PERFORMANCE OF CONTRACTS
PERFORMANCE OR TENDER
A contract creates legal obligations ,”Performance of a contract” means the carrying out of these obligations. Each party must perform or offer to perform the promise which he has made. Section 37, Para 1, of the Contract Act lays down that, “The parties to a contract must either perform, or offer to perform, ‘their respective promises, unless such performance is dispensed with or excused under the provisions of this act, or of any other law.”
The Offer to Perform or Tender
The offer to perform the contract is calledTender. Offer to perform or Tender may be called attempted performance. A tender, to be legally valid, must fulfill the following conditions.Sec. 38 .
1. It must be unconditional. A tender coupled with a condition is no tender.
A passenger on a bus offers a rupee note for the fare which is 10p. only. It is not a valid. tender because it imposes condition on the acceptance of the tender viz the return of the balance out of the rupee. A tender of money must be of the exact sum due. Bireswar v. The Emperor.
2. A tender to pay conditionally upon the other party doing something such as giving a release or accepting the other amount in full satisfaction of all demands, is not a valid tender. But ‘of course, a receipt may be demanded after a tender has been accepted.
3. A tender money, must be in legal tender money, not by any foreign money, or by promissory note or cheque. Jagat v. Nabagopal.
4: The tender must be made at a proper time and place. What is proper time and place, depends upon the intention of the parties and the provisions of Sections 46-50 of the Act. (See pages.109-110).
A tender before the due date or at a time and place other than that agreed upon, is not a valid tender. Eshaque v. Abdul Bari.
5. The person to whom a tender is made must be given a reasonable opportunity of ascertaining that the person by whom it is made is able and willing there and then, to do the whole of what he is bound by his promise to do.
6. The reason behind the above rule is that an offer-to perform a -part of the promise is not a valid tender.
7. If the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver.
P contracts to deliver to B at his warehouse on the 1 st March 1973, 100 bales of cotton of a particular quality. P must bring the cotton to B’s warehouse, on the appointed day, under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality contracted for, and that there are 100 bales.
8. When there are several promisees, an offer, to any one of ,them is a valid tender.
Effect of refusal to accept a properly made offer of performance or Tender
‘Where the promisor has made an offer of performance to the promisee, and the offer has not been accepted, the contract is deemed to be broken by the promisee and he can be sued for breach of contract.
Effect of refusal of. party to perform promise wholly
When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirely, the promisee may put an end to the contract, unless he has signified by words or conduct, his acquiescence in its continuance.-Sec. 39.
P, a singer, enters into a contract with B, manager of a theatre to sing at his theatre two nights in every week during the next two months, and B engages to pay her at the rate of 100 rupees for each night. On the sixth night P willfully absents herself. With the assent of B, P sings on the seventh night. B has signified his acquiescence in the continuance of the contract and cannot now put an end to it but is entitled to compensation for the damage sustained by him thro6gh P’s failure to sing on the sixth night.
WHOM IS A CONTRACT TO BE PERFORMED?
In cases involving personal skill, taste, or credit, the promisor must himself perform the contract. The courts will enforce the intention of the parties, as expressed in the contract, or as may be inferred from the circumstances of the case.
2.Performance by representatives
In all other cases the Promisor or his representatives may employ a competent person to perform it.-Sec. 40.
(i) Q promises to paint a picture for B ; Q must perform this promise personally.
(ii) Q promises to pay B a sum of money. Q may perform this promise, either by personally paying the money to B or causing it to be paid to B by another.
Effect of Performance from a third person
When a promise accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor: -Sec. 41.
4.deatth of the Promisor
- Contracts involving personal skill or volition, come to an end when the Promisor dies. His heirs or ‘legal representatives _ are not bound to perform such contract~ This rule is expressed in a Latin phrase, action personalis moritur cum persona–a personal cause of action dies with the person concerned.
- In cases not involving personal skill or volition, the legal representatives of a deceased promisor are bound to perform the contract. Upon failure to do so, they will be liable for breach of contract.
- But the liability of the legal representatives is limited to the assets obtained from the deceased. They are not personally liable.
The legal representatives can enforce performance of the contract upon the other party or parties and their legal representatives.
(i) P promises to deliver goods to B on a certain day on payment of Rs. 1,000. P dies before that day. P’s representatives are bound to deliver the goods to B; and B is bound to pay Rs. 1,000 to P’s representatives.
