Performance of Contracts

Performance of Contracts

Author: Prasun Sarkar

Discharge of contract refers to termination or putting an end to contractual obligations and duties. When the parties to a contract perform their respective duties, it puts an end to the contract i.e. the contract is said to be discharged. However, performing one’s obligations towards the contract is not the only way to discharge a contract. The various ways to discharge a contract includes, the performance of contracts, novation, recession, alteration, remission, waiver, by operation of law, breach of contract.

A contract is a legally binding agreement between two or more persons which governs the rights and duties of the parties entering into it. A contract may be both written or oral. In order to make a contract legally binding, there has to be an offer, acceptance of the offer, consideration, meeting of minds, free consent, and capacity of entering into a contract. Performance of contract refers to fulfilling the obligations that each of the parties has a duty to complete on entering into the said contract. Obligations to perform or performance of contract come into force as soon as parties enter into a contract. Once a party to a contract has completed his duty he is relieved from further obligations. In a contract, when both parties have completed their respective duties, it puts an end to the contract.

A contract comprises reciprocal promises. A party can ask the other party or parties to perform the promise made by them only when he has completed his obligation towards the contract. The promiser should offer to perform his obligations under the contract. This offer made by the promisor is known as tender. If the other party doesn’t accept the party offering to perform his obligations, then the party offering to perform the obligations will not be held liable. The party so refusing the tender of performance may be subject to be sued for breach of contract. In order to constitute a valid tender it must have the following:

• It must be unconditional.
• The tender of performance must be at a proper place and time.
• The person to whom the offer is made or the offeree must be given a reasonable time to ascertain the proposal.

According to Section 37 of the Indian Contract Act,1872; 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 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.” Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.

When one enters into a contract, the primary duty one has is to fulfill the obligations of the contract. An obligation or promise is said to be fulfilled only when it is done in the exact and same way it was expected by the other party to the contract. Fulfilling obligations for the sake of doing doesn’t complete the performance of the contract. However, where under the provisions of this Act or any other law, the performance can be dispensed with or excused,  if a party is absolved from such a responsibility.

Novation 

Section 62 of the Indian Contract Act, 1872  takes place, when substitution of a new contract for the original one either between the same parties or between the same parties or the consideration for the new contract is mutually being the discharge of the old contract. Novation should take place before the expiry of the time of the performance of the original contract.

Recession

Section 62 of the Act, takes place when all or some of the terms of the contract are canceled. It may occur by mutual consent of the parties or where one party fails in the performance of his obligation. In such a case, the other party may rescind the contract without claiming compensation for the breach of contract. In case of recession, only the old contract is canceled and no new contract comes to exist in its place. Both in novation and in recession, the contract is discharged by mutual agreement.

Alteration

It means a change in one or more terms of a contract with the mutual consent of parties. In such a case the old is discharged.

Remission

Under Section 63 means acceptance of a lesser fulfillment of the promise made or acceptance of a sum lesser than what was contracted for. In such a case, Section.63 of the Contract Act allows the promise to dispense or remit the performance of the promise by the promisor, or to extend the time for the performance to accept any other satisfaction instead of performance.

Waiver

When a contracting party fails to perform his obligation under the contract, the other aggrieved party may rescind the contract and may waive the promisor or release. This is called a Waiver.

Operation of Law

A contract may be discharged by operation of law which takes place:

1. By Death: If contracts involving personal skill or ability of the promisor, the contract is discharged/terminated on the death of the promisor.

2. By insolvency: When a person is adjudged insolvent, he is discharged from all liabilities incurred prior to his adjudication.

3. By merger: Merger takes place when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under the same or some other contract. In such a case, the contract may be discharged.

4. By unauthorized alteration of the terms of a written agreement: Where a party to a contract makes any material alteration in the contract without the consent of the other party, the other party can avoid the contract.

5. By rights and liabilities becoming vested in the same person: When the rights and liabilities under contract vests in the same person, the other parties are discharged.

Breach of Contract

Breach of contract means the promisor fails to perform the promise or breaking of the obligations which a contract imposes. It occurs when a party to the contract without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. It confers a right of action or damages to the injured party. Branch of contacts may be of two types:

 Actual breath of contact and Anticipatory breach of contact.

1. Actual breach of contract: Actual breach means the promisor’s failure to perform the promise on the due date of performance. When a promisor fails or refuses to perform the promise upon the due date for performance then it is called an actual breach of contract. In such a case the promisee is exempted and may rescind the contract. A promise can sue the party at fault for damages for breach of contract.

2. Anticipatory Breach of contract: It occurs when a party to an executory contract declares his intention of not performing the contract before the performance is due. It may take place in two ways i.e. either expressly by words or by implied conduct.

