his consent is not free has to prove that if he had known the
truth, he would not have entered into the contract. That means that he must prove that consent
has been caused by any one or more of the elements mentioned above. Such agreement is a
contract voidable at the option of the party whose consent was so caused.

In the absence of ‘free consent’, the contract may turn out to be either voidable (when the
consent is caused by coercion, undue influence, fraud or misrepresentation) or void (when the
consent is caused by bilateral mistake) depending upon the nature of the flaw in consent.

Coercion

Section 14 (1) (a) of Contract Act, 2056 defines coercion

Coercion is said to be there when the consent of a person has been caused either by
1. Unlawful detaining or threatening to detain any property
2. Threatening to harm the person's life
3. Threatening to defame the person or
4. committing or threatening to commit any act forbidden by the criminal law of the land

The act causing coercion should not necessarily be directed against the contracting party, it is
enough that the act is to the prejudice of any person whatever and with the intention of causing
any person to enter into an agreement.

A contract brought by coercion is voidable at the option of the party whose consent was so
caused. He can either affirm the transaction or repudiate the transaction by exercising the right
of rescission. The burden of proof that coercion was used lies on the party who wants to set
aside the contract on the plea of coercion.

Undue influence

Section 14 (1) (b) of Contract Act, 2056 defines undue influence

If the consent has been caused by undue influence the contract is voidable at the option of the
party whose consent had been so obtained.

A contract is said to be induced by ‘undue influence’ where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and
uses the position to obtain an unfair advantage over the other. It manifests that both the
conditions have ordinarily to be established by the person seeking to avoid the transaction. He
has to prove that the other party to the transaction was in a position to dominate his will and that
the other party had obtained an unfair advantage by using the position.

The persons who can be easily brought under undue influence are as follows - Section 14(1)(b)
(2)
a) a person under the guardianship or custody or responsibility of any other person;
b) a person who cannot think about his own well-being or interest for a short time or forever
due to old age or illness or mental or bodily distress; and
c) a person who can be imposed financial pressure or authority of the position.

A person is deemed to be in a position to dominate the will of another -

1) Where he holds a real or apparent authority over the other
If a person has an authority over the other contracting party, it is expected that he would not
abuse that authority to gain an undue advantage from the other. However the possibility of
abusing the authority is high in this kind of relationship. For e.g. employer – employee,
police – accused, income tax officer - assessee

2) Where he stands in a fiduciary relation to the other

Fiduciary relation means a relationship of confidence and trust. When a person reposes
confidence in the other, it is expected that he will not be betrayed. If a person betrays the
confidence and trust reposed in him and gains an unfair advantage over the other party in any
contract, the suffering party has an option to avoid the contract. E.g. solicitor-client, trustee-
beneficiary, spiritual advisor-devotee, medical attendant – patient, creditor-debtor, landlord-
tenant, principal – agent

3) Where he makes a contract with a person whose mental capacity is temporarily or

permanently affected by reason of age, illness or mental or bodily distress.

In cases where there is a presumption of undue influence, the person who is in a position to
dominate the will of another must prove that he did not use his position to obtain an unfair
advantage over the party alleging it.

Misrepresentation

Section 14 (1) (d) of Contract Act, 2056 defines misrepresentation

A representation means a statement of fact made by one party to the other either before or at the
time of a contract, relating to some matter essential to the formation of the contract, with an
intention to induce the other party to enter into the contract. It may be expressed by words
spoken or written or implied from the acts or conducts of the parties.

A representation when wrongly made either innocently or intentionally is termed as a

misrepresentation. To put in differently misrepresentation may be either innocent or intentional
or deliberate with intent to deceive the other party. In law, for the former kind, the term is
‘misrepresentation’ and for the latter, the term ‘fraud’ is used.

Like fraud, misrepresentation is incorrect or false statement but the falsity or inaccuracy is not
due to any desire to deceive or defraud the other party. It is innocent. The party making it
believes to be true.

The effects of misrepresentation are that the aggrieved party has two alternatives courses open
to him:
1) Avoid the agreement treating the contract as voidable
2) Insists that the contract be performed and that he be put in the position in which he would
have been if the representation made had been true.
Unlike fraud, misrepresentation by a party does not entitle other to claim damages. The above
remedy is lost if the party whose consent was caused by misrepresentation, had the means of
discovering the truth with ordinary diligence.

Fraud

Section 14 (1) (c) of Contract Act, 2056 defines fraud

Fraud means and includes any of the following acts committed by a party to contract or with his
connivance, or by his agent with intent to deceive another party thereto or his agent or to induce
him to enter into contract:
1) the suggestion as to a fact, of that which is not true by one who does not believe it be true
2) the active concealment of a fact by one having knowledge or belief of the fact
3) a promise made without any intention of performing it
4) any other acts fitted to deceive
5) any such act or omission as the law specially declared to be fraudulent

Can silence be fraudulent?

