Performance of Contract - Contract which must be performed, by whom the Contract must be performed, Time and Place for Performance | Indian Contract Act, 1872

When the object of a contract is fulfilled, the liability of the parties under the contract comes to an end. The contract is then said to be discharged or terminated. In other words, when the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged.

A contract may be discharged in the following ways:

1. By performance of the contract;
2. By breach of the contract;
3. By impossibility of performance;
4. By agreement, novation, etc.; and
5. By operation of law.

The most usual mode of discharge is performance of the contract.

Performance of Contract

Every contract creates obligations upon the parties to perform the promises undertaken by them. Each party is bound to perform, or offer to perform, his promise according to the terms of the contract. When the parties duly perform their respective obligations, the contract is discharged by performance.

Section 37 [Obligation of Parties to Contracts]

Section 37 provides that the parties to a contract must perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of the Contract Act or any other law. Thus, the basic rule is that the promisor must perform exactly what he has undertaken to perform.

Performance may be:

• Actual performance, or
• Offer or tender of performance.

Actual Performance

Actual performance takes place when a party actually does what he has undertaken to do under the contract, within the prescribed time and in the prescribed manner.

• For example, A borrows ₹5,00,000 from B and promises to repay the amount after one month. A repays the amount on the due date. This is actual performance of the contract.

Offer or Tender of Performance

Sometimes, when performance becomes due, the promisor offers to perform his obligation, but the promisee refuses to accept the performance. Such an offer is known as tender of performance or attempted performance.

• For example, A promises to deliver certain goods to B. A takes the goods to the appointed place during business hours, but B refuses to accept delivery. This amounts to an offer or tender of performance by A.

Under Section 38, where a valid offer of performance is made by the promisor and the promisee refuses to accept it, the promisor is not responsible for the subsequent non-performance and does not lose his rights under the contract.

Offer or Tender of Performance [Section 38]

The promisor must offer to perform his obligation to the promisee. It is then for the promisee to accept the performance. If the promisee refuses to accept a valid tender, the promisor is not liable for non-performance.

A valid tender must satisfy the following conditions:

1. Tender must be unconditional - The offer of performance must be made without imposing any condition which is inconsistent with the terms of the contract. A tender becomes conditional when it is not in accordance with the terms of the contract.
2. Tender must be made at the proper time and place - The tender must be made at a proper time and place and in such circumstances that the promisee gets a reasonable opportunity to ascertain that the promisor is:

• able to perform the promise; and
• willing to perform the whole of what he is bound to perform.

Example: If goods have to be delivered during ordinary business hours, an offer of delivery at an unreasonable hour may not constitute a valid tender.

Case: Startup v. MacDonald – In this case, the plaintiff tendered the goods on the last day of the agreed period at about 9 p.m. Although the hour was late, the tender was held sufficient because there was still time for the defendant to receive and weigh the goods before midnight.

3. Promisee must have reasonable opportunity to examine the thing offered - Where the tender is for delivery of goods or any other thing, the promisee must have a reasonable opportunity of ascertaining that the thing offered is the thing which the promisor is bound to deliver.
4. Tender to one of several joint promises - An offer of performance made to one of several joint promisees has the same legal consequences as an offer made to all of them.

Effect of refusal to accept valid tender

Where a valid offer of performance has been made and the promisee refuses to accept it:

• the promisor is not responsible for non-performance;
• the promisor does not lose his rights under the contract; and
• the promisee may himself be liable for the consequences of refusing proper performance.

By Whom Must the Contract Be Performed?

Sections 40 and 41 deal with the person by whom a promise may be performed. Section 42 onwards deals with joint promises. The general rule is that a promise may be performed:

• by the promisor himself;
• by his agent or another competent person, where personal performance is not required;
• by his legal representatives, in appropriate cases; or
• in certain circumstances, by a third person.

Section 40 [Person by Whom Promise is to be Performed]

Section 40 provides that where, from the nature of the case, it appears that the parties intended that a promise should be performed by the promisor himself, it must be so performed. In other cases, the promisor or his representatives may employ a competent person to perform the promise. Thus, the important question is whether the contract involves personal skill, personal confidence or personal consideration.

1. Performance by the Promisor Himself

Where the contract involves personal skill or is based upon personal confidence, the promisor must perform it himself. Such contracts cannot ordinarily be performed through an agent.

