By
Asok Nadhani
7.1
Performance of a Contract
Performance is the fulfillment of obligations by the
respective parties to a contract. It is one of the modes of discharging the
contract.
i.
The
parties to the contract must either perform or offer to perform their
respective promises (Sec. 37).
ii.
Kinds
of Performance: Accordingly,
the performance may be of the following two kinds:
a.
Actual
Performance. Where the
promisor makes an offer of performance to the promises and such offer is
accepted by the promisee, it results in actual performance.
b.
Offer to Perform (Sec. 38). When the
promisor offers to perform his obligation (also known as "Tender"), but the promisee does not accept
the performance, the promisor is not responsible for non-performance and
retains his rights under the contract. Thus, a Tender of Performance is
equivalent to performance itself. The promisor is excused from further
performance and he may also sue the promisee for the breach of contract.
iii.
Effect
of Performance:
a.
The
contract is completely terminated.
b.
The
party, who has performed his obligation, gets the right to get the obligation
performed by the other party.
7.1.1
Effect of Non Performance (Sec. 39)
i. When
a party to a contract fails to perform his promise in its entirety, the
promisee may put an end to the contract.
Ex. A servant is
employed for one year on a salary of Rs.600 per month, but the salary for the
entire year is payable at the end of one year’s service. The servant wrongfully
leaves after 3 months. He is not entitled to the salary for the period he has
been employed because, by leaving the service, he has failed to perform his
promise in its entirety.
ii.
If the promisee signifies (by words or
conduct) his acquiescence (tacit assent) in the continuance of the contract, he
cannot repudiate it.
Ex. A, a
singer, contracts with B, the manager of a theatre, to sing at his
theatre two nights in every weekend during the next two months and B agrees
to pay her Rs.1,000 for each night's performance. After performing 5 nights, on
the sixth night, A willfully absents herself from the theatre. B is
at liberty to put an end to the contract. However, if A sings on the
seventh night with the consent of B, B has signified his acquiescence in
the continuance of the contract, and cannot put an end to the contract (but may
claim compensation for the loss due to A’s failure to sing on the sixth night).
iii.
When a promisee puts an end to a
contract u/s 39, being rightly entitled to do so, it amounts to rescinding a
voidable contract and the promisee shall be bound to restore to the other party
all the benefits received under the contract.
7.2 Tender
Sometimes, one
Party offers to perform the obligation but other party will not
allow it. The contract is deemed to have been performed by tenderer (the
Party who agrees to perform). The tenderer is discharged from the
responsibility for non performance of the contract without any prejudice to his
rights against the promisee.
Types of Tender
i.
Tender of Goods or Services: It is attempted
performance of a promise to do something.
ii.
Tender of Money: It is attempted performance of a
promise to pay something.
Characteristics of ‘Tender
i. The
offer must be unconditional. It becomes conditional when it is not in
accordance with the terms of the contract and hence not a valid tender.
Ex. A, a debtor, offers to pay B, his
creditor, the due amount on the condition that B sells him certain shares at
cost. This is not a valid tender.
ii. It
must be for the obligation in full. A Tender to fulfill only a part of the
obligation is not a valid tender.
Ex. A, a debtor,
offers to pay B, his creditor, only a part of amount due as first installment.
It is not a valid tender.
iii. It
must be made to proper person and in proper form.
iv. It
must be made at the proper time and place where it is mentioned in the tender
and in case the contract is silent it must be tendered in the business place
and during business hours.
Ex. A owes B Rs.1000
payable on the 1st of August with interest. He offers to pay on the 1st of July
the amount with interest upto the 1st of July. It is not a valid tender as it
is not made at the appointed time.
v. It
may be made to one of the several joint promisees. In such a case it has the
same effect as a tender to all of them.
vi. In
case of tender of goods, the promisee must get proper opportunity to inspect
the goods. A tender of goods at a time when the other party cannot inspect the
goods is not a valid tender.
vii. Tender
of money must be in legal Tender (e.g. Rupees in India
viii. The
party giving the tender must be wiling to perform his obligation.