 As a rule mere silence is not fraud because there is no duty cast by law on a party to a
contract to make a disclosure to the other party of material facts within his knowledge.
 Silence is fraudulent if the circumstances of the case are such that it is the duty of the
person keeping silence to speak. In contracts of ‘utmost good faith’, silence is fraudulent.
For e.g
a. Fiduciary relationship
b. Contracts of insurance
c. Contract of marriage
d. Contract of family settlement
e. Share allotment contract
 f. Silence is fraudulent where the circumstances are such that silence is, in itself,
equivalent to speech.

The effect of fraud is that the party, who has been induced to enter into a contract by fraud, can
either rescind the contract or insist that the contract be performed and be put in a position in
which he would have been if the representation made had been true.

16. Find out the distinction between coercion and undue influence

17. Find out the distinction between misrepresentation and fraud

18. Short Notes

Mistake of law

Mistake may be defined as an erroneous belief concerning something. It may be of two

kinds:
1. Mistake of fact:
a) Mistake as to the existence of subject matter
b) Mistake as to the identity of the subject matter
c) Mistake as to the title of the subject matter
d) Mistake as to the quantity of subject matter
e) Mistake as to price of the subject matter
f) Mistake as to quality of the promise
g) Mistake as to the identity of the person contracted with

2. Mistake of law:
a) Mistake of law of the land
b) Mistake of foreign law

Consequence of the mistake

19. Discuss legality of object and consideration?

Legality of object and consideration

The object and consideration of an agreement must be lawful, in order to make the agreement a
valid contract. All agreements are contracts if made for lawful consideration and with a lawful
object. If the object or consideration is unlawful for one or the other of the reasons mentioned in
section 13, then the agreement is void.

What consideration and objects are unlawful?

Every agreement of which the object or consideration is unlawful is void and the consideration
or the object of an agreement is unlawful in the following cases:
1. If it is forbidden by law
2. If it is of such a nature that, if permitted, it would defeat the provisions of any law
3. If it is fraudulent
4. If it is or implies injury to the person or property of another
5. If the court regards it as immoral
6. If the court regards it as 'opposed to public policy'

20. What are the agreements that are expressly declared void by section 13 of the Contract Act of
2056 B.S.? Discuss them.

Void Agreements

Any agreement not enforceable by law is said to be void. There are some agreements, which
have been specifically declared as void by section 13 of Contract Act 2056. Even if such
agreements satisfy some of the conditions of a valid contract, they are not enforceable. A void
agreement does not give rise to any legal consequences and is void ab-initio. In the eye of law
such agreement is no agreement at all from its very inception.

The agreements which have been declared void by Section 13 (a), (b), (c), (d), (e), (f), (g),
(h), (i), (j), (k) of Contract Act 2056 are as follows:

Section 13
a) Agreement in restraint of trade
Every agreement, by which any one is restrained from exercising a lawful profession, trade
or business of any kind, is to that extent void. An agreement which unnecessarily curtails
the freedom of a person to trade is against public policy. Restraining a person from
carrying on a trade generally aims at avoiding competition and has monopolistic tendency
and this is both against an individual’s interest as well as the interest of the society and on
that ground such restraints are discouraged by law. Exceptions:
1) Sale of goodwill
 When there is sale of business by a person along with its goodwill, the seller of the
business may make an agreement with the buyer not to carry on the business in
competition with the buyer for a specified time and within a specified locality. Such an
agreement if imposes a reasonable restriction on the seller’s right to carry on the
business is valid.

2) An agreement among partners to carry on only the agreed business of the firm and
retraining each other not to carry on the same or any other business with other persons
competing with the firm while they are partners

3) An agreement restraining an outgoing partner not to carry on any business similar to

that of the firm for a specified period or within a specified local limit.

4) Service agreement
An agreement of service under which an employee agrees to serve a particular
employer (person, firm, company or organization) for a specified period and that he
will not serve any other competing person, firm or company or any organization during
the period he is employed or for a specified period after retirement from the service is
valid.

b) Agreement in restraint of marriage

Every agreement in restraint of the marriage of any person, other than prohibited by the
existing laws is void like marriage with a minor and bigamy. An agreement which restricts
a person’s freedom to marry, or to marry any person of his choice is against public policy
and is void. Whether the agreement puts a total restraint on the right to marry or only a
partial restraint imposing a restriction on marrying for a certain period or marrying a
certain person, the agreement is void.

c) Agreements against public utility benefits

Every individual has a right to enjoy the facilities as provided to the public on the ground
of law or tradition like well, path, sprouts, pati pauwa etc. So if an agreement is concluded
with the intention to restrain anyone from enjoying facilities, the agreement is void.

d) Agreement is restraint of legal proceedings

If an agreement restricts a party absolutely from enforcing his contractual rights by
bringing usual legal proceedings through a court of law, the same is void. An agreement to
oust the jurisdiction of a court is opposed to public policy and the same is void. However,
an agreement to refer disputes to arbitration is valid.