Persons eligible to perform a contract (Section 40, Indian Contract Act,1872)

• Promisor

Where the nature of the contract is such that it can be performed only by the promisor himself then, the promisor becomes the only person eligible to perform the contract. This usually involves those contracts which involve personal skill or professional expertise.

• Agent

Where the contract is silent on whether the contract needs to be performed specifically by the promisor itself, in those circumstances the contract can be completed by the agent of the promisor. Such contracts do not usually involve personal or professional expertise.

• Representatives

A contract that involves the use of personal skills of the promisor or is founded on personal consideration comes to an end on the death of the promisor. In such a condition, the legal representatives of the promisor are bound by the conditions of the contract entered into by him until contrary intention appears from the contract. But their liability will be limited to the share of the property they have inherited from the deceased promisor. However, the contracts that involve the personal skill of the promisor, such contracts become void on the death of the promisor and it cannot be performed by its representatives.

• Third-Party

In order to allow a third party to perform the obligations of a contract, the promisee has to allow this at the time of making the contract. Once the promisee has agreed to this he cannot enforce it against the promisor.

Types of Performance of Contract

• Actual Performance

In this case, the promisor actually performs the said promises which he is obligated to do under the contract. On performing a contract in this manner the contract is discharged and the promisor’s liability towards the contract ceases to exist. Actual Performance of the contract can be further divided into Partial and Substantial Performance of Contract. 

•  Partial Performance

In the partial performance of the contract, the promisor or promisee has performed their respective obligations but has not performed it completely. Partial Performance of the contract may be due to non-willingness to perform or due to certain unforeseen circumstances. The essential part of such a contract is that the other party should show a willingness to accept the partly performed obligation.

• Substantial Performance

In this type of performance, the main essence of the contract is almost fulfilled.  Substantial performance is applicable only if the contract is not an entire contract and is severable. The rationale behind creating the doctrine of substantial performance is to avoid the possibility of one party evading his liabilities by claiming that the contract has not been completely performed. However, what is deemed to be substantial performance is a question of fact to be decided according to the circumstances.

• Attempted Performance

When the performance has become due, it is sometimes sufficient if the promisor offers to perform his obligation under the contract. This offer is known as attempted performance or more commonly as tender. Thus, tender is an offer of performance, which of course, complies with the terms of the contract. If goods are tendered by the seller but refused by the buyer, the seller is discharged from further liability, given that the goods are in accordance with the contract as to quantity and quality, and he may sue the buyer for.breach of the contract if he so desires. The rationale is that when a person offers to perform, he is ready, willing, and capable to perform. Accordingly, a tender of performance may operate as a substitute for the actual performance and can affect a complete discharge.

 Time and place of performance (Section 46, Indian Contract Act, 1872)

Time and place of performance of a contract are matters/rules to be determined by an agreement between the parties themselves. Section 46 to 50 of the contract Act lay down the rules regarding the time and place of performance they are the following:-

i. Where no application is to be made and no time is specified : [Sec 46] Where a promisor has to perform his promise without application by the promisee and no time is specified for performance, the engagement or promise must be performed within a reasonable time.

 “What is a reasonable time” is a question of fact in each particular case. It depends on the special circumstances of the case (contract), the usage of trade, or the intention of the parties at the time of entering into the contract.

ii. Where time is specified and no application is to be made : [Sec 47] When a promise is to be performed on a certain day without application by the promisee, the promisor may perform the promise at any time during the usual working hours on such a day.

iii. Application for performance on a certain day and place : [Sec 48] When a promise is to be performed on a certain day the promisor may undertake to perform it after the application by the promisee to that effect. In such a case it is the duty of the promisee to apply for performance at a proper place and time within usual business hours.

iv. Application by the promisor to the promisee to appoint a place : [Sec 49] When a promise is to be performed without application by the promisee and no place is fixed for the performance, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise and perform the promise at such place.

v. Performance in manner or at the time prescribed or sanctioned by the promisee: – [Sec 50] The performance of any promise may be made in any manner or at any time which the promisee prescribes or sanctions.

Remedy for Non Performance of Contracts

Generally, in contract, the remedy for non-performance is given in the form of damages or compensation. This compensation is decided by the court of law after taking into consideration the facts and circumstances of the case. Courts can also enforce specific performance of a contract which acts as equitable relief. The remedy of specific performance is in contrast with the remedy by way of damages for breach of contract, which gives monetary compensation for failure to carry out the obligations of the contract. Damages and specific performance are both remedies available upon breach of obligations by a party to the contract. Damages act as a  ‘substitutional’ remedy, and the latter as a ‘specific’ one. The remedy of specific performance is granted by way of exception. The plaintiff seeking this remedy must first satisfy the court that the normal remedy of damages is inadequate.

