CHAPTER

9 Performance of Contract
CHAPTER CONTENTS
Offer to Perform (Sec. 38)
Contracts which Need not be Performed
B y Whom Must Contracts be Performed?
Devolution of Joint Liabilities and Rights
OWho Can Demand
Performance ?
Time and Place of Performance
Reciprocal Promises
Time as the Essence of the Contract
Appropriation of Payments
Assignment of Contracts
O Summary
Objective Type Questions
O Test Questions
Practical Problems
Performance of a contract takes
place when the parties to the contract fulfil their obligations
arising under the contract within the time and in the manner
that the parties to a contract must either prescribed. Sec. 37 (para 1) lays down
perform or offer to perform their respective promises,
unless such performance is dispensed with or excused.

OFFER TO PERFORM (SEC. 38)

Sometimes it so happens that the promisor offers to
at the
perform his obligation under the contract
proper time and place but the promisee does not accept the
performance. This is known a5
'attemptea performance' or 'tender. Sec.,38 sums up the position in this
promisor has made an otter of pertormance to the promisee, and the offer has regard thus: Where a
not been accepted
the promisor is not responsible for non-pertormance, nor does he
thereby lose his rights under the
contract. Thus, a tender of pertormance is equivalent to actual performance. t
excuses the promis0
from further performance and entitles him to sue the promisee for the breach of
contract.

Requisites of a valid tender

1. It must be unconditional. It becomes conditional when it is not in accordance with the terms
of the contract.
 PERFORMANCE OF CONTRACT
107

Examples. (a) D, a debtor offers to pay to C, his creditor, the amount due to him on the
condition that C sells to him certain shares at cost. This is not a valid tender.
(b) A tender was made on a condition that a receipt for the ful discharge of the contract be
given. Held the tender was invalid |Finch v. Miller, (1848) 5 C.B. 4281.
2. It must be of the whole quantity contracted for or of the whole obligation. A tender of an
instalment when the contract stipulates payment in full is not a valid tender
Example. D, a debtor, offers to pay C, his creditor, the amount due in instalments and
tenders the first instalment. The tender is not of the whole amount due and hence it is not a
valid tender.
If, however, the deviation from the terms of the contract is
the Court may take a practical view of the matter by
'microscopic', i.e., very negligible,
holding that the contract has been correctly
performed.
Example. In a contract requiring delivery of 4,950 tons of wheat the seiler delivered
4,950 tons 55 Ibs. Held, the contract was duly performed by the seller [Shipton, Anderson &
Co. v. Weil Bros & Co., (1912) 1 K.B. 574].
3. It must be by a person who is in a position, and willing to perform the
promise.
4. It must be made at the proper time and place. A tender of goods after the business hours or
of goods or money before the due date is not a valid tender.
Example. D owes C Rs. 100 payable on the 1st of August with interest. He offers to pay
on the 1st of July the amount with interest up to the 1st of July. It is not a valid tender as it is
not made at the appointed time.
5. It must be made to the proper person, i.e., the promisee or his duly authorised agent. it must
also be in proper form.
6. It may be made to one of the several joint promisees. In such a case it has the same effect as
a tender to all of them.
7. In case of tender of goods, it must give a reasonable opportunity lo the promisee for
inspection of the goods. A tender of goods at such time when the other party cannot inspect the
goods is not a valid tender. But in the following case, tender was held to be valid.
Example. The plaintiffs agreed to sell ten tons of linseed oil to the defendant to be
delivered "within the last fourteen days of March". Delivery was tendered at 8.30 p.m. on
March 31, a Saturday. The defendant refused to accept the goods owing to lateness of the hour.
Held, though the hour was unreasonable, the defendant could still take delivery before midnight
Startup v. Macdonald, (1843) 6 Man. G. 523].
8. In case of tender of money, the debtor must make a valid tender in the legal tender money. If
the creditor refuses to accept it, the debtor is not discharged from making the payment. Tender, in
this case, does not discharge the debt. But when the creditor files a suit against the debtor, the
debtor can set up the defence of tender. If he deposits the money in the Court and proves his pleas,
the creditor gets the amount originally tendered to him but without any interest, whereas the debtor
gets judgment for his cost of defence.

