Legal Environment for Business in Nepal
4 December 2016
Saroj Shrestha 1
‘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.”
.
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Section71 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.
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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).
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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.
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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.
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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.
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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.
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1. 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:
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◦ 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.
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3. 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
4. By the Legal Representative: The legal
representative of a promisor may fulfil the
promise on behalf of the promisor formally or
officially.
o 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:
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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”
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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.
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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).
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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.
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By Act of the parties
1. Assignment of contractual liabilities: Contract
not involving the personal skill is assignable.
2. 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.
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There are certain circumstances on which the law
becomes active and contractual rights and
obligations assigned automatically.
1. 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.
2. 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.
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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.
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If you have any questions or concerns, please discuss ..
Thank you !
Saroj Shrestha 19