(ii) Q promises to paint picture for B by a certain day, at a certain price. Q dies before the day. The contract cannot be enforced either by . Q’s representatives or by B.
5. Performance of Joint Promises – See below.
Who can demand performance ?
I. The promisee can demand performance of the promise. A stranger to a contract, i.e., one who is not a party to it, cannot file a suit to enforce it. A contract between P and Q cannot be enforced by R.
2. Under certain cases a stranger to the contract can enforce the contract. Examples, Trust, Assignee …etc.
3. The legal representatives can enforce performance of the contract upon the other party or parties and their legal representatives.
DEVOLUTION OF JOINT RIGHTS AND LIABILITIES
Two or more persons may enter into a joint agreement with one or more persons.
Example : A and B jointly promise to pay Rs. 500 to C and D. In such cases, the question arises; who is liable to perform the contract and who can demand performance ? The rules on the subject are stated below-Sections 42-45 :
1. Devolution of joint liabilities
When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract, all such ‘
persons must jointly fulfill the promise. Upon the death of one` of the joint promisors, his liability devolves upon his legal representatives, and the legal representatives become liable to perform the contract jointly with the surviving parties. if all the parties die, the liability devolves upon their legal representatives jointly.-Sec. 42.
The English law on the point is different. In case of joint promises, the liability to perform, devolves in England, upon the surviving promisors. The legal representatives of deceased promisors are not liable.
2. Any one of joint promisor may be compelled to perform
“When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary compel any one or more of such joint promisors to perform the whole of the promise.”
Each promisor may compel contribution
“Each of two or more joint promisors may compel ,every other joint promisor to contribute equally with himself to the performance of the promise; unless a contrary intention appears from the contract.”
Sharing of loss by default in contribution
If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.”-Sec. 43.
The English law is different. Under it “all joint contractors must be sued jointly for a breach of contract.” In India the promisee can choose against whom to proceed.
(i) A, B & C jointly promise to pay D Rs. 3,000. D may compel either .4 ‘or B or C to pay him Rs. 3,000.
(ii) A, B & C are under a joint promise to pay D Rs. 3,000. C is unable to pay anything and A is compelled to pay the whole. A is entitled to receive Rs. 1,500 from B.
(iii) A. B 6c C jointly promise to pay D Rs. 3.000. C is compelled to pay the whole. A is insolvent but his assets are sufficient to pay one-half of his debts. C is entitled to received Rs. 500 from R’s estate and Rs. 1,250 from B.
3.Effect of release of one joint promisor
“Where two or more persons have made a joint promise, a release of one of such joint promisors by the promisee not discharge the other joint promisors ; neither does it free the joint promisor so released from responsibility to the other joint promisor or joint promisors.”-Sec. 44.
The English law on this point is different. Release of one joint promisor under English law releases all the promisors but not in India.
4. Devolution of joint rights
When a person has made a promise to several persons jointly, then (unless a contrary intention appears from the contract) the right to claim performance rests on all the promisees jointly so. long as all of them are ‘alive. When one of the promisees dies the right to claim performance rests with his legal representative. jointly with the surviving promisees. When all the promisees are dead, the right to claim performance rests with their legal representatives jointly:-Sec. 45.
Q in consideration of Rs. 500 lent to him by B & C promises B & C jointly to repay them the sum with. interest on a day specified. B dies. The right to claim performance rests with B’s representative jointly with C during C’s life and after the death of C with the representatives of 8 & C jointly.
A Contract consists of reciprocal promises when one party . makes a promise (to do or not to do something in the future) in consideration of a similar promise (to do or not to do’ something in the future) made by the other party. Such a contract is an exchange of promises.
Sections 51-54 and 57-58 of the Contract Act lay down the rules regarding the performance of reciprocal promises. They are stated below.
I. Promisor not bound to perform, unless reciprocal promisee ready and willing to perform
“When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise.”-Sec. 51.
(i) A & B contract that A shall deliver goods to. B to be paid for by B on delivery. A need not deliver the goods, unless B is ready and willing to pay for the goods on delivery. B need not pay for the
goods unless A is ready and willing to deliver them on payment.
(ii) .4 & B contract .that A shall deliver goods to B at a price to be paid by installments, the first installment to be paid on delivery. A need not deliver, unless B is ready and willing to pay the first ,need on delivery. B need not pay the first installment, unless .4~ ready and willing to deliver the goods on payment of the first installment.