Efect of refusal of a party to perform promise wholly (Sec. 39)

When a party to a contract refuses to perform, or disables himself from performing, his promise
in its entirety, the promisee may put an end to the contract. But if the promisee has signified, by
words or conduct, his acquiescence (tacit assent) in the continuance of the contract, he
cannot
Tepudiate it [Union of India v. S. Kesar Singh, A.L.R. (1978) J. & K. 102]
 GENERAL PRINCIPLESs OF LAW OF CONTRACT
108

Examples. (a) A, a singer, enters intoa contract with B, the manager of a theatre, to sinn
at his theatre two nights in every week during the next two months and B agrees to pay her Rs.
1,000 for each night's performance. On the sixth night A wilfully absents herself from thene
theatre. B is at liberty to put an end to the contract.
(b) In the above example, A sings on the seventh night with the consent of B. B has
signified his acquiescence in the continuance of the contract, and cannot now put an end to it
but is entitled to compensation for the damage substained by him through A' s failure to sing on
the sixth night.
(c) A servant is employed for one year on a salary of Rs. 6,000 per month, the whole salaru
to be paid at the end of the year. The servant wrongfully leaves the service after three months.
He the
is not entitled to the period he has been employed because, by leaving the
salary for
, he has disabled himself from performing his promise in its entirety.
When a promisee puts an end to a contract under Sec. 39, being rightly entitled to do
so, it shll
be deemed as if he has rescinded a voidable contract and he shall,
by virtue ot Sec. 64, be bound to
restore to the other party all the benefits that he have received
may under the contract [Murlidhar
Chatterjee v. International Film Co., A.I.R. (1943) P.C. 34].

CONTRACTS WHICH NEED NOT BE PERFORMED

A contract need not be
performed
1. When its
performance becomes impossible (Sec. 56).
2. When the parties to it agree to substitute a new contract for it or to rescind
62) or alter it (Sec.
3. When the
promisee dispenses with or remits, wholly in
promise made to him or extends the time for such
or
part. the performance of the
(Sec. 63). performance or accepts
any satisfaction for it
4. When the
person at whose option it is
5. When the voidable, rescinds it (Sec. 64).
promisee neglects or refuses to afford the
periormance of his promise
(Sec. 67). promisor reasonable facilities for the
Example. A contracts with B to repair B's
places in which his house requires house. B neglects or refuses
to point out to A the
is caused by such repairs. A is excused for the
6. When
neglect or refusal.
it is
non-performance
of the contract, it it
illegal.
BY WHOM MUST
1. Promisor himself. If there is CONTRACTS BE PERFORMED
?
the parties that the
promise should be something in the contract
to show that it
performed by the promisor (Sec. performed by the promisor was the
intention ot
skill, volition, or diligence of the 40). This means contracts himself, such promise must be
which are founded on promisor (for instance, a which involve the exercise of
must be performed personal contidence contract to páint a persona
by the promisor himself. between the parties (for picture or sing), o
2. Agent. Where instance, a contract to marTY)
personal
his
representative may employ a consideration
competent
is not the
foundation of a contract, the
Example. Apromises to pay Ba person to
perform it (Sec. 40). promisor o
personally paying the money
sum
to B or
of
by money. A may
causing itto perform this
another. promise, either
be paid to B by Dy
 PERFORMANCE OF cONTRACT
109
3. Legal representatives. A contract which involves the use of personal skill or is founded on
personal considerations comes to an end on the death of the promisor. The rule of law is : actio
personalis moritur cum persona, i.e., a
personal action dies with the person. As regards any
othera
contract, the legal representatives of the deceased promisor are bound to perform it unless
contrary intention appears from the contract (Sec. 37, para 2). But their liability under a contract is
limited to the value of the property they inherit from the deceased New India Motors (Put.) Ltd. v.
Smt. S.P. Duggal, (1982) Comp. Cas. 352
Examples. (a) A promises to deliver goods to B on a certain day on payment of Rs. 1,000. A
dies before that day. A's representatives are bound to deliver the goods to B, and B is bound to pay
Rs. 1,000 to A's representatives.
(b) A promises to paint a picture for B by a certain day, at a certain price. A dies before that
day. The contract cannot be enforced either by A's representatives or by B.
4. Third persons. When a promisee accepts performance of the promisee from a third
person, he cannot afterwards enforce it against the promisor (Sec. 41).
5.Joint promisors. This is discussed below under the heading "Devolution of joint liabilities
and rights".

