Performance of Contracts

Meaning of performance
• A contract creates an obligation, which
continues till the contract has been discharged
by actual performance.
• Performance of the contract is one of the vital
modes of discharge of the contract.
 Types of performance
There are two types of performance as follows:
• Actual performance
• Attempted performance
 Actual performance
• When the promisor has made the performance in
accordance with the terms of the contract and is
accepted by the promisee it is called an actual
performance. [Section 37]
Example: A contracted to deliver to B at his warehouse
on 1st November, 500 bales of cotton of a particular
quality. A brought the cotton of requisite quality to
the appointed place on the appointed day during the
business hours, and B took the delivery of goods.
This is an actual performance.
 Attempted performance
• Although, the promisor has made an offer of
performance but the offer of performance of
promisor is not accepted by the promisee it is called
an attempted performance. Attempted performance
is also known as tender. [Section 38]
Example: A contracted to deliver to B at his warehouse
on 1st November, 500 bales of cotton of a particular
quality. B refused to take the delivery of goods; it is a
case of attempted performance because A has done
what he was required to do under the contract.
 Who Can Demand Performance
• Promisee
– A person cannot acquire rights under a contract to which he is
not a party.
– A promised B to pay Rs 1,000 to D. If A does not pay to D, only
B can demand performance from A.
• Promisee’s agent:
– If the intention of parties is that performance can be
demanded from any person authorised by the
promisee then performance can be demanded by
promisee’s agent.

6
 Who Can Demand Performance
• Legal Representative
– In case of death of the promisee, his legal representatives can
demand performance of a contract.
– A purchased goods from B. B died before recovery of price. In this
case, legal representatives of B can demand performance.
• Third Party – Exceptional Cases
• Generally, a third party cannot demand performance of contract.
However A third party can also demand the performance of the contract
in some exceptional cases like beneficiary in case of trust or the person
for whose benefit the provision is made in family arrangements.
• A transfer some property to BBB Trust for the benefit of D. D can
demand performance from BBB Trust.
 Who Must Perform
The Promisor himself:
• If a contract is of personal nature or it was agreed that promise
will be performed by the promisor himself than such promise
must be performed by the promisor.
• Example: A promises to paint a picture for B, A must perform the
promise personally
Promisor’s agent:
• If the intention of parties is that the promise can either be
performed by the promisor himself or any person employed by
him than such contracts can be performed by the promisor
himself or an agent employed by him.
• Example: A promises to pay B a sum of money. A may perform
this promise either by personally paying the money to B, or by
causing it to be paid B by another.
 Who Must Perform
Legal representatives
Unless a contrary intention appears or the contract
is of personal nature on death of promisor, his legal
representative can perform the contract.
Third party
With the consent of the promisee a contract can be
performed by a third party. When a promisee
accepts performance of the promise from a third
person, he cannot afterwards enforce it against the
promisor.
 Performance of Joint Promises
Two or more Persons may enter into a joint agreement with
one or more Persons. Under such circumstances, who can
demand Performance and who is liable to Perform.
Who can Demand Performance
• Promisees
– When a promise is made with several persons jointly and in
absence of any other agreement to the contrary, all the
promisees jointly can demand performance and a single
promisee can not demand performance.
– A borrows Rs 200,000 from B and C jointly. Only B and C
can demand performance jointly.

10
 Performance of Joint Promises
• Legal representatives
– In case of death of any promisee, the legal representatives
of deceased person jointly with surviving promisees can
demand performance of a contract
– A purchased goods from B and C jointly. B died before
recovery of price. In this case, C and legal representatives of
B can demand performance.

11
 Who Must Perform
• All Promisors must jointly fulfill the Promise
• Any one of joint Promisors may be compelled to
Perform
• Each Promisor may compel for contribution
• A, B and C jointly promise to pay D Rs.3,000. D may
compel either A or B or C to pay him Rs.3,000.

12
 Who Must Perform
• Sharing of Loss by Default in Contribution
• A, B and C are under a joint promise to pay D Rs.3,000. C
is unable to pay anything and A is compelled to pay the
whole. A is entitled to receive Rs.1,500 from B.
• Effect of Release of one Joint Promisor
• A, B and C jointly promise to pay D Rs.3,000. D releases
A from his liability and sues B and C for payment, Here,
neither B and C are released from their liability to D nor
is A released from his liability to B and C for
contribution.
 Time & Place of Performance
• Reasonable Time
– Where time for performance is not specified – Any time during
Business hours during the month.

