Part I The Indian Contract Act

Chapter 6
Performance and Discharge of Contract
Learning Objectives

What does ‘performance of contract’ mean?

Types of Performance

Essentials of a Valid Tender

Who Can Demand Performance

Time and Place of Performance

Performance of Reciprocal Promises

Assignment of Contracts

Discharge of a Contract

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What is Performance of contract?

Performance of contract means that both the parties - promisor and

the promisee - have fulfilled their respective obligations, which the
contract placed upon them.

A visits a stationery shop to buy a calculator. The seller delivers the

instrument and A pays the price. The contract is said to have
discharged by mutual performance.

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Types of Performance

Performance may be actual or attempted.

Actual Performance. When a promisor to a contract has fulfilled his
obligation in accordance with the terms of the contract, the promise
is said to have been actually performed.
A agrees to deliver 10 bags of cement at B’s factory and B promises to
pay the price on delivery. A delivers the cement on the due date and
B makes the payment. This is actual performance.
Actual performance can further be subdivided into :
• Substantial Performance
• Partial Performance

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Types of Performance

Substantial performance. This is where the work agreed upon is

almost finished. 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.
Partial performance. This is where one party has performed the
contract, though not completely, and the other side has shown
willingness to accept the part performed. Partial performance may
occur where there is shortfall on delivery of goods or where a service
is not fully carried out.

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Partial Performance vs. Substantial Performance

The party who is at the receiving end of the partial performance has a
genuine choice whether to accept or reject. Substantial performance,
on the other hand is legally enforceable against the other party.
In case of partial performance, payment is made on the basis of
quantum meruit, which is literally as much as is deserved. So, for
example, if half of the work has been completed, half of the negotiated
money would be payable. In case of substantial performance, the party
that has performed can recover the amount appropriate to what has
been done under the contract, provided that the contract is not an
entire contract.

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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’.
A contracts to deliver to B at his warehouse, on May 6, 2016, 100 tons of
basmati rice. A takes the goods to B’s place on the due date during
business hours, but B, without assigning any good reason, refuses to
take the delivery. Here, A has performed what he was required to
perform under the contract. It is a case of tender of performance and A
is not responsible for non-performance, nor does he thereby lose his
rights under the contract.

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Essentials of a Valid Tender

To be a valid tender or offer of performance, it must fulfil the following

conditions:
(i) It must be unconditional [Section 38(1)].
(ii) It must be made at a proper time and place [Section 38(2)].
(iii) It must be made under such circumstances that the person to
whom it is made may have a reasonable opportunity of ascertaining that
the person by whom it is made is able and willing, and then do the
whole of what he is bound by his promise to do [Section 38(2)].
(iv) If the offer is an offer to deliver anything to the promisee, the
promisee must have a reasonable opportunity of seeing that the thing
offered is the thing that the promisor is bound to deliver. [S38(3)]

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By Whom can Contracts be
Performed?

1. Promisor himself. If it appears from the nature of the any case that it was the
intention of the contracting parties to any contract that any promise contained in it
the contract should be performed by the promisor himself, such a promise must be
performed by the promisor himself. [Section 40]
2. Agent. Where personal consideration is not the subject matter of the contract,
the promisor or his representatives may employ a competent person to perform it.
[Section 40]. 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 to B by
another; and, if A dies before the time appointed for payment, his representatives
must perform the promise, or they may employ some proper person to do so.
3. Legal Representative. Promises bind the representatives of the promisors,
including in case of the death of such promisors before performance, unless a
contrary intention an exemption to that effect is stated in the appears from the
contract itself. [Section 37] However, contracts of personal nature, it comes to an
end should the promisor dies and therefore such contracts cannot be performed by
the representatives. Contd.

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 By Whom can Contracts be
Performed?

4. Third person. When a promisee accepts performance of the promise from a third
person, he cannot afterwards enforce it against the promisor.
[Section 41]

5. Joint Promisors. When two or more persons have made a joint promise, then, unless
a contrary intention appears by the contract, all such persons, during their joint lives,
and, after the death of any of them, his representative jointly with the survivor or
survivors, and, after the death of the last survivor, the representatives of all jointly,
must fulfil the promise.

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Who can Demand Performance?

Ordinarily, it is only the promisee who can demand performance of the

promise under a contract. This is simply because a stranger to contract
cannot sue and the person who can demand performance is the party
to whom the promise is made. In other words a third party cannot
demand performance of the contract even if it was made for his
benefit. A promises B to carve the statute of C, father of B. The person
who can demand performance is B and not C.
In the event of the death of the promisee, his legal representative can
demand performance unless a contrary intention appears In the
contract. However this not possible if the contract is of personal nature.
[S 37]
Moreover, in case of a joint promise, the promisee may, in the absence
of express agreement to the contrary, compel any one or more of the
joint promisors to perform the entire promise.
[Section 43]
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Time and Place for Performance?

