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DISCHARGE OF CONTRACT
QUESTION BANK
Q.1. What are the various modes in which contract may be discharged?
Q.2. When a contract is said to be performed?
Q.3. Impossibility of performance is as a rule, not an excuse for non-performance of a
contract. Discuss.
Q.4. What is frustration of contract? Give instances when the contract is frustrated?
Q.5. State the rules relating to apportion of payments made by debtor to his creditor.
Q.6. State briefly the provisions of Indian Contract Act regarding
promises.
reciprocal
Q.7. Who can perform the promise? Can a third person who is not a party to the contract
enforce the performance of contract?
Q.8. “Impossibility of performance is, as a rule, not an excuse for non-performance of a
contract”. Discuss.
SHORT NOTES
1. Time and place of performance
2. Appropriation of payments
3. Doctrine of ‘frustration’
4. Liability of joint promisor’s
5. Reciprocal promises
6. Novation
SYNOPSIS
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Introduction:-
Every contract has two parts, first is the formation of a contract, and the second is
the consequences of the contract. Formation of the contract includes an agreement
(proposal and acceptance), the capacity of parties, consideration, free consent and lawful
object (we have discussed them already). However, the consequential part includes the
discharge of the contract, i.e., the way the contract ends. The consequences of the formation
of the contract may be the actual performance of a contract or frustration of the contract
(impossibility of performance), breach of contract, etc.
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The Indian Contract Act provides the rules as to how a contract may be discharged
(ended). Viz.
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1. By performance Ss. 37 to 61.
2. By impossibility of performance S. 56 (Doctrine of frustration)
3. By the act of parties to agreement Ss. 62 to 67.
4. By breach of contract S.39 to 73.
We will discuss them one by one in detail:-
I]
Performance of Contract (Ss. 37-67):-
The contract is discharged by performing the contract, i.e. respective obligations by
the parties to it. E.g. A agrees to sell his house to B for Rs. 10 00,000. Here A’s obligation
is to hand over possession of his house to B with title and all other relevant rights, and B’s
duty is to pay Rs.-10,00,000/- to A as agreed between them. If A and B perform their
respective obligations by exchanging the house for the agreed price, the contract is
discharged by performance.
Rules as to the performance of the contract are as follows:-
1)
Obligations of the Parties to Perform Contract (Ss. 37 & 38):-
S.37 provides that the parties to a contract must either perform or offer to perform
(Tender of performance) their respective promises. Thus it is the duty of parties to:-
i) Discharge their obligations created under the contract or
ii) Offer to perform (tender of performance) -unless such performance is dispensed
with or excused under the provisions of- (i) this Act or (ii) of any other law.
Thus, the party is released from performing his part of the contract by law, e.g. an
insolvent from paying his debtors or a person whose performance of a transaction is
declared by law to be illegal.
Offer to perform / Tender of performance (S.38):- (See at the end)
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2)
3)
4)
5)
II]
By whom the contract should be performed (Ss. 40 to 45):- (See at the end)
Time and place of performance (Ss. 46 to 50):-(See at the end)
Performance of reciprocal promises (Ss. 51 to 54, 57, 58):- (See at the end)
Rules as to the appropriation of payments (Ss.59-61):- (See at the end)
Discharge by Breach of Contract (S.39):-
A)
General:-
If a party to the contract does not perform the obligation arising out of the contract
or if he expresses his unwillingness to perform the promise or he, by his conduct, renders
the performance of the promise impossible, it is a breach of contract. S. 39 provides that
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.
Illustrations
(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre
two nights every week during the next two months, and B engages to pay her 100/-
rupees for each night’s performance. On the sixth night, A willfully absences herself
from the theatre. B is at liberty to put an end to the contract.
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(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre
two nights every week during the next two months, and B engages to pay her at the
rate of 100/- rupees for each night's performance. On the sixth night, A wilfully absents
herself. With the assent of B, A sings on the seventh night. B has signified his
acquiescence in the continuance of the contract and cannot put an end to it now, but he
is entitled to compensation for the damages sustained by him through A’s failure to
sign on the sixth night.
