When performance due

Every contract creates obligations for the parties involved. The primary obligation is to perform the promises made under the contract. Section 37 of the Indian Contract Act, 1872, lays down the general principle regarding the obligation of parties to a contract:

"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."

This means that parties are legally bound to fulfil their contractual promises unless they are legally excused from doing so. The question of "when performance is due" depends on the terms agreed upon in the contract or, if the contract is silent, on the provisions of the Indian Contract Act or other relevant laws.

Performance as per Contract Terms

The most common scenario is that the contract itself specifies the time, place, and manner of performance. Parties must adhere to these terms. For example, a contract for delivery of goods might specify the date, time, and location for delivery, and the mode of packaging.

If a time is specified for performance, performance is due on that date. If performance is to occur on a certain date or within a period, the promisor may perform it at any time during the usual business hours on that day or period and at the place at which the promise ought to be performed (Section 47).

If the promise is to be performed on a certain day, but the promisee has to apply for performance, the promisor is not bound to perform unless the promisee makes an application at the proper place and within the usual business hours (Section 48).

Performance when Time/Place is Not Specified (Section 46, 47, 49)

If the contract does not specify the time for performance, and the promise is to be performed without application by the promisee, the promise must be performed within a reasonable time (Section 46). What is a reasonable time is a question of fact in each case.

If the contract does not specify the place of performance, and the promise is to be performed without application by the promisee, the promisor must apply to the promisee to appoint a reasonable place for the performance of the promise, and perform it at such place (Section 49).

Effect of Failure to Perform at Fixed Time (Section 55)

If a party fails to perform their promise within the time fixed in the contract, the effect depends on whether time is considered 'of the essence' of the contract.

• Time is of the essence: If the parties intended that performance by the stipulated time is crucial, and a party fails to perform within that time, the contract becomes voidable at the option of the promisee (Section 55, first para). The promisee can rescind the contract and claim damages.
• Time is not of the essence: If the parties did not intend time to be of the essence, the failure to perform within the fixed time does not make the contract voidable. The promisee can still claim damages for the delay, but cannot reject the performance or rescind the contract merely on the ground of delay (Section 55, second para).
• Effect after waiver: If time was of the essence, but the promisee accepts performance after the fixed time, they cannot claim compensation for the delay unless, at the time of acceptance, they give notice to the promisor of their intention to do so (Section 55, third para).

Whether time is of the essence is a question of the parties' intention, gathered from the terms of the contract, the nature of the property, and the surrounding circumstances. In commercial contracts, time is generally presumed to be of the essence, whereas in contracts for sale of immovable property, it is generally not, unless specifically agreed or implied by circumstances.

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Performance of Reciprocal Promises

Many contracts involve reciprocal promises, where each party makes a promise that forms the consideration for the other party's promise (Section 2(f)). Sections 51 to 58 of the Indian Contract Act, 1872 lay down rules governing the performance of such reciprocal promises.

Simultaneous performance (Section 51)

Section 51:

"When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise."

This applies to contracts where the promises are to be performed concurrently, like a cash sale where delivery and payment are to happen at the same time. Neither party is required to perform unless the other party is ready and willing to perform their side of the bargain simultaneously.

Example: 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 is ready and willing to pay for the goods on delivery. B need not pay for the goods unless A is ready and willing to deliver the goods on payment.

Performance in order specified by contract (Section 52)

Section 52:

"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, they shall be performed in that order which the nature of the transaction requires."

• Order fixed by contract: If the contract clearly states the sequence in which promises are to be performed, the parties must follow that sequence.
• Order not fixed: If the contract is silent on the order of performance, the order is determined by the natural sequence dictated by the nature of the transaction. For instance, in a construction contract, preparing the site must logically precede building the structure.

Example: A and B contract that A shall build a house for B for a sum of money. B's promise to pay the money is not independent of A's promise to build the house. The nature of the transaction requires A's work to precede or be simultaneous with B's payment, typically staged payments as work progresses.

Performance prevented by default of promisor (Section 53)

Section 53:

"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."

This applies when one party's performance is conditional on the other party's cooperation or prior performance, and the latter prevents the former from performing.

Example: A contracts with B that A shall execute some work for B for a certain sum of money. B is to supply the necessary raw materials. B fails to supply the raw materials. A is prevented by B's default from executing the work. The contract becomes voidable at A's option. A can rescind the contract and claim compensation from B for any loss suffered (e.g., loss of profit from the contract, expenses incurred). A is not obliged to perform the work.

