Necessity of Performance and its Types

By Amitav Singh, National University of Advanced Legal Studies, Kochi

Editor’s Note: In order to fulfil the objects of a contract, the agreed terms need to be carried out or “performed”. This article elucidates performance of a contract, and the various ways in which it can be carried out.

For the formation of contract there are various ingredients that have to be followed. After the formation of contract, the next stage is reached, namely, the fulfilment of the object the parties had in mind. Once the object is fulfilled the liability of either party under the contract comes to an end. Performance of contract is important to discharge it.

Discharge by Performance

The basic understanding of performance means, to do what the contracts requires to be discharged. Discharge is the process whereby the primary objectives and obligations under a contract, which is validly formed, come to an end. The primary obligations of a contract are those which determine the performance obligation of the parties.[i] The general rule of performance is that the contractual obligation must be precisely and completely performed. It is believed that the performance means executing every aspect of the contract, the parties had agreed upon and if all the aspects are not fulfilled then the contract has not been fully performed. The fact that a party to a contract has, in purported performance, acted in a way which may appear, in a commercial sense, to be just as valuable to the other party as the way specified in the contract does not amount to performance in law.[ii]  Thus a contract to carry goods by sea from Singapore to New York with liberty to tranship at other ports was held not to be performed by their carriage partly by sea and partly by rail.[iii]However, the only exception to the general rule of performance is the de minimis rule i.e. only microscopic deviations. If the rule of de minimis is not applicable in a particular situation then it constitutes breach. In Arcos Ltd v. Ronassen[iv] timber staves of half an inch in thickness were purchased to make into cement barrels. In fact, most of the timber was one-sixteenth thicker than the contractual description, although this was still perfectly usable for the purpose of making cement barrels. This nevertheless amounted to a breach of contract. Since this act amounted to breach of condition, the buyer could reject the timber.

In India Sec. 37 of Indian Contracts Act, 1872 elucidates the obligation to perform the duties to discharge the contract. It states:

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 of any other law.

Promises bind the representative of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.”

The plain reading of the section clearly means that the parties once make a contractual obligation are bound to perform in order to discharge themselves from any liabilities. Later half of the section deals with the performance of the contract by the third party in case of the death of the original promisor. This aspect will be discussed in the latter part of the paper. What we have seen here is that without performance a contract can never come to an end and failure to perform amounts to breach of contract. Breach amounts liability to pay compensation.

The promisor, must offer to perform his obligation under the contract to the promise. This offer is called, “tender of performance’. It is then for the promise to accept the performance. If he does not accept, promisor is not liable for non-performance nor does he lose his right under the contract. If the tender of performance is rejected by the other party, it entitles other party to sue the promise for the breach of the contract.[v] This is incorporated in section 38. However, it states certain conditions to be fulfilled:

  • It must be unconditional[vi];
  • It must be made at a proper time and place, and under such circumstances that the person to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is made is able and willing there and then to do the whole of what he is bound by his promise to do;
  • If the offer to deliver anything to the promise, the promise must have a reasonable opportunity of seeing that the thing.

Time being Essence of Performance

Time is generally considered to be of the essence of the contract in the following three cases:

  • Where the parties have expressly agreed to treat it as of the essence of the contract;
  • Where delay operates as an injury;
  • Where the nature and necessity of the contract requires it to be so construed, for example, where a party asks for extension of time for performance.[vii]

Section 46 elucidates it in Indian Contract Act according to which a contract must be performed in reasonable time. Section 55 deals with the effect of failure to perform at fixed time when time is essential. If an act is not done within time stipulated, the contract becomes voidable at the option of the promise provided the intention of the parties was that time should be of the essence of the contract. In Bhudra Chand v. Betts[viii], the plaintiff stipulated with the defendant to engage his elephant for the purpose of Kheda operations. The contract provided that the elephant would be delivered on the 1st Oct, 1910; but the defendant obtained an extension of the time till 6th Oct and yet did not deliver the elephant till 11th. The plaintiff refused to accept the elephant and sued for damages for the breach. It was held that the plaintiff was entitled to recover damages since the conclusion of the contract confirmed by the circumstance that the defendant obtained an extension of the time. It means that time was the essence of the contract.