B)
Kinds of Breach of Contract:-
Breach of contract is of two kinds:-
1)
Present Breach:-
When a breach of contract occurs on the day and time of performance, it is called a
present breach. Thus, non-performance of the contract on the due date of performance is
called a ‘present breach’.
2)
Anticipatory Breach:-
Anticipatory breach of a contract means the repudiation of a contract by one of the
parties to it before the due date of performance.
For example, X is to supply certain goods to Y on 1st Feb. If, on 1st Feb, X does not supply
the goods. He has made a present breach of contract. However, if X informs Y on 1st
January that he will not perform the contract on 1st Feb., A has made an anticipatory (i.e.
one month prior to the due date) breach of contract.
This type of anticipatory renunciation of a contract has an effect on the rights of the
parties, viz.
Firstly, the innocent party is excused from performance or from further performance of his
part of the contract.
Secondly, anticipatory breach entitles the innocent injured party to either sue immediately
or wait till the time the act was to be done. If the act is not performed, then sue for the
breach of contract.
Giving immediate right of action for anticipatory breach is recognised as early as 1853.
In Hochester V/s De-La-Tour
Facts: The plaintiff was engaged by the defendant to accompany him on a world tour
to commence on June 1, 1852. Nearly one month before the date, the defendant wrote to
the plaintiff that he had changed his mind and declined the plaintiff’s services. The plaintiff
immediately sued the defendant before the commencement date of the tour.
Issue:- Whether there can be a breach of an agreement before the day when
performance is due.
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The court held that:- It was a breach in anticipation before the performance was due, and
therefore, the plaintiff can immediately sue the defendant for anticipatory breach without
waiting for the performance's due date.
C)
By Impossibility of Performance (Doctrine of Frustration) (S. 56)
The impossibility of performing the contract may be from the beginning of the
contract, or it may occur subsequent to entering into a contract
1)
Initial Impossibility (S.56)
An agreement to do an impossible act is void in English as well as in Indian law.
Illustrations
(a) A agrees with B to discover treasure by magic. The agreement is void.
(b) A contracts to marry B, being already married to C and being forbidden by the
law to which he is subject to practice polygamy. A must make compensation to B
for the loss caused to her by the non-performance of his promise.
Subsequent Impossibility (Doctrine of frustration) (S. 56)
Part second of S. 56 deals with the English doctrine of frustration. The contract to
2)
do an act, which becomes impossible after the contract is made, or, by reason of some
event, which the promisor could not prevent, becomes unlawful, is void. Thus, the contract
subsequently becoming impossible or unlawful is void and cannot be enforced. This is
called the doctrine of frustration because when the performance of the contract becomes
impossible, the purpose, which the parties have in mind, is frustrated.
Illustrations
(a) A and B contract to marry each other. Before the time is fixed for the marriage, A goes
mad. The contract becomes void.
(b) A contracts to take cargo for B at a foreign port. A’s Government afterwards declares
war against the country in which the port is situated. The contract becomes void when
war is declared.
(c) 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.
Specific Grounds of Frustration:-
A promise may become impossible or unlawful for performance on any one of the
following grounds. Viz.
1)
Destruction of the Subject Matter
On the distraction of the subject matter of a contract, the agreement becomes
impossible to perform.
Illustration
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A and B contracted to marry each other. Before the time fixed for the marriage, A
died. The contract becomes void.
There was a promise to let out the music hall, which was destroyed by fire; the performance
of the act became impossible because of the distraction of the subject matter.
2)
Change of Circumstance
Change of circumstance may sometimes render the contract impossible to perform.
Illustration
A and B contracted to marry each other. Before the time is fixed for the marriage,
A goes mad. The contract becomes void.
3)
Frustration with the Object of the Contract:-
The impossibility of performance may come due to the failure of the object of the
contract.
