Prepare for your CMA Foundation Paper 1 Business Laws and Business Communication. using our CMA Foundation Study Materials. Here is Lesson 2.6 Performance of Contract.
Performance of Contract
Every contract imposes certain obligations on the parties involved. When both parties fulfil their respective promises, the contract is said to be performed. Performance of a contract is the normal and natural way of discharging it. This lesson explains the various rules relating to the performance of contracts as provided under the Indian Contract Act, 1872.
1. Obligation of Parties to Contracts (Section 37)
The parties to a contract must either perform or offer to perform their respective promises, unless such performance is excused under the provisions of law.
Promises bind the representatives of the promisor in case of death, unless a contrary intention appears in the contract.
Example:
- 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, and B must pay them ₹1,000.
- A promises to paint a picture for B by a certain day. A dies before that day. The contract cannot be enforced either by A’s representatives or by B since it was a personal skill-based obligation.
2. Effect of Refusal to Accept Offer of Performance (Section 38)
When a promisor makes an offer to perform and the promisee refuses to accept it, the promisor is not responsible for non-performance and does not lose his rights under the contract.
An offer of performance must:
- Be unconditional.
- Be made at a proper time and place, giving the promisee reasonable opportunity to verify ability and willingness.
- If the offer involves delivery of goods, the promisee must have a reasonable opportunity to inspect them.
3. Effect of Refusal of Party to Perform Promise Wholly (Section 39)
If a party refuses to perform or disables himself from performing his promise entirely, the other party may put an end to the contract unless he has signified willingness to continue.
Example:
A, a singer, contracts with B, a theatre manager, to sing twice a week for two months. On the sixth night, A wilfully absents herself. B is entitled to terminate the contract.
4. Person by Whom Promise is to be Performed (Section 40)
If it appears that the promise was intended to be performed personally, it must be performed by the promisor himself. Otherwise, the promisor or his representatives may employ a competent person.
Example:
A promises to pay B a sum of money. A may pay personally or through another person. If A dies, his representatives must perform the promise.
5. Effect of Accepting Performance from a Third Person (Section 41)
When the promisee accepts performance from a third person, he cannot later enforce it against the original promisor.
6. Devolution of Joint Liabilities (Section 42)
When two or more persons make a joint promise, all of them are jointly liable during their lives, and after the death of any, their representatives jointly with the survivors must fulfil the promise.
7. Any One of Joint Promisors May Be Compelled to Perform (Section 43)
The promisee can compel any one or more joint promisors to perform the whole promise unless a contrary intention appears.
- Each joint promisor can seek contribution from others.
- If one promisor defaults, others must share the loss equally.
Example:
A, B, and C jointly promise to pay D ₹3,000. D can compel any one of them to pay the entire amount.
8. Effect of Release of One Joint Promisor (Section 44)
Releasing one joint promisor does not discharge the others, nor does it free the released promisor from responsibility to co-promisors.
9. Devolution of Joint Rights (Section 45)
When a promise is made to two or more persons jointly, the right to claim performance rests with all during their joint lives and after death with their representatives jointly.
Example:
A borrows ₹5,000 from B and C jointly. B dies. The right to recover rests with B’s representative and C jointly.
10. Time and Place of Performance (Sections 46–50)
The time and place of performance depend on the contract terms.
(a) Time for Performance where no time specified (Sec. 46)
If no time is specified, performance must occur within a reasonable time depending on the contract’s nature.
(b) Time Specified and No Application Needed (Sec. 47)
If a promise is to be performed on a specific day, the promisor must perform it during business hours at the proper place.
Example:
A promises to deliver goods at B’s warehouse on 1st January. He arrives after business hours. A has not performed his promise.
(c) Application by Promisee (Sec. 48)
Where performance requires the promisee’s application, it must be made at a proper time and place.
(d) No Place Fixed (Sec. 49)
If no place is fixed, the promisor must ask the promisee to appoint a reasonable place.
Example:
A undertakes to deliver 1,000 maunds of jute to B on a fixed day. A must ask B to fix a place for delivery.
(e) Performance in Manner or Time Prescribed by Promisee (Sec. 50)
Performance may be made in any manner or at any time prescribed or sanctioned by the promisee.
Example:
A asks B to transfer ₹2,000 to A’s account with C, a banker. When done, it is a valid payment.
11. Performance of Reciprocal Promises (Sections 51–54, 57)
(a) Simultaneous Performance (Sec. 51)
If promises are to be performed simultaneously, neither party need perform unless the other is ready and willing.
Example:
A agrees to deliver goods to B, who will pay on delivery. Each must be ready and willing at the same time.
(b) Order of Performance (Sec. 52)
If the order is fixed, perform accordingly; if not, follow the natural order.
Example:
A must build B’s house before B pays him.
(c) Prevention of Performance (Sec. 53)
If one party prevents the other from performing, the contract becomes voidable at the option of the party prevented.
Example:
A hires B to build a house but later stops him from doing so. B can rescind and claim damages.
