UNIT-04 PERFORMANCE OF CONTRACT
- Performance of Contract-
The performance of a contract is the fulfillment of the obligations and promises made by the parties involved, as stipulated in the contract. It is the most common way for a contract to be discharged or terminated, as once the parties have fulfilled their duties, their legal obligations under the contract come to an end.
- Types of Performance
- Actual Performance: This occurs when both parties to a contract have fully and precisely performed their respective obligations.
For example, if A agrees to deliver a car to B for a certain price, and A delivers the car and B pays the price, the contract is discharged by actual performance.
- Attempted Performance (or Tender of Performance): This happens when a party offers to perform their part of the contract, but the other party refuses to accept the performance. The party offering the performance is said to have made a “tender.”
- Conditions to be Satisfied for a Valid Tender or Attempted Performance-
A valid tender must be unconditional.
For example, a debtor offering to pay a debt cannot add a condition that the creditor must first sign a separate document to release them from another obligation.
A valid tender must also be made at the proper time and place specified in the contract. If no time or place is specified, the tender should be made during regular business hours at the business premises or residence of the other party.
Furthermore, the tender must be for the full amount due or the complete performance of the obligation. An offer to pay only a partial amount of a debt, for instance, isn’t a valid tender.
The party making the tender must also be willing and able to perform. They must have the actual ability to fulfill the obligation and must demonstrate their readiness to do so.
- By whom a Contract May be Performed-
(Section 40,41 & 42)
i) The Promisor
The promisor (the person who makes the promise) is obligated to perform the contract. In cases where the contract is based on personal skill, taste, or a specific level of trust, the promisor must perform the contract personally.
For example, a contract with a famous artist to paint a portrait or with a renowned singer to perform at an event must be performed by that individual.
ii) The Agent
In contracts that do not require personal skill or attention, the promisor can appoint an agent to perform the contract on their behalf. The performance by the agent is considered performance by the promisor.
iii) Legal Representatives
If a promisor dies before fulfilling their contractual obligation, their legal representatives must perform the contract.
For instance, if a person who was supposed to deliver goods dies, their legal representative must still deliver the goods.
iv) Joint Promisors
When two or more people make a joint promise, the promisee can compel any one or all of the joint promisors to perform the entire promise. If one of them defaults, the remaining joint promisors must share the loss equally.
v) Third Parties
A third party cannot perform a contract. However, the Indian Contract Act allows for an exception. If the promisee voluntarily accepts performance from a third person, they cannot later enforce the contract against the original promisor.
- Distinction between Succession & Assignment-
| Feature | Succession | Assignment |
| Transfer | All rights and liabilities | Only rights (benefits) |
| Nature | Involuntary, by operation of law | Voluntary act by the parties |
| When it Occurs | Upon the death of a person | During the lifetime of a person |
| Document | May not require a written document | Must be in writing (a deed of assignment) |
| Notice | Notice is generally not required | Notice must be given to the other party of the contract |
| Consideration | Not required | Essential for a valid assignment |
| Example | A deceased person’s contractual obligations transfer to their legal heir. | A creditor transfers the right to collect a debt to a third party. |
- Liability of Joint Promisor & Promisee-
Liability of Joint Promisors and Promisees (Section 42)
The performance of a contract involving multiple parties as either promisors (debtors) or promisees (creditors) is governed by specific legal principles. This is particularly relevant when the contract creates a “joint promise” or a “joint and several” liability.
Joint Promisors
When two or more people make a joint promise, their liability is typically “joint and several.” This means the promisee has the right to compel any one or more of the joint promisors to perform the entire promise.
Compelling Performance: The promisee can sue any single promisor for the full amount of the debt or obligation, regardless of their individual share.
Right to Contribution: If one of the joint promisors is forced to perform the entire contract, they have a right to seek an equal contribution from the other co-promisors.
Sharing of Loss: If one of the joint promisors defaults on their contribution, the remaining promisors must bear the loss in equal shares.
Effect of Release: Releasing one joint promisor from their liability by the promisee does not automatically discharge the other promisors. The remaining promisors are still liable for the entire obligation.
Devolution of Liability: If a joint promisor dies, their legal representatives, along with the surviving promisors, are responsible for fulfilling the promise. After the death of the last survivor, the legal representatives of all the original promisors are jointly liable.
Joint Promisees
When a promise is made to two or more people jointly, the right to claim performance rests with all of them during their joint lives.
Joint Right: All joint promisees must, as a general rule, jointly sue to enforce the promise. One promisee cannot sue for their individual share of the performance.
Devolution of Rights: If one of the joint promisees dies, the right to claim performance passes to their legal representatives, who must exercise this right jointly with the surviving promisees. After the death of the last surviving promisee, the legal representatives of all the original promisees have the joint right to performance.
