2.6 performance of contract.pptx

Business Law

1. UNIT II 2.5 Performance of Contract & Assignment of Contract Advocate Suman Dhungana Lecturer Southwestern Business College

2. Performance of Contract: Possibility of performance is one of the essentials of a valid contract. ‘Performance of contract’ means, ‘fulfillment of obligations created under a contract by the contracting parties. When contract is duly performed by the concerned parties it comes to an end in an easy and natural way. For instance, A visits a stationery shop to buy a calculator. The shopkeeper delivers the calculator and A pays the price. The contract is said to have been discharged by mutual performance. Anson’s law of contract states- “The general rule is that, performance of contract must be precise and exact. Section 521 of Civil Code Act, 2074 contains- “Each party to a contract shall fulfill their obligation under contract.” Supreme Court in a case held- “The contract is automatically discharged, when the specified purpose of the contract fulfilled by the parties.” ( Bhairav Prasad v. Chitwan Irrigation Project, NLJ 2046, p. 344.)

3. The party is said to have performed its obligations when nothing is left for it to do. Thus, total performance of a contract must be exact and complete: ‘Exact’, must match contractual obligations and ‘Complete’, must be carried out to the end. Section 523 of Civil Code Act 2074 focuses on methods of performance that- ‘In case the time and procedure of performance is prescribed in the contract, it shall be performed within the time specified time and as accordance to the specified procedure.’ Except when it is contrary to the respective obligations, no one can be escaped from contractual liability. Importance of Performance: Performance of contract is the manner to achieve the manifested objective of the contract. ‘Each of the contracting parties has to fulfill their respective obligations which are consistent to Nepal law. No one can avoid the contractual obligations. The liability created by the concern party on his own interest has to fulfill within the prescribed time. Where there is the tender of performance it is equivalent to the fulfillment of the contract. However, the performance may be by any methods performance is the completion of services of business voyages. The performance is one of the major steps (formation, performance, termination and remedy of breach) of a contract.

4. It is very important, because it: Preserves the existence of contract, Maintains favorable legal environment of business. Maintains good business relations, Maintains law and order, Promotes business efficiency, Fulfills objectives of the contracting parties, Discharges the contract in happy ending, Develops human civilization. Types of Performance: Performance, as an action of the performing may be actual or attempted. Actual Performance Attempted/ Tender Performance Substantial Performance Partial Performance Vicarious Performance

5. Actual Performance: When a promisor to a contract has fulfilled his obligation in accordance with the terms of the contract, the promise is said to have been actually performed. Actual performance gives a discharge to the contract and the liability of the promisor ceases to exist. For example, A agrees to deliver10 bags of cement at B’s factory and B promises to pay the price on delivery. A delivers the cement on the due date and B makes the payment. This is actual performance. Actual performance can further be subdivided into substantial performance, and partial Performance. Attempted / Tender Performance: When the performance has become due, it is sometimes sufficient if the promisor offers to perform his obligation under the contract. This offer is known as attempted performance or more commonly as tender. Thus, tender is an offer of performance, which of course, complies with the terms of the contract. If goods are tendered by the seller but refused by the buyer, the seller is discharged from further liability, given that the goods are in accordance with the contract as to quantity and quality, and he may sue the buyer for breach of contract if he so desires.

6. The rationale being that when a person offers to perform, he is ready, willing and capable to perform. Accordingly, a tender of performance may operate as a substitute for actual performance, and can affect a complete discharge. ‘Where a promisor has made an offer of performance to the promisee , and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract . For example, A contracts to deliver to B, 100 tons of basmati rice at his warehouse, on 6 December 2018. A takes the goods to B‘s place on the due date during business hours, but B, without assigning any good reason, refuses to take the delivery. Here, A has performed what he was required to perform under the contract. It is a case of attempted performance and A is not responsible for non-performance of B, nor does he thereby lose his rights under the contract.’