DEVOLUTION OF JOINT LIABILITIES AND RIGHTS

Devolution of joint liabilities (Secs. 42 to 44)
"Devolution" means passing over from one person to another.
When two or more persons made a joint promise, they are known as joint promisors. Unless a
contrary intention appears from the contract, all joint promisors must jointly fulfil the promise. If any
of them dies, his legal representatives must, jointly with the surviving promisors, fulfil the promise. If
all of them die, the legal representatives of all of them must fulfil the promise jointly (Sec. 42). It
would be seen that Sec. 42 deals with voluntary discharge of obligations. If the parties do not
"discharge their obligations of their own volition, Sec. 43 comes into play". Sec. 43 lays down three
rules as regards performance of joint promises:
(1) Any one of the joint promisors may be compelled to perform (Sec. 43, para 1).
When two or more persons make a joint promise and there Is no express agreement to the
contrary, the promisee may compel any one or more of the joint promisors to perform the whole of
the promise. This means the liability of joint promisors is joint and several.
Example. A, B and C jointly promise to pay D Rs. 3,000. D may compel all or any or either
A or B or C to pay him Rs. 3,000.
(2) A joint promisor compelled to perform may claim contribution (Sec. 43, para 2).
When a joint promisor has been compelled to perform the whole of the promise, he may compel
the other joint promisors to contribute equally with himself to the performance of the promise,
unless a contrary intention appears from the contract.
Examples. (a) A, B and Care undera joint promise to pay D Rs. 300. A is compelled to
pay the whole amount to D. He may recover Rs. 100 each from. B and C.
(b) A partner of a firm is a joint promisor with other partners. He is entitled to claim
contribution from other partners in case he is required to pay the debt of the firm |Bakshi
Hardatt v. The State of J.K., A.I.R (1977) NOC 270 (J. & K.)].
(3) Sharing of loss arising from default (Sec. 43, para 3). If any one of the joint promisors
makes default in the contribution, the remaining joint promisors must bear the loss arising from such
 GENERAL PRINCIPLES OF LAW OF CONTRA
110 CT

