The concept of performance in contract law revolves around fulfilling the obligations agreed upon by the parties involved in a contract. Basically, when you say ‘performance,’ it means both parties have completed their duties as per the contract’s terms. For example, if Aman and Surya agree that Aman will deliver a bundle of pens to Surya’s house in Mumbai, and Aman does this, then Aman has fulfilled his part of the contract.
The Indian Contract Act, 1872, which we’ll refer to as ICA, 1872, outlines the rules for how contracts should be performed. The essence of contract performance is based on the principle of ‘pacta sunt servanda,’ which means agreements must be kept. Successfully fulfilling contractual duties helps build relationships and facilitates smoother business operations.
Failing to perform a contract can lead to legal disputes. However, there are remedies available, such as damages, specific performance, or even contract termination, which courts can enforce in case of a breach. Understanding the performance of contracts is crucial, so let’s delve into what it means and the different types.
### Meaning of Performance of Contract
To grasp the concept of contract performance, it’s important to understand how a contract is formed. Initially, an offer is made. Once the promisee accepts this offer, it becomes an agreement. When this agreement is enforceable by law, it turns into a contract.
In legal terms, “performance” means fulfilling or completing the obligations agreed upon in the contract. According to Black’s Law Dictionary, ‘performance’ refers to the fulfillment or accomplishment of a promise, contract, or obligation according to its terms. For instance, if you and I have a contract where I must deliver a book once you pay me five hundred rupees, when the transaction is completed, the contract is considered performed.
### Types of Performance of Contract
Section 37 of the ICA talks about performance, categorizing it into two types:
#### Actual Performance
Actual performance refers to the complete fulfillment of obligations under a contract, leaving no further tasks for the promisor to perform. Once the obligations are met, the promisor has made the actual performance of the promise.
#### Attempted Performance
Sometimes, even when performance is due, the promisor is unable to fulfill their obligations because the promisee prevents them. This situation, where the promisor intends to perform but cannot due to external factors, is known as attempted performance or tender of performance. A tender can involve either goods and services or money.
#### Tender of Goods and Services
A contract to deliver goods and services is deemed fulfilled when the goods are offered for acceptance as agreed. If the goods are not accepted, the offeror must take them back, discharging their liability.
#### Tender of Money
When a debtor offers to pay a creditor, but the creditor refuses to accept the money, the debtor is not discharged from the obligation to pay. A tender of money never results in debt discharge.
Contracts vary, so their performance depends on the contract’s nature. Now, let’s discuss the importance of time and place in contract performance.
### Place and Time for Performance of Contract
In contract law, the phrase ‘Time is the essence of contract’ holds special significance. Sometimes, a contract will specify the time and place for its performance. Sections 46 to 50 of the ICA, 1872, cover conditions regarding time and place for contract performance.
#### Section 46 of the Indian Contract Act, 1872
Section 46 deals with timing when no specific time is mentioned in the contract. In such cases, the contract should be performed within a reasonable time. What constitutes a ‘reasonable time’ depends on factors like the nature of the contract, industry standards, the contract’s significance, and the parties’ intentions. For instance, if you’re a seller with no specified delivery date, you should deliver goods within a reasonable time as per market norms.
In Smt. Nakubai Valu Dhokane vs. Shri Bhagwansingh Prakash Chandra [2008], the Bombay High Court ruled that when no performance time is mentioned, performance should be offered within a reasonable time, with three years being reasonable under Article 54 of the Limitation Act, 1963.
#### Section 47 of the Indian Contract Act, 1872
If a contract specifies a time and place for performance, and no action from the promisee is required, the contract should be performed during usual business hours on the specified day. For example, if you order a refrigerator with a specified delivery time, it must be delivered during business hours. Failure to do so means the contract hasn’t been performed.
#### Section 48 of the Indian Contract Act, 1872
When a contract specifies the day, time, and place of performance, the promisee must apply for performance. The promisor must perform during business hours at the specified time and place.
#### Section 49 of the Indian Contract Act, 1872
Section 49 addresses situations where no place for performance is specified. The promisor must appoint a reasonable place for performance. If a debtor can pay at multiple locations, the most practical and relevant location should be chosen.
#### Section 50 of the Indian Contract Act, 1872
A contract can include terms where the promisor agrees to perform in the manner, place, and time prescribed by the promisee. The promisee can even prescribe a different method or time for performance.
