Performance of contract

Performance complete when parties fulfil their respective obligations arising under the contract – within time and manner prescribed in the contract – actual performance or offer to perform must unless such performance dispensed with or excused.

Offer to Perform  : Sec.38 : tender to performance equivalent to actual performance – promisor excused from further performance – entitled to sue promisee for breach of contract. 

Essentials of valid tender :

1.      Must be unconditional – when not in accordance with terms of contract, it becomes conditional.

2.      Must be made for whole quantity contracted for or for whole obligation – if negligible deviation from terms of contract, may be allowed keeping in view practical aspect.

Shipton, Anderson & Co. V Weil Bros & Co.  – contract to deliver 4950 tons of wheat – seller delivered 4950 tons 55 lbs. – Held, contract duly performed by seller.

3.      Must be made by  promisor or his duly authorised agent.

4.      Promisor must be in position and be willing to perform his promise.

5.      Must be made at proper time and place – tender of goods after business hours or before due date is not valid tender.

6.      May be made to one of several promisees – deemed to have effect as if tender to all of them.

7.      In case of tender of goods, must give reasonable opportunity for inspection of goods.

Startup Vs. Macdonald – contract to sell 10 tons of linseed oil – to be delivered ‘within last 14 days of March’  - delivery tendered on 31^st March at 8.30 pm – defendant refused to accept goods owing to lateness of hour – Held, though hours unreasonable, defendant could accept delivery before midnight.

8.      In case of tender of money, must be in legal tender – if creditor refuses to accept it, debtor not discharged from debt – can be set up as defence by the debtor.

Refusal to perform promise wholly : Sec.39 :

When promisor refuses to perform his promise wholly – promisee entitled to repudiate the contract – deemed to have rescinded a voidable contract – bound to restore all benefits received by him under the contract – but if promisee gives tacit (implied) assent in continuance of contract, he cannot repudiate the contract.

Example : A, a singer, enters into contract with B, a theatre manager – A to sing at B’s theatre two nights every week for next two months for Rs.100 per performance – A wilfully absents herself on sixth night – B entitled to repudiate the contract – but if B allows A to sing on seventh night, he has signified tacit continuance – barred from repudiating the contract – but entitled to sue for damages.

Contracts of which performance not necessary  :

1. when its performance becomes impossible – contract unlawful and void.

Example : A contracts to take in cargo for B at a foreign port – A’s government afterwards declares war against country in which the foreign port situated – contract becomes void when war is declared.

Taylor Vs. Caldwell – defendant agreed to let plaintiff use of their music hall between certain dates for concert – before the first day of concert, hall destroyed by fire without fault of either party – plaintiff sued defendant for their loss – Held, performance depended upon the continued existence of hall – performance becomes impossible on perishing of hall without default of the contractor – void.

2. when parties agree to substitute a new contract for it or to rescind or alter it.
3. When promisee dispenses with the performance of promise, either wholly or in part – or extends the time of such performance – or accepts any satisfaction for it.
4. When voidable contract rescinded by person entitled to rescind it.
5. When promisee neglects or refuses to afford the promisor reasonable facilities for performance of his promise.
6. Example : A contracts B for repair of B’s house – B neglects or refuses to point out the places at which his house requires repairs – A excused for non-performance of contract due to such neglect or refusal when it is illegal.

Persons entitled to perform the promise :

• Promisor himself – contracts involving exercise of personal skill, volition or diligence of the promisor, e.g. contract to paint a picture or sing, or founded on personal confidence between the parties, e.g. contract to marry.
• Agent – duly authorised – only when personal consideration is not the foundation of the contract.
• Legal representatives – contracts other than those involving personal consideration  - liability limited to value of the property inherited.
• Contracts involving personal skill of promisor comes to end on death of the promisor.
• Third persons – when promisee accepts performance of the promise from third person, he is debarred from afterwards enforcing it against the promisor.
• Joint promisors – any or all of the joint promisors can fulfil the promise – valid discharge.

