Performance of Contracts
A contract being an agreement enforceable by law, creates a legal obligation, which subsists until discharge. Performance of the promise or promises remaining to be performed is the principal and most usual mode of discharge. This unit explains; who must perform his obligation, what should be the mode of performance, and what shall be the consequences of non performance.
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 Contract Act or of any other law. Promises bind the representatives of the promisor in case of death of such promisor before performance, unless a contrary intention appears from the contract (Section 37).
- A promises to deliver goods to B on a certain day on payment of ` 1,000. A dies before that day. A’s representatives are bound to deliver the goods to B, and B is bound to pay the ` 1,000 to A’s representative.
- A promises to paint a picture for B by a certain day, at a certain price. A dies before the day.The contract cannot be enforced either by A’s representatives or by B.
Thus, you should note that it is necessary for a party who wants to enforce the promise made to him, to perform his promise for himself or offer to perform his promise. Only after that he can ask the other party to carry out his promise. This is the principle which is enshrined in Section 37. Thus, it is the primary duty of each party to a contract to either perform or offer to perform his promise. He is absolved from such a responsibility only when under a provision of law or an act of the other party to the contract, the performance can be dispensed with or excused.
Thus from above it can be draw that performance may be actual or offer to perform. Actual Performance: Where a party to a contract has done what he had undertaken to do or either of the parties have fulfilled their obligations under the contract within the time and in the manner prescribed.
Example: X borrows ` 5,000 from Y with a promise to be paid after 1 month. X repays the amount on the due date.This is actual performance.
Offer to perform or attempted performance or tender of performance: It may happen sometimes, when the performance becomes due, the promisor offers to perform his obligation but the promise refuses to accept the performance.
Example: P promises to deliver certain goods to R. P takes the goods to the appointed place during business hours but R refuses to take the delivery of goods. This is an attempted performance as P the promisor has done what he was required to do under the contract.
By whom contract may be performed ?
The promise under a contract may be performed, as the circumstances may permit, by the promisor himself, or by his agent or his legal representative.
- Promisor himself: If there is something in the contract to show that it was the intention of the parties that the promise should be performed by the promisor himself, such promise must be performed by the promisor. This means contracts which involve the exercise of personal skill or diligence, or which are founded on personal confidence between the parties must be performed by the promisor himself.
Example: A promises to paint a picture for B and this must be performed by the promisor himself.
- Agent: Where personal consideration is not the foundation of a contract, the promisor or his representative may employ a competent person to perform it.
- Representatives: A contract which involves the use of personal skill or is founded on personal consideration comes to an end on the death of the promisor. As regards any other contract the legal representatives of the deceased promisor are bound to perform it unless a contrary intention appears from the contract (Section 37, para 2). But their liability under a contract is limited to the value of the property they inherit from the deceased.
- Third persons: When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. That is, performance by a stranger, if accepted by the promisee, this result of discharging the promisor, although the latter has neither authorised not ratified the act of the third party.
Example: A received certain goods from B promising to pay ` 10,000/-. Later on, A expressed his inability to make payment. C, who is known to A, pays ` 6,000/- to B on behalf of A. However, A was not aware of the payment. Now B is intending to sue A for the amount of 10,000/- whether he can do so? Advice.
As per Section 41 of the Indian Contract Act, 1872, when a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. That is, performance by a stranger, accepted by the promisee, produces the result of discharging the promisor, although the latter has neither authorised nor ratified the act of the third party.
Therefore, in the present instance, B can sue only for the balance amount i.e., ` 4000/- and not for the whole amount.
- Joint promisors: When two or more persons have made a joint promise, then unless a contrary intention appears from the contract, all such persons must jointly fulfill the promise. If any of them dies, his legal representatives must, jointly with the surviving promisors, fulfill the promise. If all of them die, the legal representatives of all of them must fulfill the promise jointly (Section 42).
- A promises to B to pay ` 1,000 on delivery of certain goods. A may perform this promise either himself or causing someone else to pay the money to B. If A dies before the time appointed for payment, his representative must pay the money or employ some other person to pay the money. If B dies before the time appointed for the delivery of goods, B’s representative shall be bound to deliver the goods to A and A is bound to pay ` 1,000 to B’s representative.
