1.      Section 37—Obligation of parties to contracts

• Overview: A contract is an agreement enforceable by law, consisting of reciprocal promises. Performance of these promises or readiness to perform is fundamental to enforcing a contract. Section 37 addresses the obligation of contracting parties to fulfill these promises, thereby ensuring that the contract is discharged once performance is completed or legally excused.
• Key Requirements:
• Performance or Readiness to Perform: The enforcing party must have either performed their promise or shown readiness and willingness to do so.
• Modes of Discharge by Performance:
• By proper performance as per sections 37-38.
• If performance becomes impossible or unlawful (Section 56).
• By the death of a contracting party, if the contract is personal in nature (Section 37).
• By rescission or novation of contract (Section 62).
• By remission or acceptance of lesser performance (Section 63).
• By accord and satisfaction (Section 63).
• By operation of statutory provisions, e.g., Insolvency Acts.
• Principles of Performance and Reciprocal Promises
• Order of Performance: Sections 51 and 52 dictate the order of performing reciprocal promises.
• Manner of Performance: Section 50 provides for the appropriate manner in which performance should be made.
• Time and Place of Performance: Sections 46 to 49 outline the specific requirements for time and place.
• Performance by an Agent: Section 40 allows performance by an agent unless the contract requires personal qualifications.
• Common Law Perspective: The principle that the death of a party involved in a personal contract terminates the agreement was expressed by Justice Willes in 1869. This is applicable where the contract depends on personal considerations, such as between principal and agent or master and servant.
• Illustration: An architect’s executor cannot fulfill obligations under an unfinished contract, whereas a builder’s executor may continue work since the contract doesn’t depend on personal skills beyond ordinary competence.
• Modes of Discharge by Non-performance
• Performance Dispensed or Excused: Legal discharge from obligations can occur if performance is excused due to impossibility (Section 56), mutual consent (rescission or novation, Section 62), or death (Section 37).
• Legal Consequence of Non-performance: Non-performance amounts to a breach unless excused by law.
• Succession and Assignment in Contracts
• Succession to Benefit of Contract:

• • General Rule: Representatives of a deceased promisee may enforce contracts for the benefit of the deceased’s estate. Exceptions include contracts that inherently depend on the personal characteristics of the promisee.
  • Illustration: An architect’s contract cannot be enforced by the executor due to the personal nature of performance.

• Assignment of Contracts:

• • General Principles: Benefits of a contract are generally assignable, whereas burdens are not, as every person has the right to choose with whom they will contract.
  • Judicial Pronouncement: As stated by the Court of Appeal in England, neither in law nor equity can a debtor assign the burden of a contract without the creditor’s consent.
  • Indian Perspective: The Calcutta High Court laid down that the benefit of a contract (not coupled with obligations) may be assigned. An example of an unassignable contract would be one involving personal qualifications or considerations.

• Case Law:
• NAC v. S and NACC:
• Facts: NAC, an American company, executed a contract with S, an Indian company, and later tried to assign rights and obligations to its Indian subsidiary NACC.
• Decision: The second contract was not considered a valid assignment because NAC retained its obligations. It was viewed as an amendment rather than an assignment.
• Kapilaben Case:
• Facts: B assigned agreements to C regarding land initially contracted with A, without A’s consent.
• Decision: The Supreme Court rejected the claim that C could enforce the contract, stating that an assignment of rights must not include obligations, as per the principle that assignments cannot shift burdens without consent.
• Indu Kakkar:
• Facts: Y assigned a plot allotment to I without the consent of H, who was the original allotting authority.
• Decision: The Court held that I, being a third party, lacked the locus standi to enforce the contract due to the lack of privity.
• Conditions for Assignment:
• Personal Contracts: Contracts involving specific personal skill or personal considerations are generally non-assignable without consent (Section 40).
• Third-party Rights: A stranger to a contract (third party) cannot enforce it unless explicitly intended as a beneficiary.
• Exceptions to non-assignability:
• Third-party Beneficiary Rights: If a contract is intended to benefit a third party, such as a family arrangement, the beneficiary can enforce it in their own right.
• Specific Illustrations:
• Salt Manufacturing Agreement: In a contract involving salt manufacturing, the involvement of personal discretion and liabilities implied non-assignability without consent.
• Gunny Bags Contract: Conversely, a contract for the supply of gunny bags, even with buyer’s options, was held to be assignable as it did not require specific personal qualifications.
• Modern Context of Assignability:
• Complex Contracts: In modern business, contracts often have intertwined rights and obligations, making a straightforward classification as assignable or non-assignable difficult.
• Supreme Court Guidance (Kapilaben):
• Where a contract involves rights contingent on obligations, the transfer of such rights without transferring obligations is impermissible without the original party’s consent.
• It is essential to ensure that the promisee has consented to any assignment involving personal considerations.
• Other Statutory Discharges
• Insolvency: Insolvency under statutes such as the Insolvency and Bankruptcy Code, 2016, leads to statutory discharge of contracts.
• Hindu Law (Damdupat Rule): Under Hindu law, the rule of damdupat provides a specific discharge.

2.     SECTION 38—Effect of refusal to accept offer of performance

• Overview:

• • Unconditional Performance:
    • The performance offered must be unconditional.
  • Performance by Promisor or Representative (Section 40):
    • The performance must be carried out by either the promisor or a representative.
  • Proper Timing (Sections 46-47):
    • Performance must be done at the time specified in the contract or within a reasonable time if no specific time is mentioned.
  • Proper Place (Section 49):
    • The performance should occur at the place specified in the agreement or a place appointed by the promisee.
  • Opportunity to Ascertain the Performance:
    • The promisee must have a reasonable opportunity to ascertain:
      • (a) The nature of the thing offered.
      • (b) Whether the performance is complete or partial.

• Offer to Perform or Tender

• • The concept of a tender or offer of performance is akin to “Tender” as described in English law.
  • The offer can be related to either payment or any other form of performance, such as delivery of goods.
  • Startup v. Macdonald (1843)

• A party is deemed to have substantially performed if they tender the goods or payment as promised.
• The tender must give the promisee a reasonable opportunity to inspect the goods or money to ensure it is as promised.
• Offer Must Not Be Partial

• • An offer of performance must be entire, not partial.
    • The tender must cover the whole payment or performance due under the contract.
    • According to the Calcutta High Court, a creditor is not obligated to accept a sum smaller than what is due.
    • Tendering a lesser sum does not prevent interest from accruing; a tender of less than what the debtor admits to be due is not a valid tender.

• Offer Must Be Unconditional

• • A tender must be free from conditions.
    • The promisor can say, “I pay this as the whole amount due,” but cannot insist that the creditor accept it as full settlement.
    • If a condition is attached to the tender, the creditor can refuse it.
    • For example, a cheque is conditional since its validity depends on the bank honoring it.
• Offer at Proper Time and Place
  • A tender made before the due date is invalid and does not prevent interest from continuing to accrue.
• Able and Willing
  • The tender must be made in such a manner that the promisee can ascertain whether the promisor is able and willing to perform the promise.
  • The Calcutta High Court held that an offer made by a solicitor to pay a debt with interest is not sufficient evidence that the promisor is ready and willing at that time.
  • The view of the Madras High Court in Veerayya v. Sivayya was not accepted by the Calcutta High Court.
• Reasonable Opportunity to Inspect
  • A tender of goods must allow the promisee reasonable time to inspect the goods and ascertain their quality.
  • A tender made late in the day without enough time for inspection is not valid.
  • The Act requires the promisor to provide a reasonable opportunity to inspect, but it is the promisee’s responsibility to verify the quality.
• Tender of Money
  • Tender must be made in legal tender form, such as currency.
    • A creditor is not bound to accept a cheque, as it is conditional upon being honored by the bank.
    • If a cheque is accepted without immediate objection, the creditor cannot later object to its form.
  • Recent cases have found tendering rent by cheque or money order to be appropriate and valid.