• With in a Specified Time/Date

– Where time is specified – Deliver the goods at 2 pm

• Proper Place
– Time and venue to be disclosed

14
 Time & Place of Performance

• Reasonable Place
• A agreed to deliver rice to B on 1st June but no
place was fixed for delivery. A must ask B for
the place of delivery of rice.
• Prescribed by promise
• If a place or time is mentioned in the promise
than the delivery of goods must be made on
time and place mentioned.
Time is of the Essence of Contract
• Means: Time is an essential element and of
contract and the Parties must perform with
their promises within specified time.
Where Time is the Essence of Contract
– If the Promisor fails to perform within the fixed time, the
contract becomes voidable at the option of the promisee.
He may revoke the contract and sue for the breach.
– Example: A an exporter, ordered B to deliver 100 bags of
sugar at a certain price, on 9th November for export. B failed
to deliver. The contract was voidable at the option of A.
Time is of the Essence of Contract
• Where Time is not the Essence of Contract
– If the promisor fails to perform within the fixed time,
the contract remains valid and the promisee will
have to accept the delayed performance. But he can
claim compensation for any loss due to delay. The
delay should be reasonable otherwise it will become
voidable at the option of the promisee.
– Example: A promises to deliver computer to B on 3rd
November. A delivers it on 8th November. B will have
to accept the delivery. B can claim damages only.
 Time is of the Essence of Contract
• Acceptance of Delayed Performance
– When the promisee accepts the delayed performance
instead of avoid the contract, he cannot afterwards
claim compensation for any loss caused due to delay,
unless at the time of accepting the delayed
performance, he gives notice to the promisor of his
intention to do so.
– Example: A promises to deliver cement bags to B on
7th October. A delivered on 15th October. B accept the
delayed delivery. B can not afterward claim damages.
Appropriation of Payments
 Appropriation of Payments
• Means: Application of payment to a particular debt.
APPROPRIATION BY DEBTOR
• Where the debtor has stated that the payment made by
him should be applied to a particular debt, the creditor
must apply the payment in the settlement of the
particular debt. Where the debtor does not express his
intention, the law will gather his intention from the
circumstances attending the payment and accordingly
the payment shall be applied.
 Appropriation of Payments
APPROPRIATION BY CREDITOR
• If there is no intention by the Debtor regarding
appropriation then the creditor has option to apply the
payment to any debt lawfully due from the debtor,
irrespective of the question of limitation. But the
creditor cannot apply the payment to a disputed debt.
APPROPRIATION BY LAW
• When neither debtor nor creditor makes any
appropriation then according to law the payment has to
be applied to the earlier debt in order of time.

21
 Appropriation of Payments
APPROPRIATION TOWARDS INTEREST
• If a payment is made without expressly stating whether
it is towards interest or principal, payment will be
applied towards interest first and then to principal
amount.

22
Assignment of Contracts

23
 Assignment of Contracts
Assignment refers to transfer. Assignment of contracts
means transfer of contractual rights to a third party. It
may happen by:

• The Act of Parties

• The Operation of Law

24
 The Act of Parties
• Contractual Liabilities
– Contact involves Personal skill and Qualification cannot be
assigned
– If a contract expressly declare that it should be performed
by promisor only
– If a contract does not expressly declare that it should be
performed by promisor only than promisor can employ a
competent person to perform the liability.
• Contractual Rights
– Rights and benefits cannot be assigned if they are of
Personal nature.

25
 Operation of Law
Circumstances

• Death & Lunatic : Rights and Liabilities (other than those of

personal nature) are assigned/ passes on to their legal representatives
or heirs

• Insolvency: Rights and Liabilities (other than those of personal nature) are
assigned to Official Receiver or Assignee.

26
Reciprocal Promises
 Reciprocal Promises
• Promises which form the consideration for each other. In other
words, a contract consists of reciprocal promises when one party
makes a promise in consideration of a similar promise made by
the other party.

RULE OF PERFORMANCE
• Simultaneously:
– When two promises are to be Performed simultaneously. In
case of such promise, the Promisor need not perform his
promise unless the Promisee is ready to perform his reciprocal
promise. Example: A agreed to deliver goods at a price to be
paid by B on delivery. A did not deliver unless B is ready to pay
on delivery and B need not to pay unless A is ready to deliver
the goods against payment.
28
 Reciprocal Promises
Order of Performance
• When one party has to perform his promise
independently with out waiting for the performance by
other party. Such promises must be performed in the
order fixed by the contract and
• Where the order is not expressly fixed, they must be
performed in that order which the nature of the
transaction requires.
• Example: A agreed to deliver water through tanker at the
premise of B against a fixed price. A’s promise to deliver
the water through tanker must be performed before B’s
promise to pay for it.
29
 Reciprocal Promises
Prevention of Performance
• When a contract contains reciprocal promises and one
party to the contract prevents the other from
performing his promise, the contract becomes voidable
at the option of the party so prevented and he is
entitled to compensation from the other party for any
loss which he may sustain in consequence of the non-
performance of the contract.
• Example: A and B contract that B shall construct a stair
case in the house of A. But A prevents B from doing so.
The contract becomes voidable at the option of B.
30
 Reciprocal Promises
Conditional and Dependent
• Where the performance of the Promise by one party depends on
the prior performance of the promise by other party.
• If the promisor , who is required to perform his promise in the
first place, fails to perform it, such promisor cannot claim the
performance of the reciprocal promise and
• Must compensate the other party to the contract for any loss
which such other party may sustain.
• Example: A promises B to sell 10 Laptops, to be delivered next
day and B promises A to pay the total price within 30 days. A does
not deliver. B’s promise to pay need not be performed and A must
compensate B.

31
 Reciprocal Promises
Legal & Illegal Reciprocal Promises
• Where persons reciprocally promise, firstly to do certain acts
which are legal and secondly under specified circumstances, to do
certain illegal acts.
• The first promises are Contract but the second is void agreement.
• Example: A agrees to give loan of Rs 900,000 to B for his use But
B uses the amount to setup trading of smuggled goods.

32
 Reciprocal Promises
Alternative Promises being Illegal
• In case of alternative promise, one branch of which is
legal and other illegal. The legal branch alone can be
enforced.

• A agrees to pay Rs 1 million to B for which B shall deliver

either wheat or wine. It is a valid contract as to Wheat
and illegal agreement as to wine.

33