Examples:

• A agrees to paint a picture for B.
• A agrees to write a book personally for B.
• A agrees to perform as a particular singer.
• A agrees to perform some work requiring his personal skill.

In such cases, the promise must be performed by the promisor himself.

2. Performance by an Agent or Competent Person

Where personal skill or personal consideration is not the foundation of the contract, the promisor may perform the promise himself or employ another competent person to perform it.

• For example, A promises to pay B ₹1,00,000. A may personally make the payment or arrange for another person to make the payment on his behalf.

Thus, payment of money does not ordinarily involve personal skill and may be performed through another person.

3. Performance by Legal Representatives

Where a contract does not involve personal skill or personal consideration, the legal representatives of a deceased promisor may be required to perform the promise.

• For example, A promises to pay B ₹1,00,000 on delivery of certain goods. A dies before the date fixed for payment. His legal representatives are bound to make the payment, subject to the nature and terms of the contract.

However, where the contract involves personal skill, the death of the promisor puts an end to the obligation.

• For example, A promises to paint a picture for B for a certain price. A dies before completing the picture. His legal representatives cannot be compelled to paint the picture, because the contract involves A’s personal skill.

Liability of Legal Representatives

The liability of the legal representatives is generally limited to the extent of the property of the deceased which has come into their hands. They are not personally liable beyond the value of the estate inherited by them.

Effect of Accepting Performance from a Third Person [Section 41]

Section 41 provides that when the promisee accepts performance of the promise from a third person, he cannot afterwards enforce the promise against the original promisor. Thus, performance by a stranger, when accepted by the promisee, discharges the promisor to the extent of the performance accepted.

• For example, A owes B ₹1,00,000. A is unable to make the payment. C, on behalf of A, pays ₹60,000 to B and B accepts the payment. B cannot afterwards demand the same ₹60,000 from A. He can claim only the balance amount of ₹40,000, subject to the circumstances of the case.

The important point is that the original promisor need not necessarily have authorised or ratified the third person’s act. Acceptance by the promisee is sufficient to prevent him from subsequently enforcing the same performance against the promisor.

Performance of Joint Promises

Where two or more persons jointly undertake a promise, special rules apply regarding their performance. Sections 42 to 45 deal with joint promises.

Section 42 [Devolution of Joint Liabilities]

When two or more persons make a joint promise, then, unless a contrary intention appears from the contract, all of them must fulfil the promise jointly during their joint lives. If any one of them dies, his legal representatives, jointly with the surviving promisors, must fulfil the promise. After the death of the last surviving promisor, the legal representatives of all the promisors must fulfil the promise jointly.

Example

A, B and C jointly promise to pay ₹6,00,000 to D.

• During their lifetime, A, B and C must jointly fulfil the promise.
• If A dies, A’s legal representatives, along with B and C, must fulfil the promise.
• If B subsequently dies, B’s representatives, A’s representatives and C must fulfil the promise.
• After the death of the last survivor, the representatives of all must fulfil the promise jointly.

This rule applies unless the contract indicates a contrary intention.

Liability of Joint Promisors [Section 43]

Section 43 makes the liability of joint promisors joint as well as several so far as the promisee is concerned.  Where two or more persons make a joint promise, the promisee may, in the absence of an agreement to the contrary, compel any one or more of the joint promisors to perform the whole promise.

Example

A, B and C jointly promise to pay D ₹3,00,000. D may compel:

• A alone, or
• B alone, or
• C alone, or
• any two or all three of them

to perform the whole promise.

Thus, the promisee is not required to proceed against all the joint promisors together.

Right of Contribution between Joint Promisors

Although the promisee may recover the whole amount from any one joint promisor, the joint promisor who has paid more than his share can claim contribution from the others. Each joint promisor is required to contribute equally, unless the contract provides otherwise.

Example:
A, B and C jointly promise to pay D ₹3,00,000. If C is unable to contribute anything and A is compelled to pay the whole amount, A can recover the appropriate contribution from B.

Case: Patel Engineering Ltd. v. National Highway Authority of India (2005).

