Contract Law in Nepal

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The Contract Act, 2000, used for governing all the viewpoints concerning the contracts in Nepal until the latest enactment of the Civil Code, 2017. The new code has rolled out a major improvement in the law concerning the contract that range from the drafting of a contract to its execution.

According to section 504 of the Civil Code, if any agreement enforceable by law has conclusion between at least two people to do or not to do any act, such will be viewed as a contract.

Section 506 of Civil Code, 2017, states that each individual other than the following listed are qualified for the performance of a contract.

  • One who is minor
  • One who is of unsound mind

According to Section 535 of the Civil Code of 2017, if a party to a contract neglects to fulfill the commitment under the agreement or notifies the other party that he/does does not perform the act as mentioned in the contract and shows that if he/she is unable to perform the contract, the party will be considered to have breached the contract.

In the event of breach of a contract under section 535, the injured party has the right to recover from the party in breach of the contract reimbursement for the loss or actual damage caused by the breach or such losses or damages, as indicated in article 537 (1) of the Civil Code.

Section 563 (1), (2) and (3) of the Civil Code of 2017 lays down that if a contract has a conclusion under which a third party undertakes to repay the loan borrowed by or fulfills the liability promised by a person in the event of the default of that person, a guarantee contract shall considered to be concluded. If a third party gives such a guarantee and the person liable to repay the loan does not repay or pay off that loan or debt, the person giving the guarantee (the surety) for that loan or debt must reimburse the loan or discharge the debt in accordance with the terms and conditions of the contract.

In accordance with Section 610 of the Civil Code of 2017, if a contract has a conclusion under which a person gives to another person any property over which he has a right and possession for use and possession and enjoys the benefits thereof arise in return for rent payable regularly for a certain period, a lease contract is deemed to be concluded.

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