- A promises to paint a picture for B for a certain price. A is bound to perform the promise himself. He cannot say some other painter to paint the picture on his behalf. If A dies before painting the picture, the contract cannot be enforced either by A’s representative or by B.
- A delivered certain goods to B for a promise to ` 5,000. Later on B expresses his inability to clear the dues. C, who is known to B, pays ` 2,000 to A on behalf of B. Before making this payment C did not tell B about it. Now A can sue B only for the balance and not the whole amount.
Distinction between Succession and Assignment
You should now note carefully the distinction between two legal concepts, viz., succession and assignment. When the benefits of a contract are succeeded to by process of law, then both burden and benefits attaching to the contract, may sometimes devolve on the legal heir. Suppose, a son succeeds to the estate of his father after his death, he will be liable to pay the debts and liabilities of his father owed during his life-time. But if the debts owed by his father exceed the value of the estate inherited by the son then he would not be called upon to pay the excess. In other words, the liability of the son will be limited to the extent of the property inherited by him; thus far and no further. In the matter of assignment, however the benefit of a contract can only be assigned by not the liabilities thereunder. Why this is so ? This is because when liability is assigned, a third party gets involved therein. Thus a debtor cannot relieve himself of his liability to creditor by assigning to someone else his obligation to repay the debt.
On the other hand, if a creditor assigns the benefit of a promise, he thereby entitles the assignee to realise the debt from the debtor but where the benefit is coupled with a liability or when a personal consideration has entered into the making of the contract then the benefit cannot be assigned.
Effect of refusal to accept offer of performance
According to Section 38 of the Act, where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, then the promisor is not responsible for nonperformance; nor does he thereby lose his rights under the contract. Every such offer must fulfill certain conditions which are as follows, namely:
(i) it must be unconditional;
(ii) it must be made at a proper time and place under such circumstances that the persons to whom it is made, may have a reasonable opportunity of ascertaining that the person by whom it is made is able of and willing, there and then to do the whole of what he is bound by his promise to do.
(iii) if the offer is an offer to deliver anything to the promisee, then the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver. An offer to one of several joint promisees has the same legal consequences as an offer to all of them.
Effect of a refusal of party to perform promise
Primarily, it gives rise to certain rights to the other party. Let us now consider what those rights are. When a party to a contract has refused to perform or has disabled himself from performing his promise in entirety, the promisor may put an end to the contract, unless he has signified by words or conduct, his acquiescence in its continuance (Section 39). From language of Section 39 it is clear that in the case under consideration, the following two rights accrue to the aggrieved party, namely, (a) to terminate the contract; (b) to indicate by words or by conduct that he is interested in its continuance.
In case the promisee decides to continue the contract, he would not be entitled to put an end to the contract on this ground immediately. In either case, the promisee would be able to claim damages that he suffers as a result on the breach.
Example: A, singer, enters into a contract with B, the Manager of a theatre, to sing at his theatre two nights in every week during next two months, and B engages to pay her 100 rupees for each night’s performance. On the sixth night, A willfully absents herself from the threatre. B is at liberty to put an end to the contract.
Liability of joint promisors
If two or more persons have made a joint promise, ordinarily all of them during their life-time must jointly fulfill the promise. After death of any one of them, his legal representative jointly with the survivor or survivors should do so (Sec. 42). After the death of the last survivor the legal representatives of all the original co-promisors must fulfil the promise.
For example, X, Y and Z who had jointly borrowed money must, during their life-time jointly repay the debt. Upon the death of X his representative, say, S along with Y and Z should jointly repay the debt and so on. This rule is applicable only if the contract reveals no contrary intention. We have seen that Section 42 deals with voluntary discharge of obligations by joint promisors. But if they do not discharge their obligation on their own volition, what will happen ? This is what Section 43 resolves. Accordingly,
(i) when two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the promise.
(ii) If one of the joint promisors is made to perform the whole contract, he can call for a contribution from others. For example, A, B and C jointly execute a promissory note for ` 3,000 in favour of D. A is compelled to pay the whole amount. A, in such a case would be able to realise ` 1,000 each from B and C. This rule may, however, be modified by mutual agreement between the joint promisors.
(iii) If any of the joint promisors makes a default in making his contribution, the remaining joint promisors must bear the loss arising from such a default in equal shares.