(d) Default as to Promise to Be First Performed (Sec. 54)
When one promise cannot be performed till the other is done, and the first party defaults, he cannot claim performance and must compensate for losses.
Example:
A agrees to build using scaffolding supplied by B. B fails to provide it. A need not perform and can claim damages.
(e) Reciprocal Promises Legal and Illegal (Sec. 57)
If reciprocal promises include legal and illegal acts, the legal part is valid, and the illegal part is void.
12. Time as Essence of the Contract (Section 55)
When time is essential, failure to perform on time makes the contract voidable at the option of the promisee.
If time is not essential, the promisee can only claim compensation for delay.
If the promisee accepts late performance without objection, he cannot later claim damages unless notice is given.
13. Appropriation of Payments (Sections 59–61)
(a) Debtor Indicates Debt (Sec. 59)
If the debtor specifies which debt payment applies to, the creditor must apply it accordingly.
Example:
A owes B ₹1,000 on a note due 1st June. On that date, A pays ₹1,000 — it discharges that note.
(b) No Indication by Debtor (Sec. 60)
If no indication is made, the creditor may apply payment to any lawful debt, even if time-barred.
(c) Neither Party Appropriates (Sec. 61)
If neither party indicates, the payment applies in order of time; if debts are equal in standing, payment is shared proportionately.
Conclusion
Performance of contract is the fulfillment of the legal obligations arising from an agreement. It ensures that each party carries out what they promised, thereby discharging the contract. The Indian Contract Act provides detailed rules to determine who must perform, when and where performance must occur, and how obligations are shared in case of multiple parties. Understanding these rules is vital for upholding fairness, accountability, and enforceability in contractual relationships.
Revision Questions
Click the question to reveal the answers.
1. What is the term used when both parties to a contract fulfil their obligations?
Ans. Performance
2. Under which section of the Indian Contract Act are the obligations of parties to a contract defined?
Ans. Section 37
3. When a contract is fulfilled by both parties, it is said to be what type of performance?
Ans. Discharged
4. Which section of the Act deals with refusal to accept an offer of performance?
Ans. Section 38
5. What do you call promises that depend on each other for performance?
Ans. Reciprocal promises
6. When performance depends on personal skill, who must perform the promise?
Ans. Promisor
7. Whose performance, if accepted, prevents the promisee from enforcing the contract against the promisor?
Ans. Third person
8. When two or more persons make a joint promise, what is their liability?
Ans. Joint
9. Which section deals with performance by one of the joint promisors?
Ans. Section 43
10. Within what kind of time must performance take place when no time is specified?
Ans. Reasonable
11. What term is used when a contract is voidable due to failure to perform on time?
Ans. Voidable
12. What is the term used for adjustment of payments against several debts?
Ans. Appropriation
13. Who can compel performance when there are several joint promisors?
Ans. Promisee
14. When performance is accepted after the due date without objection, what right is lost?
Ans. Compensation
15. In case of a promisor’s death, whose duty is it to perform the promise (unless personal)?
Ans. Representatives
Fill in the Blanks
Click the question to reveal the answers.
1. When both parties fulfil their promises, the contract is said to be ___________ by performance.
Ans. Discharged
2. If a promisor makes an offer to perform and the promisee refuses, the promisor is ____________ from responsibility.
Ans. Freed
3. An offer of performance must be ___________ and made at a proper time and place.
Ans. Unconditional
4. When performance depends on personal skill, it must be done by the _____________ himself.
Ans. Promisor
5. When performance is accepted from a third person, the promisee cannot enforce it against the ______________.
Ans. Promisor
6. Joint promisors are _____________ liable during their joint lives.
Ans. Jointly
7. The right to claim performance from joint promisees rests with them ______________.
Ans. Jointly
8. If no time is fixed for performance, it must be done within a ______________ time.
Ans. Reasonable
9. When reciprocal promises are to be performed simultaneously, neither party need perform unless the other is ___________ and ________________.
Ans. Ready, willing
10. If time is of the essence and the promisor fails to perform, the contract becomes ____________ at the option of the promisee.
Ans. Voidable
True or False
Click the question to reveal the answers.
1. A contract is said to be performed when only one party performs his promise.
Ans. False
2. Representatives of the promisor are bound to perform unless the contract is personal in nature.
Ans. True
3. An offer of performance can be conditional.
Ans. False
4. When a promisee refuses to accept performance, the promisor loses all his rights.
Ans. False
5. Acceptance of performance from a third person prevents the promisee from suing the promisor.
Ans. True
6. Any one joint promisor can be compelled to perform the whole promise.
Ans. True
7. Releasing one joint promisor releases all other promisors.
Ans. False
8. Time and place of performance are determined only by the court.
Ans. False
9. Reciprocal promises must be performed in the order fixed or required by the nature of the transaction.
Ans. True
10. If time is not essential, delay in performance makes the contract void.
Ans. False
11. When neither party specifies appropriation of payment, it is applied to debts in order of time.
Ans. True
You can also test your knowledge and understanding of this lesson by taking advantage of our MCQ Practice Questions (MCQs).
Let us know if you have any questions or doubts in the comments section.
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