In English Law, the common law regarded time fixed for performance to be essence, so that if the condition was not fulfilled, the other party might treat the contract as broken and elect to terminate it.[ix] Equity could however, allow specific performance, notwithstanding failure to observe the time fixed, where it could do so without any injustice to parties.[x]

Types of Performance

There is nothing like types of performance which can be traced explicitly in books but by reading all the relevant sections of contract act which include performance we can classify types of performance in various circumstances as follows:

  • Performance of representatives when promisor dies:

Generally speaking, contracts bind the executor or administrator, though not named. The second half of the sec. 37 deals with it. Legal representatives are bound by the promise to perform the contract in absence of a contrary intention. The universal legatee is the legal representatives of the deceased testator and is liable for the debts of the testator to the extent of the property of the testator in his hands.[xi] In U.P. State Sugar Corporation v. Mahalchand M Kothari,[xii]the question arose whether the transferee undertaking was liable for a contract made and breached by the receiver of property having custody of the undertaking under acquisition. It was held that the liability for breach attached to the property of the transferor mill, and was not personal liability of the receiver, and the transferee was liable[xiii].

However, if there is something in the contract to show that personal performance was intended, then the contract will have to be performed by the promisor himself. Sometimes the nature of the promise is an indication by itself that the promisor must perform personally.[xiv] This usually happens in cases where the use of the personal skills of the promisor is involved, for instance, a contract to paint, sing or marry and contracts to technical nature. In such cases death of the promisor puts an end to the contract.[xv]

  • Performance by third party:

If promise accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor but if the nature of the contract says it should be performed by the promisor only then he cannot ask another to perform. It is incorporated in sec. 40 and sec. 41 of Indian Contract Act.

In English law if the creditor agrees to accept performance by a third party, such performance can discharge the contract, even though it is not the same as that stipulated for in the contract.[xvi] For instance in Hirachand Punamchand v Temple[xvii], a debt was held to be discharged when creditor accepted a smaller sun from debtor’s father in full settlement. Performance of the father (read third party) in this case discharged the contract. Discharge of contract by third party’s performance can take place only when it is done with the intention of doing so. These requirements are illustrated by a case[xviii] in which company made an ex gratia payment to a person who had been defrauded by its secretary.[xix] The victim was entitles to claim all the loss suffered since the payment by the company was not made on the secretary’s behalf.

The question arises whether the debt is discharged if payment by a third party is made without the knowledge or consent of the debtor. In England some dicta support the view that the debt is discharged by the performance of another when the debtor adopts or ratifies the payment. The position in England is not very clear in this regard. In India, Supreme Court in Kapurchand Godha v Mir Nawab Himayatalikhan Azamjah[xx], said, “There is some English authority to the effect that discharge of a contract by a third person is effectual only if authorized or ratified by the debtor. In India, however, the words of sec 41 of Contract Act leave no room for doubt that when appellants [creditor] have accepted performance of the promise from a third person, they cannot afterwards enforce it against the promisor.” In England if the creditor has not given his consent to various performance he cannot object it where he is not prejudiced by the fact that the debtor does not perform personally. Thus a tradesman, to whom money is owed for goods, cannot object if the debtor procures full payment in cash to be made on his behalf by a third party.[xxi] This provision is incorporated in Sec. 40 of Indian Contract Act too[xxii].

It’s worth noting that both English and Indian laws stand on the same footing when the nature of the contract requires some personal skills of the promisor. In this situation third party cannot perform the duty on behalf of the promisor.

  • Performance when there are alternative modes:

A contract provides for alternative modes of performance in one of the two ways.[xxiii] First, it may provide for performance in a particular way, for instance a shipper’s obligation to load a cargo of wheat, but give that party the option to perform in an alternative way, for instance, to change to a cargo of barley. Secondly, it may permit one party to choose[xxiv] between alternative modes of performance without specifying one as the primary mode, for instance, a shipper’s obligation to load a full cargo in the months of September and October. Once the person entitled to elect chooses the alternative to be performed,[xxv] he is absolutely bound by his choice even though the chosen mode of performance afterwards becomes impossible to carry out.

  • Substantial performance:

The general rule is that no claim can be made in respect of the partial performance of a lump sum contract. This ‘draconian’ principle is justified, first, on the ground that a promisee who has contracted a price for the whole contract cannot be compelled to pay for part of the performance, and secondly, on the ground that such a stipulation is a strong incentive to the promisor to complete the performance of the promise.[xxvi] The rule is crtitcised because a promisor may be deprived of the entire payment for his performance because of a small or trivial defect workmanship, and the promisee may retain the benefit and not pay the money, resulting in unjust enrichment.[xxvii]Hence for that we have the doctrine of ‘substantial performance’.