In the above example, where A, B and C jointly executed the promissory note for ` 3,000 and if C was unable to pay anything, then A would be able to realise from B by way of contribution ` 1,500 instead of ` 1,000.
We thus observe that the effect of Section 43 is to make the liability in the event of a joint contract, both joint & several, in so far as the promisee may, in the absence of a contract to the contrary, compel anyone or more of the joint promisors to perform the whole of the promise. The effect of release of one of the joint promisors is dealt with in Section 44 which is stated below:
Where two or more persons have made a joint promise, a release of one of such joint promisors by the promisee does not discharge the other joint promisor or joint promisors; neither does it free the joint promisors so released from responsibility to the other joint promisor or promisors.
Rights of joint promisees
The law is contained in Section 45 which is reproduced below:
“When a person has made a promise to two or more persons jointly, then unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and after the death of any of them with the representatives of such deceased person jointly with the survivor or survivors, and after the death of the last survivor, with the representatives of all jointly”.
For example, A, in consideration of ` 5,000 lent to him by B and C, promises B and C jointly repay the sum with interest on a specified day but B dies. In such a case right to demand payment shall rest with B’s legal representatives, jointly with C during C’s life-time, and after the death of C, with the legal representatives of B and C jointly.
Time and Place for performance of the promise
The law on the subject is contained in Sections 46 to 50 provisions whereof are summarized below:
(i) If no time is specified in a contract for the performance of the promise, the promise must be performed within a reasonable time. The expression reasonable time is to be interpreted having regard to the facts and circumstances of a particular case.
(ii) If a promise is to be performed on a specified date but the hour is not mentioned, the promisor may perform it at any time during the usual hours of business, on such day. For example, if the delivery of goods is offered say after sunset, the promisee may refuse to accept delivery, for the usual business hours are, between 10 a.m. and 5 p.m. Moreover, the delivery must be made at the usual place of business.
(iii) When no place is fixed for the performance of a promise, it is the duty of the promisor to ask the promisee to fix a reasonable place for the performance of the promise. The foregoing rules regarding the time and place for the performance of promise apply, only when the promisor undertakes to perform the promise without an application being made by the promisee.
(iv) Where the promisor has not undertaken to perform the promise without an application by the promisee, and the promise is to be performed on a certain day it is the duty of the promise to apply for performance at a proper place and within the usual hours of business.
Performance of reciprocal promises
The law on the subject is contained in Sections 51 to 54. The provisions thereof are summarized below:
(i) General observations: A contract may consist of an act and a promise, or it may consist of two promises, one being the consideration for the other. Thus, when A sells 500 quintals of rice to B who promises to pay the price after a month, the contract would consist of an act performed by A and a promise made by B. On the other hand, if A promises to deliver 500 quintals of rice and B promises to pay the price on delivery, the contract would consist of two promises, one made by A to B and the other given by B to A. Such promises are called reciprocal promises. Here, the promise of A is the consideration for the promise of B and vice versa.
(ii) Simultaneous performance of reciprocal promises: Reciprocal promises may have to be performed simultaneously, or one after the other. Where A promises to deliver rice and B promises to pay the price on delivery, both the promises are to be performed simultaneously, and both
A and B must be ready and willing to perform their respective promises. Such promises constitute concurrent conditions and the performance of one of the promises is conditional on the performance of the other. If one of the promises is not performed the other too need not be performed. If A, in the above-mentioned example, is unwilling to deliver the rice on payment, A will be guilty of breach of promise and the breach would relieve B of the obligation to perform his promise and would enable B to treat the contract as at an end.
(iii) Performance of reciprocal promises where the order of performance is expressly fixed: When the order of performance of the reciprocal promises is expressly fixed by the contract, they must be performed in that order. For instance, 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 can be called upon to perform his promise to pay for it. The promise being dependent on each other, any breach thereof by A would relieve B of the obligation to keep up his own promises, and would enable B to avoid the contract.
(iv) Performance of reciprocal promises when the order of performance is fixed by implication: The order of performance may sometimes be indicated not expressly, but by the nature of the transaction. For example, A and B contract that A shall make over his stock-in-trade to B at a fixed price, and B promises to give security for the payment of the price. A’s promise to make over his stock need not be performed, until the security is given by B, for the nature of the transaction required that A should have the security from B before he delivers his stock.