e) An agreement with objects prohibited by law

An agreement to do what has been prohibited by the existing laws like criminal and other
laws cannot be enforced. It will be unlawful and void. E.g. Liquor business without
license, Prostitution, smuggling etc.
f) Immoral or opposed to public policy
If the consideration or object of an agreement is regarded by the court to be immoral or
opposed to public policy, the agreement is void. Public policy is not capable of any precise
definition. Public policy means the policy of the law at a stated time. In simple words, it
may be said that an agreement, which conflicts with morals of the time and contravenes
any established interest of society, it is void against pubic policy.

g) Lack of clarity of object

If the parties to the agreement are not clear of the subject matter for which they are
entering into an agreement and because of which it has become impossible to perform,
then, it is void.

h) Impossibility of performance from the very beginning

Impossibility of performance is present from the very beginning then that agreement is
void.

i) Ambiguous and uncertain agreements

The agreements, the meaning of which is not certain or capable of being made certain are
void. It is necessary that there should be no ambiguity about what the parties intend. The
terms and conditions of the agreement must be clear. The uncertainty may be regarding
quantity, quality, price or title of the subject matter.

j) Agreements lacking capacity to contract

Agreement made by the persons who are not competent to contract under law like minor,
persons of unsound mind, or persons disqualified by law is void.

k) Unlawful consideration or object

Agreements with unlawful consideration or object are void.
 Performance of Contract

21. What is performance of contract? Discuss its rules in detail.

Every contract consists of reciprocal promises. According to Section 74 of Contract Act 2056
each party to a contract is bound to perform the promise made by him. Thus ‘performance of
contract’ means fulfilling of their respective legal obligations created under the contract by
both the promisor and the promisee.

When a contract is duly performed by both the parties, the contract comes to a happy ending and
nothing more remains. Performance of all the parties of the respective obligations is the natural
mode of discharging or terminating a contract.

The parties to a contract have a duty to

1) perform or
2) offer to perform
their respective promises.

Thus if A offers to perform his part of the promise but the other party, B does not avail of such
performance, A would be discharged from this obligation under the contract.

Offer to Performance or Attempted Performance or Tender

According to Section 75 (1), when the promisor offers to perform his obligation under the
contract but is unable to do so because the promisee does not accept the performance, it is called
attempted performance or tender. In this case the promisor is discharged from this obligation
under the contract. A valid tender or offer of performance is equivalent to performance.

Essentials of a valid tender are as follows

 It must be unconditional
 It must be made at a proper place time and place
 It must be made for the whole obligation contracted and not part
 Reasonable opportunity to the promisee for inspection of goods
 It must be made by a proper person who is in a position and is willing to perform the
promise
 It must be made to the proper person

Rules regarding the performance of the contract

Who Can Demand Performance?

It is only the promisee who can demand performance of the promise under a contract, for, the
general rule is that “a person cannot acquire rights under a contract to which he is not a party.”
But under Section 78 (1) of Contract Act 2056, a third person even if he is not party to the
contract, can also demand performance of the contract if it was made for his benefit that means
the beneficiary. But in Indian Contract Act it is not possible. Section 78 (1)

By whom contracts must be performed?

 By the promisor himself

In the case of a contract involving person skill (like singing, painting, dancing, singing,
marrying or writing a book etc.), taste or credit e.g. a contract to paint a picture, a contract of
agency or service the promisor must himself perform the contract. (Section 74 of Contract
Act 2056)

 By the promisor or his agent

In the case of a contract of impersonal nature e.g. a contract of sale of goods or a contract to
lend a sum of money, the promisor himself or his agent may perform the contract. He can
employ a competent person to perform the same. Section 77 (1)
For e.g. A promises to pay B a sum of money. A may perform this promise, either by
personally paying the money to B or by causing it to be paid to B by another.

There is nothing which prevents the promisee from accepting the performance of the contract
from a person other than the promisor. When the promisee accepts performance of the
promise from a third person, he cannot afterwards enforce it against the promisor. In that
case, he waives his right of getting the performance personally from the promisor.

 By the legal representatives

In the case of the death or insanity of the promisor before performance the liability of
performance falls on his legal representative, unless a contrary intention appears from the
contract. Section 76 of Contract Act 2056

For e.g. A promises to deliver goods to B on a certain day on payment of Rs.1000. If A dies
before that day, A’s representatives are bound to deliver the goods to B and B is bound to
pay Rs.1000 to A’s representatives.

