Performance of Contracts under Sections 37 to 67 of the Indian Contract Act, 1872: The Obligation to Perform, Tender, Joint Promises, Time and Place, Reciprocal Promises, Appropriation of Payments and Discharge

Chapter IV is the longest chapter in the Act and covers the entire middle life of a contract, from the moment the obligation attaches to the moment it is discharged. Its thirty-one sections fall into seven natural groups, and reading them as groups rather than as a list makes the scheme intelligible: who must perform and whether an offer to perform is enough; who may demand performance and what happens when there are several promisors; when and where performance is due; the order in which mutual promises are to be carried out; how payments are to be appropriated; and the six ways in which a contract need not be performed at all.

Chapter IV in six groups, and the two provisions most often litigated

1. The Obligation to Perform

Sections 37, 38 and 39, Indian Contract Act, 1872

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 this Act, or of any other law. Promises bind the representatives of the promisor in case of the death of such promisor before performance, unless a contrary intention appears from the contract.

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. Every such offer must be unconditional, 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 to do, and if the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver.

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.

1.1 Tender of performance

Section 38 gives a promisor who is ready and willing a way of protecting himself against a promisee who will not accept. A valid tender has the effect of performance so far as the promisor's liability is concerned: he is not responsible for non-performance and does not lose his rights. The conditions in the section are strictly applied.

📖 Startup v. Macdonald, (1843) 6 Man & G 593

Facts: The sellers contracted to deliver ten tons of linseed oil to the buyer within the last fourteen days of a month, payment to be made in cash at the expiry of two months. They tendered delivery at about half past eight in the evening of the last of the fourteen days, which was a Saturday. The buyer refused to receive and pay for the goods because of the lateness of the hour.

Held: The tender was good and the sellers were entitled to damages for the refusal. The tender had been made within the contract period and at a time that left the buyer a reasonable opportunity to examine and take delivery before midnight. A promisor who makes a valid tender which is refused has done all that the contract requires of him and is not in default.

Ratio: A valid tender of performance is equivalent to performance for the purpose of relieving the promisor of liability. What is a proper time is a question of fact, judged by whether the promisee had a reasonable opportunity to accept.

Where the tender is of money, a further point applies: a valid tender that is refused does not discharge the debt, which remains payable, but it stops the running of interest and protects the debtor in costs if the creditor afterwards sues.

2. By Whom Performance Must Be Made

Section 40. Where the contract shows that the parties intended that the promise should be performed by the promisor himself, it must be so performed. Otherwise the promisor or his representatives may employ a competent person to perform it. Contracts involving personal skill, confidence or qualification fall in the first class.
Section 41. When a promisee accepts performance from a third person, he cannot afterwards enforce it against the promisor. Acceptance is the key: the section does not permit a stranger to force performance on an unwilling promisee.
Section 42. Joint promisors must, during their joint lives, and after the death of any of them their representatives jointly with the survivors, fulfil the promise, unless a contrary intention appears.
Section 43. Any one of two or more joint promisors may be compelled to perform the whole of the promise, and he is entitled to contribution from the others in equal shares. Where one is unable to contribute, the remaining promisors must bear the deficiency in equal shares. The liability of joint promisors in India is therefore joint and several, which is a departure from the older English rule.
Section 44. A release of one joint promisor does not discharge the others, nor does it free the released promisor from his responsibility to the other joint promisors. This too differs from the English position.
Section 45. Where a promise is made to several persons jointly, the right to claim performance rests with them jointly during their joint lives, and after the death of any of them with his representatives jointly with the survivors.

3. Time and Place of Performance

Sections 46 to 50 supply default rules that operate only in the absence of contrary agreement. Where no time is specified, performance must be within a reasonable time, which is a question of fact under Section 46. Where a day is fixed, performance must be during the usual hours of business on that day and at the place at which the promise ought to be performed, under Section 47. Section 48 deals with performance on a day to be applied for by the promisee, Section 49 with the place of performance where none is fixed, requiring the promisor to apply to the promisee to appoint a reasonable place, and Section 50 with performance in the manner or at the time prescribed or sanctioned by the promisee.

3.1 Time as the essence of the contract

Section 55 governs the consequences of failing to perform at the agreed time. Where time was intended to be of the essence, failure makes the contract voidable at the option of the promisee. Where it was not, the promisee is not entitled to avoid but may claim compensation for the loss caused by the delay. Whether time is of the essence is a question of the parties' intention.

📖 Chand Rani v. Kamal Rani, (1993) 1 SCC 519 (Constitution Bench)

Facts: An agreement for the sale of a house in Delhi fixed dates for payment of instalments of the price, for handing over possession of a floor and for execution of the sale deed. The vendor was also to redeem a mortgage and obtain an income tax clearance. The transaction was not completed within the stipulated dates and the vendor contended that the purchaser had failed to perform in time, time being of the essence.

Held: The Constitution Bench reviewed the case law and held that in a contract for the sale of immovable property there is no presumption that time is of the essence. Even where time is not of the essence, the court may infer from the express terms of the contract, the nature of the property and the surrounding circumstances that performance was to be within a reasonable time, and stipulations as to time are not to be treated as meaningless.

Ratio: Time is not presumed to be of the essence in contracts for the sale of immovable property. The presumption is rebuttable, and time limits in the contract retain significance in determining what a reasonable time is and in the exercise of discretion.

⚠ The presumption is reversed in commercial and mercantile contracts

The rule in Chand Rani is confined to immovable property, where the general expectation is that completion will take time and that delay can be compensated in money. In mercantile contracts, particularly for the sale of goods at a fluctuating price and for delivery schedules in commercial supply, time is ordinarily regarded as of the essence, because delay defeats the commercial purpose. An express stipulation that time shall be of the essence is given effect in either class, and a party who has waived a time limit by accepting late performance must give reasonable notice before making time essential again.