Facts: The defendant agreed to hire a flat from the plaintiff for June 20th and 27th, 1902,
to see the king's coronation procession. The plaintiff was also aware of the object of renting
a flat. A part of the rent was paid in advance, but the procession was cancelled because of
the king's illness. The defendant refused to pay the rent balance.
The court held that the real object of the contract was to see the coronation procession; it
was the foundation of the contract. The non-happening of the coronation ceremony
frustrated the object of the contract. Therefore, the plaintiff was not entitled to recover the
balance of rent from the defendant.
4)
Death or Incapacity of Parties:-
When the nature or term of the contract requires personal performance by a
particular person (e.g. playing piano, singing, dancing, etc.), his death or incapacity puts
an end to the contract.
Facts:- A contract was entered between the plaintiff and the defendant’s wife. Who was
an eminent pianist who should play the piano at a concert to be given by a plaintiff on a
specified day? On the morning of the concert, she informed the plaintiff that she was too
ill to attend the concert.
1 Question Bank (1863) 3 B & S 826.
2
(1903) 2 KB 740.
3
(1871) LR 6 Exch. 269.
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The Court held that the defendant was not liable because of her inability due to her
illness.
5)
Government or Legislature Intervention:-
A contract is dissolved when a legislature (by passing a law) or administrative action
of the Government directly operates upon the fulfilment of a contract, rendering the
contract impossible or unlawful. Thus, where the vendor could not execute the sale deed
because he ceased to be the owner by operation of law, makes the contract impossible to
perform. Likewise, the contract to cut trees in the forest is frustrated if the law prohibits
such cutting.
6)
Intervention of War:-
In international contracts, war or war-like situations usually frustrate contracts.
Thus, if there are many ways of performing a contract and the war cuts only one of them,
the party is still bound to perform the contract in another way, though performance is
inconvenient or expensive. Transportation of goods during Corona Virus pandemic was
prohibited. Transportation of goods during the Covid-19 period was prohibited.
Effect of Frustration:-
Frustration follows the following effect. Viz.
1)
Frustration should not be Self-induced:-
The essence of the frustration is that it should not be due to an act or election of the
party itself. Self-induced frustration will not discharge the liability of the party.
2)
Frustration Operates Automatically:-
The legal effect of frustration does not depend upon the parties' intentions, opinions,
or knowledge of the event. It operates automatically.
3)
Adjustments of Rights:-
Frustration renders the contract void. S. 65 provides that when an agreement is
discovered to be void or when a contract becomes void, any person who has received any
advantage under such agreement or contract is bound to restore it or to compensate the
person from whom he received it.
Illustrations
(a)
(b)
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 promise. The agreement is void, but B must
repay A 1,000/- rupees.
A contracts B to deliver 250 maunds of rice to him before the first of May. A
delivers 130 maunds only before that day and none after. B retains the 130
maunds after the first of May. He is bound to pay A for them.
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4)
Compensation for Loss:-
S. 56, in its last part, provides that where one person has promised to do something
which he knew, or, with reasonable diligence, might have known, and which the promisee
did not know, to be impossible or unlawful, such promisor must make compensation to the
promisee for any loss which such promisee sustains through the non-performance of the
promise.
Illustration
A contract to marry B, being already married to C, and being forbidden by the law to which
he is subject to practice polygamy. A must make compensation to B for the loss caused to
her by the non-performance of his promise.
IV. Discharge by Agreement (S. 62, 63):-
Parties can discharge their liabilities by mutual agreement. S. 62 and S. 63 deal with
such agreements.
A)
Novation (S. 62):-
When the parties to the contract agree to substitute the existing contract with a new
contract, this is called a ‘novation’.
S. 62 provides that “if the parties to the contract agree:-
(a) to substitute a new contract for it (old contract), or
(b) to rescind or alter it (old contract),- the original contract need not be
performed”.
Thus, novation is of two kinds:-
1)
Novation Involving Change of Parties:-
Sometimes, by novation, the obligation of discharging a contract is created for a
new person instead of an already existing person. Such novation is called novation by a
change of parties. Novation by change of parties usually takes place when a new partner is
admitted into an existing firm.