### Time for Performance
Generally, parties are expected to perform their obligations at a specified time. But if one fails to do so, the question arises: What is the effect of such failure upon the contract? Section 55 contains the answer to this question.
#### Specified Time
When parties specify a time for performance, it’s important to understand if performance is required at the end of the given period or before. Section 55 applies to specified times, even if parties use expressions like ‘as soon as possible’ or ‘within a reasonable time.’
#### Time is the Essence of a Contract
The phrase ‘time is the essence of a contract’ can be misleading because it questions whether time is essential for a specific term or the entire contract. Generally, time is considered essential in three cases: when expressly agreed upon, when delay causes injury, or when the contract’s nature and necessity require it.
In Sachidananda Patnaik and Anr. vs. G.P. and Co. (1964), the Orissa High Court ruled that the intention of the parties can be ascertained from the express words used in the contract, the nature of the property involved, the contract’s nature, and the surrounding circumstances.
#### The Contract Becomes Voidable
If a party fails to perform obligations at the specified time, with time being essential, the contract becomes voidable at the other party’s option. They can treat the contract as ended. However, in State of Maharashtra & Anr. vs. Digambar Balwant Kulkarni (1979), the Supreme Court held that the right to cancel the contract would only accrue when compensation exceeded the security deposit or the contractor abandoned the work.
#### When Time is Not of Essence
Time isn’t essential when a contract includes clauses for damages for delayed completion or time extensions in certain circumstances. In M/S. Arosan Enterprises Ltd. vs. Union of India & Anr (1999), the Supreme Court ruled that even if time isn’t of the essence, the promisee can’t be expected to wait indefinitely, and the promisor must perform within a reasonable time.
### Performance of Reciprocal Promises
Sections 51 to 54 of ICA, 1872, deal with reciprocal promises. Section 2(f) defines reciprocal promises as those that form the consideration or part of consideration for each other. For example, if you buy a biscuit, the shopkeeper’s promise to give you the biscuit depends on your promise to pay.
#### Section 51 of the Indian Contract Act, 1872
Section 51 deals with simultaneous reciprocal promises. If one party denies performance, the other isn’t bound to perform. For example, if you order something with cash on delivery, the delivery person isn’t obliged to hand over goods if you don’t pay.
In M/s Shanti Builders vs. Ciba Industrial Workers’ Co-Op (2012), the Bombay High Court ruled that in reciprocal promises, if one’s promise depends on the other’s obligation, the other party can’t force performance without fulfilling their obligation.
#### Readiness and Willingness
Willingness is a mental process, while readiness implies the proximity of willingness and its ultimate physical expression. Whether a party is ready and willing to perform is a factual question.
In National Insurance Company Ltd vs. Seema Malhotra And Ors (2001), the Supreme Court held that insurance contracts contain reciprocal promises. A dishonored cheque relieves the insurer from performing their promise.
#### Section 52 of the Indian Contract Act, 1872
Section 52 addresses dependent promises, where one promise depends on another’s performance. The parties can agree to perform promises in a particular order, either expressly or as per the contract’s nature.
### Tender of Performance
The offeror should offer to perform their contractual obligation to the offeree, known as the “tender of performance.” If the promisee doesn’t accept, the offeror isn’t liable for non-performance, nor do they lose rights under the contract. A tender of performance excludes the promisor from further performance and allows them to sue for non-performance.
Sections 37 to 39 deal with contract performance. Section 37 obliges parties to perform or offer to perform promises unless expressly exempted. Section 38 equates a tender of performance to performance itself. It must meet certain conditions: be unconditional, be made at a proper time and place, and allow reasonable time for the offeree to verify the offeror’s competence.
#### Obligation of Parties to Perform
Contractual obligations are duties parties must fulfill, often involving exchanging something of legal value. For example, selling a product imposes an obligation to deliver it upon payment.
In Geo-Group Communications Inc. vs. Iol Broadband Ltd (2009), the court held that parties who act on a contract’s terms are bound by it, even if the document is preliminary.
#### Submission of Tender Tantamounts to a Proposal
Submitting a tender in response to an invitation is a proposal, not acceptance. In M/S Great Eastern Energy vs. M/S Jain Irrigation Systems Ltd (2010), accepting a tender after its validity period expired wasn’t permissible.