default in equal shares. The same principle applies in the case of recovery of a loan by a credit
from the heirs who by operation of law become joint promisors after the death of the sinnl
promisor 1Orissa Cement Ltd. v. Union of India, A.I.R. (1967) Ori. 158].
Examples. (a) A, B and C are under a joint promise to pay D Rs. 3,000. C Is unable to
pay anything and A is compelled to pay the whole sum. A is entitled to receive Ks. 1,500 from
om
B.
(b) A, B and C jointly promise to pay D the sum of Rs. 3,000. C is compelled to pay the
whole sum. A is insolvent but his assets are sufficient to pay one-half of his debts. C is
receive Rs. 500 (being one-half of Rs. 1,000) from A's estate and Rs.
entitled to
1,250 (being one-half of
Rs. 2.500) from B.
Release of a joint promisor (Sec. 44). A release by the promisee of
promiscrs does not
any of the joint
dischargethe other
joint promisors from liability. The released joint
also continues to be liable to the other promisor
joint promisors.
Example. D, D2 and D3 jointly owe a debt to C. C releases
suit against D2 and D, from his liability and files a
D3 for payment of the debt. D2 and D3 are not released
Di discharged from his liability to from their liability nor is
D2 and D3 for contribution.
Devolution of joint rights (Sec. 45)
When a
person (say A) has made a
areknown as joint promise to several persons (say, B, C and
promisees. Unless a
contrary intention appears from the
D). these persons
claim performance rests
with all of the contract, the right to
promisees (say B) dies, the right to claim joint promisees (B, C and D). When one of the
with the surviving
joint' promisees
performance rests with his (B's) legal joint
right to claim performance rests with (C and D). When all the joint representatives jointly
their legal promisees (B, C and D) die, the
Example. B and C representatives jointly.
them that sum with jointly lend Rs. 5,000 to A who
B dies. The promises
interest B and C
representatives jointly witha day
on
B's specified.
C during C's right to claim
jointly to repay
performance rests with the life. After the
death of C, the performance
rests with
The partners of a representatives of B and C jointly. right to claim
joint promisees when firm, the members of a joint Hindu
intention appears from theperson, say a debtor, makes a family, co-sharers, or
a

contract, a suit to enforce promise in their mortgagees are all

promisees. such promise must favour. Unless a contrary
be instituted
by all the Jjoint
WHO CAN
no
It is only the
difference whether promisee who can
DEMAND
demand PERFORMANCE?
person
the promise is for the performance
benefit of
of the
promise under
the a
contract. It makes
Example. A
promisee or for the benefit
cannot take any promises B to pay C a sum of any other
action against A. It of Rs. 500.
A does not
In certain is only B
who
a
party to the
cases, a third
party can also
can
enforce this promise pay the amount to C. C
contract. These cases
enforce a
have already
against A.
promise under a contract
Death of been discussed in
promisee. even
Chapter on though he
In case of death the is nor
performance of the
promisee, his legal "Consideration.
representatives can demand
PERFORMANCE OF cONTRACT 111

TIME AND PLACE OF PERFORMANCE

Time and place of performance of a contract are matters to be determined by an
agreement
between the parties themselves. Secs. 46 to 50 lay down the following rules in this regard:
1. Where no application is to be made and no time is specified. Where, by the
contract, a promisor is to perform his promise without application by the promisee, and no time for
performance is specitied, the promise must be performed within a reasonable time (Sec. 46). The
question "what is a reasonable time" is, in each particular case, a question of fact (Explanation to
Sec. 46). It depends on the special circumstances of the case, the usage of trade, or the intention of
the parties at the time of entering into the contract.
2. Where time is specified and no application is to be made. When a promise is to be
performed on a certain day, the promisor may undertake to perform it without application by the
promisee. In such a case, the promisor may perform the promise at any time during the usual hours
of business on such day and at the place at which the promise ought to be performed (Sec. 47).
Example. A promises to deliver goods at B's warehouse on the 1st January. On that day
A brings the goods to B's warehouse, but after usual hour for closing it and they are not
received. A has not performed his promise.
3. Application for performance on a certain day and place. When a promise to be
performed on a certain day, the promisor may undertake to perform it after the application by the
promisee to that effect. In such a case, 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 proper time and place"
is, in each particular case, a question of fact (Sec. 48).
4. Application by the promisor to the promisee to appoint place. When a promise is to
be performed without application by the promisee, and no place is fixed for the performance of 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 (Sec. 49).
Example. A undertakes to deliver 1,000 quintals 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 manner or at time prescribed or sanctioned by the promisee. The
performance of any promise may be made in any manner, or at any time which the promisee
prescribes or sanctions (Sec. 50).
Examples. (a) A and B are mutually indebted. They settle an account by setting off one
item against another, and B pays A the balance found to be due from him upon such
settlement. This amounts to payment by A and B, respectively, of the sums which they owned
to each other.
(b) A owes B Rs. 2,000. B accepts some of A's goods in reduction of the debt. The delivery
of the goods operates as a part payment.
(c) A desires B, who owes him Rs. 100, to send hima promissory note for Rs. 100 by post.
The debt is discharged as soon as B puts into the post a letter containing the promissory note
duly addressed to A.

