Class Notes on Business Law

Dhulikhel

Performance of Contract

Performance - Meaning

The Performance of Contract is the “essence of the contract” it is an act of carrying out the respective
obligations by the parties as per the terms and conditions of the contract

Failure of performance gives right to aggrieved/Victim party to seek remedy against the defaulting party.

When a contract is duly performed by contracting parties, the contract comes to an end and nothing more
remains to perform.

The party to the contract performing an obligation under a contract must perform that obligation exactly
within the time frame set by the contract, place set in the contract and exactly to the standard require by
the contract.

The legal provision on performance of contract can analyze through the WH Question, i.e. who to
perform, what to perform, where to perform, how to perform.

Time and Manner of Performance (when and how to perform)

1. If the agreement provides time and manner for performance, performance should be done as
provided in the agreement.[s.71(1)]
2. If time and manner is not provided but performance can only be done in a particular time and
manner, performance should be as per that manner. [s.71(2)]
3. In all other cases, within reasonable time and in reasonable manner [s.71(3)]

Place of Performance (Where to Perform)

If a place for performance is specified in the agreement, performance should be made in that place.
[s.72(1)].

1. If contract relates to delivery of goods and place is not specified, then place where the goods are
situated will be deemed as place of delivery. [s.72 (2)].
2. If place is not specified in the agreement but performance can only be made in particular place,
performance should be made in that place. [s.72(3)]
3. In all other cases, if place for performance is not specified in the agreement, party who is required
to perform the contract should give a reasonable notice asking for nominating place for
performance, and the other party should specify the place of performance within reasonable
time.[s.72(4)].

Who should perform?

1. Unless the agreement otherwise provides, it is not necessary that performance should be done by
the contracting party. It can be perform by third party (like agents, sub-contractors etc). [s.77(1)]

2. However, the obligation to perform a contract can not be transferred without the written consent
of the other party.
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Dhulikhel

3. If there are more than two parties to the agreement for performance, such parties are jointly and
severally liable for performance. [s.77(3)]

Who can require the Performance

1. Only a Party to the agreement can require (or ask) other party to perform the contract. Third party
cannot sue on the basis of the contract.
2. However, if the agreement is entered for benefit of third party, then such beneficiary third party
can sue. This is exception to the rule of privity of contract. [s.78]

Co-operation of Parties for Performance of Contract

1. The party should co-operate with each other to perform the contract. (s.80)
2. If performance by one party cannot be done before other party performs its part, then such party’s
obligation will start only after performance is done by the first party. [s.75(3)]
3. The performance should be done as per the order prescribed in the agreement and if not
prescribed, party who should first perform depends upon the nature of the contract. [s.75(2)]

Discharge from Performance (s.73)-No Need to perform

Even if contract should be performed by the contractual party at any cost, sometime the substantial
change in a circumstances/frustration may lead to the discharge of contract. That means in that situation
parties are free from the contractual obligation and they do not need to perform the contract.

The Contract Act of Nepal 2056 Section 73 and 79 includes the provision regarding discharge of contract.
That can be read as follows

1. If one party to the agreement has discharged the other from performance.
2. If the voidable agreement is rendered invalid by the court.
3. If contract cannot be performed due to breach by the other party.
4. Due to frustration of contract/Supervening impossibility.

Frustration of Contract (s.79)

If there is substantial change in the subject matter of the agreement such that it will be impossible to
perform the obligation, then that will be regarded as frustration of contract. Generally, if parties are
unable to perform that contract due to reasons beyond parties control, they will be discharged from
performing their obligation.

Frustration of Contract (s.79)-Circumstances

Following shall be regarded as situation in which contract is deemed to have been frustrated.
 Class Notes on Business Law
Dhulikhel

1. If the Agreement is held illegal (for example due to change in law)

2. It become impossible to perform due to reasons like war, riot, earthquake which are beyond
human control.
3. If the subject matter of the agreement is destroyed.
4. In case of agreement to provide service of personal nature, death, insanity, physical incapacity of
the party providing such service

Circumstances not falling under frustration of contract

1. Difficulty in performing the contract

2. Loss of profit or incurring loss
3. If performance was based on reliance of performance by third party, if such third party fails to
perform the agreement
4. Strike or lockouts
5. Requirement to pay additional tax
6. If there are several purpose of the agreement and only few of then can be performed.

Some problem to be discussed

A and B had entered into a lease agreement for a house. House was destroyed due to bombing?

Mr. Seller had entered into agreement to supply 100 bags of cement to Mr. Buyer on February 1, 2009.
However, on January 29 price of the cement increased 100 times. Mr. Seller claimed frustration of
contract.

Due to strike called by different political parties, shortages of fuel, Builder could not effectively work for
3 months. Is the obligation of the parties suspended for the period of 3 months?