42 Law Guide for Competitive Exam inations

approved by an architect, it is contingent contract because approval by an architect is

a collateral event which is independent o f consideration i.e. construction o f the building.
Where with a view to set up a com pany for the manufacture and sale o f Unani
medicines, a State Government paid an advance to B for the purchase o f his b ook on
Unani medicine; however, the scheme o f manufacturing medicines could not materialize.
Held that the contract was not contingent on the happening o f collateral event (setting
up o f the company) and thus B can claim the remaining sum from the Government
(Bashir Ahmed v Govt, o f A.P. AIR 1970 SC 1089).
A ‘wagering agreement’ is also a contingent contract, but it has been declared
void by Sec. 30. The only chief element o f a contingent contract is that its performance
is linked with the happening o f a contingency. The performance o f a w agering
agreement is also linked with an uncertain event. But a contingent contract serves
some business or social purpose while a wagering contract is an attempt to make gam ,
out o f a pure chance. There is no business or consideration in it. Further, in a w agering I
contract, there are mutual chances o f gain or loss, if either o f the party may win bijt.
cannot lose, it is not a wagering contract. It then becom es a contingent contract. Thus
i f A enters into a contract with B to pay him a sum o f Rs.5,000 if India wins the w orld
cup, it is a contingent contract.

Enforcem ent o f C on tin gen t C on tra ct

The rules governing the enforcement o f various kinds o f contingent contracts are as
follows:
(i) Contracts contingent on an event happening (Sec. 32).
(ii) Contracts contingent on the event not happening (Sec. 33).
(iii) Contracts contingent on the future conduct o f a living person- I f the
event contemplates the way in which a particular individual will act at
an unspecified time, the event shall be considered to becom e im possible
when such person does anything which renders it im possible that he
should act so within any definite time, or otherwise than under further
contingencies (Sec. 34).
(iv) Contracts contingent on happening o f specified event within fix e d time-
If the contract contemplates the happening o f the event within a certain
time, the contract becom es void if the event does not happen or its
happening becom es im possible before the expiry o f that time (Sec. 35).
(v) Contracts contingent on impossible event - If the performance is made
to depend upon an event which is already impossible, the contract is
void whether or not the fact is known to the parties (Sec. 36). For
example, A agrees to pay B Rs. 1,000 if two straight lines should en close
a space, the agreement is void.

7 . PERFORMANCE OF CONTRACT

When the rights and obligations arising out o f a contract are extinguished, the contract is
said to be dischaiged or terminated. A contract may be discharged in the following ways:
 Law o f Contract 43

(1) B y Performance o f the contract (Ss. 37-67);

(2) B y Breach o f the contract (including anticipatory breach- Sec. 39);
(3) B y Im possibility o f performance (doctrine o f frustration- Sec. 56);
(4) B y Agreement and N ovation (Ss. 62-67).
(5) B y Operation o f law.

[I] P erfo rm a n ce o f C o n tr a c t
Every contract consists o f reciprocal and actionable promises. A ccordin g to Sec. 37,
•‘parties to the contract have a duty to perform, o r offer to perform their respective
prom ises, unless the perform ance is d ispensed with or excused under the provisions
o f the Contract Act, or o f any other law.” Thus i f A prom ises to deliver g o o d s to B
on a certain day on payment o f Rs. 1,000 but A died, then A’s representatives are
bound to fulfil the contract m ade by A. However, where the contract depends on
personal skill, such as painting a picture, on the death o f the prom isor the representatives
are not bound by the obligation. Likewise, w here the contract becom es im possible to
perform under Sec. 56, the contract b e co m e s void and need not be performed.

Offer or Tender o f Performonce

The prom isor must offer to perform his obligation under the contract to the promisee.
The offer is called “tender o f performance.” It is then for the prom isee to accept the
performance. If he does not accept, the prom isor is not responsible for non-performance,
nor d oes he thereby lose his rights under the contract (Sec. 38). T he promisor, then,
can sue the prom isee for breach o f the contract.
Sec. 38 further lays dow n that every such offer o f perform ance must fulfil the
follow in g conditions:
(i) The tender must be unconditional. A tender b eco m es conditional when
it is not in accordance with the terms o f contract. Payment by cheque
is deem ed to be subject to encashment and, thus, it is only a conditional
tender.
(ii) The tender must b e m ade at p ro p e r time and p la c e , and under such
circumstances that the prom isee may have a reason able opportunity o f
ascertaining that the prom isor is able and w illing there and then to d o
the w hole o f what he is bound by his prom ise to do.
(iii) An offer to one o f several jo in t prom isees has the same legal con sequ en ces
as an offer to all o f them.

