PERFORMANCE OF

CONTRACTS
INTERNATIONAL Business Law

Submitted by:

Nitish Mittal
MBA-IB
INTRODUCTION
In general, an agreement between two parties that creates
legal obligation and is enforceable by law is a contract. For
entering into a contract, there are certain essentials-

Agreement between two parties.

The intent of Legal obligation

Lawful consideration
The condition should be certain with a legal object
Free Consent
Competency of parties
PERFORMANCE OF CONTRACT
 The term ‘Performance of contract‘ means
that both, the promisor, and the promisee
have fulfilled their respective obligations,
which the contract placed upon them.
Section 27 of Indian contract Act says that
 The parties to a contract must either perform,

or offer to perform, their respective promises,

unless such performance is dispensed with or
excused under the provisions of this Act, or
any other law.
 It is one of the methods to discharge a
contract. The parties have no further rights
and liabilities once the contract is discharged.

Each party to the contract is bound to perform

promises according to the stipulated terms. In
case of any controversy as to the meaning of
a promise, the courts have usually decided
that a person must perform it as the other
party reasonably understood it to be. Thus, a
preference for the rights of the one who is to
receive the benefit of the promise is
established.
TYPES OF PERFORMANCE
ACTUAL PERFORMANCE
• When both the parties to the contract fulfills
their obligations as per the contract, the promise
is said to be actually performed. Actual
performance gives a discharge to the contract
and the liability of the promisor ceases to exist.
• For example, P agrees to deliver 100 kg of rice
to Q and Q promises to pay the price on delivery.
P delivers the rice on the due date and Q thereby
makes the payment. This is called actual
performance of contract.
ATTEMPTED PERFORMANCE/TENDER
 Sometimes it so happens that the promisor offers to perform
his obligation under the contract at the proper time and place
but the promisee does not accept the performance. This is
known as “attempted performance” or “tender”.
• If goods are tendered by the seller but refused by the buyer,
the seller is discharged from further liability, given that the
goods are in accordance with the contract as to quantity and
quality, and he may sue the buyer for breach of contract if he
so desires. The rationale being that when a person offers to
perform, he is ready, willing and capable to perform.
Therefore, a tender of performance is at par to actual
performance, and it gives the promisor freedom from further
performance of contract and moreover authorizes the
promisor to bring action against the promisee for the breach.
Offers to perform- Section 38 lays
down
Where a promisor has made an offer of performance to
the promisee, and the offer has not been accepted, the
promisor is not responsible for non- performance, nor
does he thereby lose his rights under the contract.
• For example, A contracts to deliver to B, 100 tons of
basmati rice at his warehouse, on 6 December 2019. A
takes the goods to B’s place on the due date during
business hours, but B, without assigning any good
reason, refuses to take the delivery. Here, A has
performed what he was required to perform under the
contract. It is a case of attempted performance and A is
not responsible for non-performance of B, nor does he
thereby lose his rights under the contract.
Requirements of Valid Tender
  Itmust be unconditional
 It must be made at proper time and place
 A person to whom the tender is made must be given

opportunity of inspection of goods or articles

 The tender must be whole and not of the part.
 The tender must be in proper form – tender of money in

current coins The tender must be made to proper person

 Tender for the delivery of goods must be for the

quantity and quality as stipulated in the contract

 A tender made to one of the several joint promisees has

the same legal consequences as a tender to all of them

Effect of refusal of party to perform
the promise wholly – (section 39)
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
 Illustration:- (a) A, a singer, enters into a contract with B, the

manager of a theatre, to sing at his theatre two nights in every week

during next two months, and B engages to pay her 100 rupees for
each night’s performance. On the sixth night A willfully absents
herself from the theatre. B is at liberty to put an end to the contract.
(b) A, a singer, enters into a contract with B, the manager of a
theatre, to sing at his theatre two nights in every week during next
two months, and B engages to pay her at the rate of 100 rupees for
each night. 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 now put
an end to it, but is entitled to compensation for the damage
sustained by him through A’s failure to sing on the sixth night.
Contracts which need not to be
performed
 A contract need not be performed –
 When its performance becomes impossible(Section 56)

 When the parties to it agree to substitute a new contract for

it or to rescind or alter it.(Section 62)

