Performance of contracts

1. The duty to perform: section 37

Section 37 states the basic obligation. The parties to a contract must either perform, or offer to perform, their respective promises, unless performance is dispensed with or excused under the Act or any other law. Promises bind the representatives of the promisor if he dies before performance, unless a contrary intention appears from the contract. The illustration: A promises to deliver goods to B on a certain day on payment of Rs 1,000; A dies before that day; A's representatives are bound to deliver and B is bound to pay them. The second illustration supplies the exception: A promises to paint a picture for B and dies; the contract cannot be enforced against his representatives, because it depended on his personal skill.

2. Offer to perform, or tender: section 38

Where a promisor has made an offer of performance to the promisee and the offer has not been accepted, the promisor is not responsible for non-performance and does not lose his rights under the contract. A valid tender must:

• be unconditional;
• be made at a proper time and place, and in such circumstances that the promisee has a reasonable opportunity of ascertaining that the promisor is able and willing to do the whole of what he is bound to do;
• if it is an offer to deliver anything, give the promisee a reasonable opportunity of seeing that the thing is what the promisor is bound to deliver;
• be of the whole performance, not part; and
• where there are several joint promisees, may be made to any one of them, with the same effect as an offer to all.

The illustration: A contracts to deliver 100 bales of cotton to B at his warehouse on 1 March. A must bring the cotton to B's warehouse on the appointed day, under such circumstances that B can see that it is the cotton contracted for. A tender of goods discharges the promisor if refused. A tender of money does not discharge the debt: the debtor remains liable, but he is saved from further interest and costs and may rely on the refusal.

3. Who must perform: sections 40 and 41

Under section 40, if it appears from the nature of the case that the parties intended the promise to be performed by the promisor himself, he must perform it personally. In other cases, the promisor or his representatives may employ a competent person to perform it. A promise to sing at a concert, or to paint a portrait, is personal. A promise to pay money or deliver standard goods is not. Section 41 adds that when a promisee accepts performance from a third person, he cannot afterwards enforce the promise against the promisor.

4. Joint promisors and joint promisees: sections 42 to 45

• Section 42. When two or more persons make a joint promise, all of them must fulfil it jointly during their lives, unless the contract shows a contrary intention. After the death of any of them, his representatives must perform jointly with the survivors.
• Section 43. The promisee may compel any one or more of the joint promisors to perform the whole promise. A joint promisor who has paid more than his share may claim contribution from the others, and if one of them defaults, the loss is shared equally among the rest. Illustration: A, B and C jointly promise to pay D Rs 3,000; D may compel any of them to pay the whole sum.
• Section 44. A release of one joint promisor by the promisee does not discharge the others, nor does it free the released promisor from his liability to contribute to them.
• Section 45. When a person has made a promise to several persons jointly, the right to claim performance rests, during their joint lives, with all of them, and after the death of any of them, with his representatives jointly with the survivors.

5. Time and place of performance: sections 46 to 50

• Section 46. Where no time is specified and the promisor is to perform without application by the promisee, performance must be within a reasonable time. What is reasonable is a question of fact in each case.
• Section 47. Where a day is fixed and the promisor is to perform without application, he may perform at any time during the usual hours of business on that day, at the place where the promise ought to be performed.
• Section 48. Where a day is fixed and the promisor is not to perform until the promisee applies, the promisee must apply at the proper place and within the usual hours of business.
• Section 49. Where no place is fixed and no application is required, the promisor must apply to the promisee to appoint a reasonable place, and perform there.
• Section 50. Performance may be made in any manner and at any time which the promisee prescribes or sanctions. If B tells A to pay a debt into his bank account, payment into that account discharges A, even if B never draws it.

6. When time is of the essence: section 55

Section 55 has three parts. If a party fails to perform at the fixed time and the parties intended time to be of the essence, the contract becomes voidable at the option of the promisee. If time was not intended to be of the essence, the contract does not become voidable, but the promisee may claim compensation for loss caused by the delay. And if the promisee accepts late performance, he cannot claim compensation for the delay unless he gives notice at the time of acceptance that he intends to do so.