RECIPROCAL PROMISES
Promises which form the consideration or part of the consideration for each other are called
reciprocal promises (Sec. 2 (1. Where, for example, A promises to do or not to do something in
consideration of B's promise to do or not to do something, the promises are reciprocal.
 GENERAL PRINCIPLES
OF LAW OF CONTRACT
112
Mansfield in Jones v. Barkley, 4 Doug. 659 as
These promises have
been classified by Lord
follows: his promise Independent
Mutual and independent.
Where each party must perform
(1)
fact whether the other party has pertormed,
or is willing to perform, hie
and irrespective of the
are mutual and independent.
promise or not, the promises
to pay the price of goods on 10th instant, s
Example. In a contract of sale, B agrees
20th instant. The promises are mutual and independent.
promises to supply the goods on
the promise by one partu
(2)Conditional and dependent. Where the performance of
depends on the prior performance of the promise by the other party, the promises are conditional
and dependent.
Example. A promises to remove certain debris lying in front of B's house provided B
supplies him with the cart. The promises, in this case, are conditional and dependent. A need
not perfom his promise if B fails to provide him with the cart.
(3) Mutual and concurrent. Where the promises of both the parties are to be performed
simultaneously, they are said to be mutual and concurrent. The example of such promises may be
sale of goods for cash.

Rules regarding performance of reciprocal promises

These are contained in Secs. 51 to 54 and 57 and
1.
are
reproduced below:
Simulatenous performance of reciprocal
of reciprocal promises to be promises (Sec. 51). When a contract consists
simutaneously
promise unless the promisee is ready and willingperformed,
the promisor need not
to perform
his
performed his
reciprocal promise.
Example. A and B contract that A shall deliver certain
delivery. A need not deliver the goods, goods to B to be paid for by B on
unless
delivery. B need not pay for the goods unless A is
B is ready and
willing to pay for the goods on
2. Order of ready and willing to deliver them on payment.
performance of reciprocal promises (Sec.
reciprocal promises are to be períormed is 52). Where the order in which
in that order; and where
the order is not expressly fixed by the contract, they must be performed
that order which the nature expressly fixed by the contract,
of the transaction they must be performed in
requires.
Examples. (a) A and B
promise to build the house mustcontract
be
that A shall build a
house for B at a fixed
(b) A and B contract that A performed before B's promise to pay for it. price. A's
shall make over his
promises to give security for the stock-in-trade to B at a fixed
until security is given, for the payment of the money. A's price, and B
he delivers up his stock. nature of the
transaction requires promise need not be
that A shall have performed
3. Effect of one
party security before
contract contains reciprocal preventing another from
other from performing his promises, it may happen thatperforming promise (Sec. 53). When a
the narty so prevented. promise. In such a case, the one
party to the contract
narty for any loss which Further,
he
the party so contract becomes
prevented is voidable at prevents the
the option of
may sustain in entitled to
Example. A
and B contract consequence of the compensation from the other
readyand willing to execute that B shall
execute non-performance of the
contract.
ntract is voidable at the optiontheofwork accordingly butcertain work for A for
Rs.
A
Compensation tar any loss
B and if he
which he has
A
prevents him from 1,000. B is
elects to rescind
incurred by its it, he is entitled doing so. The
to recover
non-performance. from
 PERFORMANCE OF CONTRACT
113
4. Effect of default as to promise to be
reciprocal promises is such that one of them cannotperformed
be
first (Sec. 54) Where the nature
of
his promise then if the other party fails to performed till the other party has pertormed
reciprocal promise trom the first party. In suchperform it, he cannot claim the
a case, the other
must
performance of the
make
the first party to the contract for any loss which the first
party
party
sustain the
compensation to
of the contract. may by non-pertormance
Examples. (a) A hires B's ship to take in and
convey, from Kolkata to Mauritius, a
to be provided by A, B receiving a certain freight for its conveyance. A does not
cargo
cargo for the ship. A cannot claim the provide any
compensation to B for the loss which B sustains performance of B's promise, and must make
by the non-performance of the contract.
(b) A contracts with B to execute certain builder's work for a fixed
price, B supplying the
scaffolding and timber necessary for the work. B refuses to furnish
any scaffolding or timber and
the work cannct 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 contract.
5. Reciprocal promise to do things legal and also other things illegal (Sec. 57). Refer
to Chapter on "Legality of object'".