 When the promisee dispenses with or remits, wholly or in

part, the performance of the promise made to him or

extends the time for such performance or accepts any
satisfaction for it.(Section 63)
 When the person at whose option it is voidable, rescinds

it(Section 64)
 When the promisee neglects or refuses to afford the

promisor reasonable facilities for the performance of his

promise.(Section 67)
 When it is illegal.
 By whom the contract must be
performed
Promisor Himself :- In the case of a contract involving personal skill,
taste or diligence of the promisor, e.g., a contract to paint a picture, a
contract of agency or service; the promisor must himself fulfill the
contract. Section 40 states thus, "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 fulfill by the promisor himself, such promise
must be performed by the promisor.” (Section 40) Illustration:- A
promises to paint a picture for B. A must fulfill this promise personally.

Agent:- When the contract is of impersonal nature i.e., personal

consideration is not the foundation of a contract, a competent person can
be employed to perform it. [Section 40(2)] Illustration:- A promises to pay
B a sum of money. A may fulfill this promise, either by personally paying
the money to B or by causing it to be paid to B by another
  Legal Representative:- In case of the death of the
promisor before performance, the liability of
performance falls on his legal representatives, unless a
contrary intention appears from the contract [Section 37
]. But, the contracts involving personal skill comes to an
end on the death of the promisor on the basis of the
rule of law : “ action personalis moritur cum persona,
i.e., a personal action dies with person”.

Illustrations:
 (a) 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.
 (b) 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 the Rs. 1,000 to A's representatives.
 Third Person:- If a promisee accepts performance of the
promise from a third person, he cannot afterwards
enforce it against the promisor.(Section 41). Illustration:-
A wanted to sell his property to B. So, A & B both entered
into the contract for sale of property. A suddenly fall ill
and therefore through power of attorney authorized his
elder brother ‘E’ to perform the contract on A’s behalf. ‘B’
thus afterward cannot enforce it against the promisor.

 Joint Promisors:- When two or more persons makes a

joint promise to promisee, all joint promisors are bound
to perform the contract. Illustration:- A, B & C jointly
enters into the contract with E for the sale of their jointly
purchased property. Here, A,B & C are equally liable for
the performance of contract
Who can demand performance
 It is only the promisee who can demand for
performance of the contract. This makes no
difference that whether the performance demanded
is for the benefit of the promisee or for the third
person.
 In case of death of the promisee before the

performance, his legal representative can move

ahead with the demand.
Illustration:- A promises B to pay C a sum of
Rs.10,000/-. A does not pay the amount to C. C
cannot take action against A as it is only B who can
enforce the promise against A.
Time & Place of Performance (Sec 46-50)
 Performance of the promise within a reasonable time:- As per the
Section 46 of Contract Act, where the time for performance is not
specified in the contract and the promissory himself has to
perform the promise without being asked for by the promisee, the
contract must be performed within a reasonable time. The
question of reasonable time, in each particular case, is a question
of fact.
 Performance of promise where time is specified:- Section 47 says
that when a promise is to be performed on a certain day and the
promissory has undertaken to perform it without any 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.

 Performance of promise on an application by the promise:- It may

also happen that the day for the performance of the promise is
specified in the contract but the promisor has not undertaken to
perform it without application or demand by the promisee.
In such cases, the promisee must apply for
performance at a proper place and within the usual hours of
business.
 Performance of promise where no place is specified and

also no application is to be made by promise:- Section 49 of

the contract act says that when 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.
 Performance of promise in the manner and time or

sanctioned by promise:- Sometimes the promisee himself

prescribes the manner and the time of performance. In such
cases, the promise must be performed in the manner and at
the time prescribed by the promisee. The promisor shall be
discharged from his liability if he performed the promise in
the manner and time prescribed by the promisee.
Time as the essence of the contract
“Time as the essence of the contract” means the performance of the
promise by a party to the contract shall be within the specified time
or within the reasonable time.
Section 55 deals with “Time as the essence of the contract”-
 When time is of the essence – In a contract where time is as the

essence of the contract and if there is failure in performance of the

obligation within the specified time then the contract becomes
voidable at the option of the promisee. If the promisee accepts the
performance of contract after the specified time then in such case
promisee is not entitled to claim compensation for any loss
suffered due to non-performance of contract on time.
 IN COMMERCIAL OR MERCANTILE CONTRACTS, which provides for