Thus in the case of contracts involving personal skill or the contract is based on the personal
confidence between the parties there is a presumption that the contract should be performed
personally by the parties themselves. The heirs or legal representatives of a deceased
promisor are not bound to perform the contract. Such contracts come to an end on the death
of the promisor.
For e.g. A promises to paint a picture for B on a certain day for a certain price and if A dies
before that day, then, the contract cannot be enforced either by A’s representative or by B.
22. Short notes:

Performance of Joint Promises

Joint promises may take any of the following shapes
1) Where several joint promisors make a promise with a single promisee e.g. A, B and C jointly
promise to pay Rs.3000 to D
2) Where a single promisor makes a promise with several joint promises
P promises to pay Rs.3000 to Q and R jointly or
1) Where several joint promisors make a promise with several joint promises e.g. A, B and C
jointly promise to pay Rs.3000 to P, Q and R jointly

Who can demand performance?

When a promise is made to several persons jointly, then, unless a contrary intention appears
from the contract, the right to claim performance rests with all the promisees jointly and single
promisee cannot demand performance. Section 78 (2) of Contract Act 2056

When any one of the promisee dies, the right to claim performance rests with the legal
representative of such deceased person jointly with the surviving promisees.

When all the promisees are dead, the right to claim performances rests with the legal
representatives of all jointly.

By whom joint promises must be performed?

1) All promisors must jointly fulfill the promise

When two or more persons have made a joint promise then unless a contrary intention
appears by the contract, all such persons must jointly fulfill the promise. When any one of
the joint promisors dies, his legal representative must jointly with the surviving promisors,
fulfill the promise. On the death of all the original promisors, the legal representatives if all
of them jointly must fulfill the promise.

2) Any one or more of joint promisors may be compelled to perform

The liability of promisors is ‘joint and several’ as against the promisee unless there is a
contract to the contrary. Section 77 (3) of Contract Act 2056

3) Right of contribution inter-se between joint promisors

If one of several joint promisors is made to perform the whole contract he may require
equal contribution from the other promisors unless a contrary intention appears from the
contract. Section 77 (4) of Contract Act 2056

4) Sharing of loss by default in contribution

If any of the joint promisors makes a default in making contribution, if any, the remaining
joint promisors must bear the loss arising from such default in equal shares.
5) Effect of release of one joint promiosor
In case of joint promise, if one of the joint promisors is released from his liability by the
promisee, his liability to the promisee ceases but this does not discharge the other
joint promisors from the rest of their liability to the promisee. Section 77 (5) of the
Contract Act 2056.

Time and Place of Performance

Where prescribed by the promisee

Section 71 (1) of Contract Act provides that where the time and mode is prescribed by the
promisee, the contract must be performed at the specified time and in accordance with the mode
prescribed.

Where not prescribed by the promisee

Section 71 (3) and Section (1), (2) & (3) of Contract Act 2056 provides that if no time and place
prescribed by the promisee, then the contract must be performed
a) Within a reasonable time on a working day and within the usual hours of business. The
question ‘what is reasonable time' is in each case a question of fact. It depends either on
special circumstances of each particular case or the usage of trade or the intention of
parties at the time of entering into contract.
b) At a proper place e.g. at godown or shop and not in any other place. ‘What is a proper place’
is in each case, a question of fact.
c) If the there is no mention of the place in the contract then the promior must ask the promisee
the place where he would like the contract to be performed. The promisee must provide the
right place to the promisor. Section 72 (4)

When time is of the essence of the contract

When the time is the essence of the contract, non-performance of the contract in time would
frustrate the purpose which the parties have in mind and therefore if in such a case there is delay
in the performance by one party, the other party has a right to avoid the contract.

Whether the time is of the essence of the contract or not depends on the intention of the parties.
If the parties have not expressed their intention, then it depends on the nature of the contract.
Ordinarily in commercial contracts the time of delivery of goods is of the essence of the contract
but not the time of payment of the price. Rapid market fluctuation may affect the other party. In
contracts for the purchase of land usually time is not the essence of the contract because land
values do not frequently fluctuate.

Performance of Reciprocal Promises

Reciprocal promise means a promise in return of a promise. Thus, where a contract consists of
promise by one party in consideration of a similar promise by other party, it will be called a case
of reciprocal promises.
1) Mutual and Dependent
2) Mutual and Independent
3) Mutual and Concurrent
 Termination or Discharge of Contract

23. What is discharge of contract? Discuss the discharge of contract by performance.

A contract is an agreement enforceable by law. When an agreement, which was binding on the
parties to it, ceases to bind them, the contract is said to be discharged. Or when the rights and
obligations arising out of a contract are extinguished, the contract is said to be discharged or
terminated. A contract may be discharged in following ways:
1. By performance
2. By mutual consent or Agreement
a. Novation
b. Alteration
c. Rescission
d. Remission
e. Waiver
3. By breach of the contract
4. By impossibility of the performance
5. By operation of law

1. Discharge by Performance
Each party to a contract is bound to perform his part of the obligation. After the parties
have made due performance of the contract, their liability under the contract comes to an
end. In such a case the contract is said to be discharged by performance. But if one party
only performs his promise, he alone is discharged. Such a party gets a right of action
against the other party who is guilty of breach. Performance may be:

Actual
When each party to a contract fulfils his obligation arising under the contract within the
time and in the manner prescribed, it amounts to actual performance of the contract and the
contract comes to an end or stands discharged.