By W hom Contract should be Performed

A ccord in g to Sec. 40, i f the contract is on e w hich is based on personal con fiden ce,
or in volves the exercise o f p erso n a l skill like painting, dancing, singing, marrying, or
writing a book, etc., it must be perform ed by the p rom isor h im self and n ob od y else.
If, on the other hand, the contract d oes not involve personal skill, the p rom isor o r his
representatives may em ploy a com petent person to perform the same.
A ccordin g to Sec. 41, when the prom isee accepts perform ance o f the p rom ise
from a third p e rso n , he cannot afterwards enforce it against the promisor. T hus i f A
ow es B a sum o f Rs. 5,000; C, w ho is A’s friend pays to B Rs. 5,000. The paym ent
by C to B discharges A from the debt.
44 Law Guide for Competitive Examinations

Performance o f Joint Promises

Sections 42-45 deal with the question o f liability o f the join t promisors. T he follow ing
rules are contained in these sections :
(i) The liability o f the joint promisors is joint and several. When a joint promise
is made, and there is no express agreement to the contrary, the promisee
may compel any one or more joint promisors to perform the w hole o f the
promise (Sec. 43). For example, A, B and C jointly promise to pay D, Rs.
3000. D may compel either A or B or C to pay him Rs. 3000.
Contracts involving personal skill (e.g. to paint a picture) com e to an
end on the death o f any o f the joint promisors.
Successive action against different jo in t prom isors - If the prom isee brings an action
against one or some o f the joint promisors only, and leaves others, a judgement
against those some promisors does not bar an action against others, if the full amount
has not being recovered from them. Under English law, such an action is barred.
(ii) According to Sec. 42, “joint promisors” must, during their join t lives,
fulfil the promise. And if any one o f them dies, his representatives must,
jointly with the surviving promisors, fulfill the promise.
(iii) There can be contribution between joint promisors i.e. one joint prom isor
is made to pay more than his share, he can recover contribution from the
other joint promisors, according to their shares. I f any one joint prom isor
makes a default in making contribution, the remaining joint prom isors
must bear the loss arising from such default in equal shares (Paras 2 and
3, Sec. 43).
(iv) The creditor is also given the right to release anyone o f the joint prom isors
from his liability (Sec. 44).
(v) A ccording to Sec. 45, when a promise is made to several persons jointly,
then, unless a contrary intention appears from the contract, the right to
claim performance rests with all the prom isees jointly and a sin gle
promisee cannot demand performance. Thus if A and B execute a
promissory note in favour o f C and D; C will not succeed i f he sues
alone, D must jo in him. Under the terms o f Sec. 45, a payment to one
o f several joint prom isees does not operate as a com plete discharge o f
a debt. Thus if A borrows Rs. 3,000 from B, C and D, and when the
debt becom es due A tenders it to B who accepts it, A is not discharged
by the payment.

Time and Place for Performance

According to Sec. 46, even though no time for performance is fixed by the parties,
the contract is not rendered void for uncertainty. The performance, in such a case, has
to be made within a ‘reasonable’ time. A ccording to Sec. 47, when the prom ise is to
be performed on a certain day, the prom isor’s duty in such a case is to perform the
contract during the usual business hours on such day, otherwise it would amount to
non-fulfilment o f the promise. It may be noted that where the place for perform ance
is fixed in the promise, the performance must be offered at that place.

According to Sec. 50, the performance o f any prom ise may be made in any
 Law o f Contract 45

manner, or at any tim e which the prom isee prescribes o r sanctions. W here A o w e s B
Rs.2,000 and B accepts som e o f A’s g o o d s in reduction o f the debt, the delivery o f
the g o o d s operates as a part payment.
Ordinarily it is expected that either party w ill perform his obligation at the
stipulated time (if m entioned in the contract). I f the intention o f the parties w as that
time should be o f the essen ce o f the contract, then a failure to perform at the agreed
time renders the contract voidable at the option o f the opp osite party (Sec. 55). Tim e
is generally considered to b e o f the essen ce o f the contract: (1) where the parties have
expressly agreed to treat it as o f the essence, (2) where delay operates as an injury,
(3) where the nature and n ecessity o f the contract requires it to be so construed, for
example, where a party asks for extension o f tim e for performance.
In “com m ercial contracts” tim es is ordinarily o f the essen ce o f the contract
(W asoo Enterprises v J.J. O il M ills A IR 1968 Guj. 57); similarly when the prices o f
the g o o d s like shares or bullion are subject to rapid fluctuation. In case o f sale o f
im m ovable property, the time is generally not the essen ce o f the contract. W hen the
time is not the essen ce o f the contract, the delay in the performance o f such a contract
does not make the contract voidable, but the rem edy available to the aggrieved party
in such a case is to claim com pensation for any lo ss caused by delay. Even where time
is o f the essence, the injured party m ay at his option accept the delayed performance.