(v) Effect of one party preventing another from performing promise: When in a contract, consisting of reciprocal promises, one party prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented. The latter becomes entitled to get compensation from the other party for any loss he sustains in consequence of the nonperformance of the contract. For instance, in a contract for the sale of standing timber, the seller is to cut and cord it, whereupon buyer is to take it away and pay for it. The seller cords only a part of the timber and neglects to cord the rest. In that event the buyer may avoid the contract and claim compensation from the seller for any loss which he may have sustained for the non-performance of the contract.
Reciprocal promise to do certain things that are legal, and also some other things that are illegal:
When persons reciprocally promise, first to do certain things which are legal and secondly, under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement.
For example, A and B agree that A will sell a house to B for ` 50,000 and also that if B uses it as a gambling house, he will pay a further sum of ` 75,000. The first set of reciprocal promises, i.e. to sell the house and to pay ` 50,000 for it, constitutes a valid contract. But the object of the second, being unlawful, is void.
‘Alternative promise’ one branch being illegal: The law on this point is contained in Section 58 which says that “In the case of the alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced”.
Effect of Failure to perform at a time fixed in a contract in which time is essential: The law on the subject is contained in Section 55 which is reproduced below:
“When a party to a contract promises to do certain thing at or before the specified time, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of essence of the contract”.
If it was not the intention of the parties that time should be of essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.
But ordinarily, from an examination of a contract, it is difficult to ascertain whether time is intended to be of essence by the parties at the time of its formation. In every case, the intention is to be gathered from the terms of the contract. In a mercantile contract, the general rule in this regard is that stipulations as to time, except as to time for payment of money, are essential conditions, since punctuality is of the utmost importance in the business world. Thus, on a sale of goods that are notoriously subject to rapid fluctuation of market price, e.g. gold, silver, shares having a ready market the time of delivery is of the essence of the contract. But in mortgage bond, the time fixed for the repayment of the mortgage money can by no means be regarded as an essential condition; consequently, the mortgaged property can be regained even after the due date. Similarly, in a contract to sell land any clause limiting the time of completion is not strictly enforced. But even in a contract for the sale of land, time can be made the essence of the contract by express words.
Contract cannot be avoided where time is not essential: Where time is not essential, the contract cannot be avoided on the ground that the time for performance has expired, there the promise is only entitled to compensation from the promisor for any loss caused by the delay. But it must be remembered that even where time is not essential it must be performed within a reasonable time; otherwise it becomes voidable at the option of the promisee.
Effect of acceptance of performance out of time: Even where time is essential the promisee may waive his right to repudiate the contract, when the promisor fails to perform the promise within the stipulated time. In that case, he may accept performance at any time other than that agreed. In such an event, he cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless at the time of acceptance of the performance he has given a notice to the promisor of his intention to claim compensation.
Impossibility of performance
Section 56 contemplates various circumstances under which agreement may be void, since it is impossible to carry it out. The Section is reproduced below: “An agreement to do an act impossible in itself is void. A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
(1) Impossibility existing at the time of contract: When the parties agree upon doing of something which is obviously impossible in itself the agreement would be void. Impossible in itself means impossible in the nature of things. The fact of impossibility may be and may not be known to the parties.
(i) If known to the parties: It would be observed that an agreement constituted, quite unknown to the parties, may be impossible of being performed and hence void. For example, B promises to pay a sum of ` 5,000 if he is able to swim across the Indian Ocean from Bombay to Aden within a week. In this case, there is no real agreement, since both the parties are quite certain in their mind that the act is impossible of achievement. Therefore, the agreement, being impossible in itself, is void.
(ii) If unknown to the parties: Where both the promisor and the promisee are ignorant of the impossibility of performance, the contract is void.
(iii) If known to the promisor only: Where at the time of entering into a contract, the promisor alone knows about the impossibility of performance, or even if he does not know though he should have known it with reasonable diligence, the promisee is entitled to claim compensation for any loss he suffered on account of non-performance.
(2) Supervening impossibility: When performance of promise become impossible or illegal by occurrence of an unexpected event or a change of circumstances beyond the contemplation of parties, the contract becomes void e.g. change in law etc.