Attempted performance or tender

When the promisor offers to perform his obligation under the contract but is unable to do
so because the promisee does not accept the performance, it is called attempted
performance or tender. A valid tender or offer of performance is equivalent to
performance.

Essentials of a valid tender are as follows

 It must be unconditional
 It must be made at a proper place time and place
 It must be made for the whole obligation contracted and not part
 Reasonable opportunity to the promisee for inspection of goods
 It must be made by a proper person who is in a position and is willing to perform the
promise
  It must be made to the proper person
Section 80 of Contract Act 2056 provides that both the parties to the contract must
facilitate each other for the performance of the contract. In case if any party fails to
perform such contract due to failure of other party to facilitate the other party, then the first
party shall not be liable for any kind of consequence that may arise later on.

24. What is discharge of contract? Discuss the discharge of contract by Mutual consent.

Discharge by mutual consent or Agreement

If the parties to a contract agree to substitute any contract for it or to rescind it or alter it, the
original contract is discharged.

1. Novation - Section 81 (1) & (2) of Contract Act of Nepal

Novation means substitution of an existing contract with a new one either between the
same parties or between different parties, the consideration mutually being the discharge of
the old contract. When, by an agreement between the parties to a contract, a new contract
replaces an existing one, the already existing contract is thereby discharged, and in its
place the obligation of the parties in respect of the new contract comes into existence.

Novation is of two kinds:

1) Novation by change in the terms of the contract
The parties to a contract are free to alter the contract, which they have originally
entered into. If they do so their liability as regards the original agreement is
extinguished, and in its place they become bound by the new altered agreement. If
parties are not changed, the nature of the obligation (i.e. material terms of the
contract) must be altered substantially in the new substituted contract; for a mere
variation of some of the terms of contract while the parties remaining the same, is not
novation, but alteration. It is possible that by novation an obligation may be created
for one party in place of another.

2) Novation by change in the parties to the contract

It is possible that by novation an obligation may be created for one party in place of
another.
E.g. A owes money to B under a contract. It is agreed between A, B and C that B
shall thenceforth accept C as his debtor instead of A. The old debt of A to B is at an
end and new debt from C to B has been contracted. But there should be consent of all
the three parties. It is possible that by novation an obligation may be created for one
party in place of another.

Novation cannot be compulsory. It can only be with the mutual consent of all the
parties. The new contract must be valid and enforceable.
3) Alteration
Alteration of a contract means change in one or more of the material terms of a
contract. If a material alteration in a written contract is done by mutual consent, the
original contract is discharged by alteration and the new contract in its altered form
takes palace. A material alteration is one which alters the legal effect of the contract
e.g. a change in the amount to be paid and a change in the rate of the interest.

It is important to mention that a material alteration made in a written contract by one

party without the consent of the other will make the whole contract void and no
person can maintain action upon it. Immaterial alteration like clerical error or figures
or spelling of a name has no legal effect on the validity of the contract.

4) Rescission
A contract may be discharged, before the date of performance by an agreement
between the parties to the effect that it shall no longer bind them. Such an agreement
amounts to rescission or cancellation of the contract, the consideration for mutual
promises being the abandonment by the respective parties of their right under the
contract and releasing the parties from their obligations arising out of the contract.
There may be also an implied rescission of a contract e.g. where there is non-
performance of a contract by both the parties for a long period without complaint, it
amounts to an implied rescission.
For e.g. A promises to deliver certain goods to B on a certain date. Before the date of
performance, A and B mutually agree that the contract will not be performed. The
contract stands discharged by rescission.

5) Remission
Remission is the acceptance of a lesser sum than what was contracted for or a lesser
fulfillment of the promise made. Every promise may dispense with or remit, wholly or
in part, the performance of the promise made to him or may extend the time for such
performance or may accept instead of it any satisfaction which he thinks fit.
a) A owes B 5,000 rupees, C pays to B 1,000 rupees and B accepts them in
satisfaction of his claim on A. This payment is a discharge of the whole claim.
b) Between A and B, if A accepts the extension of the due date for the payment of
the amount due to A by B for three months, then the promise is binding. He cannot
institute a suit.

6) Waiver
Waiver means the deliberate abandonment or giving up of a right, which a party is
entitled to under a contract, whereupon the other party to the contract is released from
his obligation
For e.g. A promises to paint a picture for B. B afterwards forbids him to do so. A is
no longer bound to perform the promise.
25. Discuss the discharge of contract by breach.
When a party having a duty to perform a contract,
(a) fails to do that or
(b) does an act whereby the performance of the contract by him becomes impossible, or
(c) he refuses to perform the contract, there is said to be a breach of contract on his part. On the
breach of contract by one party, the other party is discharged from his obligation to perform his
part of the obligation, and he also gets a right to sue the party making the breach of contract for
damages for the loss occasioned to him due to the breach of contract.