A court will hold a contract to have been substantially performed if the actual performance falls not far short of the required performance, and if the cost of remedying the defects is not too great in amount in comparison with the contract price.[xxviii] For instance in H Dakin & Co Ltd v Lee[xxix] :

D were builders who had contracted to execute certain repairs to L’s premises for 1,500 pounds. They carried out a substantial part of the contract, but failed to perform it exactly in three unimportant respects (which could have been rectified at a cost of 80 pounds). D was not given any payment. On appeal it was held that the contract has been substantially performed, if not precisely. Pickford LJ stated that the work was done badly did not mean that it had not been performed at all.[xxx]

In USA more flexible approach has been taken. There the court may look at the quality of performance if the work that is done is of the same quality as that contracted for.[xxxi] For instance in Jacob & Youngs inc v Kent[xxxii], the builder used different galvanized piping that were asked for but of the same quality. It was held that the pipes used were of the same quality as those specified and the defect could only be remedied by demolishing a substantial part of the building.

However, it must be noted that the partial performer of an entire contract cannot recover the agreed price by using this doctrine of substantial performance. It is the failure to do an unimportant part of the contract but that must not be intentional. But, the doctrine of substantial performance can be excluded by an express provision in the contract.

A ship-owner normally cannot recover freight unless the goods are carried to the agreed destination. But if the goods are carried there, the fact that some breach of the ship owner’s contract has caused damage to the goods in transit does not prevent recovery of the freight, subject to a cross-action for the damage.[xxxiii] In one case[xxxiv] a charter party provided for payment of lump-sum freight; two-third of the cargo was delivered by the ship-owner to its destination, despite the loss of the ship outside the port of discharge, and House of Lords permitted recovery of the whole of the freight, on the ground (inter alia) that “a substantial part of the cargo” had been delivered.[xxxv]

  • Performance of Joint Promisors:

According to English Law, if one of the several joint promisors dies, the rights and liabilities under the contract devolve upon the surviving joint promisors. The representatives of the deceased promisor neither obtain any rights nor assume any liability, unless they are the representatives of the last surviving promisors.[xxxvi] In India section 42 of Contract Act very clearly states that in case any one of the joint promisor dies his representative along with surviving promisors may perform the act. Another important aspect lies in Section 43 which states that when there are joint promisors, in absence of express agreement to the contrary, the promisee can compel any one of the joint promisors to perform the whole promise. Further it states that joint promisors may ‘compel every other joint promisor to contribute equally with himself to the performance of the promise and even compel to share the loss by contribution.

  • Performance of reciprocal promises:

When a contract consists of an exchange of promises, they are called reciprocal promises.[xxxvii] When such promises have to be simultaneously performed, the promisor is not bound to perform unless the promisee is ready and willing to perform his promise.[xxxviii] This principle is laid down in Section 51 of Indian Contract Act. When the defendant agreed to keep in cold storage the plaintiff’s apple boxes, and it was agreed that upon payment of hire charges the plaintiff could lift the goods, and the plaintiff failed to make payment, it was held that the defendant was justified in refusing to deliver the boxes to the plaintiff. It was also held that the plaintiff had committed a breach of contract and, hence was not entitled to damages.[xxxix] When the promises are reciprocal, each party has the option to perform his part of the contract, but cannot insist on the other party performing his part without himself performing what he has agreed to do,[xl] or is ready and willing to do it.[xli] Order of performance is stipulated in section 52 of Indian Contract Act. According to this section one promise is dependent upon, and must be performed, after the performance of the other. The order may be fixed by the nature of the promises. The parties may also agree to perform the promises in a certain order, even though they are otherwise capable of simultaneous performance.[xlii] In a case[xliii] consumer of electricity agreed with the electricity supplier “to guarantee a minimum monthly consumption equivalent to 40% load factor of the contract demand”, the customer’s promise to pay the minimum guaranteed amount arose only if the Board supplied electricity to that extent. Thus, the customer’s payment of money is subsequent to the Board’s performance of promise.

  • Performance of impossible act:

There are certain acts which are impossible to perform, because of some event. In this case the performance becomes impossible and contract void. This is incorporated in section 56 of Indian Contract Act. However it also talks about the compensation for the loss incurred through non-performance of an act known to be impossible or unlawful.             When the entire performance of a contract becomes substantially impossible without any fault on either side, the contract is prima facie dissolved by the doctrine of frustration.[xliv] The law excuses further performance under the doctrine of frustration, where the contract is silent as to the position of the parties in the event of performance becoming literally impossible or only possible in a very different way from that originally contemplated.[xlv]

  • Defective Performance:

