Performance means to fulfill or execute the lawful promises of parties. It implies fulfillment of the terms of the agreement respective parties to a contract. Performance of contract plays a significant role in the context of contract.

Performing of their respective obligations by all parties of contract is the normal and natural mode of discharging or terminating a contract. This mode provides the fulfillment to the objective of the contract.

Definition of Performance of Contract

Fulfillment of respective promises by the concerned parties in a manner as designed in a contract without making any change in its terms is called the performance of contract.

The parties to the contract specified their rights and obligation in the agreement of contract. They must perform their promises as prescribed by them in the agreement of contract. In case any party fails to do any thing as mentioned in the contract, then remedial rights emerges to the other party.

If one party alone is discharged from liability of his part, and acquires rights of action against the other party non-performing of his promises.

The contract automatically discharges when the purpose of the contract is fulfilled by the performance of its parties that may be called a happy ending of the contract.

If it is ending up without a performance it is not happy ending of the contract. Performance by all the parties of the respective obligations is the normal and natural mode of discharging a contract. That's why the performance of contract is much more important in the realm of contract.

The parties have to perform their obligations in accordance with the contract. If any of the parties fails to perform the obligations the other party will obtain the following rights against failure party.

  • To ask for a specific performance of the contract. 
  • To claim for compensation for the loss.
  • To rescind (cancel) the contract.
  • To ask for an assignment of a contract.

Nepal Contract Act, 2056 section 74-81 has made provisions relating to the performance of contract. Section 74 states that each party to a contract has to fulfill their obligations under the contract.

Importance of Performance Contract

Performance of contract means to achieve the objective of the contract by fulfilling the obligation of the party.

Performance is important for the following reasons:

  • The parties get happy ending of contract by performance.
  • The good performance encourages the parties to further contract.
  • Objectives of both parties are completed due to performance.
  • To establish a good relations between the parties.
  • To maintain the good business relation.
  • To maintain law and order.
  • To develop business efficiency.
  • For the prosperity of business.
  • For the development of the human civilization.

Rules Regarding to Performance of Contract

With regard to performance of contract there are certain rules. Some are incorporated in the Nepal Contract Act, 2056 as well. The Act has provided these rules under the section 71, 72,74,76,77 and 78.

The major rules regarding performance of contract are as follows:

  1. Person to demand the performance of contract.
  2. Person bound to perform the contract.
  3. Time and mode to perform the contract.
  4. Place to perform the contract.
  5. Conditions need not be performed the contract.

1. Person to demand the performance of the Contract:

  • Only contracting parties can demand the performance of contract. (Promisor)
  • The third party or beneficiary can demand the performance of contract. Section 78(1) of Nepal Contract Act, 2056 (Third Party)
  • By legal representative or his heirs can demand to performance the contract. (Heirs and Legal representative)
  • By persons who jointly promise to the contract.(Joint promisees)

2. Person bound to perform the Contract:

  • By Promisor himself.
  • Contracting parties should perform the contract.
  • Legal representatives and heirs.
  • By the agent of contracting parties.
  • By Third party (Section 77(2) of Nepal contract Act, 2056
  • By joint contracting parties.

3. Time and modes to perform the contract

Where a time is prescribed in the contract the performance of the contract must be within or at the time prescribed in the contract. Where the time is not prescribed in the contract; it has to be done at a reasonable time.

4. Place to perform the contract

If the place is prescribed in the contract should be performed at such prescribed place. If there is not prescribed the place in the agreement, contract should be performed at the reasonable place or the place where the goods are stored.

5. Conditions where contract need not be performed

Generally, the contract once concluded must be performed in according to contract. The parties to a contract are bound to fulfill their respective obligations. However, this rule is not absolute.

There are some cases under, where the contract need not be performed. Such cases have been stated under section 73 and 79 of Nepal Contract Act, 2056 as well. They are as fallows:

a. In case of relief of party:

When a party to a contract relieves other party from fulfilling his obligations wholly or in partly, a contract need not be performed.

b. In case of voidable contract:

If aggrieved party made contract void from ab initio in case of voidable contract, such party need not be performed his respective obligations..

c. In case of breach of contract:

When a party to the contract breaks terms and conditions of agreement, the other party is discharged from performing his promise; in such case, contract need not be performed.

d. In case of subsequent occurrence or supervening impossibility of the circumstance:

It becomes subsequently impossible to perform the contract, due to the fundamental change in situation or circumstances, no need to be (Section 79 of Nepal contract Act, 2056.

  •  Where the contract becomes illegal therefore that should not be enforceable.
  • Impossibility to perform of the contract due to the natural calamity, war, soil erosion, flood, earthquake.
  • Destruction of subject matter or non existence of subject matter.
  • Death or insanity of the promisor when contract is personal nature.