Law of Contract: Essentials, Formation, Breach & Remedies

TAKEAWAYS:

• A valid contract requires offer, acceptance, consideration, legal capacity, and lawful object—all five must coexist; missing any renders it void.
• E-contracts (e.g., Daraz orders, eSewa payments) follow the same rules as physical contracts but must comply with Nepal’s Electronic Transactions Act 2063 for enforceability.
• Breach of contract triggers remedies like specific performance, damages, or cancellation, but mitigation of loss is mandatory for the injured party (e.g., Ncell must prove it minimized losses after a service provider’s breach).
• Quasi-contracts (e.g., unjust enrichment cases like unpaid NTC bills) impose legal obligations even without a formal agreement.
• Void vs. voidable contracts: A void contract is illegal from inception (e.g., gambling agreements), while a voidable contract can be canceled by one party (e.g., minors’ agreements under the Contract Act 2074).
• Cyber contracts (e.g., WhatsApp Business API agreements) require electronic signatures and clear terms of use to avoid disputes under Nepal’s Cyber Law 2074.

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1. Definition and Nature of Contract

A contract is a legally binding agreement between two or more parties that creates legal obligations enforceable by law. It can be:

• Expressed: Terms are stated orally or in writing (e.g., a Daraz purchase order).
• Implied: Terms are inferred from conduct (e.g., a customer entering a restaurant implies payment for food).
• Unilateral: One party makes a promise in exchange for an act (e.g., a "lost dog" reward).
• Bilateral: Both parties exchange promises (e.g., a job offer letter).

Key Characteristics of a Contract

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2. Essential Elements of a Valid Contract

For a contract to be legally enforceable, it must satisfy five essential elements under the Contract Act 2074 and Nepalese common law:

Worked Example: eSewa Payment Contract

• Offer: eSewa’s terms when you select "Pay Bill."
• Acceptance: You enter the amount and confirm.
• Consideration: The service fee (₹10–₹50) and the bill payment.
• Legal Capacity: You must be 18+ and mentally competent.
• Lawful Object: Paying a utility bill (NTC, Ncell) is legal; paying a bribe is not.

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3. Formation of a Contract

Contracts can be formed in three ways:

1. Oral Contracts: Enforceable if all elements are met (e.g., verbal job offers).
2. Written Contracts: Required for immovable property, loans over ₹100,000, or under the Companies Act (e.g., bank loan agreements).
3. Electronic Contracts: Governed by the Electronic Transactions Act 2063 (e.g., WhatsApp Business API agreements, Daraz orders).

Process of Contract Formation

Real-World Example: NEPSE Share Trading

• Offer: You place a buy order for ₹10,000 worth of shares on NEPSE’s online platform.
• Acceptance: NEPSE’s system matches your order with a seller.
• Consideration: You pay the brokerage fee and receive shares.
• Legal Capacity: You must be registered with NEPSE and of legal age.
• Lawful Object: Trading shares is legal; insider trading is not.

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4. Types of Contracts

Contracts are classified based on formation, enforceability, and performance:

Worked Example: Kathmandu Traffic Police Fine

• Scenario: A driver is fined ₹5,000 for jaywalking.
• Quasi-Contract: The driver has no prior agreement with the police but is legally obligated to pay (preventing unjust enrichment for the government).

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5. Breach of Contract and Remedies

When a party fails to fulfill contractual obligations (breach), the injured party can seek remedies:

Worked Example: Ncell Service Provider Breach

• Scenario: A third-party tower provider fails to maintain Ncell’s network, causing outages.
• Breach: Failure to deliver promised service quality.
• Remedy: Ncell can sue for compensatory damages (lost revenue) or seek specific performance (force the provider to fix the issue).