Effect of failure to perform independent promise (Section 54)

Section 54 deals with contracts containing reciprocal promises where one promise cannot be performed until the other party has performed their promise. If the party who is required to perform first fails to do so, they cannot claim performance from the other party, and must compensate the other party for any loss caused by non-performance.

Example: A contracts with B to build a house for B for Rs. 10 Lakhs, with payment to be made upon completion. A fails to build the house. A cannot claim the Rs. 10 Lakhs from B. A must compensate B for any loss caused by the non-construction.

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Performance of Contract of Personal Nature

Some contracts require performance involving the personal skill, taste, or ability of a specific party. Such contracts are often referred to as contracts of personal nature or contracts requiring personal performance.

Effect of Death or Incapacity (Section 37, 56)

Generally, the death of a party to a contract does not automatically terminate the contract. The rights and obligations under the contract usually pass to the legal representatives of the deceased party. The legal representatives are bound to perform the contract, and can also enforce the contract, unless a contrary intention appears from the contract.

However, an important exception applies to contracts of a personal nature. If the contract depends on the personal skill or qualities of the promisor, the obligation to perform comes to an end upon the death or incapacitation (e.g., by illness or insanity) of that promisor.

This is often covered under the Doctrine of Frustration due to subsequent impossibility, as dealt with in Section 56 of the Indian Contract Act.

Section 56 (second paragraph):

"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."

Impossibility under Section 56 includes not only physical impossibility but also impossibility arising from circumstances, such as the death or incapacitation of a person whose personal performance was essential to the contract. In such cases, the contract becomes void due to frustration.

Example: A contracts to paint a picture for B. A dies before painting the picture. The contract involves A's personal skill as a painter. The death of A makes the performance impossible. The contract becomes void.

Example: A contracts to sing at B's concert on a specific date. A falls seriously ill and loses her voice before the date. The contract involves A's personal ability to sing. Her incapacitation makes performance impossible. The contract becomes void due to frustration.

The principle is that if the contract is such that it can only be performed by a particular individual, and that individual dies or becomes incapable of performing, their legal representatives cannot be compelled to perform, nor can they claim performance from the other party. The contract is discharged.

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Promisor himself

The general rule regarding the performance of a contract is that the promisor must fulfil the promise they have made. Section 40 of the Indian Contract Act, 1872, deals with who is to perform the promise.

Rule under Section 40

"If it appears from the nature of the case 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."

Explanation:

• Nature of the case: The intention of the parties regarding who should perform is determined by the nature of the contract and the circumstances surrounding it.
• Personal Performance Required: If the contract involves the exercise of the promisor's personal skill, taste, credit, ability, or special qualifications, the law presumes that the parties intended the promisor himself to perform it. These are contracts of a 'personal nature'.

Example: A contracts to paint a picture for B. This requires A's personal skill as an artist. A must perform this promise himself. He cannot delegate it to another painter.

Example: A contracts to sing at B's theatre on a specific night. This requires A's personal ability to sing. A must perform herself.

In such contracts where personal performance is essential, the promisor cannot substitute another person to perform their obligation. As discussed previously, the death or incapacitation of the promisor in such a contract makes the contract void (Section 56).

When Personal Performance is Not Required

If the nature of the contract does not suggest that personal performance by the promisor is essential, then the promisor is not bound to perform the promise himself. In such cases, the promisor may employ a competent person to perform it.

Example: A contracts to pay a sum of money to B. This is not a contract requiring personal performance. A can pay the money himself, or send his agent or servant to pay it on his behalf.

Example: A contracts to deliver 100 bags of cement to B. This does not require A's personal performance. A can arrange for the delivery through a transport company or his employee.

The question of whether personal performance is intended is always a matter of interpreting the contract and considering its nature and the context in which it was made.

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Agent

As mentioned above, in contracts that do not require personal performance by the promisor, the promisor can get the performance done through an agent. The law recognizes that businesses often operate through agents.

Performance through Agent

In contracts where personal skill or consideration is not the essence, the promisor can authorize an agent to perform the promise on their behalf. The performance by a duly authorized agent is treated as performance by the promisor themselves.

Example: A appoints B as his agent to sell goods. A enters into a contract with C to deliver goods. A can direct B, his agent, to deliver the goods to C. Delivery by B is considered performance by A.

The agent's authority must be within the scope of their appointment. The appointment and authority of agents are governed by Chapter X of the Indian Contract Act (Sections 182-238).

Example: A gives B a power of attorney to manage his property and enter into lease agreements on his behalf. A enters into a contract to lease his property to C. A can direct B, as his agent, to execute the lease deed with C. Execution of the lease deed by B is considered performance by A.