Effects of Tender
i. In case of tender of goods and services,
the promisor :
a. does not loose his rights under the
contract.
b. is discharged from his obligation under the
contract.
c. is not responsible for non-performance of
his promise.
d. is entitled to sue the other party.
ii.
In
case of tender of money
a. the promisor is not responsible for
non-performance.
b. the promisor does not loose his right under
the contract.
c. the debtor is not discharged from
obligation to pay. But, he is discharged from liability for payment of interest
from the date of tender.
7.3 Parties
responsible to perform Contract
The responsibility of parties in connection to
performance of contract are stated
below:
i. Promisor
himself: If the contract signifies personal
performance by promisor himself (involving personal skill of the promisor -
like singing, painting or special skill), then the promise must be performed by
the promisor himself and none else (Sec. 40).
Ex. A promises to paint a picture for B. In the mean time, A
became disabled in an accident and said his son C to draw the picture of B.
Held C cannot perform the promise made by his father A as it involves personal
skill of the promisor. The contract between A and B is discharged on
non-performance of promise by A.
ii. Agent: Except
in contracts requiring personal performance, the promisor or his representative
may employ a competent person to perform (Sec. 40).
Ex. A promises to pay
B a sum of money. A may personally pay the money to B or may pay through
any other person.
iii. Legal Representatives: On
death of the promisor, contracts requiring personal performance comes to an end
(a personal action dies with the person), but in other cases, the legal
representatives of the deceased promisor are to perform it unless a contrary
intention appears from the contract (sec.37). The liability of the legal
representatives is limited to the value of the property inherited from the
deceased.
Ex. A promises to paint a picture for B within a month.
A dies before that time without being able to paint the picture. The contract
cannot be enforced neither by A's representatives nor by B.
iv. Third persons: When a promisee
accepts performance by a third person, he cannot afterwards enforce it against
the promisor (Sec .41).
Ex. X contracted
with Y for supply of 500 tons of iron ore. X demanded more 200 tonnes, but Y
referred his friend Z as he is out of stock. X accepts the performance of the
contract with Z. At the time of delivery, Z was unable to supply the ore. X can
neither enforce Y to supply 200 tonnes of ores or to pay for the damages.
v. Joint Promisors: When two or more persons make a joint promise,
they must jointly fulfil the promise. (sec.42)
7.4
Parties to demand Performance
i. Promisee: Only the
promisee can demand performance of the promise under a contract even if it is
for the benefit of any other person.
Ex. A promises B to pay C a sum of Rs.500. A does
not pay the amount to C. Only B (and not C) can take action against A.
ii.
Legal
Representative: In case of death of the promisee, his legal representatives
can demand performance.
Ex. A promises to
deliver his maruti car to B on payment of Rs.1,00,000 on 31st March.
A dies before that day. A's legal representative must perform the contract.
iii.
Third
Party: In certain cases, a third party can also enforce a promise
under a contract even though he is not a party to the contract.
7.5 When
a Contract need not be performed
A
contract need not be performed when:
i. its
performance becomes impossible (Sec. 56).
ii. the
parties agree to substitute a new contract for it or to rescind or alter it
(Sec. 62).
iii. the
promisee dispenses with the performance of the promise (wholly or partly), or
extends the time or accepts any satisfaction for it (Sec. 63).
iv. the
person at whose option it is voidable, rescinds it (Sec. 64).
v. the
promisee neglects or refuses to afford the promisor reasonable facilities for
the performance of his promise (Sec. 67).
Ex. A contracts
with B to repair B's house. B does not properly describe the places to
be repaired. B cannot charge A for non-performance of the contract, if
it is caused by B’s neglect to properly tell the job to A.
vi. it
is Illegal. (Sec. 23,24)
vii. Contract is
discharged by Novation.