3.     Section 39—Effect of refusal of party to perform promise wholly

·       Refusal to Perform a Contract

• Refusal to perform a contract allows the other party to rescind the contract, as confirmed by the High Court of Calcutta.
• The key consideration is whether the refusal affects a vital part of the contract, thereby preventing the promisee from receiving substantially what they bargained for.

·       Vital Part of Contract and Nature of Refusal

• The refusal must affect a “vital part” of the contract. This means the part of the contract that is crucial for the promisee to receive the benefit of the contract.
• Refusal to perform any part of a contract, however small, is not sufficient unless it prevents the other party from receiving what was contracted.
• The refusal must be absolute, clear, and communicated to the other party.

·       Scope and Effect of Refusal

• Refusal to perform can occur both before and after the time for performance.
• If a party refuses to perform or fails to perform a vital obligation, the promise may rescind the contract and sue for damages.
• Withers v Reynolds—The plaintiff was in arrears on payments for straw delivered under a contract, and refused to pay for each load on delivery. The defendant then refused to supply more straw. The court upheld that the defendant was justified in putting an end to the contract.

·       Refusal to Perform Other Terms of the Contract

• There is no general rule that failure to perform any part of a contract entitles the other party to rescind.
• The specific terms and conditions of each contract determine whether a failure to perform amounts to an abandonment of the contract.
• Parties may make terms essential or non-essential and may agree that failure to perform a specific term either discharges the other party from further obligations or only entitles them to damages.

·       Case Law

• Sooltan Chund v Schiller—The defendants agreed to deliver 200 tons of linseed to the plaintiffs at a certain price. When the plaintiffs were in arrears and the defendants cancelled the contract, it was held that the plaintiffs had not refused to pay, but were merely asking for time, making the defendants’ cancellation wrongful.
• The High Court of Calcutta ruled that failure to pay for part of a contract does not necessarily equate to a refusal to perform “in its entirety.”

·       Serious Nature of Repudiation

• Repudiation of a contract is a serious matter and should not be lightly inferred. An expression of an erroneous but good-faith interpretation of the contract does not constitute repudiation.
• For instance, merely questioning the mode of performance does not amount to a refusal to perform the contract in its entirety.

·       Anticipatory Breach

• The section is not limited to anticipatory breaches. It includes breaches before and after the agreed performance date.
• The promisee can treat the repudiation as an immediate breach, putting an end to the contract and suing for damages, or wait until the time for performance and keep the contract alive for both parties.

·       Changing Reasons for Refusal

• A party who initially refuses to perform on one ground cannot later rely on a different ground for the refusal.
• However, the Supreme Court has suggested that the repudiation of a contract may be justified by any valid reason, even if it was not stated contemporaneously.

·       Disability from Performance

• The phrase “disabled himself from performing” refers to a promisor’s inability to fulfill the obligations of the contract due to their own actions.
• If a party disables themselves before performance is due, it is considered a breach.
• Mere inability to perform without the promisor’s fault is not a valid reason for the promisee to rescind.

·       Promisee’s Right to End the Contract

• Upon the promisor’s refusal to perform or their disability to perform, the promisee may:
• Refuse to perform their part of the contract.
• Reject incomplete work and refuse payment.
• Return defective goods.

• Scotland CJ, Madras High Court (1863):

• • A vendor’s notice that they will not perform the contract is not, in itself, a breach unless the promisee chooses to treat it as such. The promisee has the option to rescind and seek damages.

·       Anticipatory Breach Principles (Case: Hochster v De la Tour)

• The leading case on anticipatory breach is Hochster v De la Tour. The rule is that the promisee can treat a repudiation before the performance date as an immediate breach, allowing them to sue for damages.
• If the promisee chooses to wait for the performance date, the repudiation becomes inoperative. They may still hold the promisor liable for non-performance at the agreed time.
• The promisee can either:
• Treat the repudiation as a breach, terminate the contract, and seek damages immediately.
• Treat the contract as alive and await performance.

·       Contract of Service Example (Case: Hochster v De la Tour)

• In Hochster v De la Tour, the plaintiff was employed to serve as a courier, and before the performance date, the employer repudiated the contract. The plaintiff successfully sued for damages before the performance date.
• If an employee leaves their employer’s service wrongfully, they are not entitled to wages for the broken period.

·       Waiver of Right to Rescind

• The right to rescind may be waived by conduct that signifies acceptance of the continued existence of the contract, such as accepting rent despite a breach or accepting payment due under a charter party.

·       Measure of Damages

• Damages for anticipatory breach differ from damages for non-performance at the scheduled time. The plaintiff is entitled to damages as of the date of repudiation, subject to mitigation considerations.

4.     Section 40—Person by whom promise is to be performed

• Overview

Section 40 of the Contract Act specifies who is responsible for the performance of a promise. If it is evident from the nature of the contract that a particular promise was intended to be performed personally by the promisor, such performance must indeed be carried out by the promisor himself. In all other situations, the promisor or his representatives may employ a competent person to fulfill the promise.

• Personal Contracts and Their Nature:
• Contracts that involve personal skill, taste, or those based on a specific personal trust between the parties cannot be performed by a delegate. For instance, a painter cannot have someone else paint a picture he was personally contracted to create, as it involves his unique skill.
• Determining whether a particular contract is personal can be challenging and often requires analysis of the specific context.
• Examples of Personal Contracts:
• Death of a Partner:
• A contract involving a personal agency or service with a partner generally ends upon the death of that partner. However, if a contract involves a firm, without specifying individual partners or if the individual partners are unknown to the other party, the contract generally continues despite the death of a partner.
• Phillips v Alhambra Palace Co: If a performer was hired to play at a music hall owned by a firm and the individual members of the firm were not explicitly part of the contract, the death of a member would not invalidate the contract.
• Performance of Charterparties by Shipowners:
• In Fratelli Sorrentino v Buerger, it was held that a shipowner must personally perform a charterparty and cannot compel the charterer to accept performance by an assignee of the ship. This reflects the reliance on the shipowner’s specific skill or integrity.
• Warehousing Contracts:
• Edwards v Newland: In situations where an owner of goods relies on the skill and integrity of a warehouseman, that warehouseman must personally carry out the warehousing.

Garment Cleaning:

• In Davies v Collins, it was held that a garment cleaner who accepted a uniform for cleaning must perform the contract personally. The specific nature of garment cleaning was considered to involve personal confidence and skill, requiring personal performance.
• General Contracts and Non-Personal Performance:
• Ordinary Contracts: Contracts that do not involve any personal element, such as the delivery of goods or payment for goods, can be performed by a representative or a delegate. For instance, the payment of money is not considered to involve a personal element (JH Tod v Lakhmidas).
• Payment Contracts: There is no personal element in the mere payment of a price (Tolhurst v Associated Portland Cement Manufacturers).

·       General Principles

• Personal contracts are generally those involving unique personal skills or services where the identity of the performing party matters significantly to the other party. The nature of the performance is subjective, and it is vital to determine if the performance requires personal skill or is interchangeable.
• Every situation must be examined individually to determine whether personal performance is necessary. The guiding principle is whether the other party would be indifferent to the identity of the performer.

5.     Section 41— Effect of accepting performance from third person

  General Principle

• When a promisee accepts performance of the promise from a third person, they waive their right to demand the performance from the original promisor.
• Once performance is accepted from a third party, the promisee cannot subsequently enforce the contract against the promisor.
• The waiver results in the discharge of the promisor’s liability concerning that part of the obligation.

  Waiver of Right Against the Promisor

• Acceptance of performance from a third party implies that the promisee waives the right of performance from the promisor.
• Even if the third party is neither authorized nor ratified by the promisor, the acceptance of performance results in the waiver of rights against the promisor.
• The promisee’s action in accepting performance amounts to making an election, discharging the promisor’s liability.