In this case, two joint-venture partners, jointly and severally liable to NHAI under a highway construction contract, privately rearranged their respective shares of the work through a Supplementary Joint Venture Agreement, with one partner taking over the other's portion of performance entirely. The dispute that followed illustrates that such an internal reallocation between joint promisors does not, by itself, bind or become automatically enforceable against the original contracting party, who remains entitled to assess the contract strictly by its own terms, including for purposes such as eligibility and experience certification in a fresh tender.

Loss caused by Default of a Joint Promisor

If one of the joint promisors defaults in making his contribution, the remaining joint promisors must bear the loss arising from that default in equal shares, subject to the provisions of the contract. The section does not prevent a surety from recovering from his principal the amount paid by the surety on behalf of the principal.

Release of One Joint Promisor [Section 44]

Section 44 deals with the effect of releasing one of the joint promisors. Where two or more persons have made a joint promise, the release of one joint promisor by the promisee:

• does not discharge the other joint promisors from their liability; and
• does not free the released joint promisor from his responsibility towards the other joint promisors regarding contribution.

Example

A, B and C jointly promise to pay D ₹9,00,000. D releases A from liability. The release of A does not discharge B and C. B and C continue to remain liable to D for the amount due under the joint promise. At the same time, A may still be required to contribute towards B and C according to the rules relating to contribution.

Rights of Joint Promisees [Section 45]

Section 45 deals with the devolution of joint rights.

Where a promise is made to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests with all the promisees jointly.

If one of the joint promisees dies, the right to claim performance rests with the legal representative of the deceased promisee jointly with the surviving promisee or promisees.

After the death of the last survivor, the right rests with the representatives of all jointly.

Example

A borrows ₹5,00,000 from B and C and promises B and C jointly to repay the amount with interest on a specified date. If B dies, the right to demand payment rests with:

• B’s legal representatives jointly with C during C’s lifetime; and
• after C’s death, with the representatives of B and C jointly.

Thus, ordinarily, a single joint promisee cannot independently claim the entire performance where the right has been created jointly in favour of several persons.

Succession and Assignment

The distinction between succession and assignment is important.

Succession

Succession takes place by operation of law. When a person dies, his rights and liabilities may devolve upon his legal representatives according to law. For example, if a son succeeds to the estate of his deceased father, he may become liable for the debts of his father to the extent of the property inherited by him. If the debts exceed the value of the inherited estate, the legal representative is not personally liable to pay the excess merely because he is the heir.

Assignment

Assignment generally refers to the transfer of the benefit or rights under a contract to another person. The benefit of a contract may generally be assigned, but a person cannot ordinarily escape his contractual liability merely by assigning that liability to a stranger. A debtor, therefore, cannot simply transfer his obligation to repay a debt to another person and thereby free himself from his liability towards the creditor. Where personal consideration or personal skill is involved, even the benefit may not be freely assignable.

Time and Place for Performance

Sections 46 to 50 deal with the time and place for performance of a promise. The law provides rules for cases where:

• no time is fixed;
• a particular day is fixed;
• application by the promisee is necessary;
• no place is fixed; or
• the promisee prescribes or sanctions a particular manner or time of performance.

Section 46 [When No Time is Specified]

Where the promisor is required to perform the promise without application by the promisee, and no time for performance is specified, the promise must be performed within a reasonable time. What amounts to a reasonable time depends upon the facts and circumstances of each particular case. Thus, there is no fixed period which can be regarded as a reasonable time in every case.

Section 47 [Time and Place Where a Certain Day is Fixed]

Where a promise is to be performed on a certain day and the promisor has undertaken to perform it without an application by the promisee, the promisor may perform it:

• during the usual hours of business;
• on the specified day; and
• at the place where the promise ought to be performed.

Example:
If goods are to be delivered at a business establishment on a particular day, delivery should ordinarily be offered during the usual business hours and at the proper place. An offer of delivery after the usual business hours may be refused where the circumstances make such delivery unreasonable.

Section 48 [Application for Performance on a Certain Day]

Where a promise is to be performed on a certain day, but the promisor has not undertaken to perform it without application by the promisee, it is the duty of the promisee to apply for performance. The application must be made:

• at a proper place; and
• within the usual hours of business.

What constitutes a proper time and place is a question of fact and depends upon the circumstances of each case.