Rules regarding devolution of joint liabilities :

Unless specified to the contrary, all joint promisors must jointly fulfil the promise – if any promisor dies, his legal representatives liable jointly.

1. Unless express agreement to the contrary, any one of joint promisor may be compelled to perform – means liability is joint and several.
2. Joint promisor compelled to perform may claim contribution from other joint promisors.
3. Sharing of loss arising from default – in case of any joint promisor committing a default in contribution, remaining joint promisors must bear the loss arising from such default.

Example : A, B and C jointly promise to pay Rs.3,000 to D – C compelled to pay the whole sum – A becomes insolvent – A’s assets sufficient to pay off one-half of his debts – C entitled to recover Rs.500 (one-half of Rs.1000) from A’s estate and Rs.1250 (one-half of remaining Rs.2500) from B.

4. Release of one joint promisor does not discharge other joint promisors – released joint promisor continues to be liable to the other joint promisors. 

Rules regarding devolution of joint rights :

Unless specified to the contrary, right to claim performance lies with all joint promisees – if any one joint promisee dies, right rests with his legal representatives to claim jointly with other promisees – suit for enforcement must be instituted by all the joint promisees.

Persons entitled to demand performance :

1.      Promisee only.

2.      In few cases, third party – e.g. beneficiary of a trust, beneficiary of marriage or family settlement, principal etc.

3.      Legal representatives – in case of death of promisee.

Time and place of performance : As specified in the agreement.

1.      When no application to be made and no time specified – promisor to perform without application by promisee – within reasonable time.

2.      When time is specified and no application to be made – if date or day specified, promisor to perform without application by promisee – during business hours – at place and on day as specified.

3.      When application for performance on certain day and place – duty of promisee to apply for performance at proper place and within business hours.

4.      Application by promisor to promisee – when no place fixed, duty of promisor to apply to promisee to appoint a reasonable place for performance of promise.

5.      Performance in manner and at time specified by promisee.

Reciprocal promises – promises which form consideration or part of consideration for each other.  Types are -

1. Mutual and independent – each party must perform independently.

Example : A agrees to pay the price of goods to B on 1^st January.  B promises to supply the goods on 20^th January – promises are mutual and independent.

2. Conditional and dependent  - where performance of one set of promise is dependent upon prior performance of the other set.

Example – A promises to supply goods to B if B gives him payment in advance – if B does not give the advance, A need not perform his promise.

3. Mutual and concurrent – both set of promises to be performed simultaneously – e.g. sale of goods for cash.

Rules regarding performance of reciprocal promises :

1. Simultaneous performance – promisor need not perform his promise unless promisee ready and willing to perform his promise.

2. Order of performance – where order expressly specified in contract – performance must be in the specified order – if no order specified – then in the order which nature of transaction requires.

3. Effect of one party preventing another from performing his promise – contract voidable at the option of the party so prevented – also entitled to sue for compensation.

4. Effect of default of promise to be performed first – cannot claim performance of promise from the other party – other party can sue for compensation.

5. Reciprocal promises to do things legal and also other things illegal – if severable, the legal part is valid while the illegal part is void -  if not severable, then both set of promises are illegal and void. 

Time as essence of contract :

Performance of contract within specified time is essential – breach entitles the other party to consider it as repudiation – Time is essence or not in following types of contracts –

1. Commercial transactions – time is important factor

Mahabir Prasad Rungta V Durga Datt – transporter contracted to transport coal from colliery to railway station – colliery owner to keep the road in repair and arrange for petrol – colliery owner to pay for work done by 10^th of next month – transporter rescinded contract on allegation of non performance of promises by colliery owner – Held, in commercial transactions time is ordinarily of the essence of the contract.