  Full Performance Requirement

• Section 41 applies only if the performance accepted from a third person is complete, not partial.
• If only partial performance is accepted, the promisee can enforce the balance amount against the promisor.
• Example: If the promisee received Rs. 5,500 from a third party towards a total of Rs. 7,600, Section 41 does not apply. The promisee can sue the promisor for the remaining balance of Rs. 2,100.
• However, if a lesser amount is accepted as full satisfaction of the claim, the promisee cannot recover the balance from the debtor.

  Divergent Judicial Interpretations

• Calcutta High Court Interpretation:
• If the promisee receives compensation from a third party (e.g., an insurer), they cannot sue the original party (e.g., a carrier) liable for the loss.
• Case Example: A consignee received compensation from an insurer and was barred from suing the carrier responsible for the loss.
• The court considered Section 41 as barring such suits since the promisee had accepted full compensation from a third party.
• Madras High Court – Sarada Mills Ltd. v. Union of India:
• The Madras High Court took a contrary view.
• It held that Section 41 does not apply to cases where the third-party payment (e.g., from an insurer) does not discharge the liability of the original party (e.g., the carrier).
• The insurer’s payment does not eliminate the carrier’s responsibility to exercise due care.
• The Madras High Court relied on observations made by the Bombay High Court in Parsram v. Air India Ltd.
• Under this view, the promisee could sue the original party and reimburse the insurer with any amount recovered.

• Bombay High Court – Parsram v. Air India Ltd.:

• Supported the idea that a promisee may continue to pursue a claim against the defendant, reimbursing the insurer as needed.

6.     Section 42—Devolution of joint liabilities

• Overview:

The section stipulates that, when two or more persons make a joint promise, all such persons are liable to fulfill that promise during their joint lives. Upon the death of any one of them, the deceased person’s representative must fulfill the promise jointly with the survivors. After the death of the last surviving promisor, the liability devolves entirely upon the representatives of all the promisors.

• Analysis of Section 42:

• • General Rule of Devolution of Liability
    Section 42 provides a deviation from the Common Law rule prevalent in England. In England, under Common Law, upon the death of one of several joint contractors, the legal liability under the contract passes to the survivors, and the representatives of the deceased contractor are not liable, either individually or jointly with the survivors. Eventually, the entire legal liability passes on to the last surviving contractor, and after their death, their representatives take over. This rule is highlighted in Wheatley v. Bastow.
  • In contrast, Section 42 ensures that, upon the death of a joint promisor, the representative of the deceased becomes jointly liable along with the surviving joint promisors. This ensures the liability is not entirely shifted to the last surviving promisor, as seen in the English rule, and reflects modern mercantile expectations in India. This approach helps to spread liability more equitably among all involved parties.

• Applicability

• • This section is applicable unless a contrary intention is explicitly mentioned in the contract.
  • It applies when a joint promise has been made by two or more persons.

 

• Legal Implications for Representatives

1. • If any of the joint promisors die, the legal representatives of the deceased will have joint liability along with the surviving promisor(s).
   • After the death of all the joint promisors, the legal representatives of all promisors are collectively responsible for fulfilling the promise.

• Joint Promisors and Rights of Joint Promisees
  Section 42 addresses the liabilities of joint promisors to fulfill their joint promise, whereas Section 45 addresses the rights of joint promisees to claim performance.
• Important Case Laws:
• Wheatley v. Bastow
  This case demonstrates the Common Law position in England, where, upon the death of one of several joint contractors, the liability is not passed on to the representatives of the deceased but remains with the surviving contractors.
• Gokul Krishna v. Partab Narain Singh (1913)
  The Privy Council elaborated on the intention behind Section 42. It emphasized that the Indian legal provision was intended to be more in line with mercantile practices, ensuring that the liability of deceased joint promisors does not solely devolve on the survivors but also includes their representatives.
• Performance of Joint Promises: The performance of joint promises may be carried out by:
• The Promisor Personally (Personal Contracts): In the case of a personal contract, the promisor himself is required to perform the promise.
• Non-personal Contracts:
  In the case of non-personal contracts, the following options exist for fulfilling the promise:
• By the Promisors Jointly: All promisors can collectively fulfill the promise.
• By the Promisor’s Agent: The promise can be performed by an agent acting on behalf of the promisor.
• By a Third Person on Behalf of the Promisors: A third party may fulfill the promise on behalf of the promisors.
• Upon Death of a Promisor: The legal representatives of the deceased promisor(s) must perform the promise.

 

• Rationale and Comparison with English Law:
• Common Law Rule (England): The legal liability of a joint promisor devolves upon the surviving promisors alone. Upon the death of the last surviving promisor, the liability finally rests upon their representatives (Wheatley v. Bastow).
• Indian Rule (Section 42): The legal representatives of a deceased joint promisor share liability alongside the surviving promisors. This arrangement ensures that liability is spread equitably rather than falling solely on the surviving promisors. The Indian rule reflects a modern approach suitable for mercantile practices and ensures fairness among the parties involved.

7.     Section 43—Any one of joint promisors may be compelled to perform

·       General Principle: Joint and Several Liability

• Section 43 of the Indian Contract Act provides that in a contract involving joint promisors, any one of the joint promisors may be compelled to perform the entire promise.
• This significantly departs from the rules of common law, which treated liability under joint contracts as strictly joint. Under the Indian law, all joint contracts are treated as joint and several, meaning the promisee can sue one or more promisors as per his discretion, without requiring the joinder of all joint promisors.
• Case Law: Nil Ratan Mukhopadhyaya v Cooch Behar Loan Office Ltd.

·       Effect of Decree Against Some of the Joint Promisors

• A key area of legal contention is the impact of obtaining a judgment or decree against one or some joint promisors on the ability to proceed against the remaining promisors.
• The Calcutta High Court, in Hemendro Coomar Mullick v Rajendro Lal Moonshee, following the rule in King v Hoare, held that a decree against one joint promisor bars a subsequent suit against the others.
• The same view was taken by the Madras High Court in Gurusami Chetti v Samurti Chinna.
• However, this was rejected by Strachey CJ in Muhammad Askari v Radhe Ram Singh, where it was held that such a decree does not bar further action against other promisors, as the King v Hoare rule does not apply in India.
• The Bombay High Court, in earlier cases, supported the English doctrine but later changed its stance, asserting that an unsatisfied decree allows the promisee to proceed against the other joint promisors for the remaining debt.

·       Suit Against One Partner in a Partnership Firm

• Section 43 allows a promisee to sue one or more partners of a partnership firm without suing all partners. This was affirmed in Lukmidas Khimji v Purshotam Haridas, and the same principle was upheld by the Madras High Court in Narayana Chetti v Lakshmana Chetti and the Lahore High Court in related cases.
• The promisee is not obliged to include all partners as defendants in a suit and may select any one of the partners to pursue legal action.

·       Application to Co-Heirs

• Section 43 does not apply to co-heirs inheriting liability through operation of law. In such cases, all co-heirs must be joined as parties to the suit, as the section specifically applies to joint promisors, not successors of a debtor’s liability.

·       Contribution Between Joint Promisors

• The second and third paragraphs of Section 43 establish the right to contribution, following the principle of English equity. A promisor who pays off the debt is entitled to recover proportionately from the other solvent joint promisors.

• • For instance, if there are five joint promisors liable for Rs. 1000, and one of them pays the debt, they may recover Rs. 800 from the remaining four, depending on their solvency.
  • If some joint promisors are insolvent, the contribution would only be divided among the solvent ones.
  • However, contribution is limited to the debt amount and does not extend to legal costs unless agreed upon. A decree holder (promisee) can enforce the decree against any joint promisor, and the latter can seek contribution from the others.

·       Contribution Among Co-Debtors

• In Nil Ratan Mukhopadhyaya v Cooch Behar Loan Office Ltd., it was stated that contribution liability arises only after one of the joint promisors has been compelled to pay the debt. The right to contribution exists only when the liability of all joint promisors persists at the time of payment or lawsuit.