Perform ance o f R eciprocal Promises

Sec. 2(f) says: “ Prom ises which form the consideration o r the part o f consideration
for each other are called reciprocal prom ises". Thus when a contract con sists o f an
exchange o f promises, they are called reciprocal o r mutual promises. “W hen such
prom ises have to be perform ed simultaneously, the prom isor is not bound to perform
unless the prom isee is ready and w illin g to perform his p rom ise” (Sec. 51- mutual
and concurrent promises).
The order in which reciprocal prom ises must be perform ed may b e fixed by the
contract, but where it is not expressly fixed, they w ill have to b e perform ed in the
order in which the nature o f the transaction admits (Sec. 52- mutual and independent
promises). Thus when A and B contract that A shall build a house for B at a fixed
price, A’s prom ise to build the house must be perform ed before B ’s prom ise to pay
for it. It may be noted that in the ordinary course o f business, w ork is not usually paid
for before it is done.
Sec. 53 lays dow n the principle that w here one o f the parties to reciprocal
prom ises prevents the other from performing his promise, the contract becom es voidable
at the option o f the party so prevented; and he is entitled for com pensation from the
other partj' for any loss s o occasioned.
Sec. 54 lays dow n that where the nature o f the reciprocal prom ises is such that
one cannot be performed or its performance cannot be claim ed unless the other party
perfon n s his prom ise in the first place, then i f the latter fails to perform, he cannot
claim performance from the other, but must make com pensation to him for his loss
(mutual an d dependent promises). For instance, A hires B ’s ship to take in and
convey, from Calcutta to Mauritius, a cargo to be provided by A, B receivin g a certain
freight for its conveyance. A does not provide any cargo for the ship. A cannot claim
the performance o f B ’s promise, and must com pensate B for the loss which B sustains
by the non-performance o f the contract.
46 Law Guide for Competitive Examinations

Reciprocal Promise to do Things Legal and Illegal

In such cases, the first set o f promises is a contract, but the secon d is a v o id agreement
(Sec. 57). For instance, A and B agree that A shall sell B a house for Rs. 10,000, but
that if B uses it as a gambling house he shall pay Rs. 50,000 for it. T he first set o f
promises is valid but the second void. It may b e noted that when the legal and illegal
parts are inseparable, the whole o f the agreement is void (See Sec. 24).

Alternative Promises, One branch being Illegal

In the case o f an alternative promise, one branch o f which is legal and the other
illegal, the legal branch alone can be enforced (Sec. 58). When A and B agreed that
A shall pay B Rs. 1,000, for which B afterwards deliver to A either rice or sm uggled
opium, this is a valid contract to deliver rice only.

A ppropriation o f Payments
When a debtor, owing several distinct debts to one person, makes a payment, which
is not sufficient to discharge all the debts, the question arises to which particular debt
the payment is to be applied. Sections 59 to 61 lays down the following three principles:
(i) Appropriation by debtor- Sec. 59 confers the right o f appropriation
upon the debtor i.e. the debtor has the right to request the creditor to
apply the payment to the discharge o f som e particular debt. I f the creditor
accepts the payment, he is bound by the appropriation. I f the creditor
does not want to do that, he must not accept the payment.
(ii) A ppropriation by creditor- Sec. 60 enables the creditor to m ake
appropriation. If the debtor makes payment without any appropriation,
the creditor may use the payment at his discretion to w ipe out any debt
which is due lawfully (even though it may be time-barred); he cannot
make the appropriation to an illegal or void debt.
(iii) Appropriation by law- Sec. 61 applies when neither party makes an
appropriation. In such a situation the law gets the right to appropriate
the payment and the law prefers to w ipe out the debts in the order o f
time in which they were incurred.