Illustrations
(a) A owes money to B under a contract. It is agreed between A, B and C that B shall
thenceforth accept C as his debtor instead of A. The old debt of A to B is at an end,
and a new debt from C to B has been contracted.
(b) A owes B 1,000/- rupees under a contract. B owes C 1,000/- rupees. B orders A to
credit C with 1,000/- rupees in his books, but C does not assent to the arrangement. B
still owes C 1,000/- rupees, and no new contract has been entered.
2)
Novation Involving Substitution of new Contract in Place of the Old one:-
When parties to the contract agree to substitute a new contract for it, the original
contract is discharged and need not be performed.
Illustration
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A owes B 10,000 rupees. A enters into an arrangement with B and gives B a mortgage of
his (A’s) estate for 5,000 rupees instead of the debt of 10,000. This is a new contract and
extinguishes the old.
B) Remission of Performance (S. 63):-
S. 63 provides that the party who has the right to demand the performance of a
contract may-
(i)
remit or dispense with it, wholly or in part (Waiver); or
(ii) extend the time for performance; or
(iii) accept any other satisfaction instead of performance (accord and satisfaction)
Dispensing with or Remitting Performance (Waiver):-
The party entitled to claim performance may remit or dispense with the performance
1)
of the contract without any consideration. This is called the “waiver” of rights. He may
waive his claim fully or may agree to a smaller amount in full satisfaction of the whole
amount.
Illustrations
(a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer
bound to perform the promise.
(b) A owes B 5,000/- rupees. A pays to B, and B accepts in satisfaction of the whole debt,
2,000/- rupees paid at the time and place at which the 5,000/- rupees were payable.
The whole debt is discharged.
(c) A owes B 2,000/- rupees and is also indebted to other creditors. A makes an
arrangement with his creditors, including B, to pay them a (composition) of eight
annas in the rupee (i.e. half the payment indebted) upon their respective demands.
Payment to B of 1,000/- rupees is a discharge of B’s demand.
The party entitled to claim performance may accept performance from a third
party and agree to get less payment in discharge of the whole claim.
(d) A owes B 5,000/- rupees. C pays B 1,000/- rupees, and B accepts them, in satisfaction
of his claim on A. This payment is a discharge of the whole claim.
2)
Extending the Time of Performance:-
The party entitled to claim performance may extend the time for performance,
without
consideration for such an extension.
3)
Accepting any other Satisfaction Instead of Performance:-
The party entitled to claim performance may accept any other satisfaction in lieu of
the agreed performance, and this would discharge the promisor. It is called accord and
satisfaction.
Illustration
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A owes B, under a contract, a sum of money, the amount of which has not been
ascertained. A, without ascertaining the amount given to B, and B, in satisfaction thereof,
accepts the sum of 2,000/- rupees. This is a discharge of the whole debt, whatever it may
be its amount.
NOTES
A]
Offer to Perform / Tender of Performance (S.38)
SYNOPSIS
I.
General:-
A ' tender ' is an offer to perform one’s obligation under the contract. It is also called
‘attempted performance’. In other words, when the promisor is willing to perform the
contract and offers to perform the same, it is the duty of the promisee to accept the
performance of a contract. If the promisee refuses to accept a valid offer of performance,
then the promisor cannot be blamed for the non-performance of the contract. In such a case,
the promisor cannot be held liable for non-performance of the contract, and he can also
bring an action for breach of the contract against the promisee.
II.
Essentials of valid tender-
Following are the essentials of valid tender.
1)
The tender must be unconditional:-
An offer to perform the contract must be unconditional. If it is conditional, then it
is not an offer to perform the promise. An offer to pay less than due is not an unconditional
offer to perform.
2)
The tender must be at a proper time and place:-
Tender of performance is to be made at such time and place as agreed between the
parties to the contract. If such time and place are not agreed upon, it is to be made at a
business place during working hours.