2. Order of performance of reciprocal promises
“Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order, and where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.”-Sec. 52.
(i) A dc B contract that A shall build a house for B at a fixed price. A’s promise to build the house must be performed before B’s promise to pay for it.
(ii) A & B contract that A shall make over his stock in trade to B at a fixed price; and B promises to give security for the payment of the money. A’s promise need not be performed until the security is given, for the nature of the transaction requires that A should have security before he delivers up his stock.
3. Liability of party preventing event on which contract is to take effect
“When a contract contains reciprocal promises, and one party to the contract prevents the other. from performing his promise, the contract becomes voidabte at the option of the party so prevented ; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract.”-Sec. 53.
A 8c B contract that B shall execute certain work for A for a thousand rupees. B is ready and willing to execute the work accordingly but A prevents him from doing so. The contract is voidable at the options of A ; and, if he elects to rescind it, he is entitled to recover from A compensation for any loss which he has incurred by its nonperformance.
4. Effect of default as to that promise which should be first performed in contract consisting of reciprocal promises
“When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other part) to the contract for any loss which such other party may sustain by non-performance of the contract.”-Sec. 54.
(i) A hires B’s ship to take in and convey, from Calcutta to the Mauritius, a cargo to be provided by A, B receiving a certain freight for its conveyance. A does not provide any cargo for the ship. A cannot claim the performance of B’s promise and must make compensation to B for the loss which B sustains by the non-performance of the contract
(ii) A contracts with B to execute certain builder’s work for a fixed price, B supplying -the scaffolding or timber, necessary for the work. B refuses to furnish any scaffolding or timber, and the work cannot be executed. A need not execute the work, and B is bound to make compensation to A for any loss caused to him by, the nonperformance of the contract.
(iii) A contracts with B to deliver to him, at a specified price, certain merchandise on board a ship which cannot arrive for a month, and B engages to pay for the merchandise within a week from the date of the contract. B does not pay within the week. A’s promise to deliver need not be performed, and A must make compensation.
(iv) A promises B to sell him one hundred bales of merchandise, to be delivered next day and B promises. A to pay for them within a month. B does not deliver according to his promise. B’s promise to pay need not be performed, and A must make compensation.
5. Reciprocal promises to do things legal and also other things illegal .
“When persons reciprocally promise, firstly to do certain things which are legal, and secondly, under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement. “Sec. 57.
6. Agreement to do impossible act
An agreement to do an act impossible in itself is void.Sec. 56. (See p. 92)
CONTRACTS WHICH NEED NOT BE PERFORMED
Sections 62 to 67 of the Contract Act are listed under the heading “Contracts which need not be performed”. The relevant provisions are as follows : .
1. If by mutual agreement there is Novation, Rescission or Alteration, the original contract need not be performed. (Sec. 62. See Chapter 11)
2. The same rule applies in cases of Remission. (Sec. 63. See Chapter 11)
3. When a voidable contract is rescinded, the other party need not perform his promise. (Sec. 64. See “Restitution”, Chapter 11)
4. If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any nonperformance caused thereby.” Sec. 67. (See *under, “Breach of Contract”, Chapter 11)
Il. Under the Law of Contract the following agreements need not be performed :
1. Unlawful consideration and object-Sec. 23 (See p. 77-83)
2. Where the performance is unlawful or illegal-Sec. 56 (See p. 92)
ASSIGNMENT OF CONTRACTS
Assignment means transfer. The rights and liabilities of a party to a contract can be assigned under certain circumstances. Assignment may occur
(i) by act of parties or
(ii) by operation of law.
The rules regarding assignment of contracts are summarised below :
1.Contracts involving personal skill, ability, credit or other personal qualifications, cannot be assigned.
a contract to many ; a contract to paint a picture ; a contract of personal service; etc.
2. The obligations under a contract, i.e., the burden and the liabilities under the contract cannot be transferred.
For example, if X owes Y Rs. 100 he cannot transfer the liability -to Z and force Y to collect his money from Z.
Exception–In both cases, 1 and 2, the parties to a contract may agree to replace the original contract by a new one under which the obligations of one of the parties are shifted to a new party. Thus in the example given above if Y agrees. to accept Z as his debtor in place of ,Y, the liability to pay the debt is transferred from X to Z. Such cases are known as Novation.