7. Rules Regarding Performance of Contract: Performance of contract means fulfillment of respective promises by the concern parties as mentioned in the contract without making any alteration in the terms and condition as mentioned in the contract. Since contract is created between two parties, they have certain liabilities to perform their respective promises on time. If respective parties fulfill such respective promises, it is called performance of contract. There are certain rules with regard to which performance of contract is done which are as follows: so What are Rules Regarding Performance of Contract: What to perform? Who should perform? Where to perform? When to perform? How to perform?

8. a. What to perform ? The promiser must perform the contract by doing the same work as mentioned in the contract of their mutual consent. For Example: Krishna agrees to sell his Hero Honda motorcycle to Hari from dealer in Pokhara cost of Rs.2,50,000 within a week by not exceeding 5 installments. Here, what to perform? = Sell of Honda motorcycle b . Who should perform? Those parties who are involved in the contract are responsible to perform. In the event of death or insolvent the liabilities does not transfer to other except to the privity of contract. For Example: Krishna agrees to sell his Hero Honda motorcycle to Hari from dealer in Pokhara cost of Rs.2,50,000 within a week by not exceeding 5 installments. Here, Who should perform? = Krishna and Hari c. Where to perform? The performer must perform his duties wherever mentioned in the contract. To perform the contract if the place is clearly mentioned, it must be performed in the same place mentioned in the contract. If the contract is performed other than mentioned place then it can’t be said as performance of contract. For Example: Krishna agrees to sell his Hero Honda motorcycle to Hari from dealer in Pokhara cost of Rs.2,50,000 within a week by not exceeding 5 installments. Here, Where to perform? = Hari must purchase the motorcycle from dealer in Pokhara.

9. d. When to perform? The promisor is liable to perform their respective promises within time period mentioned in the contract. If the time is clearly mentioned in the contract, it must be performed within that time otherwise it can’t be said performance of contract. For Example: Krishna agrees to sell his Hero Honda motorcycle to Hari from dealer in Pokhara cost of Rs.2,50,000 within a week by not exceeding 5 installments. Here, When to perform? = Hari must purchase the motorcycle within a week. e. How to perform? The promisors are liable to perform their respective promises with the same mode of performance in the contract, Otherwise it cannot be said performance of contract. For Example: Krishna agrees to sell his Hero Honda motorcycle to Hari from dealer in Pokhara cost of Rs.2,50,000 within a week by not exceeding 5 installments. Here, How to perform? = Hari must pay cost of motorcycle by not exceeding 5 installments.

10. Contracts Having No Need to Be Performed: Circumstances in which contracts need not be performed: (Sec 527 of Civil Code) In case one party to the contract absolves the other party from fulfilling the obligations according to the contract; In case a voidable contract is made void by the party concerned; In case one can not execute the contract due to its violation by the other party; In case it becomes unnecessary to perform the work mentioned in the contract under any provision of this Part of the Civil Code; In case it becomes unnecessary to comply with the contract under Section 531. Section 531: Contracts need not executed in the event of fundamental changes in the situation: (1) In case it becomes impossible to execute a contract as a result of fundamental change in the situation prevailing at the time of signing of the contract, the work under the contract need not be performed.

11. 2) Without prejudice to the generality of Sub-section (1), fundamental change shall be deemed to have come in the situation prevailing at the time of signing of the contract in any of the following circumstances: (a) In case the contract becomes illegal and it can not be executed; (b) In case it becomes impossible to execute the contract due to emergence of such situations as war, floods landslides, fire, earthquakes, and volcanic eruptions, which are beyond the control of human beings; (c) In case anything essential for executing the contract is destroyed or damaged, or no longer exists, or can not be obtained; (d) In case the contract has been signed with a provision to provide services on the basis of efficiency, skill or talent, and the person providing such service dies or loses his/her sense or becomes incapable of performing the contract because of physical or mental disability. (3) Notwithstanding anything contained in Sub-section (2), fundamental changes shall not be deemed to have come in the situation prevailing at the time of signing the contract in any of the following circumstances: In case it becomes difficult to perform the contract; In case profit margin is low or loss is expected; In case any party to a contract is dependent upon any third party who is not a party to the contract for performing the contract, if the third party commits a mistake or becomes unfit; In the event of strikes and lockouts; In case it becomes necessary to pay additional tax, fee or other revenue; In case the contract has been signed with several objectives and only some of them can not be fulfilled.