[2] Breach o f C on tract

When a party having a duty to perform a contract fails to do that, or does an act
whereby the perfoimance o f the contract by him becom es impossible, or he refuses to
perform the contract, there is said to be a breach o f contract on his part. On the breach
o f contract by one party, the other party is discharged from his obligation to perform
his part o f the obligation, and also gets a right to sue the guilty party for damages.

The breach o f contract may be either (i) actual or present i.e. non-performance
o f the contract on the due date o f performance, or (ii) anticipatory i.e. before the due
date o f performance has come. For example, A is to supply certain g o o d s to B on 1st
January. On 1st January, A does not supply the goods. H e has made actual breach o f
contract. On the other hand, if A informs B on 1st D ecem ber that he will not p erfon n
the contract on 1st Jan. next, A has made anticipatory breach o f contract.
 Law of Contract 47

Anticipatory Breach o f Contract

"An anticipatory repudiation occurs when, prior to the prom ised date o f performance,
the prom isor absolutely repudiates the contract (expressly or impliedly).” Sec. 39 lays
down that “anticipatory breach o f contract could be made by promisor, either by
refusing to perform the contract, or disabling him self from performing the contract in
its entirety."

Illustration (a) to Sec. 39 reads: A, a singer enters into a contract with B, the
manager o f a theatre to sing at his theatre two nights in every w eek during the next
two months, and B engages to pay her Rs.100 for each night’s performance. O n the
sixth night, A wilfully absents h im self from the theatre. B is at liberty to put an end
to the contract.
W hen one person makes anticipatory breach o f contract, the other party has two
alternatives open to him, viz. (i) H e may rescind the contract immediately and may
bring an action for the breach o f contract without waiting for the appointed date o f the
performance o f contract (ii) H e may not put an end to the contract but treat it as still
subsisting and alive and wait for the performance o f the contract on the appointed date.
In H ochster v D e La Tour (1853) 2 E & B 678, A engaged B on 12th April, 1852
as a courier for accom panying him on a tour o f Europe, which was to begin on 1st
June. B was to b e paid £ 10 per month for his services. O n 11th May, 1852 A
informed B that B ’s services were not needed. O n 22nd May, 1852, B sued A for the
breach o f contract. Held that even though B had brought an action on 22nd M ay (i.e.
before the due date o f performance o f the contract), he had a right to do so.
If a man prom ises to marry a w om an on a future day, and before that day
marries another woman, he is instantly liable to an action for-%reach o f prom ise o f
marriage. The principle applies to contingent contracts. W here a person prom ises to
marry a woman on the death o f his father, and during the life time o f his father
married another, he was held liable [Frost v Afmg^6fl872) LR 7 Exch 111].
When the contract is kept alive by the prom isee (aggrieved party), the prom isor
may perform the same inspite o f the fact that he hat) earlier repudiated it. However,
i f the prom isor still fails, the prom isee will be entitled for the compensation. In case
the prom isee has elected to keep the contract alive and subsisting it is just possib le
that before the due date o f perform ance som e event happens (viz. supervening
im possibility or frustration) because o f which the prom isor gets excused from the
performance o f the contract. The prom isor w ill b e benefited in such a situation as he
will be discharged from the performance o f the contract.

M in o r Breach N o t a Repudiation o f Contract

Every minor irregularity in the performance o f the contract cannot b e seized upon as
a repudiation s o as to put a premature end to the contract. ‘I f there has been a
substantial though not exact and literal perform ance by the promisor, the prom isee
cannot treat h im self as discharged.' The court has to take into account the effect o f
the breach upon the contract as a whole. W here out o f the several deliveries by
instalments, on e delivery was b elo w the standard, it could not be treated as a breach
o f the contract.

W here A agreed to purchase from B under tw o contracts 30 tons o f sugar to

48 Law Guide for Competitive Examinations

be delivered at different dates, A having failed to take the delivery under the first
contract, B claimed to rescind both contracts, it was held that as there was no refusal
on the part o f A to perform his promise in its entirety within the meaning o f Sec.39,
B was not entitled to rescind the contract.

[3] Impossibility o f P erform ance

Discussed later ('Frustration o f Contracts’).

[4] D ischarge by A greem en t and N ovation

Sections 62 and 63 deal with the contracts in which the obligation o f the parties to
it may end by the ‘mutual consent’ o f the parties.