TIME AS THE ESSENCE OF THE CONTRACT

When we say that "time is the essence of the contract', we mean that the performance of the
promise by a party to the contract is essential within the specified period, in order to entitle him to
enforce pertformance from the other party. In other words, the expression 'time is of the essence of
the contract means that a breach of the condition as to the time for performance will entitle the
innocent party to consider the breach as a repudiation of the contract [Hind Construction
Contractors v. State of Maharashtra, A.l.R. (1979) S.C. 720]. Whether time is of the essence of
the contract is a mixed question of law and fact [Municipal Corpn. of Delhi v. Jagan Nath Ashok
Kumar, (1987) 4 SSC 4971.
Sec. 55 deals with the question of 'time as the essence of the contract' and provides thus
1. When time is of the essence. In a contract, in which time is of the essence of the
contract, if there is a failure on the part of the promisor to perform his obligation within the fixed
time, the contract (or so much of it as remains unperformed) becomes voidable at the option of the
promisee (Sec. 55, para 1). If, in such a case, the promisee accepts performance of the promise
after the fixed time, he cannot claim compensation for any loss occasioned by the non-performance
of the promise at the agreed time. But if at the time of accepting the delayed performance, he gives
notice to the promisor of his intention to claim compensation, he can do so (Sec. .55, para 3).
In commercial or mercantile contracts which provide for performance within a specified time,
time is ordinarily of the essence of the contract. This is so because businessmen want certainty.
Examples (a) In a contract for the purchase of a chassis for a diesel truck to be supplied
within two months, time was held to be of the essence of the contract [Hitkari Motors v. Attar
Singh, A.I.R. (1962) J. & K. 10].
(b) In a contract for the sale or purchase of goods, the prices of which fluctuate rapidly in
the market, the time of delivery and payment are considered to be of the essence of the contract
IMahabir Pershad v. Durga Dutt, A.l.R. (1961) S.C. 900].
2. When time is not of the essence. In a contract, in which time is not of the essence of the
Contract, failure on the part of the promisór to perform his obligation within the fixed time does not
 114 GENERAIL PRINCIPLES OF LAW OF CONTRAq
make the contract voidable, but the promisee is entitled to compensation for any loss occasioned t
to
him by such failure (Sec. 55, para 2).
Intention to make time as the essence of the contract, if expressed in writing, must be ina
language which is unambiguous and unmistakable. The mere fact that a certain time is specified in a
n a
contract for the performance of a promise does not necessarily make time as the essence of the
contract. If the contract includes clauses providing for extension of time in certain contingencies or
for paymentof fine or penalty for every day or week the work undertaken remains unfinished on the
expiry of time provided in the contract, such clauses are construed as rendering ineffective the
express provision relating to the time being of the essence of the contract [Hind
Contractors v. State of Maharashtra.
Construction
A.I.R.(1979)
S.C. 7201
In cases other than commercial mercantile contracts, the
the essence of the contract.
or
presumption is that time is not
of

Examples. (a) In contract of sale of immovable property time is not of

a
it is shown that the intention the essence unless
of the parties was that time should be the essence of the
Indira Kaur v. Sheo Lal Kapoor, A.I.R. (1988) S.C. 1074]. contract

(b) The time fixed for the performance of a contract was extended twice and
the purchaser was also not a commercial the object of
contract |Devendra v. Sonubai, A.I.R.
undertaking. Held, time was not of the essence of the
(1971) Mys. 217).