1.32 Appropriation of payments
(i) Application of Payment where debt to be discharged is indicated: The law on the subject is contained in Section 59 which says, “Where a debtor, owing several distinct debts to one person, makes a payment to him either with express intimation or under circumstances implying that the payment is to be applied to the discharge of some particular debt, the payment, if accepted, must be applied accordingly”.
The Latin maxim is quicquid solvitur, solvitur secundum modum solventis. The meaning of the maxim is that whatever is paid, is paid according to the intention or manner of the party paying. According to this maxim, where a debtor owes several distinct debts to a creditor and makes payment it has been held in Clayton’s case that the former enjoys the right of appropriation, and he may, at his pleasure, appropriate it to any debt; the creditor will be bound by such an appropriation. If the debtor has not intimated at the time of payment creditor is entitled to appropriate it to the debt first in time.
(ii) Application of payment where neither party appropriates: The law on the subject is contained in Section 61, reproduced below: “Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing the payment shall be applied in discharge of each proportionately.”
The aforesaid rule is to be applied when there is nothing to show the intention of the parties. If the debts are of the same date the payment shall be applied in discharge of each proportionately. For example, there are two debts one of ` 500 and the other of ` 700 that were incurred on the same date the debtor pays ` 600. Out of this sum, a sum of ` 250 should be applied in discharge of the first debt and the balance of ` 350 in discharge of the second debt.
Contracts which need not be performed
Under this heading, we shall discuss the principles of Novation, Rescission and Alteration and Remission. The law is contained in Sections 62 to 67 of the Contract Act. “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”( Section 62)
(a) Effect of novation: The parties to a contract may substitute a new contract for the old. If they do so, it will be a case of novation. On novation, the old contract is discharged and consequently it need not be performed. Thus it is a case where there being a contract in existence some new contract is substituted for it either between the same parties or between different parties the consideration mutually being the discharge of old contract. Novation can take place only by mutual agreement between the parties.
For example, A owes B ` 100. A, B and C agree that C will pay B and he will accept 100 from C in lieu of the sum due from A. A’s liability thereby shall come to an end, and the old contract between A and B will be substituted by the new contract between B and C.
(b) Effect of rescission: A contract is also discharged by rescission. When the parties to a contract agree to rescind it, the contract need not be performed. In the case of rescission, only the old contract is cancelled and no new contract comes to exist in its place. It is needless to point out that novation also involves rescission. Both in novation and in rescission, the contract is discharged by mutual agreement.
(c) Effect of alteration of contract: As in the case of novation and rescission so also in a case where the parties to a contract agree to alter it, the original contract is rescinded, with the result that it need not be performed. In other words, a contract is also discharged by alteration. The terms of contract may be so altered by mutual agreement that the alteration may have the effect of substituting a new contract for the old one. In other words, the distinction between novation and alteration is very slender.
Novation and alteration: The law pertaining to novation and alteration is contained in Sections 62 to 67 of the Indian Contract Act. In both these cases the original contract need not be performed. Still there is a difference between these two.
- Novation means substitution of an existing contract with a new one. Novation may be made by changing in the terms of the contract or there may be a change in the contracting parties. But in case of alteration the terms of the contract may be altered by mutual agreement by the contracting parties but the parties to the contract will remain the same.
- In case of novation there is altogether a substitution of new contract in place of the old contract. But in case of alteration it is not essential to substitute a new contract in place of the old contract. In alteration, there may be a change in some of the terms and conditions of the original agreement.
(d) Promisee may waive or remit performance of promise: “Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance or may accept instead of its any satisfaction which he thinks fit”(Section 63). In other words, a contract may be discharged by remission. Thus where A, a party to a contract, has done all that he was required to do under the contract and the time for the other party, X, to perform his promise has not yet arrived, a bare waiver of his claim by A would be an effectual discharge to X.
It should be noted that novation, rescission or alteration cannot take place without consideration. But in the case of partial or complete remission, no consideration is required. The promisee can dispense with performance without consideration and without a new agreement.
The promisee under the Act can also extend the time for the performance of the promise. Time can be extended only for the benefit of the promisor and not for the benefit of the promisee. Similarly, a promisee can accept instead of the stipulated performance, any satisfication which he thinks fit. For instance, A sells his horse to B who promises to pay ` 500 for the horse. A may accept, instead of ` 500 a necklace as the price of the horse.