Breach of contract may be of two kinds

1) Anticipatory breach
Anticipatory breach of contract occurs when a party repudiates it before the time fixed
for performance has arrived or when a party by his own act disables himself from
performing the contract. There are two ways in which it can take place.
a) Expressly by words spoken or written
A party may communicate to the other party by words or writing his intention not to
perform it before the due date of performance.
b) Impliedly by the conduct of one of the parties
Party may by his voluntary act also disables himself from performing the contract.
The effects of this breach is that the promisee or other party may either
(a) rescind the contract and at once sue for damages without waiting until the due
date of performance or
(b) he may elect not to rescind but to treat the contract operative and wait for the
time of performance and then hold the other party liable for the consequence of
non-performance. In the latter case the party who has repudiated may still
perform if he can and can also take advantage of any supervening impossibility
which may have the effect of discharging the contract. The aggrieved party shall
lose the right to sue for damages.

2) Actual Breach
Actual breach may also discharge a contract. It occurs when a party fails to perform his
obligation upon the date fixed for performance by the contract or during the performance
of the contract.

26. Discuss the discharge of contract by impossibility of performance.

Discharge by Impossibility of Performance

If the performance of a contract is impossible the same is void. Impossibility in a contract may
be either inherent in the transaction or it may be introduced later by the change of certain
circumstances material to the contract.
There are two kinds of impossibility:
1) Firstly, impossibility existing at the time of the making of the contract.
There is no question of discharge of a contract which is entered into to perform something
that is obviously impossible, e.g. an agreement to discover treasure by magic, because, in
 such a case there is no contract to terminate it being an agreement void abinitio. Similarly,
an agreement to bring a dead person to life is also void. It means not only physically
impossibility, but also legal impossibility like contracts with unlawful objects or
consideration.

2) Secondly, subsequent impossibility

In this case, a contract, which is possible of performance and lawful when, made, but the
same becomes impossible or unlawful thereafter due to some supervening event becomes
void.
E.g. A and B contract to marry each other. Before the time fixed for the marriage, A goes
mad. The contract becomes void.

27. Discuss the discharge of contract by breach.

By operation of law:
A contract terminates by operation of law in the following cases:
a) Death
Death of a promisor results in termination of the contract in cases involving personal skill
and ability. In other contracts the rights and liabilities of the deceased person pass on to the
legal representatives of the dead man.
b) Insolvency
c) Merger
Where an inferior right contract merges into a superior right contract, the former stands
discharged automatically.
d) Unauthorized material alteration
A material alteration made in a written document or contract by one party without the
consent of the other will make the whole contract void.

28. What is doctrine of supervening impossibility or subsequent impossibility? Discuss the cases
that are covered by this doctrine under section 79 of Contract Act of 2056.

Doctrine of Subsequent Impossibility or supervening impossibility

A contract which is entered into to perform something that is obviously impossible, then it is an
agreement void ab initio. But if the performance becomes impossible, because of supervening
event, the promisor is excused from the performance of the contract. In England, this subsequent
impossibility is referred to as ‘Doctrine of Frustration’. It is also called 'Doctrine of
Supervening or Subsequent Impossibility'

The changed circumstances make the performance of the contract impossible and the parties are
absolved from the further performance of it, as they did not promise to perform impossibility.

The doctrine of frustration has been extended to those cases where there was no physical
impossibility of performance of the contract, but because of the change in circumstances the
 adventure was frustrated, or by the literal performance of the contract, the main object of the
contract could not be fulfilled. In order that the doctrine of frustration is applicable, it is
necessary that the performance should become unlawful and impossible. The event should be
such that the object of the parties is thereby totally upset. Merely likely delay in performance
does not amount to impossibility.

A distinction is drawn between the happening of an event, which makes the performance of the
contract impossible, beyond the control of the promisor, and an event, which makes the
performance only difficult or more expensive. The nature and the terms of the contract may help
in deciding whether the performance has become impossible, or merely commercially difficult.

Section 79 (1), (2) and (3) of the Contract Act 2056 has provisions regarding doctrine of
subsequent impossibility. Under this section, it requires that there is a fundamental change in
the situations as conceived by the contract and its performance becomes impossible
subsequently.

A contract is deemed to have become impossible of performance and thus void under the
following circumstances:
1. Subsequent illegality - Section 79 (2) (a)
A subsequent change in law may render the contract illegal and in such cases the contract
is deemed discharged. The law may actually forbid the doing of some act undertaken in the
contract or it may take from the control of the promisor something in respect of which he
has contracted to act or not to act in a certain way.

2. Natural Calamities – Section 79 (2) (b)

When it becomes impossible to perform a contract because of the situations beyond the
control of human beings like war, flood, landslides, earthquake, volcanoes etc.