·       Contribution Between Mortgagors and Co-Mortgagors

• When it comes to mortgagors, the contribution rules are governed by sections 28 and 92 of the Transfer of Property Act, not Section 43 of the Indian Contract Act, unless otherwise agreed.
• Gurusami Chetti v Samurti Chinna reinforced that mortgagors are entitled to seek contribution after redeeming the mortgage.

·       Contribution Among Tort-Feasors

• Section 43 applies to tort-feasors if they have made a joint promise. When one tort-feasor is compelled to pay damages, they can seek contribution from the others, depending on the circumstances of each case.

·       Contribution Between Partners

• The principle of contribution does not apply between partners in the context of partnership debts. If a partner pays a debt, they must file for an account of the partnership rather than a suit for contribution.
• Motilal Bechardass v Ghellabhai Hariram held that partnership debts are distinct from ordinary joint promises and require a different legal approach.

8.     Section 44—Effect of release of one joint promisor

·       Overview

Section 44 outlines the legal implications when one party (the promisee) releases a joint promisor from liability. This section highlights the principle that such a release does not discharge the remaining joint promisors from their obligations.

·       Joint Promise Definition:

1. • A joint promise involves two or more parties who are collectively obligated to fulfill a duty or payment to the promisee.

• Release of One Joint Promisor:

1. • When the promisee releases one of the joint promisors, the other joint promisors remain bound to fulfill their obligations.
   • The released promisor remains responsible to the other joint promisors, maintaining the right of contribution among them.

• Comparison with English Law:

1. • Under English law, a releasing creditor must expressly reserve rights against co-debtors to preserve their obligations. This section diverges from that requirement, simplifying the process for the promisee in the context of joint promises.

• Application to Breach Situations:

1. • The provision applies regardless of whether the release occurs before or after a breach of contract. For example:

• In Kirtee Chunder v. Struthers, (1879) 4 Cal 336, it was held that a plaintiff’s compromise with one partner did not discharge the other partners, allowing the suit to proceed against them.
• Judgment Debts Context:

1. • The principles of Section 44 also extend to judgment debts:

• In Mool Chand v. Alwar Chetty, (1916) 39 Mad 548, it was established that a release by a decree-holder of some of the joint judgment-debtors does not operate as a release of the other judgment-debtors.
• Similarly, in Daulat v. P.N. Bank, (1933) 144 IC 981 : AIR 1933 Lah 505, the court reinforced that the creditor retains the right to proceed against the remaining judgment-debtors even after releasing some.
• Right of Contribution:
• The section underscores the continued right of contribution among joint promisors. This means that if one promisor pays more than their fair share, they can seek reimbursement from the other promisors.
• Legal Precedents:

1. • In Krishna Charan v. Sanat Kumar, (1917) 44 Cal 162, the court elaborated on the implications of releasing a joint promisor, confirming that the other promisors remain liable and preserving the right to claim contribution.
   • In Haridas v. Ramguljarilal, 1947 Nag 229 IC 360 : AIR 1947 Nag 61, it was further reaffirmed that a release does not absolve other joint obligors from their responsibilities.

9.     Section 45

• Principle:
  • Rights to claim performance rest with all joint promisees during their joint lives.
  • After the death of any joint promisee:
    • The right transfers to the representative of the deceased and the survivor(s).
    • After the death of the last survivor, it goes to the representatives of all jointly.
• Illustration:
  • A promises to repay B and C jointly ₹5,000.
  • If B dies, the right to claim repayment rests with B’s representatives and C during C’s life.
  • Upon C’s death, the right shifts to the representatives of both B and C.

• Applicability:
  • Applies to all joint promisees (partners, co-sharers, mortgagees, joint lessors, members of a joint Hindu family).
• Legal Standing:
  • All joint promisees must join in a lawsuit to enforce a single right.
  • If a party refuses to join as a plaintiff, they must be added as a defendant.
  • Joint promisees cannot divide the debt and sue separately.
• Exclusions:
  • Does not apply to:
    • Karta of a joint Hindu family enforcing contracts made with the family.
    • Rights of co-trustees to sue.

• Collective Action Required:
  • All joint promisees should sue upon the promise.
  • A suit brought by some promisees only may be dismissed if additional promisees are added later after the limitation period has expired.
• Judicial Interpretation:
  • If objections lead to the addition of other promisees, the entire suit may be dismissed if they are barred by limitation.

• Comparison with English Law:
  • General English law allows surviving partners to enforce joint contracts independently.
• Equitable Exception:
  • Rights of the deceased partner devolve to their executor; the remedy survives to the co-partner.
  • The surviving partner accounts to the deceased’s estate post-recovery.
• Extension of Mercantile Rule:
  • Extends the mercantile rule to all joint contracts.
  • Representatives of deceased partners are not always necessary parties in suits for partnership debts.
  • The High Court of Bombay ruled that if a partner dies before a suit against the partnership is commenced, their estate cannot be made liable without adding their legal representatives as parties.

• Rights of Representatives:
  • The representative of a deceased partner’s estate can maintain a suit for recovering partnership debts.
  • They may join surviving partners as defendants if the latter refuse to join as plaintiffs.

10.   Section 46 – Time And Place For Performance

• Overview:
• Where, by the contract, a promisor is required to perform their promise without the application of the promisee and no specific time for performance is mentioned, the promise must be performed within a “reasonable time.”
• The term “reasonable time” is a question of fact and must be determined on a case-by-case basis, considering the circumstances surrounding the contract.

·       Time for Performance

• This section rests on the principle that a contract lacking a specific time for performance is not necessarily void due to uncertainty. This indicates that the mere absence of a stipulated time frame for the completion of contractual duties does not nullify the enforceability of the agreement.
• The section does not apply to situations where the promisee has to apply or specifically request the promisor to perform the promise. It only governs contracts where performance is expected without additional requests or reminders.

·       Determining Reasonable Time for Performance: The determination of what constitutes a “reasonable time” is fact-specific and requires a thorough examination of the circumstances surrounding the contract.

• Bengal Coal Co., Ltd v. Homee Wadia & Co. (1899) 24 Bom 97, 140
• The facts of this case revolved around an agreement to supply coal. The defendants had agreed to supply coal to the plaintiffs “from time to time,” subject to reasonable notice. The plaintiffs issued a notice on 22nd July 1898, requesting the supply of 2648 tons of coal on or before 31st August 1898.
• The Bombay High Court held that the stipulated time frame was not reasonable. This case highlights that even when a general timeframe is given (“from time to time”), reasonableness depends on the specific nature of the goods, the contract’s terms, and the market conditions.
• Bank of India v. Chinoy (1950) 77 IA 76 : (1950) Bom 606 : AIR 1950 PC 90 [LNIND 1949 PC 73]
• This case also discussed reasonable time, emphasizing that an action for breach may arise if the promisor fails to fulfill an obligation within a reasonable period, even when no specific timeline was provided initially.
• Subramanian v. Muthia (1912) 35 Mad 639
• In this case, the defendant had agreed to discharge a debt owed by the plaintiff to a third party. No specific timeframe was set for discharging this debt. The court determined that a period of three years was more than sufficient and constituted a reasonable time for the defendant to perform the obligation. Failure to do so amounted to a breach of contract.
• The reasoning in this case demonstrates that what may be considered “reasonable” often depends on the nature of the obligation itself—three years was determined as excessive for the type of contractual duty involved.

·       The Term “Engagement”

• The term “engagement” as used in the provision is synonymous with “promise.” In other words, the contractual obligation referred to as an engagement in this context means the undertaking or promise made by the promisor, which they are bound to fulfill within a reasonable time unless otherwise stipulated.