Restoration of benefit under a voidable contract (Section 64)
The law on the subject is “When a person at whose option a contract is voidable rescinds t, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he has received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received”.
Such a contract can be terminated at the option of the party who is empowered to do so. If he has received any benefit under the contract, he must restore such benefit to the person from whom he has received it.
For example, an insurance company may rescind a policy on the ground that material fact has not been disclosed. When it does so, the premium collected by it in respect of the policy reduced by the amount of expenses incurred by it in this connection must be repaid to the policy holder. A voidable contract, when it is voidable at its inception as well as when it subsequently becomes voidable, comes to an end as soon as it is avoided by the party at whose option it is voidable. On the contract being avoided, the injured party is entitled to recover compensation for any damage which he has sustained through the non-performance of the contract. On the other hand, if he has received any benefit under voidable contract, he must restored such benefit to the person from whom it was received.
Obligations of person who has receiv ed advantage under void agreement or one becoming void
“When an agreement is discovered to be void or when a contract becomes void, any person who received any advantage under such agreement or contract must restore it, makes compensation for it to the person from whom he received it” (Section 65). From the language of the Section, it is clear that in such a case either the advantage received must be restored back or a compensation, sufficient to put the position prior to contract, should be paid.
Example: A pays B 1,000 rupees, in consideration of B’s promising to marry C, A’s daughter. C is dead at the time of the promise. The agreement is void, but B must repay A ` 1,000. In a case, the plaintiff hired a godown from the defendant for twelve months and paid the whole of the rent in advance. After about seven months the godown was destroyed by fire, without any fault or negligence on the part of the plaintiff and the plaintiff claimed a refund of a proportionate amount of the rent. Held, the plaintiff was entitled to recover the rent for the unexpired term, of the contract.
The Act requires that a party must give back whatever he has received under the contract. The benefit to be restored under this section must be benefit received under the contract. A agrees to sell land to B for ` 40,000. B pays to A ` 4,000 as a deposit at the time of the contract, the amount to be forfeited to A if B does not complete the sale within a specified period. B fails to complete the sale within the specified period, nor is he ready and willing to complete the sale within a reasonable time after the expiry of that period. A is entitled to rescind the contract and to retain the deposit. The deposit is not a benefit received under the contract, it is a security that the purchaser would fulfill his contract and is ancillary to the contract for the sale of the land.
Though generally the benefit received under an agreement which is subsequently found to be void, must be returned, such a course may not be necessary when the benefit has been received by the corporation. It is because contract with a corporation usually is required to be entered into a special form, in the absence where of the contract becomes void. The argument in support of this view is that the agreement in this case becomes void due to the negligence of the promisor.
Communication of rescission (Section 66): You have noticed that a contract voidable at the option of one of the parties can be rescinded; but rescission must be communicated to the other party in the same manner as a proposal is communicated under Section 4 of the Contract Act. Similarly, a rescission may be revoked in the same manner as a proposal is revoked.
Effects of neglect of promisee (Section 67): If any promisee neglects or refuses to afford the promisor facilities for the performance of a promise, the promisor is excused from the performance of his promise. In other words, the promisor cannot be held liable for the non-performance. For example, if an apprentice refuses to learn, the teacher cannot be held liable for not teaching. A contracts with B to repair B’s house. B neglects or refuses to appoint out to A the places in which his house requires repair. A is excused for the non-performance of the contract it is caused by such neglect or refusal.
Discharge of a contract
A contract may be discharged either by an Act of the parties or by an operation of law in the different base set out below:
(i) Discharge by performance: It takes place when the parties to the contract fulfil their obligations arising under the contract within the time and in the manner prescribed. Discharge by performance may be (1) actual performance or (2) attempted performance. Actual performance is said to have taken place, when each of the parties has done what he had agreed to do under the agreement. When the promisor offers to perform his obligation, but the promisee refuses to accept the performance, it amounts to attempted performance or tender.
Example: A contracts to sell his car to B on the agreed price, as soon as the car is delivered to B and B pays the agreed price for it, the contract comes to an end by performance.