Section 49 [Place for Performance Where No Place is Fixed]

Where:

• the promise is to be performed without application by the promisee; and
• no place has been fixed for performance,

the promisor must apply to the promisee to appoint a reasonable place for performance and must perform the promise at that place.

Example

A undertakes to deliver 1,000 maunds of jute to B on a fixed day. No place of delivery is mentioned. A must ask B to appoint a reasonable place for receiving the jute and must deliver it at that place.

Section 50 [Performance in Manner or at Time Prescribed by Promisee]

Section 50 provides that the performance of a promise may be made in any manner, or at any time, which the promisee prescribes or sanctions. Thus, where the promisee agrees to a particular mode or time of performance, performance in accordance with that mode or time will constitute valid performance.

Example

A owes B ₹2,000. B directs A to credit the amount to B’s account with C, a banker. A, who also has an account with C, instructs C to transfer ₹2,000 to B’s account. Once the transfer is properly made, the payment constitutes valid performance. Similarly, if B accepts goods from A in part satisfaction of a monetary debt, the accepted delivery may operate as part payment according to the arrangement between the parties.

Effect of Failure to Perform a Contract at the Agreed Time [Section 55]

Where the parties have specified a time for performance, the effect of failure to perform at that time depends upon whether time was intended to be of the essence of the contract. If time is of the essence, failure to perform within the stipulated time may make the contract voidable at the option of the promisee.

When is Time of the Essence?

Time is generally regarded as of the essence where:

1. the parties expressly agree that time shall be of the essence;
2. delay would cause injury to the other party; or
3. the nature and necessity of the contract indicate that performance within the specified time was essential.

The court looks at the substance and intention of the agreement, and not merely at the fact that a particular date has been mentioned.

Commercial Contracts

In commercial contracts, time is ordinarily treated as important, particularly where the value of the subject matter is liable to rapid fluctuation. For example, contracts relating to goods, shares or bullion may require performance at the stipulated time because delay may substantially affect their value.

• In China Cotton Exporters v. Biharilal Ramchandra Cotton Mills Ltd., although the contract contained a provision concerning import licence, the stipulated shipment period was treated as essential.

Contracts Relating to Immovable Property

Traditionally, in contracts for the sale of immovable property, time is generally not regarded as the essence of the contract merely because a particular date has been mentioned. Thus, merely fixing a date for execution of a sale deed does not automatically make time essential. However, this rule is not absolute. The intention of the parties, the nature of the property and the surrounding circumstances have to be considered.

• In Gomathinayagam Pillai v. Palaniswami Nadar, the Supreme Court recognised the general rule that time is ordinarily not of the essence in contracts for sale of immovable property.

At the same time, in appropriate circumstances, time may be treated as essential. For example, in a contract for reconveyance of immovable property, strict compliance with the stipulated time may be required.

The Supreme Court in K.S. Vaidyanathan v. Vairavan also emphasised that the traditional rule concerning immovable property cannot be applied mechanically in every case. The nature of the property and the terms of the agreement must be taken into consideration.

Where Time is Not of the Essence

If time is not of the essence, failure to perform on the stipulated date does not ordinarily make the contract voidable. The contract must instead be performed within a reasonable time, and the aggrieved party may claim compensation for loss caused by the delay, where applicable.

Acceptance of Delayed Performance

Even where time is of the essence, the promisee may choose to accept performance after the stipulated time. However, if the promisee accepts delayed performance and still wishes to claim compensation for the delay, he must, at the time of accepting the delayed performance, give notice of his intention to claim such compensation.

Making Time Essential Subsequently

Where time was not originally of the essence, it may, in appropriate circumstances, be made essential by a subsequent notice. Similarly, where time was originally essential, the parties may waive that condition by their conduct.

Extension of Time

Granting an extension of time does not necessarily amount to a complete waiver of the original condition regarding time. The effect may simply be to substitute the extended period for the original period. The party granting the extension may also stipulate that any loss arising from the extension shall be borne by the party who sought the extension.

Difference between Performance and Tender of Performance

Conclusion

Performance is the normal and most important mode of discharge of a contract. The law requires the parties to perform their respective promises, either actually or by a valid offer of performance. Sections 37 to 50 lay down the rules regarding performance, the person by whom it may be performed, joint promises, and the time, place and manner of performance. Where the stipulated time is important, Section 55 determines the consequences of delay or failure to perform within that time.