11.    Section 47—Time And Place For Performance

• Overview

The performance of a promise is a fundamental aspect of contract law, governed primarily by the principles established in the Indian Contract Act, 1872. A promise to be performed on a specified day carries specific obligations concerning both the timing and the place of performance.

• Time for Performance
• Specified Time: When a promise is explicitly stated to be performed on a particular day, the promisor must fulfill this obligation on that day. This rule is based on the principle that time is of the essence in contractual obligations when explicitly specified.Usual Business Hours: The promisor is permitted to perform the promise at any time during the usual hours of business on the specified day. This means that performance does not need to occur at the exact moment the day begins but must fall within the reasonable timeframe established by common business practices.
• Place of Performance
• The promise should be performed at the place where it ought to be performed. This location is often explicitly defined in the contract or may be implied based on the nature of the promise.
• Performance Without Application by Promisee
• The promisor’s obligation to perform does not require an application or request by the promisee. The promisor must take the initiative to perform the promise independently, reflecting the self-sufficiency expected in contractual obligations.
• Legal Implications of Non-Performance
• Breach of Contract: Failure to perform within the specified time frame, particularly when it occurs outside the agreed business hours, constitutes a breach of contract. In such cases, the promisee may be entitled to claim damages for any losses incurred due to the breach, as established in Hadley v. Baxendale, which set the precedent for consequential damages arising from non-performance.
• Remedies: The promisee may seek remedies under Sections 73 and 74 of the Indian Contract Act, which address compensation for losses caused by breach and the enforcement of penalties for non-performance, respectively.

12.   Section 48— Application for performance on certain day to be at proper time and place

·       Principle of Performance on a Certain Day

• Nature of Promise:
  When a promise is made to be performed on a specific day, the promisor (the party making the promise) is not obligated to perform the promise unless the promisee (the party receiving the promise) makes an application for performance.
• Duty of the Promisee:
  It is the duty of the promisee to request the performance at a proper place and within usual business hours. This obligation ensures that the promisor is aware of the promisee’s intent to receive the promised performance.

·       Legal Interpretation

• Proper Time and Place:
  The terms “proper time and place” must be evaluated based on the facts of each particular case. This involves considering:
• Customary Practices: The usual business practices and norms related to the nature of the contract.
• Nature of Goods/Services: The type of goods or services involved, which may dictate the proper context for performance.
• Question of Fact:
  The determination of what constitutes a “proper time and place” is fundamentally a question of fact, and courts will evaluate this on a case-by-case basis.

·       Section 55 and Time as Essence of Contract

• The relevance of Section 55 of the Indian Contract Act, 1872, is paramount in understanding the implications of time on the performance of contracts. This section addresses:
• Time as Essence: Whether the time stipulated in a contract is of the essence. If time is deemed to be of the essence, failure to perform by the specified time constitutes a breach of contract.
• Circumstances: Factors influencing the interpretation of time as essential, including the intention of the parties and the nature of the contract.

13.   Section 49—Place for the performance of promise, where no application to be made and no place fixed for performance

·       Overview:

• Section 49 of the Indian Contract Act, 1872, provides that when a promise is to be performed without any specific application by the promisee and no place is fixed for the performance, the promisor must apply to the promisee to appoint a reasonable place for performance, and perform the promise at that appointed place. This section aims to ensure fairness in circumstances where the contract lacks explicit terms regarding the location of performance.
• Key Points of Section 49:
• If no place is fixed for performance and the promisee has not specified a location, the promisor must:
• Request the promisee to designate a reasonable place for performance.
• Perform the promise at the appointed place.
• Illustration: A undertakes to deliver a thousand maunds of jute to B on a fixed day. A must apply to B to appoint a reasonable place for the purpose of receiving the jute and deliver it there.

·       Place for Performance: Legislative Expressions

• The legislature uses three different expressions across sections dealing with performance:
• Section 47: “at the place at which the promise ought to be performed”
• Section 48: “at a proper place”
• Section 49: “at a reasonable place”

These expressions imply that the place for performance should be reasonable and convenient for both parties.

·       Application to the Delivery of Goods and Payment of Money

• The rule in Section 49 is intended to apply to both the delivery of goods and the payment of money.
• The common law rule that requires a debtor to find the creditor in the realm was not adopted under Indian law. For instance, in Bansilal v. Gulam [(1925) 53 IA 58 : 53 Cal 88 : AIR 1925 PC 290], the court rejected the application of this common law principle, particularly when there was a specific agreement to pay at a particular location, such as Hyderabad.
• Similarly, in Soniram Jeetmul v. RD Tata & Co. [(1927) 54 IA 265 : AIR 1927 PC 156], it was clarified that the common law rule was not applicable under Indian law, as it would require the debtor to track down the creditor’s location, which would be impractical and potentially oppressive.
• In cases involving Pakki Adat dealings (Kedarmal v. Govindram, 9 Bom LR 903), the place of payment is deemed to be where the constituent resides unless expressly provided otherwise.
• For negotiable instruments, the rule of finding the creditor does not apply, as held in Jivatlal v. Lalbhai [(1942) 44 Bom LR 495 : AIR 1942 Bom 251].

·       Determining a Reasonable Place

• If the goods to be delivered are heavy or bulky, the promisor must seek the promisee’s appointment of a place for delivery. For instance, in Raman Chettiyar v. Gopalachari [(1908) 31 Mad 223 at p. 228], it was held that in cases involving heavy or bulky goods, the promisor must ensure that the promisee appoints a reasonable place for performance.
• Where the obligation is to pay money, courts can infer the intentions of the parties from the contract’s nature and circumstances. This was clarified in Nathubhai Ranchhod v. Chhabildas Dharamchand [(1935) 59 Bom 365 : AIR 1935 Bom 283] and Tuljaram v. Wadhumal [(1933) AIR 1933 Sind 62].
• A debtor cannot be held liable to pay wherever the creditor may choose to relocate. For instance, in Madan Lal v. Chawle Bank Ltd [AIR 1959 All 612], the court held that the common law rule would not be applicable to a country as large as India, where it would be impractical and inconvenient for the debtor to track the creditor across various locations.

·       Judicial Interpretation in Sale of Goods

• In the case of an agreement for the sale of goods, where the delivery location was not explicitly defined but was specified as being “in Bengal” with the “place of delivery to be mentioned hereafter,” the Judicial Committee held that the buyer had the right to fix the place of delivery, subject to two conditions:
• The delivery must occur within Bengal.
• The place of delivery must be reasonable.
• This principle was articulated in Grenon v. Lachmi Narain Angurwala [(1896) 24 Cal 8 : 23 IA 119].

·       Exceptions and Limitations

• In Piyara Singh v. Bhagwandas [AIR 1951 Punj 33] and Narayan Singh v. Jagjit Singh [AIR 1955 Punj 128], it was held that the debtor cannot be compelled to pay wherever the creditor moves, as it would contradict the intent behind Section 20 of the Civil Procedure Code.

14.   Section 50— Performance in manner or at time prescribed or sanctioned by promisee

• General Principle: The performance of any promise may be made in any manner or at any time prescribed or sanctioned by the promisee. This grants the promisee the discretion to determine how the promise should be fulfilled. Payment to an agent, known to the debtor to lack authority to receive the payment, does not discharge the debtor’s obligation (Mackenzie v. Shib Chunder Seal, (1874) 12 BLR 360).

·       Manner of Performance:

• Negotiable Instruments: If the promisee requests a payment method other than legal tender (e.g., a cheque), it does not alter the rule that payment by such instruments is conditional upon their being honored on presentation (Kedarmal v. Surajmal, (1907) 9 Bom LR 903).
• Case Law: In Hairoon Bibi v. The United India Life Insurance Co Ltd, AIR 1947 Mad 122, the court clarified that performance can be accepted in forms beyond cash, supporting the premise that different manners of payment are permissible as long as they align with the promisee’s instructions.

