Performance of the Contract

Introduction

• The term ‘performance’ in its literal sense means the performance of a task or action. In its legal sense “performance” means the fulfilment or the completion of the obligations which they have towards the other party by virtue of the contract entered by them.
• For example, ‘A’ and ‘B’ enter a contract, the terms of the contract state that A must deliver a book to B on payment of the consideration of five hundred rupees. Here, B pays five hundred rupees to A and as stipulated in the contract, A delivers him the book.

Definition

• According to Section 37 of the Indian Contract Act,1872 “The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of the act, or any other law.
• Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears in the contract.
• Thus, it is the primary duty of each contracting party to either perform or offer to perform its promise.

Types of Performance

• Actual performance
  • When a promisor has made an offer of performance to the promisee and the offer has been accepted by the promisee, it is called an actual promisee. The contractual obligations are actually performed whereby the liability of a party under the contract comes to an end.
• Attempted performance or tender of performance
  • Where the promisor has made an offer of performance to the promisee, and the offer has not been accepted by the promisee, it is called an attempted performance [Section 38]. Such refusal to accept offer of performance by promisee discharges the party from its liability and from its performance.

Types of Tenders

• Tender of goods and services: The discharge of the contract to deliver goods and services is completed when the goods are tendered for acceptance in accordance with the terms of the contract. If the goods and services so tendered are not accepted, they are to be taken back by the offeror and he is discharged from his liability.
• Tender of money: Where the debtor tenders the money, which is to be paid to the creditor, but the creditor refuses to accept the money. The debtor is not discharged from the liability to pay back the money. Therefore, a tender of money can never result in the discharge of debt.

Offer of Performance/Tender

• The essentials of a valid offer of performance are stated under Section 38 of the Indian Contract Act, 1872:
  • The offer should be unconditional.
  • It must be made at a proper time and place so as to allow the party to have a reasonable time to ascertain that the person who is making the offer to him is competent to enter into a contract.
  • If the offer to the offeree is such as to deliver some goods addressed to the offeree, then it is the duty of the offeror to provide reasonable time to the offeree in which he can ascertain that the goods offered to him is the same by which the offeror is bound under the terms of the contract.

Rules Regarding Time and Place of Performance of Contract

• Time for performance of promise, where no application is to be made and no time is specified (Section 46 of Indian Contract Act, 1872):
  • Where a promisor has to perform his promise without application by the promisee and no time is specified for performance, the engagement or promise must be performed within a reasonable time.
• Time and place for performance of promise, where time is specified and no application to be made (Section 47):
  • When a promise is to be performed on a certain day without application by the promisee, the promisor may perform at any time during the usual working hours on such a day.
• Application for performance on a certain day to be at proper time and place (Section 48):
  • When a promise is to be performed on a certain day the promisor may undertake to perform it after the application by the promisee to that effect. In such a case it is the duty of the promisee to apply for performance at a proper place and time within usual business hours.
• Place for the performance of promise, where no application to be made and no place fixed for performance (Section 49):
  • When a promise is to be performed without application by the promisee and no place is fixed for the performance, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise and perform the promise at such place.
• Performance in manner or at the time prescribed or sanctioned by the promisee(Section 50):
  • The performance of any promise may be made in any manner or at any time which the promisee prescribes or sanctions. A contract can also exist in which the promisor agrees to perform the contract in a manner and at a place and time prescribed by the promisee.

By Whom must Contracts be Performed?

• Section 40 of the Contract Act, 1872 contains provisions regarding the performance of the contract. The section provides that if by the terms of the contract it appears that the intention of the parties to the contract was such that any promise contained in it must essentially be performed by the promisor himself and no other person on his behalf can perform his promise.
• In all the other contracts the terms of which do not indicate any similar intention then in the absence of the promisor for the performance of the promise any other competent person can perform the promise on his behalf.

Effect of Refusal of Party to Perform Promise

When a party to a contract has refused to perform or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

• Promisee– Stranger can’t demand performance of the contract.
• Legal Representative– In case of death of the promisee, the legal representative can demand performance unless a contrary intention appears from the contract, or the contract is of personal nature.
• Third party– A third party can also demand performance of the contract in some exceptional cases like beneficiary in case of trust, the person for whose benefit the provision is made in a family arrangement. This is an exception to the doctrine that a stranger to a contract cannot enforce a contract.
• Joint Promisee- In case of several promises, unless a contrary intention appears from the contract, the following persons must perform the promise-
  • In case all the promisee are alive- All the promisee jointly can demand performance.
  • In case of death of any of the joint promisees- Representatives of deceased promisee jointly with the surviving promisee can demand performance of promise.
  • In case of death of all joint promisee- Representatives of all of them jointly can demand performance of the promise.

Case Laws

• Basanti Bai vs Sri Prafulla Kumar Routrai (2006):
  • The Orissa High Court held that if there is no legal representative then, in that case, the liability to perform the promise on his behalf would fall upon the person who acquires interest over the subject matters of the contract through that deceased party.
• M/S Great Eastern Energy v. M/S Jain Irrigation (2010):
  • The tender specified the validity period for four months. The Bombay High Court held that after the expiry of the period of tender, no acceptance could be made. The forfeiture of the security deposit amount by acceptance of the tender after the expiry of its validity period and failure of performance by the tenderer was not improper.