PERFORMANCE OF CONTRACT

PERFORMANCE OF CONTRACT

 

      A contract creates legal obligation. Performance of contract means the carrying out of these obligations. It implies fulfillment of the terms of the contract. Each party of the contract must perform the contract or offer to perform the promise which they have made. As we know that possibility of performance is one of the essential elements of a valid contract. Thus, an agreement, to be valid, must be capable of being performed. Contrary to this, if an agreement is made for an impossible act, such as to fly over the sky without taking help of any instrument or device, it is void ab intio. It clears that if an agreement is made to do an impossible act, it cannot be performed, if it cannot be performed due to impossibility, it cannot be enforced in the court of law.

      From legal point of view, performance of contract means the fulfillment of respective promises by the concerned parties as designed in it. Performance of contract is defined in sec. 37 of Indian Contract Act 1872. According to sec. 37, "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 provision of this Act, or of any other law".

      On the light of above definition, once a contract is created, both the parties will be bound by law to perform it by fulfilling their respective promises. If any of the parties thereto fails to perform, he is supposed to breach the contract.

      Hence, fulfillment of respective promises by the concerned parties in a manner as designed in the contract without making any change in its terms is called performance or execution of contract. The definition of performance of contract, provisioned sec. 37 consists two important aspects: (Types)

1.    Performance or Actual performance

2.    Offer to perform or Attempted performance or Tender

 

1. Performance or Actual Performance

 

      According to the contract the obligation must be performed by the concerned party. A party to a contract is said to have actually performed his promise when he has done what he had undertaken to do. In other words, he must have fulfilled all his obligations under the contract.

 

Example :

(1)  X contracted to deliver to Y at his warehouse on 1^st Oct., 100 bales of cotton of a particular quality. X brought the cotton of requisite quality to the appointed place on the appointed day during the business hours, and Y took the delivery of goods. This is an actual performance.

(2)  A contracts to find out the lost child of B for a sum of Rs. 10,000. Here the nature of the contract is such that A should actually perform his part.

  

2. Offer to Perform or Attempted Performance or Tender

 

      The offer to perform the contract is called tender. Tender may also be called attempted performance. As described in sec. 38 " 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".

      Under the tender, promisor agrees to perform or fulfil his obligation under the contract but the contract is not complete unless the offer of performance is accepted by the promisee. In case the promisee refuses to accept a valid offer of performance of the contract by the promisor, the promisor shall be discharged from the responsibility for the non-performance of the contract. A valid tender of performance, when rejected by other party, shall be treated equivalent to the actual performance of the contract and the person, making this valid tender of performance, can bring a suit for the breach of contract against the other party.

      Based upon sec. 38, following are the essential conditions or requisites for the legality and validity of a tender (Requisites of a valid tender):

(a)  It should be unconditional:

A tender with conditions attached to it will not be a valid tender.  

(b)  It should be an offer to perform in full:

An otter to perform promise should be in its complete sense. If it is in part, it cannot be taken as a valid tender. 

Example:

Under a contract, A has to deliver 100 bags of wheat to B on 1^st January. However, he offers only 50 bags to B on the due date. It is not valid tender and B can refuse to accept delivery of the same. 

 

(c) The tender must be at a proper time and place:

      Unless otherwise agreed upon, the place and time for the business or performance should be the same which was agreed with the promise, which is called proper place and time for the performance.

 

(d) Tender should be made to the proper promisee

      It must be made to the promisee or his duly authorised agent. In case of several promisees, a tender made to any one of them has the same legal consequences as tender to all of them. Thus, tender is valid if it is placed to anyone of the promisees.

 

(e) Proper quantity and quality :

      Tender for the delivery of goods must be for the quantity and quality agreed upon.

 

(f) Reasonable opportunity to the promisee:

      Under this, reasonable opportunity must be provided to the promisee to inspect and satisfy himself that performance is in accordance with the terms and conditions of the contract and that the goods offered are the same as the promisor is bound to deliver.

 

(g) Precise amount and in legal tender:

      In case of payment of money (legal tender money) tender must be of the exact or precise amount and it must be in terms of legal tender money. Promisee cannot be compelled to accept cheques or any other negotiable instruments other than legal tender money in discharge of his debts.

 

IMPORTANCE OF PERFORMANCE OF CONTRACT

 

      The performance of contract is necessary. A contract is made by the parties to do or not to do something for some consideration of any form valid in the eye of law. For which they have given their consent freely. Thus, the performance of contract is important for two reasons (a) for the existence of contract and (b) for the purity of business environment.

 

(a) Importance of performance of contract for the existence of contract

      A contract is made between two persons – the competent persons with their free consent. If the consent of the parties is adversely affected the contract is to be declared void. Because these contracts can be treated as voidable. More to this, if contract is held between the parties illegally, the contract is treated as ineffective, inoperative and void ab initio. It signifies that a contract is to be performed. A contract to be performed means a valid contract is to be performed. If the parties have consented to perform for a valid consideration and no one has any cause to avoid the contract, both the parties must perform according to their promise honestly. If the parties enter into the contract, however, they do not perform the promise, then what is the use of creating a contract. In such a situation, a question may arise – what will be the existence of a contract. The legal existence of contract will be lapsed. Virtually, there is danger of lapse of the importance of performance of contract. So, ancient Roman Law had developed a principle "PAETA SUNT SERVANDA". It means "The performance of contract should be done honestly". That Roman Law is in force even today. All agree that the contract should be performed honestly by the parties entering into contract for the existence and effectiveness of contract and contract laws.