12. 4) In case it becomes impossible to execute a contract because of fundamental changes in the situation as mentioned in Sub-section (2), action in the following matters shall be taken as follows; The amount paid by one party to the other in consideration of the contract before such a change in the situation occurs shall be refunded to the other party. Payment to be made or due from one party to the other in consideration of the contract shall not be made after such a change in the situation. In case any party has performed any work or paid any amount before such a change in the situation, such work or amount shall be calculated and the amount to be paid to each other should be determined, and reasonable expenses incurred by one party in consideration of the contract may be recovered from the other party. (5) Notwithstanding anything contained in this Section, after the end of the situation mentioned in Clause (b) of Sub-section (2), the parties to a contract may agree to fulfill their respective obligations by executing the contract.

13. SO WHO CAN DEMAND PERFORMANCE ? By the promisor himself Performance of join promises:- Several promisor to one person One promisor to several person Several promisor to several person 3)BENEFICERY 4)legal representative

14. Nepalese Legal provisions of Contract Law: Section 521 of Muluki Civil (Code) Act, 2074 contains that- “Each Party to a contract shall fulfill their obligations under the contract.” Section 523 focuses on methods of performance. It contains that- ‘In case the time and procedure of performance is prescribed in the contract, it shall be performed within the specified time and as accordance to the specified procedure.’ Section 522 provides that- ‘Reciprocal compliances with contract are necessary if provision provides for both parties to simultaneously fulfill their respective obligations.’ Supreme Court has established some principles in this regard. A leading case of Tirtharaj Kumari Rana emphasizes that- “except when it is contrary to the respective obligations, no one can be escaped from contractual liability.” Supreme Court in a case held- “The contract is automatically discharged, when the specified purpose of the contract fulfilled by the parties.” The party is said to have performed its obligations when nothing is left for it to do. Thus, total performance of a contract must be exact and complete: ‘Exact’, must match contractual obligations and ‘Complete’, must be carried out to the end.

15. Assignment of Contract Meaning of Assignment of Contract : The English term ‘to assign’ means ‘to transfer’ or ‘to delegate’. ‘Assignment of contract’ means, ‘to transfer a piece of works, rights or liabilities created by the contract.’ It is a part of performance of the contract. The person who assigns the contract is called ‘assignor’ and the person to whom contract is assigned is called ‘assignee’. ‘Assignment of the contract’ means, transfer of contractual rights and liabilities under the contract to a third party with or without the consent of the other party to the contract. This is the exception to the general rule of privity of contract. It means, ‘the parties, who are promisor and promise have to fulfill their respective liabilities and duties’ because it is the outcome of their genuine meeting of mind. There is the principle of privity of contract. However, it is not an absolute rule. All the contracts are not assignable. To determine the assignability of a contract, we must depend on the facts and nature (Personal or impersonal) of the contract: Contract is not assignable, if it is of personal nature; Contract is assignable, if it is of impersonal nature. Example: X delivers goods to Y for Rs5000. Y owns Rs5000 to Z. Y asks to Z to repay Rs5000 to X directly. Z accepts it. It is valid assignment of contract.

16. Definition: Section 528 of Muluki Civil (Code) Act, 2074 has clearly stated that ‘in case any party to a contract dies or loses his/her senses, the right accruing from the contract shall devolve on the heir to his/her property and the heir shall also bear liability to the extent determined by the property received by him.’ The provision also provides that ‘the rights and liabilities accruing on the basis of his personal skill and qualification shall not devolve on such heir.’ Prof. Anson defines that; “Assignment is a transfer of contractual right and liabilities by a party to the contract to some other person also which not a party is.” Indian law of contract has no such specific provision in this regard. However, performance of contract may be fulfilled by two persons: ( i ) if it was the intention of the parties to be fulfilled by the promisor himself or (ii) if promisor employs a competent person (assignee) to perform it. (Sec. 40 of ICA 1872).

