Performance of Reciprocal Promises | Indian Contract Act, 1872

Performance of Reciprocal Promises deals with situations where the performance promised by one party is linked with, and forms the consideration for, the performance promised by the other party. In such contracts, it is important to determine whether the promises are to be performed simultaneously, in a particular order, or whether performance by one party depends upon the prior performance of the other. Sections 51 to 58 of the Indian Contract Act, 1872 lay down the rules governing such reciprocal promises, including the consequences where one party prevents performance or fails to perform the promise which was required to be performed first. The Act also deals with reciprocal promises involving legal and illegal acts and alternative promises where one branch is illegal.

Meaning of Reciprocal Promises [Section 2(f)]

Section 2(f) provides that:

“Promises which form the consideration or part of the consideration for each other are called reciprocal promises.”

Thus, when the parties to a contract make promises which constitute the consideration for each other, such promises are called reciprocal or mutual promises. For example, A promises to sell certain goods to B and B promises to pay the price for the goods. A’s promise to sell and B’s promise to pay the price are reciprocal promises, as each promise forms the consideration for the other.

The Indian Contract Act, 1872 contains provisions relating to the performance of reciprocal promises in Sections 51 to 58.

Promisor not bound to perform unless reciprocal promisee ready and willing to perform [Section 51]

When a contract consists of reciprocal promises which are to be performed simultaneously, neither party is bound to perform his promise unless the other party is ready and willing to perform his reciprocal promise. In other words, where both promises are to be performed at the same time, each party must be ready and willing to perform his own promise before he can demand performance from the other.

Example

A and B contract that A shall deliver goods to B and B shall pay for the goods on delivery. In this case:

• A need not deliver the goods unless B is ready and willing to pay for them.
• B need not pay unless A is ready and willing to deliver the goods.

Such promises are known as mutual and concurrent promises.

Order of performance of reciprocal promises [Section 52]

Section 52 provides that where reciprocal promises are to be performed:

• in an order expressly fixed by the contract, they must be performed in that order; and
• where no order is expressly fixed, they must be performed in the order which the nature of the transaction requires.

Thus, the order of performance may be determined either by the express terms of the contract or by the nature of the transaction.

Examples:

1. A and B contract that A shall build a house for B at a fixed price. Here, A’s promise to build the house must be performed before B’s promise to pay the price, because the nature of the transaction requires the work to be completed before payment is made.
2. A agrees to hand over his stock-in-trade to B at a fixed price, while B promises to give security for payment of the price. A need not hand over the stock until B provides the security, because the nature of the transaction requires A to have security before delivering the stock.

In short, Where the contract itself fixes the order of performance, that order must be followed. Where the contract is silent, the order is determined according to the nature of the transaction.

Liability of party preventing performance [Section 53]

Section 53 deals with a situation where one party to a contract prevents the other party from performing his promise. When a contract contains reciprocal promises and one party prevents the other from performing his promise:

• the contract becomes voidable at the option of the party so prevented; and
• the party so prevented is entitled to compensation for the loss caused by the non-performance of the contract.

Example

A and B contract that B shall execute certain work for A for ₹1,000. B is ready and willing to perform the work, but A prevents B from doing so. In this case:

• B may treat the contract as voidable;
• if B chooses to rescind the contract, he can claim compensation from A for the loss suffered due to the non-performance.

Thus, the section is based on the principle that a person cannot take advantage of his own act of preventing performance. If one party is ready and willing to perform his promise but the other party creates an obstruction and makes performance impossible, the party responsible for the obstruction becomes liable for the resulting loss.

Effect of default in performing the promise which should be performed first [Section 54]

Section 54 applies where reciprocal promises are such that one promise must be performed first, and the performance of the other promise cannot be claimed until the first promise has been performed. If the party who is required to perform the first promise fails to do so:

• he cannot claim performance of the reciprocal promise from the other party; and
• he must make compensation for the loss suffered by the other party due to the non-performance.

These are known as mutual and dependent promises.

Examples:

1. A hires B’s ship to carry cargo from Calcutta to Mauritius. A is required to provide the cargo, while B is to receive freight for carrying it. A does not provide any cargo. In this case, A cannot demand that B perform his promise to carry the cargo. A must compensate B for the loss caused by his failure to provide the cargo.
2. A agrees to execute certain building work for B at a fixed price. B has to supply the necessary scaffolding and timber. B refuses to provide the scaffolding and timber, making it impossible for A to perform the work. In such a case, A is not required to perform the work; and B must compensate A for the loss caused by the non-performance.

Distinction between Sections 51, 52 and 54

Case: Nathulal v. Phoolchand

In Nathulal v. Phoolchand (AIR 1970 SC 546), the Supreme Court emphasised that where the terms of a contract require the obligations of the parties to be performed in a particular sequence, one party cannot demand performance from the other without first performing his own obligation.

In this case, N sold his factory to P and received an advance. P was required to pay the balance by a specified date. N, however, had expressly undertaken certain obligations, including getting the records rectified and obtaining the necessary sanction from the Collector. N failed to fulfil these obligations. The Court held that since N had himself failed to perform the obligations which were required to be performed by him, he could not successfully demand performance from P.

Thus, a party who is required to perform his obligation first cannot insist upon performance by the other party without first performing his own part.

Reciprocal Promises to do Legal and Illegal Things [Section 57]

Section 57 deals with a contract containing two sets of reciprocal promises:

• the first set consists of promises to do things which are legal; and
• the second set consists of promises to do things which are illegal, under specified circumstances.

In such a case, the first set of promises constitutes a valid contract; but the second set constitutes a void agreement. Thus, the legal part can be enforced independently, while the illegal part cannot be enforced.

Example

A and B agree that:

• A shall sell a house to B for ₹5,00,000; and
• if B uses the house as a gambling house, B shall pay A a further sum of ₹7,50,000.

The first set of promises, sale of the house and payment of ₹5,00,000, is a valid contract. The second set is based on an unlawful object, namely the use of the house as a gambling house. Therefore, that part is a void agreement.

Section 57 therefore recognises that where the legal and illegal promises are separately identifiable, the legal promises remain enforceable, while the illegal promises are void. This is different from a case where the legal and illegal parts are inseparable; in such a case, the entire agreement may become void under the applicable provisions relating to unlawful objects and considerations.

Alternative Promise, One Branch Being Illegal [Section 58]

Section 58 deals with an alternative promise where one branch of the promise is legal and the other is illegal.  The rule is simple; the legal branch alone can be enforced. The illegal branch is void and cannot be enforced.

Example

A and B agree that A shall pay B ₹1,000, for which B shall deliver to A either:

• rice, or
• smuggled opium.

The promise to deliver rice is legal and can be enforced. The promise to deliver smuggled opium is illegal and therefore void. Thus, the agreement is enforceable only with respect to the legal alternative.

Conclusion

Reciprocal promises are based on the principle that each party’s promise forms the consideration for the other. The law therefore lays down clear rules regarding the readiness of the parties, the order in which promises are to be performed, the consequences of preventing or failing to perform a prior promise, and the treatment of legal and illegal promises. These provisions ensure that a party cannot demand performance while himself failing to fulfil the obligation which he was required to perform.