Subsequent notice
Time may be made the essence of a contract
by a subsequent notice. The subsequent
specifyingtime, ought to fix the longest time that could notice,
of acts which remain to be done reasonably be required for the
performance
[Crawford
v.
Toogwood, 13 Ch. 153]. Any subsequent
making time as the essence of the contract notice
ought to fix reasonably long time requiring the other
party to pertorm his contract.

APPROPRIATION OF PAYMENTS
When a debtor owes several distinct
debts to a creditor and makes a
satisfy the whole indebtednes, a question arises: payment insufficient to
To which debt should
appropriated ? Secs. 59 to 61 lay down the
following three rules in this
the payment be
1. Where the debtor
intimates (Sec. 59). If the debtor
regard:
actual payment that the payment should be expressly
creditor must do so. lf there is no applied towards the discharge intimates at the time ot
of a particular debt, the
circumstances atternding on the payment express intimation by the
for debtor, the law will look to the
There is an established maxim of law appropriation.
the expressed will of the payer, not of that, when money is paid, it is to
the receiver" |Lord be applied according
E. &B. 648]. Campbell in Croft to
v.
Lumiley, (1858) 5
Examples. (a) A owes
B, among other
falls due on 1st June. He
owes B no
debts, Rs. 1,000 upon a
1.000. The payment is to be applied to other debt of that amount. promissory note whi
On 1st June A
the pays to B KS.
(b)A owes B, among other discharge of the promissory note.
of this sum. A sends debts, the sum of Rs. 567.
to B Rs. 567.
This payment is to B writes to A and demands
which B had demanded payment. be applied to the
discharge of the debt of
payment
 PERFORMANCE OF CONTRACT
115
2. Where the debtor does not intimate and the
circumstances are not indicative
(Sec. 60). Where the debtor does not expressly intimate or where the
the payment do not indicate any intention, the creditor may apply it
circumstances attending on
at his discretion to any lawtul
debt actually due and payable to him from the debtor. The creditor may also, until he has declared
appropriation to the debtor, alter the appropriation (Simson v. Ingham, (1823) 2 B. & C. 65]. He
cannot, however, apply the payment to a disputed or unlawful debt, but he may apply it to a debt
which is barred by the Law of Limitation.

On the question whether a part payment should be treated towards principal or interest, the
Qereral principle, subject to any contract to the contrary, is that the payment should first be applied
to the interest and after the interest is fully paid off, to the
principal [Rulia Devi v. Raghunath
Prasad, A.l.R. (1 979) Pat. 115].
3. Where the debtor does not intimate and the creditor falls to appropriate (Sec. 61).
Where the debtor does not expressly intimate and where the creditor fails to make any
appropriatior, the payment shall be applied in discharge of the debts in chronological order, i.e., in
order of time. It the debts are of equal standing, the payment shall be applied in discharge of each
proportionately.
Rule in Clayton's Case (1816) 1 Mer. 572. This rule is applicable where the parties have a
Current account, i.e., a running account between them. In such a case appropriation impliedly takes
place in the order in which the receipts and payments take place and are carried into the account. It
is the first item on the debit side of the account that is discharged or reduced by the first item on the
credit side; the appropriation is made by the very act of setting the two items against each other. In
simple words, it means that, unless there is a contrary intention, the items on the credit of an
account must be appropriated against the items on the debit in order of date.
To conclude (1) The debtor has, at the time of payment, the right of appropriating the
payment; (2) in default of debtor, the creditor has the option of election; and (3) in default of either,
the law will allow appropriation of debts in order oftime.