General rules regarding the same can be summarized as under:

Where no time is specified A contract is not bad for want of
certainty if time for performance is not stated. Where the time for
performance is not specified in the contract, the promise must be
performed within a reasonable time. The question “What is a
reasonable time” is, in each particular case, a question of fact.[S 46]
Where time is specified (Section 47). When a contract specifies the
time and place for its performance, the parties must perform
accordingly. But, when the contract is to be performed on a certain
day, and the promisor has undertaken to perform without a request
from the promisee, he may perform it at any time during the usual
business hours on that day at the specified place. [S 47]

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Performance of Reciprocal Promises

1. Promisor not bound to perform unless promise ready and willing A

Promisor is not bound to perform, unless the promisee reciprocates and is
ready and willing to perform his part of the contract.
[S 51]
A and B contract that A shall deliver goods to B to be paid for by B on
delivery. A need not deliver the goods, unless B expresses readiness and
willing to pay for the goods on delivery. B need not pay for the goods, unless
A is ready and willing to deliver them on payment.
2. Order of performance of reciprocal promises. Where the order in which
reciprocal promises are to be performed is expressly fixed by the contract,
they shall be performed in that order; and, where the order is not expressly
fixed by the contract, they shall be performed in that order which the nature
of the transaction requires.[ S 52]
A and B contract that A shall build a house for B at a fixed price. A's promise
to build the house must be performed before B's promise to pay for it.
Contd.
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Performance of Reciprocal Promises

3. Liability of party preventing event on which the contract is

to take effect. 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 it is entitled to compensation from the other party
for any loss which it may sustain in consequence of the non-
performance of the contract. [S 53]
A and B contract that B shall execute certain work for A for Rs 1,000.
B is ready and willing to execute the work accordingly, but A prevents
him from doing so. The contract is voidable at the option of B; and, if
he elects to rescind it, he is entitled to recover compensation from A
for any loss which he has incurred due to the non-performance of the
contract. Contd.

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Performance of Reciprocal Promises

4. Effect of default as to that promise which should be first performed. When a

contract consists of reciprocal promises, such that one of them cannot be performed,
or that its performance cannot be claimed till the other has been performed, and the
promisor of the promise last mentioned fails to perform it, such promisor cannot
claim the performance of the reciprocal promise, and must make compensation to
the other party to the contract for any loss which it may sustain by the non-
performance of the contract. [S 54]

A hires B's ship to dispatch a cargo from Kolkata to Mauritius. The cargo is to be
provided by A, while B is to receive a certain freight for its conveyance. A does not
provide any cargo for the ship. A cannot claim the performance of B's promise, and
must make compensation to B for the loss which B sustains by the non-performance.

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Discharge of a Contract

Discharge of a contract implies termination of contractual obligations.

This is because when the parties originally entered into the contract, the
rights and duties in terms of contractual obligations were set up.
Consequently when those rights and duties are put out then the
contract is said to have been discharged.

Once a contract stands discharged, parties to it are no more liable even

though the obligations under the contract remain uncompleted.

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Modes of Discharging a Contract

A contract is deemed to be discharged, that is concluded and no longer

binding, in the following circumstances:
• Performance
• Agreement
• Lapse of Time
• Operation of Law
• Impossibility of Performance
• Accord and Satisfaction
• Breach

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 Modes of Discharging a Contract

1. Discharge by Performance. Where both the parties have either carried out or
tendered (attempted) to carry out their obligations under the contract, this is referred
to as discharge of the contract by performance. Because performance by one party
constitutes the occurrence of a constructive condition, the other party’s duty to
perform is also triggered, and the person who has performed has the right to receive
the other party’s performance. The overwhelming majority of contracts are discharged
in this way.
2. Discharge of Contract by Substituted Agreement. A contract emanates from an
agreement between the parties. It thus follows that the contract must also be
discharged by agreement. Therefore, what is required, inevitably, is mutuality.
Discharge by substituted agreement arises when a contract is abandoned, or the terms
within it are altered, and both the parties are in conformity over it.

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 Modes of Discharging a Contract

3. Novation. The term novation implies the substitution of a new contract for the
original one. This arrangement may be either between the same parties or between
different parties. For a novation to be valid and effective, the consent of all the
parties, including the new one(s), if any, is essential. Moreover, the subsequent or
second agreement must be one capable of enforcement in law, the consideration
for which is the exchange of promises not to enforce the original contract.

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