#### Clause for Renewal
A renewal clause allows contract terms to be renewed. In Hardesh Ores Pvt. Ltd vs. M/S. Hede And Company (2007), the Supreme Court ruled that a party exercising renewal should seek court enforcement if the other party refuses the new terms.
#### Tender of Performance Should Be Unconditional
For a tender to be valid, it must be unconditional, as stated in Section 38(1). Conditional tenders are invalid, such as those involving clauses or provisions that alter the offer’s nature.
#### Tender of Performance Must Be Made at a Proper Time and Place
Section 38(2) mandates that tenders be made under circumstances allowing the offeree a reasonable opportunity to verify the offeror’s ability to fulfill the contract.
In Startup vs. Macdonald (1843) and Afovos Shipping Co. vs. R Pagnan (1980), courts ruled on the importance of timing in tender acceptance and repudiation.
### Performance of Contingent Contracts
A contingent contract’s performance depends on specific events. Section 31 defines contingent contracts as those where performance hinges on certain events’ occurrence or non-occurrence. For example, promising to pay if a house burns down within a set time is contingent.
Contingency must precede performance. A contract requiring a bank guarantee before acceptance is incomplete without it.
Sometimes, contingencies depend on a party’s will, like marriage. The Supreme Court upheld contract validity when performance depended on inspection before dispatch in Collector of Customs, Bombay vs. Rakesh Press, New Delhi (1997).
#### When Performance Depends on an Event
Section 32 covers contracts contingent on uncertain future events. Such contracts are enforceable only if the event occurs. If not, they become void. For example, a contract contingent on a person’s death can’t be enforced until that death occurs.
In Nandkishore Lalbhai Mehta vs. New Era Fabrics P. Ltd. & Ors. (2015), the court ruled that unfulfilled conditions made a contract unenforceable.
#### When Performance Depends on Non-Occurrence
Section 33 addresses contracts contingent on an event’s non-occurrence. They can’t be enforced until the event’s occurrence becomes impossible. In Frost vs. Knight (1872), a contract to marry after the Defendant’s father’s death became impossible once the Defendant married someone else.
### By Whom Must Contracts Be Performed
Section 40 of the ICA outlines who performs contracts. If a contract requires personal performance by the promisor, no one else can perform it. In other cases, any competent person can perform on behalf of the promisor.
For example, if A promises to pay B, A or an authorized person can pay. If A dies without authorizing someone, his representative must pay.
### Effect of Accepting Performance by the Third Party
Section 41 covers third-party performance. If a promisee accepts third-party performance, they can’t later enforce the contract against the original promisor. If a contract requires personal performance, the promisor must perform, and neither the promisee nor the promisor’s representatives can enforce it.
### Joint Promises
Section 42 discusses joint promises, where two or more promisors agree to perform together. Joint promisors are collectively liable unless the contract states otherwise. Section 42 ensures that if one promisor dies, the remaining ones or their representatives remain liable.
#### Performance of Joint Promises
Unlike English law, where surviving joint promisors bear deceased promisors’ liabilities, Section 42 assigns liability to representatives, offering creditor security.
#### Devolution of Joint Liabilities
In contracts with multiple parties, joint liabilities guide how obligations are distributed. Section 42 ensures that surviving promisors and representatives remain liable for promises made by deceased promisors.
#### Joint and Several Liability
Section 43 outlines joint promises’ key aspects. The promisee can compel any joint promisor to perform. Each promisor can seek contribution from others unless the contract specifies otherwise.
#### Sharing of Loss by Default
Section 43 mandates that defaulting joint promisors share losses equally, ensuring contribution among promisors.
### Rules under Section 43
#### Rule 1: The promisee can require one joint promisor to pay.
#### Rule 2: A specific joint promisor agreeing to pay can seek contribution from others.
#### Rule 3: If one promisor defaults, remaining promisors share the cost equally.
### Release of One Joint Promisor
Section 44 allows a creditor to release one joint promisor without discharging others. The released promisor still owes obligations to other joint promisors.
### Devolution of Joint Rights
Section 45 addresses joint promisees. All joint promisees must act together to enforce the contract unless specific conditions prevent it. If one dies, surviving promisees can still enforce the contract.