performance within the specified time, here time is ordinarily of the

essence of the contract as businessmen wants certainty in respect
of business.
When time is not of the essence:- In a contract, where
time is not of essence of the contract, it do not makes
the contract voidable rather the promisee is entitled to
claim compensation for any loss suffered due to non-
performance of the contract at specified time.
 Intention to make time as the essence of the contract,

if expressed in writing, it must be unambiguous and

without any mistake.
 In cases other than COMMERCIAL OR MERCANTILE

CONTRACTS, the presumption is that the time is not

of the essence of the contract.
Illustration:- In a contract of sale of immovable
property time is not of the essence unless it is shown
that the intention of the parties was that the time
should be the essence of the contract.
Devolution of Joint Liabilities (Sec 42-
44)
“Devolution” means passing over from one person to
another.
 When two or more persons have made a joint promise,

then unless a contrary intention appears by the contract,

all such persons, during their lives and after the death of
any of them, their representatives jointly with the survivor
or survivors, and after the death of the last survivor, the
representatives of all jointly, must fulfill the promise.
Illustration:- A, B & C jointly took loan from D. If, ‘A’ dies
then his representative will perform the promise jointly
with B & C. Further in case of death of all, the legal
representatives of all of them jointly needs to perform the
promise.
Devolution of Joint Rights (Sec-45)

 When a person has made a promise to two or more

persons jointly, the rule is called devolution of joint rights.
Section 45 lays down:-
 All the promisees must jointly claim the performance.
 If, any one of them dies then his representative shall claim

performance jointly with the surviving promisees.

 Further in case of death of all, the legal representatives of

all of them jointly needs to claim the performance of the

promise.
 Illustration:- A & B jointly gives loan of Rs.5,000/- to C. C

promises A & B jointly to repay back the amount. B dies,

here, legal representative of B jointly with the survivor A
can claim for the performance of the promise from C.
Reciprocal Promises
Promises which form the consideration or part of the
consideration for each other, are called reciprocal promises –
Section 2(f).
Rules regarding the performance of the Reciprocal Promises :-
(Section 51-54 & 57) :-
 Section 51- Promisor not bound to perform, unless reciprocal

promisee ready and willing to perform.—When a contract

consists of reciprocal promises to be simultaneously performed,
no promisor need perform his promise unless the promisee is
ready and willing to perform his reciprocal promise.
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. Moreover, B need
not pay for the goods, unless A is ready and willing to deliver
them on payment.
 Section 52:- Order of performance of reciprocal
promises.—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 the house must be performed before B’s
promise to pay for it.
 Section 53:- Liability of party preventing event on which the
contract is to take effect.—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 contract that B shall execute certain work

for A 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.
 Section 54:- Effect of default as to that promise which
should be performed, in contract consisting of reciprocal
promises.—When a contract consists of reciprocal
promises, such that one of them cannot be performed, or
that its performance cannot be claimed till the other has
been performed, and 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 to the contract for any
loss which such other party may sustain by the non-
performance of the contract.

Illustrations :- 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.
Assignment of contract
Assignment of the contract means transfer of contractual rights and
liabilities under the contract to a third party. It may take place by:-

1. Act of the parties:- This is subject to the following rules:-

(1) Contracts involving personal skill or ability or other personal
qualifications cannot be assigned.
(2) A promisor cannot assign his liabilities or obligations under a
contract.
(3) The rights and benefits under a contract may be assigned.
(4) An actionable claim can always be assigned but the assignment to
be complete and effectual must be effected by an instrument in
writing. Notice of such assignment must also be given to the debtor.

2. Operation of Law:- This takes place in case of death or

insolvency of a party to the contract.
IMPACT ON BUSINESS
While the Judgement does not formulate anything new and only
reaffirms the already established principle, it is advisable for
parties to a contract to keep in mind the following:
 If the parties to a contract intend to restrict assignability, it is best
to state the intent expressly in the contract. Likewise, it should also
be noted that it is prudent to expressly record a party’s right to
assign, if that is the intention.
 In complex commercial transactions, it is imperative for parties to a
contract to take into account the pre-existing goodwill between
parties, which is often a significant factor influencing their decision
to contract with each other, before a party proposes to assign its
obligations under the contract. It would be inequitable for that
party to contract out his responsibility to a stranger if it is apparent
that the counterparty would not have accepted performance of the
contract had it been offered by a third party.
THANK YOU!