3. Destruction of subject matter - Section 79 (2) (c)

When the subject matter of contract subsequent to its formation is destroyed without the
fault of the promisor or promisee the contract is discharged.

4. By the death or disablement of the parties - Section 79 (2) (d)

Where the performance of a contract depends upon the personal skill, capacity or expertise,
the contract is discharged on the ground of physical and mental incapacity, mental
unsoundness or the death of that person and the representative cannot be made liable to
perform such a contract.

5. Failure of ultimate purpose

Where the ultimate purpose for which the contract was entered into fails, the contract is
discharged, although there is no destruction of any property affected by the contract and
the performance of the contract remains possible in literal sense. For e.g. Krell v Henry
29 What is doctrine of supervening impossibility or subsequent impossibility? Discuss the cases
that are not covered by this doctrine under section 79 of Contract Act of 2056.
Doctrine of supervening impossibility

There are certain cases where the impossibility of performance cannot be an excuse are as
follows:
1. Difficulty of performance - Section 79 (3) (a)
The mere fact that performance is more difficult or expensive or less profitable than the
parties anticipated does not discharge the duty of performance.

2. Commercial impossibility - Section 79 (3) (b)

When in a transaction profits dwindle to a very low level or actual loss becomes certain it
is said that the performance of the contract has become commercially impossible. This kind
of commercial impossibility also does not discharge a contract. Merely because the
procurement of the goods becomes difficult due to strike in the mill or there is rise in prices
or a person will not be able to earn the expected amount of profits, it is not enough to
frustrate the contract.

3. Dependence on the third party - Section 79 (3) (c)

If a promisor to a contract depends on any third party who is not a party to the contract for
the performance of the same and if that third party makes a mistake or becomes incapable
of fulfilling his obligation because of which the promisor fails to perform the contract, then
in such case the promisor is not excused from the duty of performance.

4. Strikes, lockouts and civil disturbances - Section 79 (3) (d)

Events like these also do not terminate contracts unless there is clause in the contract to
that effect. A strike by the workers or a lock out by the employer also does not excuse
performance because the former is manageable and the latter is self-induced.

5. Tax, fees or any other taxable revenues - Section 79 (3) (e)

Liability to pay additional taxes, revenues or fees shall not be made an excuse for the
impossibility of the performance of the contract.

6. Failure of on the objects - Section 79 (3) (e)

If the contract is made for several purposes, the failure of one of them does not terminate
the contract.

Remedies for Breach of Contract

30. What is breach of contract? Discuss rescission as a remedy for breach of contract.

Explain breach of contract

When one of the parties makes a breach of contract the following remedies are available to the
other party.

1) Rescission of the Contract

2) Damages for the loss sustained of suffered
3) A decree for specific performance
4) An injunction
5) Suit on Quantum Meruit

Rescission of the Contract – section 82(2)

When a breach of contract is committed by one party, the other party may sue to treat the
contract as rescinded. In such a case, the aggrieved party is freed from all his obligations under
the contract. If the aggrieved party intends to sue the guilty party for damages for breach of
contract, he has to file a suit for rescission of the contract. When the court grants rescission, the
aggrieved party is freed from all his obligations under the contract, and becomes entitled to
compensation for any damages which he has sustained through the nonfulfilment of the contract.
Example: A contracts to supply 100 kg of sugar for Rs.1000/- to B on January 10. If A does not
supply the same on the appointed day, B need not pay the price. B may treat the contract as
rescinded and may sit quietly at home and also may file a suit for rescission and claim damage.

31. What are the remedies for the breach of contract? Discuss damage in detail.

When one of the parties makes a breach of contract the following remedies are available to the
other party.

1. Rescission of the Contract

2. Damages for the loss sustained of suffered
3. A decree for specific performance
4. An injunction
5. Suit on Quantum Meruit

Suit for Damages

Remedy by way of damages is the most common remedy available to the injured party. This
entitles the injured party to recover compensation for the loss suffered by it due to the breach of
contract, from the party who causes the breach. The fundamental principle underlying damages
is not punishment but compensation. By awarding damages the court aims to put the injured
party into the position in which he would have been, had there been performance and not
breach. And it is not to punish the defaulter party. Compensation must be commensurate with
the injury or loss sustained arising naturally from such breach. If actual loss is not proved, no
damages will be awarded. Such compensation is not to be given for any remote and indirect loss
or damage sustained by reason of the breach.