In Shanti Devi vs. Bhojpur Rohtas Gramin Bank (2007), the court ruled in favor of a consumer-friendly approach when a bank restricted a widow’s account access after her husband’s death.
### Impossibility of Performance and Frustration of Contract
A contract becomes frustrated when unforeseen circumstances make performance impossible. Section 56 deals with such situations, outlining three paragraphs:
1. Agreements to do impossible acts are void.
2. When unforeseen events render performance impossible, the contract becomes unenforceable.
3. Promisors are liable to compensate promisees if they knew performance was impossible.
#### Initial Impossibility
Section 56 states that agreements to do impossible acts are void. For example, discovering treasure by magic is impossible.
#### Subsequent Impossibility
Contracts initially possible may become impossible due to unforeseen events, making them void. For example, a contract to import goods becomes void if import is later prohibited.
In Taylor & Anor vs. Caldwell & Anor (1863), a concert hall’s destruction by fire voided a performance contract.
### Landmark Judgments on the Performance of Contract
#### Satyabrata Ghose vs. Mugneeram Bungar & Co., And Another (1954)
In this case, land requisition during World War II didn’t frustrate a contract because the delay wasn’t indefinite. The Supreme Court emphasized that frustration applies when changes make performance impossible.
#### Sushila Devi And Anr vs Hari Singh And Ors (1971)
The Supreme Court applied frustration to a lease contract impacted by India’s partition, emphasizing fundamental changes that render performance impossible.
### Role of Technology in the Performance of Contract
Modern technology significantly impacts contract performance. Electronic and digital signatures, digital contracts, and remote performance monitoring enhance efficiency and accessibility.
#### Electronic Signature
Electronic signatures, legally accepted in India, allow contracts without physical meetings. In The State of Maharashtra vs. Dr. Praful B. Desai (2003), the Supreme Court affirmed digital signatures’ legal validity.
#### Digital Contracts
Digital contracts eliminate paperwork and storage costs, enabling term updates and performance tracking. For example, smart contracts automate payment upon goods delivery.
#### Remote Performance and Monitoring
Technology enables remote monitoring of contract performance, ensuring seamless execution. Tracking devices and video conferencing facilitate collaboration.
### International Perspective on the Performance of Contract
Global business growth necessitates understanding contract performance internationally.
#### International Principles Related to the Performance of Contract
##### United Nations Conventions on Contracts for the International Sale of Goods [CISG]
CISG governs international sale contracts, requiring good faith and adherence to delivery and payment rules.
##### UNIDROIT Principles of International Commercial Contracts
These principles guide international contracts’ drafting, interpretation, and performance, offering neutral rules.
#### Challenges in International Contract Performance
##### Different Legal System
Varying contract laws across countries pose interpretation and performance challenges.
##### Currency Fluctuation
International contracts involving currency exchange rates are affected by fluctuations.
##### Cultural Differences
Cultural differences impact contract meaning and performance.
### Modern Trends in the Performance of Contract
Modern trends address business transaction difficulties, adapt technology, and emphasize fairness.
#### Digitalisation and Technology in the Contract
Digital contracts and electronic signatures exemplify technological advancements.
#### Protection of Consumers
Legislation ensures transparency and fairness in consumer contracts.
#### Data Privacy and Security Clause
Modern contracts include clauses safeguarding data privacy.
#### Dispute Resolution Trend
Alternative Dispute Resolution mechanisms are common in modern contracts.
### Conclusion
The performance of a contract is crucial, as it fulfills the parties’ expectations. The ICA mandates performance, enhancing business stability and trust. Non-performance leads to legal disputes, often resulting in compensation or specific performance. Understanding potential risks and remedies helps avoid breaches.
### Frequently Asked Questions (FAQs)
#### Can a Third Party Perform Contract Obligations?
Generally, yes, unless the contract specifies otherwise or involves personal services.
#### What is Partial Performance?
When only part of an obligation is fulfilled, it’s partial performance. Both parties must agree for it to be acceptable.
#### What are Condition Precedent and Condition Subsequent?
##### Condition Precedent
A condition that must be met before performance, such as goods supply before building a house.
##### Condition Subsequent
A condition that can terminate a performance duty, like immediate loan repayment upon bankruptcy.