ASSIGNMENT OF CONTRACTS
To 'assign' means to 'transfer'. Assignment of a contract means transfer of contractual rights
and liabilities under the contract to a third party with or without the concurrence of the other party
to the contract. It may take place by

1. Act of the parties

Assignment is said to take place by an act of the parties when they themselves make the
assignment.
Assignment of contractual obligations. This is subject to the following rules:
(1) Contractual obligations involving personal skill or ability cannot be assigned (Sec.
40), e.g., a contractual obligation by an opera singer to sing or by a film actor to act in a film or a
contract to marry or paint a picture, cannot be assigned.
(2) A promisor cannot assign his liabilities or obligations under a contract, i.e., a
promisee cannot be compelled by the promisor or a third party to accept any person other than the
promisor as the person liable to him on the promise. The rule is based on sense and convenience.
The promisee in a contract is entitled to know to whom he is to look for the satisfaction of his rights
under the contract. For example, if D owesL Rs. 5,000 and is owed the same sum by D1, D cannot
ask L to recover the amount from D unless L accepts the performance from D1.
 116 GENERAL PRINCIPLES OF LAw OF CONTRACT
Example. D hired a carriage from S at a yearly rent for five years. S undertook to pain
the carriage every year and to keep it in repair. R was the partner of S, but the contract u
made with S alone. After three years S retired from business, and D was impliedly that R wold
paint and repair the carriage and receive payment. D refused to deal with R and returned tho
carriage. Held, he was entitled to do so [Robson Sharpe v. Drummond, (1831) 2 B. & Ad
303].
Limitations to the rule. () It is open to a party to have the contract performed through the
agency of a competent person provided the contract does not expressly or implied contemplate
perormance only by the promisor. However, the original party remains liable for the proper
perfomance of the obligations underthe ontract. For example, if A undertakes to do some work
for B
which needs no special skill, B cannot complain if A gets the work done by an equall
Competent person.
(ii) The promisor may transfer his liability with the consent of the promisee and of
transferee. In such a case, novation takes place. Novation is the substitution of a new the
contract for
an existing one between one of the
parties and a third party, the discharge of the old contract on the
same terms being the consideration for the new
one. It can take place only by the tripartite
agreement between the parties.
Assignment of contractual rights. This is subject to the following rules:
(1) The rights and benefits under a contract not involving personal skill
may be assigned,
subject to all equities between the original parties. This means that when sued
debtor can raise against the assignee all defences by the assignee, the
(including right of set-off) that he could have raised
against the assignor at the time he received notice of the
assignment.
Examples. (a) D owes Rs. 500 to C. C, the creditor, can transfer his
right to T to recover
the amount from D. If D has
already paid Rs. 200 to C, T will be bound by this payment and
shall be entitled to recover only Rs. 300 from D.
(b) A bought certain goods from B for Rs. 1,000. The
promptly offered to return the goods. B refused to take thegoods
were defective and B
therefore
Rs. 1,000 to C. C sued A for Rs. goods back and assigned the debt of
1,000. A can set up as a defence against C the
character of the goods. defective
(2) An actionable claim can always be
effectual must be effected by an Instrument assigned but the assignment to be complete and
to the debtor. An actionable claim is defined
in writing. Notice of such assignment must also be
In Sec. 3 of the Transfer of given
claim to any debt (except a secured debt) or to Property Act. 1882, as "a
beneficial interest be existent, accruing, conditionalanyor beneficial interest... whether such claim or
company, and a right of action arising Out of a contract,contingent."
Thus a money debt, shares in a
are all actionable
claims.
2. Operation of law
Assignment by operation of law takes
place by intervention of law. This takes
following two cases: place in the
(a) Death. Upon the death of a party to a contract his
(except n the case of contracts requiring personal skill or rights and liabilities under the contract
representatives.
services) devolve upon his heirs and legal
(b) Insolvency. In case of
adiudication insolvencyorof a
person, his rights and liabilities incurred
pass to the Official Keceiver Assignee, as the case may be. previous to