The phrase “defective performance” arguably contains an element of self-contradiction, in the sense that a person who promises to do one thing does not perform if he does another.[xlvi] Where the “defect” in performance is of a particularly serious kind, the acts done by the party in breach may indeed amount or lead to non-performance rather than defective performance, as in the case of the seller who promises beans but delivers peas.[xlvii] But where the performance rendered is of the same kind as the promised, differing from it only in point of time, quantity or quality, it is reasonable to refer to it as defective performance. It undoubtedly amounts to a breach; but the effects of such a breach often differ from those of a complete failure or refusal to perform.[xlviii]

Conclusion

We make contracts very often but it would be of no use if no one performs the promise made. Performance is an essential part of a contractual obligation. As mentioned above, the general principle of performance is that, every promise made should be done in the same manner as intended by both contracting parties. Non-performance attracts liability. In types of performance there are various instances and circumstances where the performance may differ. But there is no situation where there is no need to perform to discharge a contractual obligation.

 Edited by Sinjini Majumdar

[i]Lord Diplock, in Photo Production Ltd v. Securicor Transport Ltd  [1980] AC

[ii]Arcos Ltd. V. E. A. Ronaasen & Son [1933] A.C. 470

[iii] Re Sutro (L.) & Co. and Heilbut, Symons & Co. [1917] 2 K.B. 348

[iv][1933] AC 470

[v] Avtar Singh, Contract & Specific Relief, Tenth edition.

[vi] Unconditional tender means when it is in accordance with the terms of the contract.

[vii]See note 67 of Avtar Singh, Contract & Specific Relief, Tenth edition.

[viii] (1915) 22 Cal LJ 566

[ix] Pollock & Mulla, The Indian Contract and Specific Relief Acts, 14th Ed., Vol. 1

[x] Ibid.

[xi]Dwarka Singh v. B Harihar Baksh Singh, AIR 1936 Oudh 7.

[xii] AIR 2005 SC 61

[xiii] As quoted in Pollock & Mulla, The Indian Contract and Specific Relief Acts, 14th Ed., Vol. 1

[xiv] Supra note 5

[xv] Ibid

[xvi] Treitel, The Law of Contract, 12th Ed.

[xvii] [1911] 2 K.B. 330

[xviii]Re Rowe [1904] 2 K.B. 483; Pacific Associates Inc v Baxter [1990] 1 Q.B. 993 at 1033- 1034

[xix] Supra note 14.

[xx] (1963) 2 SCR 168, 179

[xxi] Supra note 14.

[xxii] See illustration (a).

[xxiii] See generally Treitel, Frustration and Force Majeure (2nd ed, 2004) ch. 10

[xxiv] Reed v Kilburn Co-operative Society (1875) LR 10 OBD 264

[xxv] On the time by which a selection must be made among “alternative cargoes”, see Reardon Smith Line Ltd. V. Ministry of Agriculture [1963] A.C. 691, 717, 720

[xxvi] Anson’s Law of contract, 29th Ed.

[xxvii] Supra note 9.

[xxviii] Supra note 26.

[xxix] [1916] 1 KB 566, 579

[xxx] Supra note 4.

[xxxi] Ibid

[xxxii] [1996] 1 AC 363

[xxxiii]Dakin v Oxley [1864] 15 C.B. 646

[xxxiv]Thomas (Williams) &  Sons v Harrowing SS. Co. [1915] A.C. 58

[xxxv] Chitty on Contracts, 24th ed., Vol. 1, note no. 47 on pg. 1283.

[xxxvi] This is of course, subject to statutory modifications. For example, the Partnership Act makes the estate of a deceased partner liable for debts incurred up to the date of his death. See section 9 of the (English) Partnership Act, 1890 and the decision of the House of Lords in Kendall v Hamilton, (1879) 4 App Cas 504, quoted in Avtar Singh, Contract & Specific Relief, Tenth edition, pg. 362.

[xxxvii] Supra note 5.

[xxxviii] Ibid.

[xxxix]Himachal Fruit-Growers Co-operative Marketing and Processing Ltd. V. Upper India Food Preservers and Processors Pvt. Ltd., AIR 1984 HP 18

[xl]Vairavan Chettiar v. Kannappa Mudaliar, AIR 1925 Mad 1029, 1039, 86 IC 436

[xli] Supra note 9.

[xlii] Ibid.

[xliii]Raymond Ltd. V. M P Electricity Board, AIR 2001 SC 238

[xliv] PS Atiyah, An Introduction to the Law of Contract, 5th Ed. P 231

[xlv] Supra note 9.

[xlvi] Supra note 16.

[xlvii]Chanter v Hopkins (1838) 4 M & W 399 at 404

[xlviii] Supra note 16.

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