Performance of a Contract – Indian Contract Act, 1872

By | February 18, 2019

Performance of a Contract

In general, an agreement between two parties that creates legal obligation and is enforceable by law is a contract. For entering into a contract, there are certain essentials-

  1. Agreement between two parties
  2. The intent of Legal obligation
  3. Lawful consideration
  4. The condition should be certain with a legal object
  5. Free Consent
  6. Competency of parties

The basis of a contract is that both the parties have to fulfill their part of the contract in order to give effect to it according to the stipulated terms. Performance of a contract is the fulfillment of the contractual obligations by the parties. It is one of the methods to discharge a contract. The parties have no further rights and liabilities once the contract is discharged. The obligation of parties to contract—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 this Act, or of any other law. Promises bind the representatives of the promisors in case of the death of such promisors before the performance, unless a contrary intention appears from the contract. [1]

A contract being an agreement enforceable by law comprises of reciprocal promises. In order that a party can enforce the promises made to him, he should perform his promise or offer to perform his promise and it is after he has so performed, or offered to perform, his promise that he could ask the other party to carry out his promise. Either performance or readiness and willingness to perform the contract is the basic requirement. [2]

The promisor must offer to perform his obligation under the contract. The offer to perform a contract is known as Tender. If one party does not accept, the other is not liable for non-performance nor does he lose his right under the contract. If the tender of performance is rejected by a party, it entitles other parties to sue for the breach of the contract. [3] A valid tender must satisfy the following conditions:-

  • It must be unconditional in nature- Unconditional means that neither should any extra conditions be attached to the contract nor should any existing condition be altered. Also, the conditions should remain the same as they were at the time of finalization of the contract.
  • A tender must be made at a proper time and place- In most of the cases, the time and place of the tender are fixed. But if not, the time and place should be reasonable, for example, if goods are delivered at odd hours and such tender is refused, the promisor will not be discharged of his obligation.
  • The offeree must be given a reasonable opportunity to ascertain the proposal- The offeree should have a reasonable time to ascertain that all the conditions have complied in the performance of the contract.

Who can perform a Contract?

  1. Promisor himself: If the terms and conditions of the contract clearly specify that the conditions are as such that the promisor only can perform them, then it can be done by the promisor only. This means contracts which involve the use of personal skill and expertise, must be performed by the promisor himself.
  2. Agent: When it is not separately mentioned that the promisor needs to complete the performance, then the agent can perform the contract on behalf of his principal i.e. the promisor.
  3. Representatives: A contract which involves the use of personal skills of the promisor or is founded on personal consideration comes to an end on the death of the promisor. In such a condition, the legal representatives of the promisor are bound by the conditions of the contract entered into by him until contrary intention appears from the contract. But their liability will be limited to the share of the property they have inherited from the deceased promisor.              Sometimes the nature of the promise is an indication by itself that the promisor must perform the contract in his own capacity. This usually happens in cases where the use of the personal skills of the promisor is involved, for instance, a contract to paint, sing or marry and contracts to technical nature. In such cases, the death of the promisor puts an end to the contract. [4]
  4. Third Persons: For performance by a third person, the promisee has to accept it when the contract is being made. Once the condition of performance by the third party is accepted, promisee cannot deny later. The contract performed in this case will be discharged on the part of the promisor if done by the decided third party, even if the promisor does not ratify the performance explicitly. In Hirachand Punamchand v Temple[5]a debt was held to be discharged when creditor accepted a smaller sun from debtor’s father in full settlement. Performance of the father (read the third party) in this case discharged the contract. Discharge of a contract by the third party’s performance can take place only when it is done with the intention of doing so.

The Standard of Performance

The general rule is that the performance obligation is strict so that the contractual obligation is precisely and completely performed. Some examples of strict obligations are the obligations as to description, fitness for purpose, satisfactory quality etc. The only exception to this is the de minimis rule i.e. only microscopic deviations. A legal term meaning very small to be meaningful or taken into consideration i.e. immaterial. As a matter of policy, the law does not encourage parties to bring legal actions for technical breaches of rules or agreements where the impact of the breach is negligible.