- Appropriation of Payments-
- Application of Payment where debt to be discharged is indicated
(Section 59)
The debtor has the primary right to specify which debt the payment should be applied to. This can be done either by an express statement or by circumstances that imply such an intention. If the creditor accepts the payment, they must apply it according to the debtor’s instructions.
- Application of Payment where debt to be charged is not indicated
(Section 60)
If the debtor does not specify how the payment is to be applied, the right to appropriate the payment passes to the creditor. The creditor can, at their discretion, apply the payment to any lawful debt that is due and payable, including a debt that is barred by the statute of limitations. The creditor can even apply the payment to a time-barred debt to prevent it from being completely unrecoverable, and then sue for the remaining, non-time-barred debts.
- Application of Payment where neither party appropriates(Section 61)
If neither the debtor nor the creditor makes any appropriation, the law steps in to determine how the payment should be applied. The principle is often described as “first in, first out” (FIFO). If multiple debts are of equal standing, the payment is to be applied to each of them proportionally.
- Discharge of Contract-
The discharge of a contract signifies the termination of the contractual relationship between the parties, releasing them from their obligations. It is the end of the contract.
Performance is the most common and a very important way a contract is discharged. When both parties to a contract have fully and accurately performed their respective obligations, the contract is considered discharged, and the legal obligations of the parties cease to exist.
- Discharge by Agreement or Mutual Consent: Since a contract is created by agreement, it can also be discharged by a new agreement between the same parties. This can happen in several ways:
Novation: A new contract is substituted for an old one, either between the same parties or between new parties.
Rescission: The parties mutually agree to cancel the contract without creating a new one.
Alteration: The parties mutually agree to change one or more material terms of the contract.
Waiver: A party intentionally gives up a right under the contract, releasing the other party from their obligation.
- Discharge by Impossibility or Illegality (Frustration): A contract can be discharged if an unforeseen event or change in circumstances makes performance impossible or illegal. This can be due to:
Destruction of the subject matter of the contract.
Death or incapacity of a party in a personal service contract.
A change in the law that makes the performance illegal.
- Discharge by Lapse of Time: A contract can be discharged if the parties fail to perform within a specified period, as outlined by the statute of limitations.
- Discharge by Operation of Law: A contract can be discharged by law in certain circumstances, such as:
- Insolvency or bankruptcy of a party.
Merger of rights, where an inferior right under a contract merges with a superior right.
- Discharge by Breach of Contract: A breach occurs when one party fails to perform their obligations under the contract without a legitimate excuse.
Actual Breach: When a party fails to perform on the due date.
Anticipatory Breach: When a party declares their intention not to perform before the performance is due.
- Contracts, which need not be Performed-
Section 62: Novation, Rescission, and Alteration
This section provides three ways a contract can be discharged by mutual agreement of the parties:
Novation: This is when a new contract is substituted for an old one, either between the same parties or with new parties. The old contract is discharged, and the parties are bound by the new one.
For example, if A owes B money and they both agree that C will now be the debtor instead of A, the original contract between A and B is extinguished.
Rescission: This is the cancellation of a contract by all parties involved. The parties are restored to their original positions as if the contract never existed.
Alteration: This involves a change in the terms of the existing contract with the mutual consent of all parties. The original contract is discharged and replaced by the new altered agreement. The parties to the contract remain the same.
Section 63: Remission
This section empowers the promisee (the person to whom the promise is made) to dispense with or remit the performance of the promise. The promisee can:
- Wholly or partially remit the performance of the promise.
For example, a creditor can accept a lesser amount in full satisfaction of a debt.
- Extend the time for performance.
- Accept any other satisfaction instead of the original promise.
Remission is a unilateral act of the promisee and does not require fresh consideration.
Section 64: Consequences of Rescission of a Voidable Contract
When a person rightfully rescinds a voidable contract (a contract that is valid but may be cancelled by one or both parties), the other party must restore any benefit they received under the contract.
Section 65: Obligation of a Party Receiving an Advantage Under a Void Agreement
This section applies when an agreement is discovered to be void or a contract becomes void. Any person who has received an advantage under such an agreement or contract is obligated to restore it or make compensation to the person from whom they received it. This prevents unjust enrichment.
Section 66: Mode of Communicating Rescission
This section states that the communication of rescission of a voidable contract must follow the same rules as the communication and revocation of a proposal. This ensures the rescission is properly communicated to the other party.
Section 67: Effect of Promisee’s Neglect
If the promisee neglects or refuses to provide the promisor with reasonable facilities for the performance of the promise, the promisor is excused for any non-performance caused by that neglect.
For example, if A agrees to repair B’s house, and B refuses to let A into the house, A is excused from their obligation.