·       Relevant Case Laws:

• UOI v. Kashi Prosad, AIR 1962 Cal 169: This case emphasizes the requirement for payment to be honored within due time when using negotiable instruments.
• Narayandas v. Sangli Bank, AIR 1966 SC 170; (1965) 3 SCR 777: This case supports the idea that the mode of payment can include electronic transfers, reflecting modern banking practices.
• CIT v. Ogale Glass Works Ltd, AIR 1954 SC 429; (1955) 1 SCR 185: The ruling established that the post office can act as an agent for the addressee when there is an express or implied request to send cheques by post.
• Prima Realty v. UOI, (1996) 11 SCC 65; 70: In this case, the Supreme Court affirmed that sending cheques by post in ordinary business practice suffices to discharge the obligation when an implied request exists.
• UTI v. Ravinder Kumar Shukla, (2005): The Supreme Court ruled that mere posting of cheques does not constitute valid payment unless there is a request from the payee, and the risk of non-delivery lies with the sender when no such request exists.

·       Performance of Reciprocal Promises

• Simultaneous Performance (Section 51): If promises are to be performed simultaneously, the promisor is obligated to perform when the promisee is ready and willing to perform.
• Order of Performance (Section 52):
• If the order is fixed by the contract, performance should be executed in that order.
• If the contract is silent, performance should be made in the order that the nature of the transaction necessitates.
• Dependent Promises (Section 54): For promises that are dependent on one another, the one that should be performed first must be executed first.

15.   Section 51— Promisor not bound to perform, unless reciprocal promisee ready and willing to perform

• Principle: In contracts containing reciprocal promises, a promisor is not obliged to perform unless the promisee is ready and willing to fulfill their reciprocal promise. This principle is grounded in common law, emphasizing that mutual promises serve as the sole consideration for one another.
• Conditions of Performance: Performance by one party may be contingent on the other party’s readiness and willingness to perform their reciprocal promise. This requirement may be explicitly articulated or implied within the contract’s terms.
• Concurrent Conditions: When both parties’ performances are intended to occur simultaneously, they are classified as concurrent conditions. Examples include transactions where goods are delivered in exchange for cash. In these scenarios, the promises are dependent on each other.
• Independent Promises: Conversely, some promises can be enforced without necessitating proof of the other party’s performance, categorized as independent promises.
• Determining Simultaneous Performance: The question of whether the promises are meant to be performed simultaneously relies on the interpretation of the agreement, examining the parties’ intentions through the contract as a whole. For instance, in Imperial Banking Co v Atmaram¹⁷³, the court determined that the transfer of shares and payment of the purchase price were to occur simultaneously.

·       Consequences of Partial Default in Performance

• Partial Breach vs. Fundamental Breach: A significant issue arises as to whether a failure to perform certain aspects of a contract results in a complete forfeiture of rights to compensation for performed duties or if it constitutes a partial breach that allows the contract to remain enforceable.
• Evaluation of Intention: It is crucial to ascertain whether the stipulation that was breached is fundamental to the contract. A failure may render the remaining obligations substantially different from what was agreed upon, or it may only partially affect the contract, permitting compensation for damages instead.
• Case Law:

• • In Bettini v Gye¹⁷⁴, the court held that B’s late arrival to rehearsals was not a fundamental breach that would allow G to terminate the contract, since the engagement was for an extended period. Instead, G could only claim damages for breach of warranty. If B’s engagement had been limited to singing in a few performances, the requirement for prior attendance at rehearsals could have been deemed essential.

·       Waiver of Performance

• Voluntary Performance Without Reciprocation: This section emphasizes that a party who chooses to perform their part of the contract without insisting on simultaneous performance may still have remedies available. For instance, in Sooltan Chund v Schiller¹⁷⁵, the seller delivered goods but opted not to receive payment at the time of delivery. The seller retains rights despite not insisting on simultaneous performance.

·       Readiness and Willingness

• Performance Upon Request: If a party is bound to perform an act upon request and is ready to do so when required, they are deemed to have fulfilled their contractual obligations, regardless of their earlier readiness.
• Evidence of Readiness: A party seeking to prove readiness to perform, such as a purchaser in a contract to buy shares, is not obligated to produce immediate payment or a finalized financing scheme. In Bank of India v Chinoy, the court clarified that a notice of non-acceptance from the purchaser before the delivery date exonerates the vendor from proving readiness to deliver shares.
• Control Over Goods: A vendor can be considered ready and willing to deliver goods without having them in actual custody; possessing control sufficient to effectuate delivery is adequate. This principle was illustrated in Kanvar Bhan Sukha Nand v Ganpat Rai Ram Jivan, where the vendor’s control over goods sufficed for performance readiness.

16.   Section 52— Order of performance of reciprocal promises

• Overview:
• The order in which reciprocal promises are to be performed is crucial for determining obligations in a contractual relationship.
• Expressly Fixed Order:
• If the contract explicitly specifies the order of performance, the parties must adhere to that order.
• Absence of Express Fixation:
• In situations where the order of performance is not expressly fixed by the contract, it should be executed in the order dictated by the nature of the transaction.
• Judicial Interpretation:
• The Supreme Court has emphasized that merely relying on the sequence of clauses in a contract is insufficient to determine the order of performance. There must be an explicit specification in the contract regarding which promise is to be performed first.
• Example:

• • Scenario: A agrees to transfer his stock-in-trade to B at a fixed price, while B promises to provide security for the payment.
  • Order of Performance: A is not required to perform his promise of transferring stock until B provides the agreed security. Here, the nature of the transaction requires A to secure assurance of payment before he relinquishes his stock.

·       Further Clarification on Order of Performance

• Express Terms vs. Silence:
• If a contract specifies the order of performance, that order governs. If it is silent, the determination must be based on the nature of the transaction.
• Market Practice:
• In the absence of explicit terms, courts may refer to usual practices in the relevant market to determine the order of performance.
• Subsequent Conduct:
• The actions or conduct of the parties after the contract is executed do not provide clarity on the order of performance.
• Notable Case Laws:
• The Supreme Court highlighted the need for clear stipulation in the contract regarding which condition serves as a precondition for the performance of other obligations.

• • Edridge v. RD Sethna (1933): Established that subsequent conduct of parties does not clarify order of performance.
  • Saradamani Kandappan v. S. Rajalakshmi (2011): Reinforced the necessity for express fixing of performance order to avoid ambiguity.

17.   Section 53— Liability of party preventing event on which the contract is to take effect

·       Overview

• Principle of Prevention by Party’s Own Act: Under Section 53 of the Indian Contract Act, if one party prevents the other from performing their contractual obligations, the affected party is entitled to treat their part of the contract as fulfilled and can claim performance from the other side.
• This principle reflects a fundamental concept shared by common law and other systems of civilized law: no one can complain about another party’s failure to perform if the complaining party itself has caused that failure.
• Scope of Application: The principle is not restricted to direct or forceful prevention but also extends to neglect or default in performing acts that a party is contractually obligated to perform. If such non-performance prevents the other party from fulfilling their obligations, the affected party may be excused from their duties.

·       Government Contracts: Prevention by Government

• Namayya v UOI (AIR 1958 AP 533): In this case, the contractor’s claim under Section 53 was not accepted because the government did not explicitly agree to provide certain equipment (crane and iron materials) free of cost. The government had only agreed to assist in obtaining controlled articles, which did not include providing materials without cost. Therefore, the contractor could not claim relief under Section 53 when the government refused to supply those materials for free.

·       Third Party Prevention

• If a contract’s performance is hindered by a third party, it does not provide a basis for one party to repudiate their own contractual obligations. The section emphasizes that only actions attributable to the contracting parties themselves, not third-party interventions, can trigger the effects of Section 53.