The term de minimis is taken from a longer Latin phrase which translates into “the law does not concern itself with trifles.” De minimis exceptions are commonly included in contracts to limit the application of covenants or other restrictions so that they do not apply in circumstances where the failure to observe the restriction has negligible impact. [6]If the rule of de minimis is not applicable in a particular situation then it constitutes a breach. Courts have applied the rule of de minimis often to ignore the minor transgressions of the law. As to what is a case deserving this benefit of the aforesaid rule is a question of fact to be decided in each case for which no rigid and exhaustive law can be laid down. The court ignores the shortfall and extends the benefit. [7]

The maxim de minimis non curat lex means that the law does not govern trifles; law ignores insignificant details. Where trifling irregularities or even infractions of the strict letter of the law are brought under the notice of the court, this maxim is of frequent use. The law permits the qualification implied in the maxim, where there are irregularities of very slight consequence, the court does not intend that the imposition of penalties should be inflexibly severe. If the deviation were a minor trifle, which if, continued in practice, would weigh little or nothing on the public interest, it might properly be overlooked. [8]

Effect of refusal of a party to perform promise wholly

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. [9] If one of the parties refuses the performance and does not fulfill his part of the contract, the contract is said to be broken and amounts to the breach of contract by such party. This is called repudiation. Repudiation of a contract occurs where one party renounces their obligations under a contract. It can be that they are unwilling or unable to perform their obligations under a contract. Repudiation is seen to be quite a serious matter and the court requires a ‘clear indication’ that a party is unready or unwilling to perform the contract. Because it is often before an actual breach of a contract, it can be referred to as an anticipatory breach. [10]

Specific performance of a contract

Specific performance is equitable relief, given by the court to enforce against a defendant, the duty of doing what he agreed by contract to do. Thus, the remedy of specific performance is in contrast with the remedy by way of damages for breach of contract, which gives pecuniary compensation for failure to carry out the terms of the contract. Damages and specific performance are both, remedies available upon breach of obligations by a party to the contract; the former is a ‘substitutional’ remedy, and the latter a ‘specific’ remedy. The remedy of specific performance is granted by way of exception. The plaintiff seeking this remedy must first satisfy the court that the normal remedy of damages is inadequate. [11]

Contracts which need not be performed

  1. If the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed. The process to substitute an existing contract by a new contract is known as Novation.
  2. If a voidable contract is rescinded, the other party need not perform his part.
  3. If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non- performance caused thereby.
  4. Further, where the consideration and object of a contract are unlawful and where the performance is unlawful or illegal, the contract need not be performed.

By – Srishti Arora

UPES, Dehradun

Sources

[1] Section 37, in The Contract Act, 1872.

[2] Mulla The Indian Contract Act, 15th Edition, Anirudh Wadhwa, Lexis Nexis.

[3] Avtar Singh, Contract & Specific Relief, Tenth edition.

[4] ibid              

[5] [1911] 2 K.B. 330

[6]Thomson Reuters, Practical law, https://uk.practicallaw.thomsonreuters.com/1-382-3582?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1

[7] Umesh Chand Gandhi vs. 1st Additional and Sessions Judge and Another, 1994 SCC (1) 747, JT 1993 (6) 553.

[8] Exposition of maxim by Herbert Broom mentioned in the judgment of  Karthyayani Amma vs. Varkey, LAWS (KER)-1961-1-5.

[9] Section 39 in The Indian Contract Act, 1872.

[10] https://legalvision.com.au/what-is-repudiation-of-a-contract/.

[11] http://www.legalservicesindia.com/article/942/Specific-performance-of-Contracts.html, specific performance of a contract by sprshprsd.


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