Performance of Contract (Part-1) - The Indian Contract Act 1872 CA CPT Notes | EduRev

Business Laws for CA Foundation

Created by: Sushil Kumar

CA CPT : Performance of Contract (Part-1) - The Indian Contract Act 1872 CA CPT Notes | EduRev

The document Performance of Contract (Part-1) - The Indian Contract Act 1872 CA CPT Notes | EduRev is a part of the CA CPT Course Business Laws for CA Foundation.
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LEARNING OUTCOMES:

After studying this unit, you would be able to:
• Understand how obligations under a contract must be carried out by the parties.
• Be familiar with the various modes of performance.
• Be clear about the consequence of refusal of performance or refusal to accept performance, by either of the parties.
• Understand rights of joint promisees, liabilities of joint promisors, and rules regarding appropriation of payments.
This unit explains- who must perform his obligation, what should be the mode of performance, and what shall be the consequences of non- performance.

OBLIGATIONS OF PARTIES TO CONTRACTS-(SECTION 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 provisions of the Contract Act or of any other law.
Promises bind the representatives of the promisor in case of death of such promisor before performance, unless a contrary intention appears from the contract.
Example 1: A promises to deliver goods to B on a certain day on payment of Rs. 1,00,000. A dies before that day. A’s representatives are bound to deliver the goods to B, and B is bound to pay Rs. 1,00,000 to A’s representatives.
Example 2: 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 because it involves use of personal skill. It is a contract of personal nature.

Analysis of Section 37
A contract being an agreement enforceable by law, creates a legal obligation, which subsists until discharged. Performance of the promise or promises remaining to be performed is the principal and most usual mode of discharge.

The basic rule is that the promisor must perform exactly what he has promised to perform. The obligation to perform is absolute.Thus, it may be noted that it is necessary for a party who wants to enforce the promise made to him, to perform his promise for himself or offer to perform his promise. Only after that he can ask the other party to carry out his promise. This is the principle which is enshrined in Section 37.Thus, it is the primary duty of each party to a contract to either perform or offer to perform his promise. He is absolved from such a responsibility only when under a provision of law or an act of the other party to the contract, the performance can be dispensed with or excused.

Thus, from above it can be drawn that performance may be actual or offer to perform.

Actual Performance: Where a party to a contract has done what he had undertaken to do or either of the parties have fulfilled their obligations under the contract within the time and in the manner prescribed.

Example: X borrows Rs. 5,00,000 from Y with a promise to be paid after 1 month. X repays the amount on the due date. This is actual performance.

Offer to perform or attempted performance or tender of performance: It may happen sometimes, when the performance becomes due, the promisor offers to perform his obligation but the promisee refuses to accept the performance.

Example: P promises to deliver certain goods to R. P takes the goods to the appointed place during business hours but R refuses to take the delivery of goods. This is an attempted performance as P the promisor has done what he was required to do under the contract.

BY WHOM A CONTRACT MAY BE PERFORMED (SECTION 40, 41 AND 42):

Person by whom promise is to be performed-Section 40
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 performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it.

Example 1: A promises to pay B a sum of money. A may perform this promise, either by personally paying the money to B, or by causing it to be paid to B by another; and if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so.

Example 2: A promises to paint a picture for B and this must be performed by the promisor himself.

Analysis of Section 40
The promise under a contract may be performed, as the circumstances may permit, by the promisor himself, or by his agent or his legal representative.
1. Promisor himself: If there is something in the contract to show that it was the intention of the parties that the promise should be performed by the promisor himself, such promise must be performed by the promisor. This means contracts which involve the exercise of personal skill or diligence, or which are founded on personal confidence between the parties must be performed by the promisor himself.

Example: A promises to paint a picture for B and this must be performed by the promisor himself.
2. Agent: Where personal consideration is not the foundation of a contract, the promisor or his representative may employ a competent person to perform it.
3. Legal Representatives: A contract which involves the use of personal skill or is founded on personal consideration comes to an end on the death of the promisor. As regards any other contract the legal representatives of the deceased promisor are bound to perform it unless a contrary intention appears from the contract (Section 37, para 2). But their liability under a contract is limited to the value of the property they inherit from the deceased.

Example 1: A promises to B to pay Rs. 100,000 on delivery of certain goods. A may perform this promise either himself or causing someone else to pay the money to B. If A dies before the time appointed for payment, his representative must pay the money or employ some other person to pay the money. If B dies before the time appointed for the delivery of goods, B’s representative shall be bound to deliver the goods to A and A is bound to pay Rs. 100,000 to B’s representative.

Example 2: A promises to paint a picture for B for a certain price.

A is bound to perform the promise himself. He cannot ask some other painter to paint the picture on his behalf. If A dies before painting the picture, the contract cannot be enforced either by A’s representative or by B.
4. Third persons:
Effect of accepting performance from third person- Section 41

When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

That is, performance by a stranger, if accepted by the promisee, this results in discharging the promisor, although the latter has neither authorised not ratified the act of the third party.

Example: A received certain goods from B promising to pay Rs. 100,000/-. Later on, A expressed his inability to make payment. C, who is known to A, pays Rs. 60,000/- to B on behalf of A.

However, A was not aware of the payment. Now B is intending to sue A for the amount of Rs. 100,000/-.

As per Section 41 of the Indian Contract Act, 1872, when a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. That is, performance by a stranger, accepted by the promisee, produces the result of discharging the promisor, although the latter has neither authorised nor ratified the act of the third party. Therefore, in the present instance, B can sue only for the balance amount i.e., Rs. 4000/- and not for the whole amount.
5. Joint promisors: (Section 42)
When two or more persons have made a joint promise, then unless a contrary intention appears by the contract, all such persons must jointly fulfill the promise. If any of them dies, his legal representatives must, jointly with the surviving promisors, fulfill the promise. If all of them die, the legal representatives of all of them must fulfill the promise jointly.
Example: ‘A’, ‘B’ and ‘C’ jointly promised to pay Rs. 6,00,000 to ‘D’. Here ‘A’, ‘B’ and ‘C’ must jointly perform the promise. If ‘A’ dies before performance, then his legal representatives must jointly with ‘B’ and ‘C’ perform the promise, and so on. And if all the three (i.e. ‘A’, ‘B’ and ‘C’) die before performance, then the legal representatives of all must jointly perform the promise.

DISTINCTION BETWEEN SUCCESSION AND ASSIGNMENT:

Distinction between two legal concepts, viz., succession and assignment may be noted carefully. When the benefits of a contract are succeeded to by process of law, then both burden and benefits attaching to the contract, may sometimes devolve on the legal heir. Suppose, a son succeeds to the estate of his father after his death, he will be liable to pay the debts and liabilities of his father owed during his life-time. But if the debts owed by his father exceed the value of the estate inherited by the son then he would not be called upon to pay the excess. In other words, the liability of the son will be limited to the extent of the property inherited by him.

In the matter of assignment, however the benefit of a contract can only be assigned but not the liabilities there under. This is because when liability is assigned, a third party gets involved therein. Thus a debtor cannot relieve himself of his liability to creditor by assigning to someone else his obligation to repay the debt.

On the other hand, if a creditor assigns the benefit of a promise, he thereby entitles the assignee to realise the debt from the debtor but where the benefit is coupled with a liability or when a personal consideration has entered into the making of the contract then the benefit cannot be assigned.

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