7.6
Rules of Performance
The
rules of performance of a contract are summarized below:
i. Time : The rules
regarding time of performance are as follows :
a. Reasonable time: If
a promisor is to perform his promise without application by the promisee, and no
time for performance is specified, the promise must be performed
within a reasonable time (Sec. 46), having regard to the facts, usage of
trade, or the intention of the parties at the time of entering into the
contract.
b. Specified
Time: When a promise is to be performed
within a specified time, the promisor may perform the promise 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, 48).
Ex. A promises
to deliver goods at B’s warehouse on the 1st January. On that day A brings the
goods to B’s warehouse, but after usual hour for closing it and they are not
received, A has not performed his promise.
c.
Time
not essence: Where time is not of the essence of the contract, (e.g in a
contract of sale of immovable property, normally time is not of the essence
unless such intention is explicit in the contract), failure to perform within
the fixed time does not make the contract voidable, but the promisee is
entitled to compensation for any loss caused to him by such failure
(sec.55).
d.
Time
Essence of contract: Where time is essence, on failure to
perform by the promisor, the contract becomes voidable at the option of
promisee. However, if the promisee accepts the contract after fixed time, he
can not claim compensation, unless he has given prior notice (sec. 55).
ii.
Place: When
no place is fixed for the performance, the promisor must apply to the promisee
to appoint a reasonable place for the performance of the promise, and to
perform it at such place (Sec.48, 49).
Ex. A undertakes to deliver 100 quintals of Jute to B on a
fixed day, A must apply to B to appoint a reasonable place of delivery and must
deliver at such place.
iii.
Manner: The performance of any promise must be made in manner
specified or subsequently agreed upon (sec.50).
Ex. A asks B, who owes him Rs.1,000, to send him a promissory
note for Rs.1,000 by post. The debt is discharged as soon as B sends the
promissory note duly addressed to A, by post.
Ex. A owes B Rs.2,000. B accepts some of As goods in reduction
of the debt. The delivery of the goods operates as a part payment.
7.7 Joint
Promise
a. When
two or more person make a joint promise (called joint promisors), all joint
promisors must jointly fulfil the promise, unless a contrary intention appears
from the contract.
b. If
any of them dies, his legal representatives, jointly with the surviving
promisors, must fulfill the promise. If all of them die, the legal
representatives of all of them must jointly fulfill the promise (Sec. 42).
7.7.1 Rules relating to Joint Promise
i. Parties do
not discharge their obligations: If the parties do not discharge their
obligations of their own volition, the promisee may compel any one or
more of the joint promisors to perform the whole of the promise, if there is no
express agreement to the contrary (as liability of joint promisors is joint
and several).
Ex. A, B and C
Jointly promise to pay D Rs.3,000. D may compel all or any of A, B or
C to pay him Rs.3,000.
ii. Joint
promisor is compelled to perform : When a Joint
promisor is compelled to perform the whole of the promise, he may compel
the other Joint promisors to contribute equally with himself to the performance
of the promise (unless a contrary intention appears from the contract).
Ex. A partner of a firm is entitled to claim
contribution from other partners when he is required to pay some dues of the
firm.
iii. Sharing of
loss arising from default (Sec.
43): If any one of the Joint promisors (or his legal representatives
after his death) makes default in the contribution, the remaining joint
promisors must bear the loss arising from such default in equal proportion.
Ex. A, B
and C, jointly promise to pay D the sum of Rs.3,000. C is compelled to pay the
whole sum. A is insolvent but his assets are sufficient to pay one-half of his
debts. C is entitled to receive Rs.500 (half of Rs.1,000) from A's estate and
Rs.1,250 (half of remaining debt of Rs.2,500) from B.
iv. Release of
Joint Promisor (Sec. 44): A release by the promisee of any of
the joint promisors does not discharge the other Joint promisors from
liability. The released joint promisor also continues to be liable to the other
Joint promisors.