·       Case Law Illustration: Giles v EdwardsR 181

• Facts: The contract was for the sale of standing wood, where the seller was responsible for cutting and cording the wood, and the buyer was to take it away and pay for it.
• Decision: The seller failed to properly cord most of the wood. The buyer, therefore, had the right to terminate the contract and recover any money paid. The court ruled that since the defendant’s default prevented the plaintiffs from fulfilling their obligations, they were entitled to treat the entire contract as void and recover their payment.
• Legal Principle: In entire contracts, if a party’s default prevents full performance, the non-defaulting party has the right to terminate the contract and recover any funds already paid.

·       Liability for Preventing Event on Which the Contract is Dependent

• If one party’s default prevents the fulfillment of a contractual term or condition, the other party may treat that condition as fulfilled and require the defaulting party to perform their obligations.
• No Rescission Rights for Non-fulfillment by A: If A does not fulfill a term due to B’s default, B cannot use this as grounds to rescind the contract or invoke any penalty clause that might be included in the contract.

·       Case Law: Kleinert v Abosso Gold Mining Co

• Facts: In this Privy Council case, P contracted with D to remove waste rock from D’s mine, provided there were not more than fifty thousand tons. D was obligated to supply a crusher. However, the crusher supplied was inadequate, causing P to cease operations.
• Decision: P was able to recover damages for the expenses incurred in preparation and the loss of profits that would have been earned by supplying crushed stone to a third party.
• Legal Principle: If one party’s default or inadequate provision of resources prevents performance, the other party is entitled to compensation for expenses and lost profits resulting from the breach.

·       Voidable Contract at the Option of the Prevented Party

• The section provides that the party who has been prevented from fulfilling the contract due to the default of the other party has the option to void the contract. This option is discretionary.
• Status Quo Upon Non-Avoidance: If the prevented party does not choose to void the contract, the rights and liabilities of both parties remain unchanged.

·       Case Law: Edridge v RD Sethna (AIR 1933 PC 233)

• Facts: In this case, the Privy Council explained the right of a party to void the contract under Section 53 if their performance was prevented by the other party’s conduct.
• Legal Principle: Prevention by one party gives the affected party the right to either avoid the contract or continue, preserving all rights and obligations as per the original terms.

18.   Section 54— Effect of default as to that promise which should be first performed, in contract consisting of reciprocal promises

• Reciprocal Promises:

1. • Contracts with reciprocal promises require that one promise may depend on the prior performance of another.
   • Condition Precedent: A promise may need to be performed first, which becomes a condition precedent for the other party’s performance.

• Effect of Default:

1. • If a promisor defaults in performing the first obligation, the other party can refuse to perform their promise.
   • Whether a promise is contingent on another depends on the terms of the contract.

• Total Failure vs. Partial Failure of Consideration:

1. • Total Failure: If a breach goes to the entirety of the consideration, the non-breaching party can refuse performance.
   • Partial Failure: If the breach is minor and does not affect the whole consideration, it allows for a cross-claim for damages but does not bar performance.

• Case Law References:

1. • Oxford v Provand (1868) LR 2 PC 135, 156:
     • If the plaintiff’s breach affects the entire consideration, it bars the suit.
     • If the breach only partially affects consideration, compensation can be sought through a cross-claim.
   • National Insurance Co Ltd v Seema Malhotra (2001) 3 SCC 151, 157 : AIR 2001 SC 1197:
     • Insured’s failure to pay a premium was a total failure of consideration.
     • As the payment was a condition precedent, the insurer was not obligated to compensate for any accident.

19.   Section 55—Effect of failure to perform at a fixed time, in contract in which time is essential

• Time as Essence of Contract
  The question of whether time is the essence of a contract can arise concerning the entire contract or a specific term/condition. If time is explicitly made essential, failure to perform within the stipulated time allows the promisee to treat the contract as breached.
• Failure to Perform in Time
• Where time is of the essence of a contract, failure to perform at or before the specified time entitles the promisee to avoid the contract.
• If the contract is not avoided, and the promisee accepts late performance, they cannot claim compensation unless a reservation of rights was made during acceptance of late performance. This is consistent with the principle that strict adherence to time is necessary when time is essential.
• Effect of Failure to Perform in Contracts Where Time is Essential
• If time is not of the essence, the contract is not voidable despite delayed performance. In this case, the promisee may claim compensation for any losses caused by failure or late performance.
• Time—When Not of Essence of Contract
• Common Law Stipulations in England: Under English law, stipulations regarding time were typically treated as “of the essence” in contracts for the sale of land unless explicitly provided otherwise (referenced in Treitel’s writings). Delays in property transactions, often due to unexpected title verification issues, led Courts of Equity to presume that time was generally not of the essence in such contracts, particularly in the context of vendor-purchaser relationships.
• In Jamshed Khodaram Irani v. Burjoji Dhunjibhai (1915), the Judicial Committee stated that the principle governing contracts for the sale of land in India aligns with English law. Specific performance may be granted despite failure to meet timelines, if the circumstances justify equitable relief. In the case, the contract did not make time of the essence, despite a fixed completion date, because the true intention of the parties was to allow a reasonable time for performance.
• In Chand Rani v. Kamal Rani (1993), a contract for sale of immovable property required the seller to obtain government permission within two months. The Supreme Court held that time was not of the essence, especially given the seller’s actions and the buyer’s readiness to perform the contract.
• An intention to make time of the essence must be explicitly stated or inferred from the surrounding circumstances at the time of contract execution. Subsequent conduct of the parties is not a reliable indicator for determining such intention. The Supreme Court in KS Vidyanadam v. Vairavan (1997) criticized the presumption that time is not of the essence for immovable property contracts, noting that rising property prices can make strict enforcement of timelines necessary.
• Options to Repurchase & Leases
• An option to repurchase must be exercised strictly within the time limit stipulated.
• Renewal of a lease is a privilege and must be claimed within the set time limit.
• Commercial Contracts
• For commercial contracts, including contracts for the sale of immovable property meant for business purposes, the presumption that time is not of the essence is not applicable. Time is often considered crucial in such cases.
• In shipping contracts, or contracts involving fluctuating market prices, such as those for sale of goods, time for delivery is essential. If an extension of time is requested, as seen in Behari Lal v. Mangli, it indicates that time is intended to be of the essence.
• When Time Becomes of the Essence Post-Contract
• Even if time was not initially of the essence, it can become so if one party makes an unmistakable declaration to this effect. For instance, when an extension is granted, and termed as “final,” it may indicate that time has subsequently become crucial, as seen in Parameshwar Mahaseth v. Babulal Sah.
• Mercantile Contracts and Time Sensitivity
• In mercantile contracts, there is generally no presumption that time is not of the essence. Parties must adhere to agreed timelines strictly.
• In Eduljee Framjee v. Dayabhai, failure to deliver an elephant as agreed led the court to conclude that time was indeed crucial, given the repeated extensions and the nature of the operations.
• Reasonable Time for Performance
• Where time is not of the essence, either party still has the right to expect performance within a reasonable time. If there is unnecessary delay, the other party may serve notice indicating that the contract will be terminated if performance does not occur within a reasonable time thereafter. The Privy Council in Ganges Manufacturing Co. v. Sourujmull found that inordinate delay may imply that the contract has been abandoned, even without formal notice.

 

20.  Section 56—

·       General Overview:

• Section 56 deals with impossibility and frustration, modifying Common Law principles. It primarily sets out positive rules, making English authorities less applicable.
• Under Indian law, Section 32 and Section 56 of the Indian Contract Act are the basis for frustration and impossibility.
• Where the contract itself contains an implied or express term for its dissolution under certain conditions (e.g., a force majeure clause), it is governed by Section 32.
• If frustration occurs outside the terms of the contract, Section 56 is applicable.
• The rule under Section 56 exhaustively deals with the doctrine of frustration in India and is not to be extended by analogies from English Common Law.

• • Case Reference: Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44 – The doctrine of frustration cannot be extended by analogy in Indian law.