3. A contract may be performed through the agency of a competent person, if the contract does not contemplate performance by the promisor personally.-Sec. 40. But in this case the original party remains responsible for the proper performance of the obligations under the contract.
4: The rights and benefits under a contract (not involving personal skill or volition) can be assigned. Thus if X is entitled to receive .R’s. 500 from Y, he can assign. his right to Z whereupon Z will become entitled to receive the money from Y. But in this case the assignment is subject to all equalities between the original parties. Thus if Y had already paid a portion of the debt to X, he will pay to Z correspondingly less.
5. The rights of a party under a contract may amount to an “actionable claim” or “a chose-in-action”. Section 3 of the Transfer of Property Act defines as actionable claim as “a claim to any debt (except a secured debt) or to any beneficial interest …whether such claim or beneficial interest be existent, accruing, conditional or contingent:”
Examples of actionable claims : a money debt; book debts; the interest of a buyer of goods in a contract for forward delivery (Jaffer Ali v. Budge Budge Jute Mills’); an option to’ repurchase property sold; etc.
Actionable claims can be assigned but only by a written document. Notice must be given to the debtor.
6. Assignment by operation of law occurs in cases of death or insolvency. Upon the death of a party his rights and liabilities under a contract devolve upon his heirs and legal representatives (except in the contract of contracts involving personal qualifications).. In case of insolvency, the rights and liabilities of the person concerned pass to the Official Assignee or. the Official Receiver.
THE TIME AND PLACE OF PERFORMANCE
The time and the place of performance of a contract are matters to be determined by agreement between the parties to the contract.- In sections 46 to 50 of the Indian Contract Act certain general rules have been laid down regarding the time and place of performance. They are as follows
1.Time for performance without application
“Where, by the contract, a promisor is to perform his promise without application by the promisee,, and no time for performance is specified, the engagement must be performed within a reasonable time”
“Explanation-The question what is a reasonable time, is, in each particular case, a question of fact”-Sec. 46.
2.time and. place, where time is specified
“When a promise is to be performed on a certain day, And the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed”-Sec. 47.
D promises to deliver goods at B’s warehouse on the first January. On that day D brings the goods to B’s warehouse but after the usual hour for closing -it and they are not received. D has not performed his promise.
3. Application for performance to be at proper time and place
“When a promise is to be performed on a certain day, am, the promisor has not undertaken to perform it without application
by the promisee, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of . business.”
“Explanation-The question `what is a proper time and place’ is, in each particular, case, a question of fact.”-Sec. 48.
4,to appoint A reasonable place for the performance.
“When a promise is to be performed without application by the promisee, and no place is fixed for the Performance. of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise, and to perform it at such place.”-Sec. 49. .
D undertakes to deliver a thousand mounds of jute to B on a fixed day. D must apply to B to appoint a reasonable place for the purchase of receiving it, and must deliver it to him at such place.
5.manner and time prescribed or sanctioned by promisee ‘ “The performance of any promise may be made in any manner or at any time which the promisee prescribes or sanctions. ” Sec. 50.
(i) B owes .4 2,000 rupees. A desires B to pay the amount to A’s account with C, a banker. B, who also banks with C, orders the amount to be transferred from his account to A’s credit and this is done by C. Afterwards and before .9 knows of the transfer, C fails. There has been a good payment by B.
(ii) A and B are mutually indebted. A and B settle an account by setting off one item against another, and B pays A the balance found to be due from him upon such settlement. This amounts to a payment by A and ,B respectively of the sums which they owed to each other.
(iii) D owes B, 2,000 rupees.. B accepts some of C’s goods in deduction of the debt. The delivery of the goods operates as part payment.
(iv) (iv) Q desires B who owes him Rs. 100, to send- him a note for Rs. 100 5 by post. The debt is discharged as soon as B puts into the post a letter containing the note duly addressed to Q.
PERFORMANCE WITHIN STIPULATED TIME
Section 55 of the Contract Act lays down certain rules ,regarding the effects of failure to perform a contract within the stipulated time. They are as follows :
1. In contracts where time is of the essence of the contract, if there is failure to perform within the fixed time, the contract (or so much of it as remains unperformed) becomes voidable at the option of the promisee.
2. In such cases, the promisee may accept performance after the fixed time but if he does so he cannot claim compensation unless he gives notice of his intention to claim compensation at the time of accepting the delayed performance.