4
(1843) 6 Man. & G. 693.
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Facts: The plaintiff agreed to supply the defendant with 10 tons of linseed oil within the
last 14 days of March. The plaintiff tendered the oil on the very last date of the
performance, i.e., on 31st March, at about 9:00 p.m. Since the supply time was late at night,
the defendant refused to take the oil.
The Court held that the defendant had full opportunity to examine, weigh, and receive the
oil until 12 o’clock on the agreed 31st March, and therefore, the tender was a valid one.
The defendant was liable to pay damages for non-performance of the contract.
(3)
Opportunity of ascertaining goods:-
In case of an offer to deliver anything (goods, etc.) to the promisee, the promisee
should have a reasonable opportunity to ascertain the thing offered and see whether it is
according to the contract or not.
Illustration
A Contracts to deliver B at his warehouse, on the first March 1873, 100 bales of cotton of
a particular quality. In order to make an offer of performance with the effect stated in this
section, A must bring the cotton to B’s warehouse on the appointed day, under such
circumstances that B may have a reasonable opportunity to satisfy himself that the thing
offered is cotton of the quality contracted for and that there are 100 bales.
(4) An offer of performance to one of the joint promisees is a valid tender:-
When there are several joint promises, an offer to one of them is a valid tender of
an offer.
B]
By whom contracts are to be performed (Ss. 40 to 45):-
SYNOPSIS
(1) By the Promisor himself (S. 40):-
If it appears from the nature of the case that it was the intention of the parties to any
contract that any promise contained in it should be performed by the promisor himself,
such promise must be performed by the promisor.
Illustration
A promises to paint a picture for B, and A must perform this promise personally.
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(2) By representatives (S. 37):-
Promise binds the representatives of the promisor in case of the death of the
promisor (unless a contrary intention appears from the contract).
Illustrations
(a) A promises to deliver goods to B on a certain day on payment of Rs 1000. A died
before that day. A’s representatives are bound to deliver the goods to B, and B is
bound to pay Rs 1000 to A’s representatives.
(b) 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,
(3) By agent or third person (S. 40):-
If the parties did not intend that the promise must be performed by the promisor
himself, in such case, it would be performed through an agent.
Illustration
A promises to pay B a sum of money. A may perform this promise either by personally
paying the money to B or by causing it to be paid to B by another, and if A dies before the
time appointed for payment, his representatives must perform the promise or employ some
proper person to do so.
However, when the promisee accepts the performance of the promise from a third
person, he cannot afterwards enforce it against the promisor (S. 41).
(4) In the case of Joint Promisors (Ss. 42 to 45):-
When two or more persons have made a joint promise, they are called ‘Joint
Promisors’.
Rules as to the liability of joint promisors are as follows:-
(a) Liability to perform joint promises (S. 42):-
When two or more persons have made a joint promise, then (unless a contrary
intention appears from the contract) all such persons, during their joint lives, and, after the
death of any of them, his representative jointly with the survivor (or survivors), and, after
the death of the last survivor, the representatives of all jointly must fulfil the promise.
However, in England, on the death of a joint promisor, the liability devolves on the
survivors and not upon the representatives of the deceased joint promisors. However, on
the death of the last surviving promisor, the liability devolves on his representatives and
not on the representatives of the other deceased promisors.
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(b) Any one of the promisors may be compelled to perform (S. 43):-
When two or more persons make a joint promise, the promisee may (in the
absence of an express agreement to the contrary) compel any one or more of such Joint
promisors to perform the whole of the promise. Each of the two or more joint promisors
is to contribute equally to the performance of the promise (unless a contrary intention
appears from the contract). If any one of two or more joint promisors make a default in
such contribution, the remaining Joint promisors must bear the loss arising from such
default in equal shares.
Illustrations
(a) A, B, and C jointly promise to pay D 3,000 rupees. D may compel either A or B, or C
to pay him 3,000 rupees.