2. Construction contracts – being construction a commercial service, time is essence of contract.

3. Sale transactions – courts to determine whether time factor essential or not depending on facts of each case.

China Cotton Exporters V. Bihari lal Ramchandra Cotton Mills Ltd.  – appellants carried on import business – contracted to supply quantity of Italian staple fibre cotton to respondent mill – shipment to take place in October or November – contract included remark “this contract is subject to import licence and therefore the shipment date is not guaranteed’ – part of goods supplied and accepted – rest not supplied – Held, in spite of shipment date being not guaranteed, supply within October/November, 1950 was guaranteed – time was essence of contract – buyer entitled to avoid the contract.

4. Land and property dealings – normally in transactions of immovable property, time is not essence of the contract – intention to be ascertained from other factors like nature of property, possibility of price fluctuation etc.

5. Sale of shares – time is important factor being such transaction of commercial nature.

6. In non-commercial transactions, ordinarily presumed that time is not of the essence of contract.

Appropriation of payments by creditor  :

When a debtor owes several debts to a creditor and makes payment insufficient to satisfy the whole of his indebtedness, the following rules regarding appropriation of the payment made –

(i)     Where the debtor intimates – if express intimation at time of actual payment that payment to be applied towards discharge of particular debt – creditor must do so – if no express intimation, circumstances to be looked into for appropriation.

(ii)   if no express intimation by debtor, and circumstances are not indicative - appropriation according to discretion of creditor – can also apply to a time barred debt – however, cannot apply to payment of a disputed or unlawful debt – until declaration of appropriation to debtor, creditor can also alter the appropriation. 

Rulia Devi V Raghunath Prasad  - unless specified to the contrary, payment to be first applied to the interest - after interest fully paid off, appropriation towards the principal.  

(iii)  Where debtor does not intimate and creditor fails to appropriate – appropriation in chronological order, i.e. in order of time – if debts are of equal standing, payment to be applied in discharge of each debt proportionately.  

Rule in Clayton’s Case : applicability where parties have several distinct debts between them and not to a single debt payable by instalments – unless there is a contrary intention, appropriation in order of date – first item on debit side to be discharged by first item on credit side.

Assignment of contracts  - transfer of contractual rights and liabilities to third party – with or without concurrence of the other party to the contract – assignment requires consideration between assignor and assignee – if no consideration, assignment revocable by assignor – third party to have same right of rescission against assignee as he had against assignor – notice to debtor must – if no notice given to debtor, payment made by debtor to assignor himself will constitute good discharge. 

Example : If A owes Rs. 500 to B and B owes similar amount to C – B has right to receive from A and is under liability to pay C – B can ask A to pay directly to C – if A accepts, that will be assignment of B’s right to C. 

Assignment by operation of law – by either of following two ways –

(i)     Death – upon death of a party – his rights and liabilities devolve on his heirs and legal representatives (except contracts requiring personal skill or services)

(ii)   Insolvency – on insolvency, rights and liabilities incurred prior to adjudication pass to Official Receiver or Assignee. 

Assignment by act of parties  - by wilful assignment.

Assignment of contractual obligations subject to following rules –

A.    Contractual obligations involving personal skill cannot be assigned.

B.     Promisor cannot assign his liabilities under a contract – promisee cannot be compelled to accept any other person as the person liable to him on the promise.

Robson Sharpe V Drummond  - D hired carriage from S at yearly rent for five years – S undertook to paint the carriage every and keep it under repair – contract with S alone - S retired from business after three years – R, a partner of S, informed D that he would maintain the carriage and receive payment – D refused to deal with R and returned the carriage - Held, D entitled to do so.

c. Contractual obligations can be performed through agent, unless personal skill involved – however, original party remains liable under the contract.

d. Promisor may transfer his liability under consent of promisee and transferee – in such cases, substitution of old contract by a new contract - novation takes place only by tripartite agreement between parties.

Assignment of contractual rights  : Subject to following rules –

1. Rights and benefits under contract not involving personal skill may be assigned – subject to all equities between original parties.  
2. Actionable claim (e.g. money debt, shares held in a company) can be assigned – must be through an instrument in writing – notice to debtor must.