 

(b) Importance of performance of contract for perfectly sincere, guiltless and purely non-corrupt business environment

      As different transactions are being held and accomplished through the contracts in the business world, the importance of performance of contract has become more and more desirous in the business life. If the contract is not performed in time, if it is disobeyed, if it is breach by non- performance, it may produce and create adverse effect in the business field, and the business activities may become unstable. The performance of contract is one of the important aspects of mercantile law, so, each contract must be performed by the parties. If it could not be done, then whole business world and business law as well will become unstable and corrupt. If a contract is not performed, it may produce a loss to one party, however, it will also not give any benefit to another breaching the contract. That's why, the performance of contract has become essential and important to give benefit and safeguard the interest of the parties thereto and to keep and maintain perfectly sincere, guiltless and purely non – currupt business environment. It will pay positive benefit and satisfaction to the parties, business world, government and the society at large.

 

RULES REGARDING PERFORMANCE OF CONTRACT

 

Rules regarding performance of contract are described here under:

 

1. Time and mode of performance of contract

 

      If the time and mode / method of performance of contract is specified in the contract, the contract is to be performed in that specified time and the mode of performance is to be followed. In a contract, where the time and mode of performance is not specified, reasonable time and mode for the performance should be followed.

 

      Now, if the specified time and mode is not followed for the performance or if the contract is performed after the expiry of the time or in other time and another mode for the performance is followed, then it will be treated as breach of contract. In such a case the contract becomes voidable. The aggrieved party can claim for the loss caused by such non performance.

 

2. Place of performance of contract

 

      If the place of performance of contract is specified in the contract, the contract is to be performed in that specified place. In a contract, where the place is not specified, then the contract should be performed in such a place suited as accordance to the nature of contract and as per general customs and rules prevailing in such situation. Otherwise in both cases the contract will be treated as breach of contract. It means, if place is specified in a contract, the performance should be done in that place, however, if the place is not specified in such a case contract should be performed in the following manner:

 

(a) As per the contract if a party has to deliver some goods, it should be delivering where it is kept

 

(b) If a contract is of such a nature that it can be performed in a particular place only, then it should be performed in that particular place.

 

(c) If both situations do not exist in a contract, then, a reasonable place should be specified by the party and the notice of the same should be given to another party.

 

3. Legal status of part performance of contract

 

      If in a contract, part performance of the contract is agreed and provisioned, accordingly what so ever and howsoever part performance is made it will not produce otherwise effect in the legal status of the parties. Except some exceptional cases, the part performance of contract will be treated as a valid performance. General rules of performance of contract directs that the contract should be performed absolutely. No part performance is allowed and validated.

 

Example :

If a building contractor is required to accomplish the construction work of the building completely for which he will get Rs. 10,00,000 and time is also specified. However, after the expiry of specified time, only 70% of the work is accomplished. In such a situation the contractor cannot claim for what he has performed. Another party cannot be held / made responsible to pay any amount to the contractor on the basis of part performance if it is not mentioned in the contract.

 

 

4. By whom is a contract to be peformed

 

(a)Personal skill, taste or credit (sec. 40)

 

      If the contract is to be performed by the concerned party with his personal skill taste and credit, he has to perform the contract. It signifies that the promisor has to perform that contract with his own skill, taste and credit.

 

 

(b) Performance by a competent person (sec. 40)

 

      If the performance of contract is not based upon personal skill, taste and credit, the promisor or his agent can perform the contract, however the agent must be competent to perform.

 

(c) The legal representative (sec. 37)

 

      In case of the death or insolvency of the promisor, the legal representative of that promisor has to perform the contract if the contract does not depend upon personal skill, taste and credit.

 

(d) Performance by a third person (sec. 41)

 

      If promisee has agreed that contract can be performed by any third competent party, the promisor cannot enforce the contract to be performed by promisee.

 

(e) Performance by joint promisee (sec. 42 – 44)

 

      If the contract is to be performed jointly by the promisees, the promisor can compel any of the co-promisee for the performance. If the promisor releases any of the promisees, it does not mean that all the promisees are released from the obligation.

 

Example :

               ABC jointly promise to pay Rs. 10000 to D. D may compel either A or B or C for the payment. In case of death, the legal representative will take the obligation. Co promisor has also to take the obligation. And release of any one promisor does not mean the release of others.

 

(f) Voidable contracts (sec. 64)

 

      If the contract is voidable, the contract needs not to be performed.

 

(g) Help of promisee is necessary (sec. 67)

 

      According to sec. 67, if the contract is of such a nature that performance of which depends upon the help of promisee, the promisee is required to provide help to the promisor. If the promisee does not provide necessary help, neglects to provide necessary help, the promisor will be free from the obligation of performance.