4. Reciprocal Promises

Sections 51 to 58 govern the order in which mutual promises are to be performed. Section 2(f) defines reciprocal promises as promises which form the consideration or part of the consideration for each other, and they are of three kinds.

Mutual and independent, where each party must perform without waiting for the other.
Mutual and dependent, where one party's performance is conditional on the other's, and Section 54 provides that the party who ought to perform first cannot claim performance of the other's promise and must make compensation for any loss the other sustains.
Mutual and concurrent, to be performed simultaneously. Section 51 provides that no promisor need perform unless the promisee is ready and willing to perform his reciprocal promise, and Section 52 requires performance in the order the contract fixes or, where none is fixed, in the order the nature of the transaction requires.

Three further provisions complete the group. Section 53 makes the contract voidable at the option of a party who is prevented by the other from performing, with compensation for any loss. Section 56 states the rule on impossibility. Section 57 deals with a promise to do a legal act and also an illegal act, the second set being void. Section 58 deals with an alternative promise, one branch of which is legal and the other illegal, and makes only the legal branch enforceable.

5. Appropriation of Payments

Sections 59 to 61 answer a question that arises constantly in accounts between a debtor and a creditor who have several debts outstanding. The scheme is a hierarchy.

Section	Who appropriates	Rule
59	The debtor	Where the debtor, owing several distinct debts, makes a payment with express intimation or in circumstances implying that it is to be applied to a particular debt, it must be so applied
60	The creditor	Where the debtor does not intimate and there are no circumstances indicating the application, the creditor may apply the payment to any lawful debt actually due, including one barred by limitation
61	The law	Where neither party appropriates, the payment is applied in discharge of the debts in order of time, including time-barred debts; if they are of equal date, proportionably

6. Contracts Which Need Not Be Performed

Sections 62 to 67 gather the situations in which the obligation is discharged or excused. They are the counterpart of Section 37, which requires performance unless dispensed with or excused under the provisions of this Act.

Section 62. Where the parties agree to substitute a new contract, or to rescind or alter the existing one, the original contract need not be performed. These are novation, rescission and alteration.
Section 63. A promisee may dispense with or remit performance wholly or in part, extend the time, or accept any satisfaction he thinks fit, and no consideration is required. This displaces the English rule in Pinnel's Case.
Section 64. When a person at whose option a contract is voidable rescinds it, the other party need not perform, and the party rescinding must restore any benefit received so far as may be.
Section 65. When an agreement is discovered to be void, or a contract becomes void, any person who has received an advantage under it must restore it or make compensation.
Section 66. The rescission of a voidable contract must be communicated or revoked in the same manner as a proposal.
Section 67. Where the promisee neglects or refuses to afford the promisor reasonable facilities for performance, the promisor is excused by that neglect or refusal.

7. The Chapter in Groups

Sections	Subject	Central idea
37 to 39	The obligation, tender, and refusal to perform	Performance is due unless excused; a valid tender is equivalent to performance
40 to 45	By whom performance is to be made and to whom it is due	Personal contracts must be performed personally; joint promisors are jointly and severally liable
46 to 50, and 55	Time and place of performance	Default rules yielding to contrary agreement; the consequences of delay turn on whether time is of the essence
51 to 54, 56 to 58	Reciprocal promises and impossibility	The order of performance, prevention by the other party, and supervening impossibility
59 to 61	Appropriation of payments	The debtor appropriates first, then the creditor, then the law in order of time
62 to 67	Contracts which need not be performed	Novation, rescission, alteration, remission, restitution, and the promisee's neglect

8. The Position Stated Shortly

Section 37 requires the parties to perform or to offer to perform unless excused by the Act or by another law, and binds the representatives of a deceased promisor.
A tender under Section 38 must be unconditional, at a proper time and place, and must give the promisee a reasonable opportunity to ascertain ability and willingness.
Startup v. Macdonald: a valid tender relieves the promisor of liability, and a tender of money stops interest without discharging the debt.
Section 40 requires personal performance where the contract so intends; Section 41 bars a claim against the promisor once the promisee has accepted performance from a third person.
Sections 42 to 45 make joint promisors jointly and severally liable, allow contribution, and provide that the release of one does not discharge the others.
Sections 46 to 50 supply default rules on time and place; Section 55 governs the consequences of delay.
Chand Rani: time is not presumed to be of the essence in contracts for the sale of immovable property, though stipulations as to time retain significance.
Sections 51 to 54 govern reciprocal promises, and Section 53 makes the contract voidable where one party prevents the other from performing.
Sections 59 to 61 set a hierarchy of appropriation: the debtor, then the creditor, then the law in order of time.
Sections 62 to 67 collect the discharges: novation, rescission, alteration, remission without consideration, restitution, and the promisee's neglect to afford facilities.

9. Related Topics and Provisions

Topic or provision	Connection
Principle of Sanctity of Contract	Section 37 as the statutory expression of pacta sunt servanda
Contingent Contract vs Absolute Contract	When the obligation to perform arises at all
Contingent Contract vs Conditional Promise	Conditions concurrent and the test of readiness and willingness
Exceptions to the Rule of No Consideration	Section 63 and remission without consideration
Section 37, Indian Contract Act	The obligation of parties to perform
Sections 38 and 39, Indian Contract Act	Tender, and refusal to perform wholly
Sections 42 to 45, Indian Contract Act	Joint promisors and joint promisees
Section 55, Indian Contract Act	Time as the essence of the contract
Section 56, Indian Contract Act	Impossibility and frustration
Sections 62 to 67, Indian Contract Act	Contracts which need not be performed