The use of agents is common in commercial transactions where the identity of the person physically performing the act (like delivery, payment) is not crucial, but the ultimate responsibility lies with the principal (promisor).

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Legal Representative

When a party to a contract dies before the performance is completed, the question arises as to whether their obligations (or rights) pass to their legal representatives.

Rule Regarding Legal Representatives (Section 37)

Section 37, after stating the general obligation of parties to perform, adds: "...and, in case of the death of any of them, their representatives are bound to perform, or offer to perform, such promises accordingly, unless a contrary intention appears from the contract."

Explanation:

• General Rule: The general rule is that the rights and liabilities under a contract devolve upon the legal representatives of the deceased party. The legal representatives are bound to perform the obligations of the deceased and are entitled to claim the rights of the deceased under the contract.
• Exception - Contracts of Personal Nature: This general rule does not apply to contracts that require the personal skill, taste, or ability of the deceased promisor. As discussed under Section 40 and Section 56, such contracts become void upon the death or incapacitation of the promisor because personal performance is essential. In such cases, the legal representatives are neither bound to perform nor can they compel the other party to accept performance from someone else.
• Contrary Intention: If the contract itself specifies that the obligations terminate upon the death of a party, even if it is not strictly a contract of personal nature, then the legal representatives are not bound. This is a matter of interpreting the contract's terms.
• Liability of Legal Representatives: The liability of legal representatives to perform the contract is limited to the assets inherited by them from the deceased. They are not personally liable from their own property for the deceased's contractual obligations.

Example: A contracts to pay B a sum of money by a certain date. A dies before the date. A's legal representative is bound to pay the money to B from A's estate. If the estate is insufficient, the liability is limited to the value of the estate.

Example: A contracts to deliver 100 bags of rice to B. A dies before delivery. A's legal representative is bound to deliver the 100 bags of rice to B from A's estate, and B is bound to accept the delivery from the legal representative.

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Joint Promisors

When two or more persons jointly promise to do a certain thing, they are known as joint promisors. The rules regarding who must perform in such cases are provided in Section 42 of the Indian Contract Act.

Rule under Section 42

"When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract, all such persons jointly must fulfil the promise."

"And, if any of such joint promisors dies, his legal representative jointly with the surviving promisor or promisors, and, in case of the death of all such promisors, the legal representatives of all jointly, must fulfil the promise."

Explanation:

• Joint Performance: The general rule is that all joint promisors must jointly perform the promise. They share the obligation.
• Devolution upon Death: If one or more of the joint promisors die, their legal representatives become jointly liable with the surviving promisor(s). If all joint promisors die, the legal representatives of all are jointly liable.
• Contrary Intention: The rule applies unless the contract itself indicates otherwise (e.g., if the contract states that the liability is only personal and does not pass to legal representatives).

Comparison with Joint and Several Liability:

While Section 42 states that joint promisors must *jointly* fulfil the promise (implying joint liability), Section 43 introduces the concept of joint and several liability in certain situations. It states that 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 the joint promisors to perform the whole of the promise. This means the promisee has the option to sue any one or all of the joint promisors for the entire amount or performance due.

Section 43 further allows a joint promisor who has been compelled to perform the whole promise to claim contribution from the other joint promisors.

Thus, while Section 42 indicates the joint obligation to perform, Section 43 provides the promisee with the flexibility to enforce the promise against any one or all of the joint promisors, effectively making their liability joint and several from the promisee's perspective.

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Performance in Reasonable Time

Contracts often specify a time or date for performance. However, if the contract is silent on the exact time for performance, the law provides a default rule. This is governed by Section 46 of the Indian Contract Act, 1872.

Rule under Section 46

"Where by the contract a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time."

Explanation:

• No Application by Promisee: This rule applies when the nature of the promise is such that the promisor is expected to perform it without the promisee having to request or demand performance. For example, a contract to deliver goods usually implies the seller (promisor) will deliver without the buyer (promisee) having to apply for it, unless otherwise agreed.
• No Time Specified: The rule is applicable only if the contract does not fix a time for performance. If a time is specified, Sections 47 and 48 apply.
• Reasonable Time: The performance must be made within a 'reasonable time'. What constitutes a 'reasonable time' is not fixed by law but is a question of fact in each particular case. It depends on several factors, including:
  • The nature of the contract.
  • The subject matter of the contract (e.g., perishable goods require quicker performance than durable goods).
  • The circumstances under which the contract was made.
  • The usual course of dealing for similar transactions.