17. On the basis of assignment , contract can be divided into two types: Contracts that can be assigned 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. The right or benefit being assigned may be a gift or it may be paid for with a contractual consideration such as money. An actionable claim can always be an assignable, but to be complete and effectual, it must be in writing. Contracts that cannot be assigned. When it matters to the obligor who receives the benefit of his duty to perform under the contract, then if the receipt of the benefit is a personal right that cannot be assigned. For example , An insurance company provides auto insurance covering Krishna, a sixty-five year old man who drives very carefully. Krishna cannot assign the contract to his seventeen-year-old grandson because it matters to the insurance company who the person of its insured is.

18. Rules regarding assignment of contractual rights and liabilities There are certain rules regarding the assignment of contract, which are summarized as follows: Contracts involving personal skill and efficiency cannot be assigned: Such type of contract must always be performed by the promisor alone. Upon his insanity or death, his obligation will not devolve on his heirs or legal representatives. The contract is supposed to go terminated as soon as the promisor dies or become insane. e.g contract to marry a person or render personal service.

19. 2. Assignment of contract by acts of parties It refers to the assignment of one’s rights and/or liabilities to some third person with the consent of the other party to the contract. An assignment of contractual liabilities may be made by act of either party in the following three ways: Assignment with consent of other party and the assignee. Assignment with consent of other party, but without consent of assignee. Assignment without consent of other party but with consent of assignee i.e. a voluntary assignment.

20. 3.Assignment by Operation of law Assignment by operation of law occurs when the party to the contract dies or becomes insolvent. After the expiry of person his rights and duties under a contract passes to his legal representative. In the same way when a person becomes insolvent all his rights and liabilities under the contract are transferred to the official assignee or receiver .

21. Provisions in the Nepalese Law Section 529: Party to perform the contract 1.A contract except unless required to be performed by the party of the contract itself, can be assigned to the agent or a person appointed by him or any other person on his behalf, a contractual obligation cannot be assigned without the consent of the other party. 2.Following conditions must be fulfilled in order to assign the rights and liabilities ; Except otherwise mentioned in the contract the transfer must be made in written form, It should be made without any consideration, Law or contract shouldn’t prohibit the transfer of rights and liabilities Incase of the transfer of rights and liabilities the other party should be duly informed 3.Except otherwise mentioned in the contract, when the party to the contract has accepted the performance of contract by the third person, he again cant claim the contract to be performed by the party performing the contract itself.

22. Exceptions: There are certain statutory exceptions to the above rule which are as follows: (a) Assignment of Impersonal obligation : two general principles regard this. The first principle is that where parties intend that the contract should be performed by the promisor personally and no other person can perform such promise, the promisor is only bound to perform it. He can not delegate his contractual obligations to a third person without consent of the promisee . Such contract is called a personal contract. A personal contract involves some consideration, such as, knowledge, skill, qualification so on and so forth of the promisor. Therefore, it requires that the promisor must himself perform his promise. His obligation cannot be performed by a stranger. The second principle permits the delegation of contractual obligation to a third person. According to it if performance of a promise does not involve some personal element it may be performed by the promisor, or his legal heirs or even by a third person who is employed by the promisor or his legal heirs to perform such promise. Thus, where promisor's obligation is impersonal, it can also be discharged by a stranger who is competent to do it.

23. c) Vicarious performance : When a promisee accepts performance of the promise from a third person he cannot, afterwards, enforce it against the promisor. Once performance of a contract by a stranger is accepted by the promisee the promisor stands discharged and the promisee cannot, afterwards, sue the promisor. It may be noted that the promisee cannot be compelled to accept performance of the promise by a stranger. He is at liberty to accept or not. d) Liability coupled with actionable claim : It provides that the transferee of an actionable claim shall take it subject to all the liabilities and equities to which the transferor was subject in respect thereof at the date of the transfer. The transferee of an actionable claim is liable to the other party to the contract to the same extent to which the transferor was liable. Thus, where an actionable claim is coupled with liability, the assignee cannot enforce the actionable claim unless he discharges the liability; the other party is entitled to get the liability of assignor adjusted against the assignee.