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Law of Contract

Law of Contract. Legal Environment for Business in Nepal 19 March 2017. Performance of Contract. ‘Performance of Contract’ means ‘fulfillment of obligation’ by contractual parties. A contract must be possible to perform.

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Law of Contract

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  1. Law of Contract Legal Environment for Business in Nepal 19 March 2017 Saroj Shrestha

  2. Performance of Contract • ‘Performance of Contract’ means ‘fulfillment of obligation’ by contractual parties. • A contract must be possible to perform. • The general rule is that performance of contract must be precise and exact. • Under section 74 of Contract Act, 2056 – “Each party to a contract shall fulfill their obligations under the contract.” • The contract is automatically discharged when the specified purpose of the contract fulfilled by the parties.” . Saroj Shrestha

  3. Performance of Contract • Section 71 of Contract Act, 2056 has mentioned about the method of performance-In case the time and procedure of performance of performance is prescribed in the contract, it shall be performed within the specified time and as accordance to the specified procedure.

  4. Essentials of Valid Performance • Performance should be unconditional • Performance should be precise and exact • Performance must be entire and not of a part only • Performance must be made at proper time, place and to the proper person • The Person making performance must be able and willing to perform • The promisee party must be given reasonable opportunity to examine the performance of promises (goods or services).

  5. Rules regarding Performance of Contract Who can Demand the Performance of a Contract ? • The Promisee Party: Only the person to whom the promise was made (promisee) has the right to ask for performance . • Other persons can not ask (whether they are indirectly related or affected to the benefit) performance of the contract. • Privity of Contract • ‘Privity of Contract’ is a legal doctrine. It confers rights and imposes liability only on the contracting parties. This rule is developed in the common law system. Saroj Shrestha

  6. Who can Demand the Performance of a Contract ? • \ • However there are some exception developed in this common law system to this rule. Under section 78(1) of Contract Act, 2056 provides and exception to the beneficiary party that ‘in case the contract has been signed for the benefit of any person, such person may demand the execution of that contract even if he is not a party to that contract.’ • The Other parties: In exceptions to the rule of privity of contract, a stranger to the contract also has a right to demand performance.

  7. Who can Demand the Performance of a Contract ? • The other persons also can demand performance of contract in the following cases: • In case of a beneficiary: Even if he is not a party • In case of ‘joint promisees’: In case of joint promises(which means more than one promisee) jointly enter into a contract, may demand performance of contract. The following rules are applied in this regard • If all the promisee are alive, all of them have to demand the performance of contract jointly. • In case of death of any joint promisees, their legal representative can demand the performance jointly with the surviving promisees. • In case of death of all the joint promisees, all of their legal representative can jointly demand the performance of contract.

  8. Who can Demand the Performance of a Contract ? • In case of ‘family settlement’ (Partitions, maintenance or marriage expenses): The family members can sue for the recovery. i.e. provisions of partition of the common code of Nepal • In case of ‘contract of agency’, the principal can sue on it if his agent has made the transaction with third party • In case of ‘Assignment of contract’, the assignee, through he/she was not an original party to the contract, can sue for the benefit.

  9. Who should perform the Contract ? • By the promisor himself: If a contract is created on the ground of personal nature (skill, qualification, talent or credit) it has to be performed by the promisor himself. i.e. Service Contract for painting a picture. A party to a contract cannot transfer the obligation to any other persons without the consent of the other parties. 2. Performance of joint promises: A joint promise may be performed by any of the following:

  10. Who can Demand the Performance of a Contract ? • When several joint promisors make a promise with a single promise, they have to perform it jointly. i.e. A,B and C jointly promise to pay Rs. 1000.00 to X • Where a single promisor makes a promise with several promisees he has to perform it jointly. i.e. A has to pay Rs. 1000.00 to XYZ jointly. • Where several promisors make a promise with several joint promisees they all have to perform it jointly to the joint promises.i.e. A, B and C jointly promise to pay Rs. 1000.00 to XYZ jointly, other rules are similar to the case of joint promisees.

  11. Who can Demand the Performance of a Contract ? • By the promisor or an agent: If a contract is not a personal nature, it can be performed by the promisor or his agent i.e. a contract of sale of goods • By the Legal Representative: The legal representative of a promisor may fulfil the promise on behalf of the promisor formally or officially. • After death: In case of death of the promisor before the performance, the liability falls on his legal representative automatically, if otherwise is not provided in the contract. The following rules are applied:

  12. Who can Demand the Performance of a Contract ? • In case of contract of personal nature, it can not bind his legal representative and comes to an end. • The legal representative is liable only to the property she/he received from the decreased promisor. • In case of a breach of contract and uncovered liability, legal representatives will not be liable, personally. • In lifetime: A promisor may fulfill his/her liability through his/her legal representative. “Adhikrit Wareshnama”

  13. NO need to be performed • Section 79 of Contact Act, 2056 has made the provision that , contract need not be performed in the event of fundamental changes (in the situation prevailling at the time of contract becomes impossible to perform the contract). Those are the following causes: • Where contract becomes illegal, therefore that cannot be performed • Where impossibility of performance of contract emerges due to the nature calamity war, soil erosion, flood, earthquake etc which are beyond the control of human beings.

  14. NO need to be performed • Where there is destruction of subject matter or non-existence or not obtainable circumstances. • Where the promisor dies or become insane (if contract is of personal nature).

  15. Assignment of Cotract • To assign means to ‘transfer’ or to ‘delegate’. • Assignment of contract means transfer a piece of works, rights or liabilities created by the contract to a third party. • Depend on the facts and nature (personal or impersonal) of the contract. i. Contract is not assignable, if it is of personal nature (ii) Contract is assignable, if it is of impersonal nature.

  16. Rules regarding Assignment By Act of the parties • Assignment of contractual liabilities: Contract not involving the personal skill is assignable. • Assignment of contractual rights: The rights and benefits under a contract not involving personal nature, may be assigned. The creditor can assign his rights to a third party. It takes place with or without a reference to the debtor.

  17. By Operation of Law There are certain circumstances on which the law becomes active and contractual rights and obligations assigned automatically. • Death or insanity of the party: In case of death or loss of senses of any party, the rights acquired from the contract may be assigned to the legal heir to his/her property. The heir will be liable to the extent of the property received. • Insolvency: In case of insolvency of a person (or Business firm) his/her rights and liabilities incurred precious to adjudication pass to the official receiver or assignee.

  18. By Operation of Law… • Such a type assignment of contract is to be made in writing and in a formal way. 3. Subrogation: In case a contract has been signed with the provisions to have any such right or damage borne by any person, such loss or damage shall be realized from that person, under the principle of subrogation.

  19. If you have any questions or concerns, please discuss .. • Thank you ! Saroj Shrestha

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