CA > Foundation > Paper 2 – Skim Notes

Unit 4 : Performance of Contract

Overview

  • This unit explores the obligations under contracts and their performance as defined in the Indian Contract Act, 1872.
  • It covers the modes of performance, consequences of refusal to perform, and the rights and liabilities of joint promisors and promisees.

Key Topics

Performance of Contracts

  • Definition: Fulfillment of obligations as per the contract (Section 37).
  • Types: Actual Performance (fulfilling obligations as agreed) and Attempted Performance (offering to perform but the promisee refuses).
  • Example of Actual Performance: X repays a loan of `5,00,000 to Y on the due date.
  • Example of Attempted Performance: A delivers goods but B refuses to accept them.

Deep Dive

  • The importance of timely performance and the implications of failure to perform on the contract’s validity.
  • Exploration of performance in cases of subjective contracts that depend on personal skills or confidence.
  • The role of communication and documentation in initiating performance offers.

Conditions for Valid Tender or Attempted Performance

  • Must be unconditional, which means the full requirement should be offered (e.g., total loan repayment).
  • Proper timing: Offers made must occur within agreed times or recognized business hours.
  • Opportunity to examine goods: The promisee must be allowed to inspect items offered.
  • Whole obligation needs to be met, emphasizing that partial performance is often insufficient.

Deep Dive

  • Discussion on how misunderstandings in tender conditions can lead to legal disputes.
  • Real-world applications of tender law in procurement and contracting, especially in government and corporate sectors.
  • Analysis of court cases where tender performance was disputed.

Who May Perform a Contract

  • A contract can be performed by the promisor or their authorized agent.
  • In contracts requiring personal skills, typically the promisor must perform.
  • Legal representatives can perform if the contract does not demand personal consideration and the promisor has died.
  • If a third party performs with the promisee’s acceptance, the promisor’s obligation may cease.

Deep Dive

  • Investigation of agency law and its implications for performance of contracts.
  • Challenges faced by legal representatives in fulfilling contracts post-promisor’s death due to situational nuances.

Liabilities and Rights of Joint Promisors and Promisees

  • All joint promisors are jointly liable unless stated otherwise (Section 42).
  • Promisee can demand performance from any one or all joint promisors.
  • Provision exists for contribution among promisors; if one pays, they can seek reimbursement from others (Section 43).
  • Rights of joint promisees: claim performance jointly during their lifetimes.

Deep Dive

  • Exploration of joint liabilities in a familial context, such as joint family businesses as per Hindu law.
  • Real-life implications of joint and several liabilities on business operations and partnerships.

Time and Place for Performance

  • Time of performance must be specified unless otherwise agreed; reasonable time applies otherwise (Section 46).
  • Place of performance should be determined at the time the contract is made or must be a reasonable location.
  • Specific rules apply when a promise is to be performed on a fixed date or without the promisee’s application (Sections 47-49).
  • Permissibility of alternate handling as per the promisee’s direction.

Deep Dive

  • The concept of ‘time is of the essence’ in contracts and its critical implications in performance disputes.
  • Case studies analyzing contractual disputes centered around the timing and location of performance.

Performance of Reciprocal Promises

  • Unless one party is ready to perform, the other is not obliged to perform (Section 51).
  • The order of performance can be defined explicitly in the contract; if not, must be sequential based on natural expectations (Section 52).
  • If one party impedes performance by the other, the impeded party has grounds to rescind the contract (Section 53).

Deep Dive

  • Analysis of important cases interpreting the order of performance, such as construction contracts.
  • Effects of anticipatory breach and its ramifications on reciprocal promises.

Discharge of a Contract

  • A contract can be discharged by performance, mutual agreement, impossibility, lapse of time, operation of law, or breach.
  • Discharges by mutual agreement include novation, rescission, and alteration (Sections 62-67).
  • Impossibility leads to void contracts if the impossibility was known or unknown during contract formation.

Deep Dive

  • Updates on recent case law regarding contract discharge and implications of non-disclosure in commercial disputes.
  • Comparative analysis of discharge methods in international contract law versus Indian law.

Appropriation of Payments

  • When multiple debts are owed, payment should be applied based on express indication, otherwise, the creditor may decide (Sections 59-61).
  • Payments must typically be applied to debts in the order of their creation unless agreed otherwise.

Deep Dive

  • Interplay between contract modification and payment appropriation in ongoing commercial relationships.
  • Legal challenges arising from disputed payments and their respective allocations under contract law.

Summary

The Indian Contract Act, 1872 outlines detailed provisions regarding the performance of contracts, specifying how obligations are to be fulfilled, the rights and liabilities associated with joint promoters, and the circumstances under which a contract may become void or dischargeable. It explores various ways in which contracts can be performed, including actual and attempted performance, and defines the conditions necessary for valid tender. Joint obligations are detailed, highlighting how parties can enforce their rights and responsibilities. Furthermore, it analyzes the accuracy in specifying time and place for performance, reciprocal obligations, and how contracts can be discharged through several methods. Finally, it touches on the appropriation of payments against multiple debts, ensuring clarity in legal expectations and obligations.