Example: A contracts to sell and deliver goods to B, but no time for delivery is specified. A must deliver the goods within a reasonable time, depending on the type of goods, the distance, and usual trade practices.

If performance is not made within a reasonable time, the promisor is in breach of contract.

Performance on a Certain Day (Section 47, 48)

Sections 47 and 48 provide rules when a day is fixed for performance:

• Section 47: "When a promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual business hours, on such day and at the place at which the promise ought to be performed." The promisee must also provide facilities for performance at the proper place and hour.
• Section 48: "When a promise is to be performed on a certain day, and the promisee has to apply for performance, such application must be made at the proper place and within the usual business hours, and the promisor is not bound to perform unless such application is made."

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Performance at Specified Place

Similar to time, the contract might specify the place where the promise is to be performed. If it does, parties must perform at that location. If the contract is silent, the Act provides guidelines.

Rule When Place is Not Specified (Section 49)

Section 49:

"When a promise is to be performed without application by the promisee, and no place for performance is specified, the promisor must apply to the promisee to appoint a reasonable place for the performance of the promise, and to perform it at such place."

Explanation:

• No Application by Promisee: This rule applies to contracts where the promisor is to perform proactively (e.g., delivery of goods).
• No Place Specified: If the contract does not fix the place of performance.
• Promisor Must Apply to Promisee: In such cases, the responsibility is on the promisor to contact the promisee and ask them to nominate a reasonable place for performance.
• Perform at Appointed Place: The promisor must then perform their promise at the place appointed by the promisee. The place appointed must be reasonable.

Example: A contracts to deliver goods to B, but no place is specified. A must apply to B to appoint a reasonable place for delivery. A must then deliver the goods at that place.

Performance on a Certain Day, Place Not Specified (Section 47, 48)

As mentioned earlier, Sections 47 and 48 also incorporate the place of performance. If a certain day is fixed, and the place is not specified, the performance must still occur at the place at which it "ought to be performed," which, according to Section 49, requires the promisor to ascertain the place from the promisee if no place is specified or implied.

Essentially, if the place is not specified in a contract requiring performance without application by the promisee, the onus is on the promisor to find out from the promisee where performance should take place.

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Time of the essence of the contract

Whether the exact time of performance is a critical element of the contract is determined by whether "time is of the essence". The legal consequences of delay depend heavily on this concept, as governed by Section 55.

Rule under Section 55

"When a party to a contract promises to do a certain thing at or before a specified time, or a certain thing on a specified event happening at or before a 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 the essence of the contract."

"If it was not the intention of the parties that time should be of the 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."

"If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so."

When Time is of the Essence:

• Intention of the Parties: Whether time is of the essence depends on the real intention of the parties, gathered from:
  • The express terms of the contract (e.g., a clause explicitly stating "Time is of the essence").
  • The nature of the subject matter (e.g., contracts for sale of goods with fluctuating prices, or commercial contracts involving specific deadlines, often imply time is essential).
  • The surrounding circumstances (e.g., the purpose for which the contract was made, known to both parties).
• Consequence of Delay: If time is of the essence and a party fails to perform by the stipulated time, the contract becomes voidable at the option of the promisee. The promisee can choose to rescind the contract due to the delay.
• Right to Compensation: If the promisee rescinds the contract because time was of the essence and performance was delayed, they can also claim compensation for any loss caused by the non-performance.

When Time is Not of the Essence:

• Intention of the Parties: If the parties did not intend that performance by the exact time is crucial. This is often the case in contracts for the sale of immovable property, unless specified otherwise.
• Consequence of Delay: If time is not of the essence and a party fails to perform by the stipulated time, the contract does not become voidable merely due to the delay. The promisee cannot rescind the contract on this ground alone.
• Right to Compensation for Delay: The promisee is still entitled to claim compensation from the promisor for any actual loss suffered due to the delay in performance.

Waiver of Time Being of the Essence:

Even if time was originally of the essence, the promisee may waive this condition. If the promisee accepts performance after the agreed time, they cannot later claim compensation for the delay unless, at the time of accepting the late performance, they specifically notify the promisor of their intention to claim compensation for the delay (Section 55, third para).

Example: A contracts to deliver goods to B by 1st June, time being of the essence. A delivers on 5th June. B accepts the delivery without saying anything about compensation for the 4-day delay. B cannot later sue A for compensation for the delay. If B accepts the delivery on 5th June but simultaneously informs A, "I accept this delivery, but I will claim compensation for the delay," then B reserves his right to compensation.

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