3. In contracts where time is -not of the essence of the contract, failure to perform within the, fixed time does not make the contract voidable, but the promisee is entitled to get compensation for any loss occasioned to him by such failure. .
When is time the essence of the contract ?
The decisions of the Supreme Court, regarding the `time’ of the performance of summarised below contracts, are summarised below .
1. The fixation of the period within which the contract has
to be performed does not make the stipulation as to time the essence of the contract: gamathinayagam Pillai v. Palaniswami Nadar.
2. The question whether or not time was of the essence of the contract would essentially be a question of the intention of . the
parties, to be gathered from the terms of the contract. Hind Constn. Contractors v. State of Maharashtra.
3. Even if a contract expressly lays emphasis on time as the essence of the contract, the condition will be dependent on other
provisions of the contract. The inference that the work must be completed by a particular date may not be given the fundamental position because of the presence of such other provisions. If such other clauses provide for extension of time in certain probabilities or for payment of fine or penalty on daily or weekly basis if the work remains unfinished on the expiry of the given period, the express provision as regards the time being of the essence of contract will be rendered ineffective. Hind Constn. Contractors v. State of Maharashtra. (See above).
4. When a contract relates to sale of immovable property , it will normally be presumed that the time is not the essence
of the contract. Govind Prasad Chaturvedi v: Hari Dutt Shastri “and another t . -
5. In mercantile contracts, the time of delivery of goods is of the essence of the contract but not the time of the payment of the price. Mahabir Prasad w.Durga Dutta
RULES REGARDING APPROPRIATION OF PAYMENTS
When a debtor owes several distinct debts to the same creditor and makes a payment to the creditor, the question may arise against which debt the, payment is to be appropriated. In England the law on the subject was laid down in Clayton’s case. 3 In India the rules regarding appropriation of payments are contained in Sections 59-61 of the Contract Act. The law on the point can be summarised as. follows :
1. Express appropriation by -Debtor
If the debtor: at the time of making the payment expressly intimates that the payment is to be applied to the discharge of some particular debt, the payment if accepted, must be applied accordingly.
2: Implied appropriation by Debtor
If there is no express appropriation, but there are circumstances which imply that the debtor intended appropriation to a particular debt, the debtor’s intention must be followed, if the money is accepted.
(i) A owes B among other debts, Its. 1,000 upon a promissory note which falls due on 1st -June, He owes no other debt of that amount. On the 1st June A pays to B 1,000 rupees. The payment is to be applied to the discharge of the promissory note:
(ii) A owes to Q among other debts, the sum of Rs. 567. B Writes to A and demands the payment of this sum. A sends to B Its. 567. This payment is to be applied to the discharge of the debt of which B had demanded payment.
3. Principal and Interest when both due
The general ruleis that in absence of any appropriation by the debtor at the time of payment, the payment should be attributed in the first instance to interest and then to the principal. Harishchandra and another v. Kailashchandra and another.
When both principal and interest are due, the debtor can stipulate that a particular payment made by him is to be appropriated to the principal, ‘the interest remaining due. if the creditor accepts the payment he must also accept the debtor’s appropriation. If he does not like to do so he must refuse to accept the payment.
4. Appropriation by Creditors
if there is no express or implied appropriation by the debtor, the creditor may apply the money to any lawful debt which is due and payable by the debtor. He may even apply it to a debt which is barred by the law of limitation.
S was an unregistered dentist who, according to the law in force in England, could not sue for performing a dental operation but could sue for materials supplied. S had a bill against P for f45 of which f20 was for performing an operation and f25 for materials supplied P paid L20 without appropriating it. In an action by S. held
(1) S could appropriate the £20 towards his professional services. because it was a lawful debt although irrecoverable and
(2) he could make the appropriation for the first time while giving evidence in his suit. Seymour v. Pickett.
5. Order of appropriation
When neither the debtor -nor the creditor takes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law of limitation. If the debts are of equal standing (i.e., of the same date) the payment shall be applied in discharge of each proportionately.
6. The rule in re Hallett’s estate
Suppose that a man- has an account in a bank in which he keeps his own money as well as some moneys of which he is a trustee. He makes a series of deposits and withdrawals, in the course of which some trust funds are misappropriated. in this case, the withdrawals are to be debited first to his own moneys and then to the trust funds ; and the deposits are to be credited first to the trust fund and next to his own fund, whatever be the order of withdrawals and deposits. In re Hallett’s Estate.