Ex. A, B & C jointly owe a debt to D. D releases A
from his liability and files a suit against B and C for payment of the
debt. B and C are not released from
their liability and A is not discharged from his liability to B & C for
contribution.
v. Devolution
of Joint Rights
(sec.45): In case of Joint promisees (one person making promise to
several persons jointly), the right to claim performance rests with all of the
Joint promisees, unless a contrary intention appears from the contract.
a. If
one of the Joint promisees dies, the right to claim performance rests with his
legal representatives jointly with other surviving joint promisees.
b. When
all the Joint promisees die, the right to claim performance rests with their
legal representatives jointly.
c. The
partners of a firm, the members of a joint Hindu family, co-sharers or
mortgagees are all Joint promisees.
d. A
suit to enforce such promise must be instituted by all the Joint promisees (unless
a contrary intention appears from the contract). The right of joint Promisees is thus only joint and
not several.
Ex. B and C
Jointly lend Rs.10,000 to A who promises B and C Jointly to repay them the loan
with interest on a specified date. B dies. Now Bs representatives
jointly with C can claim refund of money with interest as per terms, during C's
life. After the death of C, representatives of B and C jointly can claim from
A.
7.8 Reciprocal
Promises (s.8)
i) Reciprocal
Promises form the consideration between promisor and the promise For example, A promises to do or not to do something in
consideration of B’s promise to do or not to do something.
ii) Types of Reciprocal promises
(a) Mutual and Independent Reciprocal
Promise: When each party performs his promise independently and
irrespective of the fact whether the other party has performed or willing to
perform his promise or not, the promises are mutual and independent.
(b) Conditional and Dependent Reciprocal
promise: When the performance of a promise by one party depends upon
the prior permission of the other party, it will be called as a conditional and
dependent promise.
(c) Mutual and Concurrent or Simultaneous
Reciprocal Promise: When two contracts are to be performed
simultaneously, then it is called as Mutual and Concurrent or Simultaneous
Reciprocal Promise.
7.8.1
Rules regarding performance of Reciprocal Promise
The
rules regarding performance of promises are summarised below:
i. Simultaneous Performance : When the reciprocal promise is to be
simultaneously performed, the promisor need not perform his promise unless the
promisee is ready to perform his reciprocal promise (sec.51).
Ex. A and B contract
that A shall deliver goods and B would pay 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 on payment.
ii.
Sequence
of Performance expressly fixed : If the sequence of performance is expressly
fixed by the contract, they must be performed in that order; otherwise they
must be performed as per normal rules (sec.52).
Ex. A and B contract that A shall build a water
tank and B will pay after construction is complete. So, A must build the tank
first before the demands payment from B.
iii.
One
Party preventing other from performing : If one party to the contract prevents the
other from performing, the contract becomes voidable at the option of the party
so prevented. Further, the party so prevented 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).
Ex. A and B contract
that it shall execute certain work for A for Rs.1,000. B is ready and
willing to execute the work but A prevents him from doing so. B may rescind the
contract and may recover for loss suffered, from A.
iv.
One performance
mandatory before another : Where the contract is such that one (1st
Party) can not perform till the other (2nd Party) does not perform,
he (2nd Party) cannot claim performance (from 1st party)
and he (2nd Party) must compensate the other (1st Party)
for loss suffered due to non performance (sec.54).
7.9 Appropriation
of Payments (sec. 59 to 61)
When a debtor
owes several debts to the same creditor and makes a payment which is not
sufficient to discharge the whole indebtness, following rules apply:
i. Where debt to be discharged is indicated (Sec. 59): In following
cases, the creditor is obliged to discharge off the debtor for the particular
debt for which the payment is intended:
a. where the debtor
specifically mention about the particular debt for which the payment is made.
b. where the
payment is made in such a circumstances which itself indicates the discharge of
some particular debt.
ii.
Where debt to be
discharged is not indicated (Sec. 60): In the following cases,
the creditor can act according to his own judgment to apply such payment
against discharged of any lawful debt.
a. if the
application of the payment made is not specifically mentioned by the debtors.
b. where the
circumstances of the case do not indicate the particular debt to which the
payment made is to be applied.
c. Appropriation towards interest: When the debtor makes a part payment
without indicating as to whether payment is made towards principal or interest,
the payment shall first be adjusted towards interest and the balance shall be
adjusted towards principal amount.
iii. Where neither of the party appropriates (Sec. 61): In such case
the payment shall be applied in discharge of the debts in order of time. If the
debts are payable on the same date, then discharge of such debts shall take
place proportionately.
