Place of Performance of a Contract
The place of performance of a contract refers to the particular place where the execution of the last act was done.3 min read
The place of performance of a contract refers to the particular place where the execution of the last act (an act executed by the contracting parties, needed to complete the contract and give it validity) was done.
To settle a legal dispute involving property or parties that are located in different jurisdictions (and where there is a difference between the substantiate laws of the two jurisdictions), the court may decide to apply the lex loci contractus which is the place where the contract was entered into.
Such a decision is governed by the laws in the place of performance of the contract. If the interest allowed by the law in the contract's place of performance is higher than that permitted in the place of contract, the contracting parties can stipulate the higher interest.
Changes to the Place of Business
If there are changes to its place of business before the conclusion of a contract, the concerned party must bear all increase in expenses that are incidental to the contract's performance.
How to Determine the Place of Performance
The contract's place of performance is determined from the terms of the contract. The place where a contractual obligation must be performed is determined by the express terms stated in the contract.
For instance, if the contract stipulates the obligation of one party to build, such an obligation must be carried out on the construction site. This means that the transportation of all goods must be performed in line with the agreed route.
However, rules are needed in cases where the terms of the contract and the circumstances do not stipulate the place of performance. Generally, the party required to perform obligations does so at its place of business. Where monetary obligations are involved, the reverse is the case. The obligor carries out its obligations at the place of business of the obligee.
Although these solutions are not satisfactory, they reflect a need for rules to govern cases where circumstances do not indicate the place of performance and the contracting parties made no alternative arrangement.
To determine the system of law that controls, it is necessary to first determine the jurisdiction of the contract's performance.
Determining the Jurisdiction of the Contract's Place of Performance
If this is not indicated, it is assumed that contractual obligations are to be performed in the place where the contract was entered into.
- If a place of performance is fixed absolutely and expressly stated in the contract, that place becomes the place of performance. However, if the intention of the contracting parties was to perform the contractual obligation in the jurisdiction where the contract was entered into but decided to fix some other place of performance in order to evade the rule of law in that jurisdiction, the place of performance is determined by the intention of the contracting parties. This principle applies to contracts of usurious interests.
- If contractual obligations are to be performed in different states/jurisdictions, it is generally held that the laws governing each place of partial performance also govern that part of the contract's performance in that state.
- If it is stated that the contract must be performed in part where it is drafted and in part elsewhere, the law of the different places to be performed will govern the execution of contractual obligations unless the parties' intentions indicate otherwise.
- If the contract's place of performance is optional, the execution of obligation is controlled by the jurisdiction where the contract was entered into. This means that an insurance firm in one state may issue a policy to be delivered in a different state. Although the terms of the contract policy state that the premium is due in the place where the firm was domiciled, there would be a provision in the policy that stipulates that it could appoint persons to collect its premiums elsewhere. This means that the premiums can be paid where the policy is to be delivered because the contract is governed by the laws of the state where the premiums are paid and where it would be delivered.
- The laws of the place of performance control usury if a contract is payable at the lender's main office or any other place designated.
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