(b) A, B, and C jointly promise to pay D the sum of 3,000 rupees. C is compelled to pay
the whole. A is insolvent, but his assets are sufficient to pay one-half of his debts. C is
entitled to receive 500 rupees from A’s estate and 1,250 rupees from B.
English Common Law, all joint promisors must be sued jointly for a breach of contract.
(c) Effect of release of one of the joint promisors (S. 44):-
Where two or more persons have made a joint promise, the release of one of
such joint promisors by the promisee does not discharge the other joint promisors; neither
does it free the joint promisors so released from responsibility to the other joint promisor
(or joint promisors).
(d) Right of joint promisors to get performance done (S. 45):-
It is based on a similar line of S. 42, i.e. the liability of joint promisor to perform.
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 representative of such deceased person jointly with the survivor or survivors,
and, after the death of the last survivor, with the representatives of all jointly.
Illustration
A, in consideration of 5,000 rupees lent to him by B and C, promises B and C jointly to
repay them that sum with interest on a day specified. B dies. The right to claim performance
rests with B’s representative jointly with C during C’s life and after the death of C with the
representatives of B and C jointly.
C]
Time and place of performance (Ss. 46-50).
SYNOPSIS
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time is specified (S. 46).
General:-
The performance of a contract should be at such place and at such time as
agreed between the parties. However, if no specific time and place is mentioned in the
contract, then in such case, it should be in accordance with the rules laid down in Ss. 46 to
50 of the Act. These sections provide rules as to the time and place of performance of a
promise in a given situation (i.e. in the situation mentioned in these sections).
(a) Rules as to the time and place of performance of a promise:-
We will discuss these rules as follows:-
(1) Time for the performance of promise- where no application is to be made and no
time is specified (S. 46):-
Where, by the contract, a promisor is to perform his promise without
must be performed within a reasonable time. The question of “what is a reasonable time”
is a question of fact in each particular case.
In other words, when the parties decide no time as to the performance of a
contract, the performance is to be made at a reasonable time.
5
Without application by the promisee means- without asking by the promisee as to where and at what
time performance of promise is to be made),
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(2) Time and place for the performance of promise-where time is specified and no
application to be made (S. 47):-
When a promise is to be performed on a certain day, and the promisor has
undertaken to perform it without application (demand) by the promisee, the promisor
may perform it at any time during the usual hours of business on such day and at the place
at which the promise ought to be performed.
Illustration
A promises to deliver goods at B’s warehouse on the first of January. On that day, A brings
the goods to B’s warehouse, but after the usual hour after closing the warehouse. A has not
performed his promise.
(3) When the promisee is to apply for performance, he must do so at the proper time
and place (S. 48):-
When a promise is to be performed on a certain day, and the promisor has not
undertaken to perform it without application (i.e. demand) by the promisee, it is the duty
of the promisee to apply for performance at a proper place and within the usual hours of
business.
The question “What is a proper time and place?” is, in each particular case, a question of
fact.
(4) Place for the performance of promise- where no application is to be made and no
place fixed for performance (S. 49):-
When a promise is to be performed without application by the promisee, and
no place is fixed for the performance it, it is the duty of the promisor to apply to the
promisee to appoint a reasonable place for the performance of the promise and to perform
it at such place.
Illustration
A undertakes to deliver a thousand maunds of jute to B on a fixed day. A must apply
to B to appoint a reasonable place for the purpose of receiving it and must deliver it to him
at such place.
(5) Performance in a manner or at a time prescribed or sanctioned by the promisee
(S. 50):-
The performance of any promise may be made in any manner or at any time which
the promisee prescribes or sanctions.
Illustrations
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(a) B owes A 2,000 rupees. A desires B to pay the amount to A’s account with
C, a banker. B, who also banks with C, orders (to C) the amount to be transferred from his
account to A’s credit, and this is done by C (i.e. accepted to transfer). Afterwards, and
before A knows of the transfer, C fails (actually to transfer the amount to A’s account). B
has made a good payment.