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6. Discharge of Contract

A contract ends (discharged) in the following ways:

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7. E-Contracts and Cyber Law in Nepal

With the rise of digital transactions, Nepal’s Electronic Transactions Act 2063 and Cyber Law 2074 govern e-contracts. Key rules:

• Electronic Signatures: Must be secure, reliable, and attributable (e.g., OTP-based eSewa payments).
• Terms of Use: Must be clear, accessible, and agreed to (e.g., WhatsApp Business API terms).
• Dispute Resolution: E-contracts can be enforced in court if they meet written contract standards (e.g., email exchanges with order confirmations).

Real-World Example: Daraz Order Dispute

• Scenario: A customer claims a Daraz seller never delivered an order.
• E-Contract Evidence: Daraz’s system logs (order confirmation, payment proof, delivery tracking) act as electronic records under the Act.
• Remedy: The customer can file a complaint with Daraz’s Consumer Dispute Resolution Center or sue under the Consumer Protection Act 2075.

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In the Real World

1. eSewa and Khalti Payments

   • Idea Used: Electronic Contracts under the Electronic Transactions Act 2063.
   • How: Every transaction (e.g., paying a NTC bill) creates a digital contract between the user and the service provider. The OTP verification acts as an electronic signature, making the agreement enforceable in court.

2. Daraz and Pathao Delivery Contracts

   • Idea Used: Unilateral and Bilateral Contracts.
   • How:
     • Unilateral: When Daraz offers a "₹500 off" coupon, customers who use it enter a unilateral contract (Daraz is bound to honor the discount).
     • Bilateral: A Pathao ride request creates a bilateral contract—both parties promise to deliver the ride and payment.

3. Nabil Bank Loan Agreements

   • Idea Used: Written Contracts with Consideration.
   • How: A loan agreement with Nabil Bank must be in writing, include interest rates (consideration), and comply with the Banking Act 2074. If the bank breaches terms (e.g., charges hidden fees), the borrower can sue for compensatory damages.

4. NEPSE Share Trading

   • Idea Used: Offer and Acceptance in Electronic Markets.
   • How: When you buy shares on NEPSE, your buy order is an offer, and the system’s match with a seller’s order is acceptance. The trading rules (consideration) and legal capacity (registered investor) make it a valid contract.

5. Consumer Complaints Against Daraz or NTC

   • Idea Used: Breach of Contract and Remedies.
   • How: If NTC fails to provide internet service, customers can file complaints under the Consumer Protection Act 2075, seeking compensatory damages or specific performance (restoring service).

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Exam Tip

1. Memorize the Five Essentials: Always check for offer, acceptance, consideration, legal capacity, and lawful object in exam questions.
2. Distinguish Between Void and Voidable: A void contract is illegal from birth (e.g., gambling), while a voidable contract can be canceled by one party (e.g., minors’ agreements).
3. E-Contract Questions Are Common: Expect scenarios involving eSewa, Daraz, or NEPSE. Know that electronic signatures (OTP, digital signatures) are valid under Nepal’s laws.
4. Remedies for Breach: Match the type of breach to the correct remedy (e.g., specific performance for unique goods, damages for monetary losses).
5. Real-World Applications: Examiners love case-based questions. Relate contract law to Nepali businesses (e.g., Daraz disputes, Ncell service breaches, bank loan agreements).
6. Quasi-Contracts: Often tested in unjust enrichment scenarios (e.g., "A paid B by mistake—can B keep the money?" Answer: No, quasi-contract imposes repayment).

Common Exam Pitfalls:

• Forgetting that consideration must move at the desire of the promisor (e.g., a gift promise is not a contract).
• Confusing void (illegal) with voidable (cancelable).
• Ignoring electronic evidence in e-contract disputes (e.g., Daraz order logs, eSewa transaction records).

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Final Note: Contract law is the backbone of business transactions in Nepal. Whether you’re dealing with e-commerce (Daraz), banking (Nabil), or telecom (Ncell), understanding contracts ensures legal compliance and dispute resolution. Always document agreements, especially in written or electronic form, to avoid void contracts.