(ii) Discharge by mutual agreement: Section 62 of the Indian Contract Act provides if the parties to a contract agree to substitute a new contract for it, or to refund or remit or alter it, the original contract need not be performed. The principles of Novation, Rescission, Alteration and Remission are already discussed.
Examples: A owes B ` 10,000. A enters into an agreement with B and mortgage his (A’s), estates for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old. A owes B ` 50,000. A pays to B ` 30,000 who accepts it in full satisfaction of the debt. The whole is discharged.
(iii) Discharge by impossibility of performance: The impossibility may exist from the very start. In that case, it would be impossibility ab initio. Alternatively, it may supervene. Supervening impossibility may take place owing to: (a) an unforeseen change in law, (b) the destruction of the subject-matter essential to that performance; (c) the non-existence or non-occurrence of particular state of things, which was naturally contempleted for performing the contract, as a result of some personal incapacity like dangerous malady; (e) the declaration of a war (Section 56).
Examples: A agrees with B to discover a treasure by magic. The agreement is void due to initial impossibility. A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void. A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on those occasions becomes void.
(iv) Discharge by lapse of time: A contract should be performed within a specified period as prescribed by the Limitation Act, 1963. If it is not peformed and if not action is taken by the promisee within the specified period of limitation, he is deprived of remedy at law. For example, if a creditor does not file a suit against the buyer for recovery of the price within three years, the debt becomes time-barred and hence irrecoverable.
(v) Discharge by operation of law: A contract may be discharged by operation of law which includes by death of the promisor, by insolvency etc.
Example: A took a land on lease from B. Subsequently, A purchases that very land. Now, A becomes the owner of the land and the ownership rights being superior to rights of a lessee, the earlier contract of lease stands terminated.
(vi) Discharge by breach of contract: Breach of contract may be actual breach of contract or anticipatory breach of contract. If one party defaults in performing his part of the contract on the due date, he is said to have committed breach thereof. When on the other hand, a person repudiates a contract before the stipulated time for its performance has arrived, he is deemed to have committed anticipatory breach. If one of the parties to a contract breaks the promise the party injured thereby, has not only a right of action for damages but he is also discharged from performing his part of the contract (Section 64)
Example: A contracts to marry B. Before the agreed date of marriage, he marries C. B is entitled to sue A for breach of promise.
(vii) A promise may dispense with or remit the performance of the promise made to him or may accept any satisfaction he thinks fit. In the first case, the contract will be discharged by remission and in the second by accord and satisfaction (Section 63).
Examples: A owes B ` 5,000. C pays to B `1,000 and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim.
(viii) When a promisee neglects or refuses to afford the promisor reasonable facilities for the performance of the promise, the promisor is excused by such neglect or refusal (Section 67).
Example: A contracts with B to repair B’s house. B neglects or refuses to point out to A the places in which his house requires repair. A is excused for the nonperformance of the contract, if it is caused by such neglect or refusal.
- The promisor or his respresentative must perform unless the nature of contract shows that it may be performed by a third person, but the promisee may accept performance by a third party. (Sections 37, 40 and 41)
- In case of joint promisors, all must perform, and after the death of any of them, the survivors and the representatives of the deceased must perform. But their liability is joint and several. If the promisee requires any one of them perform the whole promise, he can claim contribution from others. (Sections 42, 43 and 44)
- Joint promisees have only a joint right to claim performance. (Section 45)
- The promisor must offer to perform and such offer must be unconditional, and be made at the proper time and place, allowing the promisee a reasonable opportunity of inspection of the things to be delivered. (Sections 38, 46, 47, 48, 49 and 50)
- If the performance consists of payment of money and there are several debts to be paid, the payment shall be appropriated as per provisions of Sections 59, 60 and 61.
- If an offer of performance is not accepted, the promisor is not responsible for non-performance and does not lose his rights under the contract; so also if the promisee fails to afford reasonable facilities. He may sue for specific performance or he may avoid the contract and claim compensation (Sections 38, 39, 53 and 67).
- Rescission is communicated and revoked in the same way as a promise. The effect is to dispense with further performance and to render the party rescinding liable to restore any benefit he may have received. (Sections 64 and 66)
- Parties may agree to cancel the contract or to alter it or to substitute a new contract for it. (Section 62)