For e.g. Hadley v Baxendale

In action for damages for the breach of contract there arise two kinds of problems:
I. Firstly, it has to be determined whether the loss suffered by the plaintiff is the direct
consequence of the breach of contract by the defendant. He is not liable for the damage,
which is remotely connected with the breach of contract. In other words it is a problem of
“Remoteness of Damage”.
II. If it is found that the particular damage is the direct result of the breach of contract rather
than too remote, the next question which arises is: How much compensation is to be paid for
the same in other words “Measure of Damages”

Damages are of four kinds:

1. Ordinary Damage – Section 83 (3)

Ordinary damages are those damages as may fairly and reasonably be considered as arising
naturally and directly in the usual course of things from the breach of contract itself. In
other words, they are restricted to the “direct and proximate” cause and not remote and
indirect losses.

2. Special Damage – Section 83 (1)

Special damages are those which arise on account of the special or unusual circumstances
affecting the plaintiff. In other words, they are such remote losses which are not the natural
and probable consequences of the breach of contract. It should meet two conditions
a) It should be brought to the notice of the other party
b) Such damages must be in contemplation of the parties at the time when the contract is
entered into. Subsequent knowledge of the special circumstances will not create any
special liability on the guilty party.

3. Vindictive or Punitive Damage:

These are such damages, which are awarded with a view to punishing the guilty party for
the breach and not by way of compensation for the loss suffered by the aggrieved party.

4. Nominal Damage:
Nominal damages are awarded in cases of contact where there is only a technical violation
of the legal right but no substantial loss is caused thereby.

5. Liquidated Damage – Section 83 (2)

It means a sum fixed up in advance which is a fair and genuine pre-estimate of the
probable loss that is likely to result from the breach.

32. What is quantum meruit? Explain.

 Quantum Meruit – Section 84 (1) & 84 (a) & (b)
Ordinarily if a person, having agreed to do some work or render some services, has done
only a part of what he was required to do, he cannot claim anything for what he has done.
When a person agrees to complete some work for a lump sum, non-completion of the work
does not entitle him to any remuneration even for the part of the work done. But the law
recognizes an important exception to this rule by way of an action for “Quantum Meruit.
The phrase “Quantum Meruit” means as much as is merited (earned)
” Under this action if A and B have entered into a contract, and A, who has already
performed a part of the contract, is then prevented by B from performing the rest of his
obligation under the contract, A can recover from B reasonable remuneration for whatever
he has already done It may be noted that this action is not an action for compensation for
the breach of contract by the other side. It is an action which is alternative to an action for
the breach of contract. It merely entitles the injured party to be compensated for whatever
work he may have already done or what ever expense he may have incurred.

33. What is suit for specific performance? Explain.

Suit for Specific Performance – Section 86 (1) & (2)

Specific performance means the actual carrying out of the contract as agreed. Under certain
circumstances an aggrieved party may file a suit for specific performance i.e. for a decree
by the court directing the defendant to actually perform the promise that he has made. Such
a suit may be filed either instead of or in addition to a suit for damages.

A decree for specific performance is not granted for contracts of every description. It is
only where it is just and equitable so to do, i.e. where the legal remedy is inadequate or
defective that the courts issue a decree for specific performance.

34. What is suit for injunction? Explain with examples.

Suit for Injunction – Section 87 (1), (2) & (3)

‘Injunction’ is an order of court restraining a person from doing a particular act. It is a
mode of securing the specific performance of the negative terms of the contract. That
means where a party is in breach of negative term of the contract i.e. he is doing something
which he promised not to do, the court may by issuing an injunction restrain him from
doing what he promised not to do. It is a preventive relief. Therefore it is a preventive
relief.

Quasi Contract

34. What is Quasi Contract? Explain with examples.

Section 11(a), (b) and (e)
 Quasi contracts are so called because the obligations associated with such transactions are
not exactly contractual but are still recognized as enforceable Cases which are deemed to
be quasi contracts No offer, no acceptance, no consideration and no consensus ad idem
Imposes obligation on one party and creates right to another party Principle of unjust
enrichment

1. Claim for necessaries supplied to a person incapable of contracting or on his account -

Section 11(a)
2. Reimbursement of person paying money due by another in payment of which he is
interested – Section 11(b)
A person who is interested in the payment of money which another is bound by law to
pay and who therefore pays it, is entitled to be reimbursed by the other.
3. Obligation of a person enjoying benefits of non-gratuitous act
4. Responsibility of finder of goods
5. Liability of person to whom money is paid or thing delivered by mistake or under
coercion – Section 11(e)

Contingent contract

34. What is contingent Contract? Explain with examples.

Section 12(1), (2), (3), (4) and (5)
A contingent contract is a contract to do or not to do something, if some event, collateral to
such contract does or does not happen.

Collateral event
1. It is not a promise
2. It is not a part of consideration
3. It is not an integral part of the contract

Essentials
1. The performance of such a contract depends upon the happening or non happening of
some future uncertain event
2. The future event is collateral i.e. incidental to the contract

Rules
1. Contracts contingent on an event happening
2. Contracts contingent on an event not happening
3. Contracts contingent on happening of specified event within fixed time
4. Contracts contingent on not happening of specified event within fixed time
5. Agreement contingent on impossible events