Whether time is of the essence depends on intention, read from the terms and the nature of the contract. In mercantile contracts it usually is. In contracts for the sale of immovable property the Constitution Bench held in Chand Rani v. Kamal Rani, 1992 INSC 351, (1993) 1 SCC 519, that there is a presumption that time is not of the essence, though the presumption gives way to express terms or surrounding circumstances, and a party may make time essential by giving a reasonable notice. In building contracts, a clause allowing extension of time or levying a penalty for delay shows that time was not of the essence, even if the contract says it is: Hind Construction Contractors v. State of Maharashtra, 1979 INSC 21, (1979) 2 SCC 70.

7. Reciprocal promises: sections 51 to 54 and 57

• Section 51. Where promises are to be performed simultaneously, the promisor need not perform unless the promisee is ready and willing to perform his reciprocal promise. A seller need not deliver unless the buyer is ready to pay on delivery.
• Section 52. Reciprocal promises are performed in the order fixed by the contract; where no order is fixed, in the order the nature of the transaction requires. A and B contract that A will build a house for a fixed price; A's promise to build must be performed before B's promise to pay.
• Section 53. If one party prevents the other from performing, the contract becomes voidable at the option of the party prevented, and he may claim compensation for loss caused by the non-performance.
• Section 54. Where one promise cannot be performed, or its performance cannot be claimed, until the other has been performed, and the promisor of the first fails to perform it, he cannot claim performance of the reciprocal promise and must compensate the other party.
• Section 57. Where persons reciprocally promise to do things that are legal, and also other things that are illegal, the first set is a contract and the second is a void agreement. Section 58 applies the same idea to alternative promises: only the legal branch can be enforced.

8. Appropriation of payments: sections 59 to 61

When a debtor owes several distinct debts to one creditor and makes a payment that does not cover all of them, the Act decides which debt is paid.

• Section 59: by the debtor. If the debtor expressly intimates, or the circumstances imply, that the payment is for a particular debt, it must be so applied if the creditor accepts it.
• Section 60: by the creditor. If the debtor makes no appropriation, the creditor may apply it at his discretion to any lawful debt actually due and payable, whether or not its recovery is barred by limitation.
• Section 61: by law. If neither party appropriates, the payment is applied to the debts in order of time, whether or not barred by limitation. If the debts are of equal standing, it is applied proportionately.

Section 61 reflects the rule in Clayton's case (Devaynes v. Noble, 1816) for running accounts: in the absence of appropriation, the first item on the debit side is discharged by the first item on the credit side, so earlier debts are paid off first.

9. Problem

X owes Y Rs 10,000 under a loan of 2019, now barred by limitation, and Rs 6,000 under a loan of 2024. X sends Rs 6,000 without saying which loan it is for. Y applies it to the 2019 loan and sues for the 2024 debt. Decide.

Issue. Whether Y could appropriate the payment to a time-barred debt.

Law. Under section 59 the debtor has the first right of appropriation. Where he makes none, section 60 lets the creditor apply the payment to any lawful debt actually due, whether or not its recovery is barred by limitation.

Application. X gave no direction, and nothing in the circumstances (such as the exact match between the payment and the 2024 debt) is strong enough to imply one, though X will argue that the matching figure shows his intention under section 59. If no intention can be implied, Y was entitled to choose, and a time-barred debt is still a lawful debt.

Conclusion. Y's appropriation is valid and he may recover Rs 6,000 on the 2024 loan, unless X proves that the payment was, expressly or by implication, made for the 2024 loan.

How this is examined

As a 10-mark essay: “Explain the rules regarding performance of contracts” or “Who must perform a contract?” Cover section 37, section 38, sections 40 to 45, and a paragraph on time and place. As a short note: tender (section 38), time as the essence of a contract (section 55, with Chand Rani), reciprocal promises, or appropriation of payments. A problem on appropriation or on a tender refused at the wrong time and place is the usual form when this topic appears in Part C.