Contracts which Need Not be Performed

Sec. 62 deals with the effect o f novation, rescission and alteration o f contract. “ I f the
parties to a contract agree to substitute a new contract for it, or to rescind or to alter
it, the original contract need not be performed”.
When the parties to a contract agree to substitute the existing contract for a new
contract, that is called novation. In such a case the liability o f the parties as regards
the original agreement is extinguished and in its place they becom e bound by the new
altered agreement. When the novation is by a ‘change o f contract’, the original contract
must be subsisting and unbroken. The substitution o f a new contract is not possib le
after there has been a breach o f the original agreement. It is further necessary that the
new agreement should be valid and enforceable.
Thus, A owes B Rs. 10,000. A enters into an agreement with B, and giv es a
mortgage o f his (A’s) estate for Rs.5,000 in place o f debt o f Rs. 10,000. This is a new
contract and extinguishes the old. But, where A ow es B Rs.1,000, and B ow es C
Rs. 1,000, and B orders A to credit C with Rs. 1,000 in his books but C does not assent
to the agreement, no new contract has been entered into and B still ow es C Rs. 1,000.
‘Alteration’ o f a contract means change in one or m ore o f the material terms
o f a contract. The parties to the contract remain the same. In novation, there may be
a change o f parties also; when the parties are not changed then to be a novation the
terms o f the contract must be altered substantially.
A contract may be discharged by agreement between the parties that it shall no
longer bind them. Such an agreement amounts to ‘rescission’ or cancellation o f the
contract and no new contract is substituted in its place.
ti

Remission o f Performance
According to Sec. 63, the party who has the right to demand the perform ance o f the
contract may (i) remit or dispense with it, wholly or in part, or (ii) extend the time
for performance, or (iii) accept any other satisfaction instead o f performance. Law
cannot force the parties to take a legal action for breach o f contract. ‘An agreem ent
to excuse performance’ is valid, while an ‘agreement not to sue for breach’ is void
being an agreement in restraint o f legal proceedings.

(i) Dispensing with or remitting perform ance - The prom isee may rem it or
dispense with performance o f the contract without any consideration. To
 Law o f Contract 49

“dispense with” means that the party entitled to claim performance may
waive it i.e. abandon his right. The acceptance o f less sum o f m oney
where m ore is due is a g o o d discharge o f the w hole o f the liability.
(ii) Extending the time o f perform ance - Sec. 63 permits the prom isee to
grant extension o f time for the performance o f the contract, and no
consideration is needed for the same. The extension o f time must b e by
mutual understanding between the parties.
(iii) A ccord and satisfaction - Sec. 63 permits the prom isee to accept any
other satisfaction in lieu o f agreed performance, and this w ould discharge
the promisor. F or example, A ow es B, under a contract, a sum o f money,
the amount o f which has not been ascertained. A without ascertaining
the amount giv es to B, and B, in satisfaction thereof, accepts the sum
o f Rs.2,000. This is a discharge o f the w hole debt, whatever may be its
amount. Likewise, P w ho claim s Rs.50,000 from Q, may accept a house
o f Q in satisfaction o f the d e b t A ccepting som e other satisfaction instead
o f actual performance is known as principle o f “A ccord (agreement) and
Satisfaction” under English law.

Assignment o f Contract
“Assignm ent” means transfer o f contractual rights or liabilities by a party to the
contract to som e other person w ho is not a party. The liability under a contract cannot
be assigned without the consent o f the prom isee, how ever the rights and benefits may
be assigned and the assignee can demand performance from the other party to the
contract. The assignment thus m ade will, however, o e subject to the activities, i f any,
between the original contracting parties. The rights under a lottery ticket are assignable.

[5] D isch a rge by O p e ra tio n o f Law

A contract terminates by operation o f law in the follow in g cases:
(a) Lapse o f time- The Limitation A ct lays dow n that in case o f breach o f
a contract, legal action should be taken within a specified period, called
the period o f limitation, otherw ise the p rom isee is debarred from
instituting a suit and the contract stands discharged. Under the Limitation
Act, the limitation period for sim ple contracts is three years.
(b) Insolvency- A contract is discharged by insolvency o f one o f the parties
to it when an Insolvency Court passes an order in this regard.
(c) Merger- W hen an inferior right contract m erges into a superior right
contract, the former stands discharged automatically. For example, when
a man holding property under a contract o f tenancy buys the property,
his rights as a tenant are m erged into the rights o f ownership.
(d) Unauthorised material alteration- A material alteration made in a written
document/ contract by one party without the consent o f the other, will
make the w hole contract void.