(b)
A and B are mutually indebted. A and B settled an account by setting off one
item against another, and B paid A the balance found to be due from him upon such
settlement. This amounts to a payment by A and B, respectively, of the sums which they
owed to each other.
(b) Effect of failure to perform the contract in time (S. 55):-
On failure of the party to perform the contract within time, the other party gets
remedy. These remedies are available in two situations, one when time is the essence of a
contract and the other when time is not the essence of the contract.
(i) When the time is the essence of the contract:-
If time is the essence of the contract, non-performance of promise within that time
by one party renders the contract voidable at the other party's option. However, if the other
party accepts the performance at a time other than agreed upon between them, the contract
becomes valid and non-avoidable. But, if the promisee, while accepting the performance
at a time other than agreed, gives notice that he will claim compensation for non-
performance of the promise within the agreed time, he does not lose his right to claim
compensation even though he accepts the performance at the time not agreed between
them.
(ii) When the time is not the essence of the contract:-
When time is not the essence of the contract, it must be performed within a
reasonable time. The delay in performance does not make the contract voidable, but the
remedy available to the aggrieved party is to claim compensation.
D]
Performance of Reciprocal Promises (Ss. 51-54, 57, 58)-
SYNOPSIS
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General:-
(1) Reciprocal promises to be simultaneously performed (S.51)
S. 2 (f) of the Act defines the concept of ‘Reciprocal Promises’ as “promises which
form the consideration (or part of the consideration) for each other”. In other words, when
a contract consists of an exchange of promises, they are called reciprocal promises. We
have known it so far as ‘consideration’. Thus, ‘promises forming consideration to each
other are called reciprocal promises.
(a) A promises to sell his house to B, and B promises to pay 1,00,000/- rupees for the
same. Here, A and B have reciprocal promises. A’s promise ‘to sell the house’ is in
consideration of B’s promise to pay for the same.
(b) A promises to maintain B’s child, and B promises to pay 1,000 rupees yearly for the
purpose. Here, the promise of A is in exchange for the promise of B. Hence they are
called reciprocal promises.
Following are the rules with respect to the performance of reciprocal promises.
(1)
Reciprocal promises to be simultaneously performed (S.51):-
When a contract consists of reciprocal promises to be simultaneously performed, no
promisor needs to perform his promise unless the promisee is ready and willing to perform
his part of the promise.
Illustrations
(a) 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 them on payment.
(b) A and B contract that A shall deliver goods to B at a price to be paid in instalments, the
first instalment to be paid on delivery. A need not deliver unless B is ready and willing
to pay the first instalment for delivery. B need not pay for the first instalment unless A
is ready and willing to deliver the goods upon payment of the first instalment.
(2) Order in which reciprocal promises are to be performed (S.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 by the contract, they shall be performed in that order which the nature of the
transaction requires.
Illustrations
(a) A and B contract that A shall build a house for B at a fixed price. A’s promise to build
a house must be performed before B’s promise to pay for it.
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(b) 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 money. A’s promise need not be
performed until the security is given, for the nature of the transaction requires that A
should have security before he delivers his stock.
(3)
Consequence where the party prevents performance (S. 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.
Illustration
A and B agreed that B would execute certain work for A thousand rupees. B is ready and
willing to execute the work accordingly, but A prevents him from doing so. The contract
is voidable at the option of B, and if he elects to rescind it, he is entitled to recover from A
compensation for any loss which he has incurred by its non-performance.
(4)
Effect of default in performance of reciprocal promises (S.54):-
When a contract consists of reciprocal promises, such as one of them cannot be
performed (or that its performance cannot be claimed) till the other is performed. The
promisor of the promise last mentioned fails to perform it, such promisor cannot claim the
performance of the reciprocal promise, and must make compensation to the other party of
the contract for any loss which such other party may sustain by the non-performance of the
contract.
Illustrations
(a) A hires B’s ship to take in and convey, from Calcutta to Mauritius, a cargo to be
provided by A, B receiving a certain freight for its conveyance. A does not provide
any cargo for the ship. A cannot claim the performance of B’s promise and must make
compensation to B for the loss which B sustains by the non-performance of the
contract.