In the case, A.R. Venkatasami Naicker & ors.  v A.R.V. Jaganathan & ors^[1] a civil revision petition which is being filed by the petitioner in front of the Higher court after challenging the decision of the Lower Court.

It is stated that the respondents in this matter filed a suit for a specific performance of the agreement of sale which was dated 15. 4. 1992 and it was executed by the wife of petitioner 1 for consideration of Rs. 30,000 in their favour and the said suit was contested by the first petitioner’s wife and got transferred to District Munsef’s Court in the meantime. On 17.1 1996, the first petitioner’s wife died. So the respondent filed an application in the above suit to bring the petitioners and others as the legal representatives of the deceased defendant. The petition thus gets allowed by the lower court and thus gets challenged as revision in the HC of Madras with the only contention by the petitioner’s counsel that –“though there is no dispute with regard to the relationship of parties hereto, still the respondents 1 and 2 cannot maintain such an application, in view of the nature of the subject matter of the suit, involving the right to sue or to be sued and there is no scope for applying for bringing the legal representatives on record. i.e. the contention of the counsel is they cannot be made as parties in a specific performance suit, because the agreement was entered into only between the first petitioner’s wife and the respondent 1 & 2”

The above Sec.37 of the Indian Contract Act, 1872 provides for such a contingency. Sec.37 reads thus:

The obligation of parties to contracts. 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. Promises bind the representative of the promisors in case of the death of such promissory before the performance, unless a contrary intention appears from the contracts.’

It is not the case of the petitioners that there is a contrary intention expressed in the agreement, the subject-matter of the suit for specific performance. Besides this, O.22, Rule 4, C.P.C. also would say mat legal heirs could be brought as legal representatives of the defendant after the death of the defendant. O.22, Rule 4, C.P.C. processes thus:

‘Rule 4 Procedure in case of death of one of several defendants or of sole defendant:(1) Where one of two or more defendants dies and the right to sue does not survive against the surviving defendant or defendants alone or a sole defendant or sole surviving defendant dies and the right to sue survives, the court, on an application made in that behalf, shall cause the legal representative of the deceased defendant to be made a party and shall proceed with the suit.

(2) Any person so made a party may make any defence appropriate to his character as a legal representative of the deceased defendant.

(3) Where within the time limited by law no application is made under Sub-rule (1), the suit shall abate as against the deceased defendant.

(4) The court whenever it thinks, fit may exempt the plaintiff from the necessity of substituting the legal representatives of any such defendant who has failed to file a written statement or who, having filed it, has failed to appear and contest the suit at the hearing; and judgment may, in such case, be pronounced against the defendant notwithstanding the death of such defendant and shall have to the same force and effect as if it has been pronounced before death took place.

Since the legal heirs are representing the estate of the deceased, the right to sue is existing against the said legal heirs of the deceased defendant. As long as heirs of the deceased defendant, the legal heirs are bound to defend the case before the trial court.

5. The matter was also placed under order 22 rule 4 C.P.C.

6. Thus the court observed that the revision fails and the same is dismissed. It is stated that the impugned order do not suffer from any illegality with reference to the discussed section and THE POINT HAS BEEN RAISED BY THE COUNSEL FOR THE PETITIONERS IN THIS PETITION DOES NOT STAND.

Impossibility of Performance of Contract

Section 56, of contract act, deals with the impossibility. If an agreement contains an underwriting to perform impossibility, it is void-ab-initio or void. It is of two types:

1. Impossibility existing at the time of contract: “An agreement to do an act impossible in itself is void.” If the parties are interested in an agreement to perform something which is obviously impossible and which may or may not be known to both the parties.

a) If it is known to the parties: if at the time of contract both the parties know that the performance of the contract is not possible, the agreement becomes void.

 b) If it is not known to the parties: if both the parties do not know about the impossibility, the agreement is void on the ground of mutual mistake.

c) If it is known to the promisor only: if the impossibility of a contract is not known to the promisee and the promisor alone knows of the impossibility then such promise is bond to compensate the promisee for any loss he may suffer through the non-performance of the promise.

2. Subsequent or supervening impossibility: Impossibility which arises subsequent to the formation of the contract i.e., a contract to do an act, which after the contract is made is called post-contractual or supervening impossibility. In such a case the contract is void. Impossibility of performance of a contract, as a general rule, is no excuse for the non-performance of the contract.

Contracts which need not be performed

• If the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed. The process to substitute an existing contract by a new contract is known as Novation.
• If a voidable contract is rescinded, the other party need not perform his part.
• 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 non- performance caused thereby.
• Further, where the consideration and object of a contract both are unlawful and where the performance is unlawful or illegal, the contract need not be performed.

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^[1] (1998) 1 MLJ 600.