Right of Appropriation
i. Appropriation is a right primarily of the
debtor.
ii. As per sec. 59, the debtor has the right to
expressly state the particular debt towards which the payment made by him shall
be applied. So, money paid by the debtor must be applied according to the
directions of the payer and not of the receiver.
iii. If the creditor does not agree to apply the payment
made as per the directions of
the debtor, he should not receive the money, nor a creditor can receive the payment
under protest. The creditor cannot alter the appropriation after he has
accepted the payment.
7.10
Assignment of Contracts
Assignment
of a contract means transfer of rights and liabilities under the contract to a
third party.
It
may take place by:
a.
Act of the Parties
i.
Assignment of Contractual Obligation
ii.
Assignment of Contractual Rights
b.
Operation of Law.
7.10.1
Assignment of Contractual Obligations
i. Personal Skill : Contractual
obligations involving personal skill or ability cannot be assigned (sec.40).
Ex. A painter cannot assign his obligation
to paint to another person.
ii.
Performance
by third Party.:
-
Promisor cannot compel promisee to
accept performance by third party.
Ex. A owes B Rs.1,000 and C owes A Rs.1,000. A cannot ask B to
realize from C, unless B agrees to such term.
-
Parties may agree to allow a competent
third party to perform, provided the contract does not contemplate performance
only by the promisor. But even then, the original party remains liable for the
proper performance of the contract.
Ex. A
undertakes to do some work for B which needs no personal skill of A, B cannot
complain if A gets the work done by a competent person, but A still remains
responsible for performance of the work.
iii.
Novation : The
promisor may transfer his liability with the consent of the promisee and
of the transferee, through Novation. Novation is the substitution of a new
contract for an existing one between one of the parties and a third party,
discharging the old contract with a new one (sec. 62).
7.10.2
Assignment of Contractual Rights
i. The rights
and benefits under a contract not involving personal skill may be assigned, subject
to all equities between the original parties.
Ex. A owes B Rs.5,000. B can transfer his
right to C to recover the amount from A. If A has already paid Rs.2,000 to B, C
can recover only Rs.3,000 from A.
ii. An
actionable claim can be assigned only through an instrument in
writing, giving a notice of such assignment to the debtor.
7.10.3
Assignment by Operation of law
In
the following cases, assignment takes place by intervention of law, without any
action from the Parties:
a.
Death: Upon the death of a party to a
contract, his rights and liabilities under the contract (except in the case of
contracts requiring personal skill or services) devolve upon his heirs and
legal representatives.
b.
Insolvency: In
case of insolvency of a person, his rights and liabilities incurred previous to
adjudication pass to the Official Receiver or Assignee.
7.10.4
Distinction between Succession and Assignment
|
Succession
|
Assignment
|
|
1.
It is transfer of rights and
liabilities of a deceased person to his legal representative
|
1.
It is transfer of rights by a person
to another person.
|
|
2.
It takes place on the death of a
person.
|
2.
It takes place during the lifetime of
a person.
|
|
3.
It takes place automatically by
operation of law.
|
3.
It takes place on voluntary act of
the parties.
|
|
4.
It may take place even without any
written document.
|
4.
It must be written and executed
through a deed.
|
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5.
Notice of succession is not needed to
be given to any person.
|
5.
Notice of assignment must be given to
creditor.
|
|
6.
No consideration is required for
succession.
|
6.
Consideration is essential between
assignor and assignee.
|
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7.
All rights and liabilities of a
person are transferred.
|
7.
Only rights can be assigned.
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For more details, refer to
Mercantile law, by Asok Nadhani, BPB Publications, www.bpbonline.com, bpbpublications@gmail.com
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