(b) A contracts with B to execute a certain builder’s work for a fixed price of supplying the
scaffolding and timber necessary for the work. B refuses to furnish any scaffolding or
timber, and the work cannot be executed. A need not execute the work, and B is bound
to make compensation to A for any loss caused to him by the non-performance of the
6
(c) A contracts with B to deliver to him, at a specified price, certain merchandise on board a ship,
which cannot arrive for a month, and B engages to pay for the merchandise within a week from the
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(5) Reciprocal promises to do things legal and also other things illegal (S. 57):-
When a contract consists of legal and illegal terms, the first set of terms is valid, while
the other is void.
Illustration
A and B agree that A shall sell B a house for 10,000/- rupees but that if B uses it as a
gambling house, he shall pay A 50,000/- rupees for it.
The first set is for reciprocal promises, namely, to sell the house and to pay 10,000
rupees for it, which is a contract.
The second set is for an unlawful object, namely, that B may use the house as a
gambling house and is a void agreement.
(6) Alternative promises of which one branch is legal and the other illegal (S. 58)-
In the case of an alternative promise, one branch of which is legal and the other
illegal, only the legal branch can be enforced.
Illustration
A and B agreed that A should pay B 1,000 rupees for which B shall afterwards
deliver to A either rice or smuggled opium.
It is a valid contract to deliver rice and a void agreement as to the opium.
E)
Rules as to the appropriation of payments (Ss. 59 to 61):-
SYNOPSIS.
General:-
When the debtor owes several debts to a creditor, and he makes some payment
which is not enough to cover the payment of all the debts, the question, in such a case,
arises, is as to which particular debt the payment is to be appropriated (applied)?
date of the contract. B does not pay within the week. A’s promise to deliver need not be performed,
and B must make compensation.
(d) A promises B to sell him one hundred bales of merchandise, to be delivered next day, and B promises
A to pay for them within a month. A does not deliver according to his promise. B’s promise to pay need
not be performed, and A must make compensation.
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E. g. X borrowed Rs. 200/- from Y in January. He then again borrowed Rs. 400/-
from Y in April and Rs. 200/- in August. He then sent Rs. 400/- to Y. Now, a question may
arise as to which debt the payment of Rs. 400/- is to be appropriated (applied).
Ss. 59 to 61 of the Act provides the rules as to the appropriation of payment in
such circumstances Viz.
(1)
Appropriation as Desired by Debtor (S. 59):-
Where a debtor, owing several debts to one person, makes a payment to him, either
with express intimation (or under the circumstances implying) that the payment is to be
applied to the discharge of some particular debt, the payment if accepted, must be applied
accordingly.
Illustrations
(a) A owes B, among other debts, 1,000 rupees upon a promissory note, which falls due
on the first of June. He owes B no other debt of that amount. On the first of June, A
pays B Rs.- 1,000/-. The payment is to be applied to the discharge of the promissory
note.
(b) A owes B, among other debts, the sum of 567 rupees. B writes to A and demands
payment of this sum. A sends to B 567 rupees. This payment is to be applied to the
discharge of the debt for which B demanded payment.
(2)
Appropriation by the Creditor (S. 60):-
Where the debtor has omitted to intimate, and there are no other circumstances
indicating to which debt the payment is to be applied, the creditor may apply it at his
discretion to any lawful debt actually due and payable to him from the debtor (whether its
recovery is or is not barred by the law in force for the time being as to the limitation of
suits). Thus, the creditor may appropriate even time-barred debt also. However, he cannot
appropriate the amount for an illegal or void debt.
(3)
Appropriation in Order of Time (S. 61):-
Where neither party makes any appropriation, the payment shall be applied in
discharge of the debts in order of time (whether they are time-barred or not). If the debts
are of equal standing (i.e. same time)- the payment shall be applied in discharge of each of
them proportionately.
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