·       Impossibility in Itself:

• If parties agree to perform something that is inherently impossible, such an agreement is void, as it lacks legal consideration.
• “Impossible in itself” refers to something impossible in the nature of things.
• Where subject matter does not exist at the date of agreement, such impossibility may be regarded as a mistake under Section 20.

·       Subsequent Impossibility or Unlawfulness

• Section 56’s second paragraph turns limited exceptions into a general rule. Common Law obliges parties to fulfil promises unless qualified by specific terms.
• If a fundamental change of circumstances or an unexpected event renders the performance impossible, the contract may be discharged.

• • Krell v. Henry (1903) – A room hire contract was frustrated because the foundation (King’s coronation procession) failed.
  • Satyabrata Ghose v. Mugneeram Bangur & Co. – Section 56 does not apply where the impossibility is subjective or commercial; it must fundamentally alter the nature of the obligation.
  • National Agricultural Cooperative Marketing Federation of India Ltd v. Alimenta SA, (2020) 9 SCC 202 – Government restrictions creating an impasse constituted frustration.

·       Force Majeure and Section 56

·       If a contract contains a “force majeure” clause covering the intervening event, Section 56 may not apply. Instead, the matter will be governed by Section 32.

 

·       Doctrine of Frustration:

A contract may be frustrated in the following scenarios:

• Impossible in Itself: Parties agreeing to do something inherently impossible.
• Supervening Impossibility/Illegality: Situations involving actions contrary to law or public policy.
• War or War Restrictions: Contracts affected by restrictions or impossibility due to war.
• Destruction of Subject Matter: Cases involving fire, explosion, or the unavailability of specific goods/materials.
• Taylor v. Caldwell (1863) – Destruction of the subject matter, such as a concert hall by fire, discharged the contract.
• Change in Circumstances: Changes that fundamentally alter the basis of the contract.
• Government Restrictions: Intervening Government actions which render the contract unfeasible.

 

·       Frustration Does Not Apply:

The doctrine of frustration cannot be invoked under the following circumstances:

• Foreseen Events: If the event could be anticipated or guarded against.
• Strike: Where workers’ strike leads to a failure in unloading goods.
• Self-Induced Frustration: Frustration resulting from the party’s own conduct or negligence.
• Maritime National Fish Ltd. v. Ocean Trawlers Ltd., (1935) AC 524 – Frustration was self-induced by not securing the license needed.
• Commercial Impracticability: Impossibility based on price fluctuations, depreciation of currency, or increased costs is not sufficient for invoking Section 56.
• Tsakiroglou & Co Ltd v. Noblee Thorl GmbH, (1962) AC 93 – Closure of the Suez Canal and increased expenses did not constitute frustration.

·       Commercial Impossibility:

• Mere commercial difficulty or rise in expenses does not render the contract frustrated.
• Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588 – Mere increased costs due to currency depreciation cannot frustrate a contract.

·       Frustration and Lease Agreements:

• Frustration generally does not apply to lease agreements as leases are considered transfers of property interest, not merely contracts.

• • T. Lakshmipathi v. P. Nithyananda Reddy, (2003) 5 SCC 150 – A lease does not end simply because the tenant cannot use the property as intended.

·       Frustration in Personal Contracts:

In cases of personal incapacity such as death or mental illness, personal contracts are frustrated.

• • Robinson v. Davison (1871) LR 6 Ex 269 – A pianist’s inability to perform due to sudden illness led to frustration of the contract.

·       Effects of Frustration:

When a contract is frustrated, it becomes void. Sections 65 and 56 require restitution of any benefit received under the contract.

• • Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. (1943) AC 32 – A party is entitled to recover money paid if there is a total failure of consideration.

·       Refund and Compensation

• Under Section 65, a party who has received any advantage under the contract must restore it to the other party if the contract becomes impossible to perform.

• • Chandri Abdul Majid v. Payara, AIR 1923 PC 213 – Refunds are allowed under Section 65 for advance payments made under frustrated contracts.
  • If the promisor knew the contract was impossible but the promisee did not, the promisee is entitled to compensation.

21.   Section 57—Reciprocal promise to do things legal, and also other things illegal

• Scope & Applicability:
• Applies to cases with two sets of promises that are severable and distinct.
• If the void part of an agreement is separable, the rest of the agreement remains valid.
• If the parties treat void and valid parts as inseparable, the entire agreement may become void.
• Pertains only to “reciprocal promises” as per Section 2(f) of the Contract Act, particularly in cases involving illegal promises.
• Doctrine of Severability:
• If promises are legally distinct, the valid portion of an agreement can stand independently.
• Severability is applied only when the removal of illegal parts does not alter the nature of the remaining agreement.
• Key Case Law Examples:
• Davlatsing v. Pandu (1884) 9 Bom 176: Court emphasized severability where void promises can be separated without affecting the valid part.
• Poonoo Bibee v. Fyez Buksh (1874) 15 BLR App 5: Entire agreement rendered void if valid and void parts are treated by parties as inseparable.
• Extended Judicial Interpretation:
• BOI Finance Ltd. v. Custodian (1997) 10 SCC 488, 509:
• Concerned a “buy-back” or “ready-forward” arrangement where the ‘ready’ leg was legal, and the ‘forward’ leg was illegal.
• Court upheld severability, enforcing the legal portion while disregarding the illegal one.
• Elektron Lighting Systems Pvt. Ltd. v. Shah Investments Financial Developments & Consultants Pvt. Ltd. (2015) 15 SCC 137, 150:
• Concerned a contract involving ‘street light refurbishment’ (legal) and ‘advertising’ (illegal).
• Court applied severability to enforce the legal portion of the contract.
• Doctrine of Severability vs. Integral Whole:
• Severability applies if the agreement can be divided into lawful and unlawful parts.
• If parties treat valid and void transactions as inseparable, courts are inclined to treat the whole agreement as void.

22.  Section 58— Alternative promise, one branch being illegal

• Overview:
• In contract law, an alternative promise refers to a situation where a promisor offers more than one way to fulfill their obligation, leaving the choice to either party or, by default, the promisor. However, complications arise when one of these options involves an illegal act while the other remains lawful. This legal principle is guided by the maxim that the law only enforces what is legal.
• In the context of an alternative promise, if one branch of the promise is illegal and the other is legal, only the legal branch can be enforced. The illegal component does not invalidate the contract entirely; instead, the enforceable part can be separated from the illegal one, maintaining the legality of the agreement to the extent possible. The legal branch is upheld, while the illegal branch is rendered void.
• This principle is essential to uphold the integrity of contracts, prevent the enforcement of illegal activities, and ensure fairness between contracting parties.
• Illustration:
• Consider an agreement between two parties, A and B. They agree that A will pay B 1,000 rupees, and in return, B will provide A either rice or smuggled opium.

• Promise Components:

• First Branch (Legal): Delivering rice to A.
• Second Branch (Illegal): Delivering smuggled opium to A.

In this agreement, there are two possible modes of performance by B. The promise regarding rice is entirely lawful, while the agreement involving smuggled opium is illegal.

• Legal Implications:
• Enforceable Part of the Contract: The part of the agreement regarding the delivery of rice is legally valid and enforceable. If B chooses to deliver rice or if A demands rice as fulfillment of the contract, the law will uphold this as a valid performance.
• Void Part of the Contract: The promise concerning the delivery of smuggled opium is illegal and therefore void. Smuggling is a criminal act, and an agreement based on an illegal act cannot be enforced by law.
• Enforcement Scenario:
• If A requests rice from B and B refuses to deliver it, A can approach the courts for enforcement, as the rice delivery is a legal obligation.
• However, if A demands smuggled opium, the law will not support A’s claim. Any attempt to enforce this branch of the promise will fail since it involves illegal activity.
• Key Principles Illustrated:
• Severability of Promises: In contracts involving multiple obligations, courts attempt to sever the legal obligations from the illegal ones, ensuring that the lawful part of the contract remains enforceable, while the unlawful part is rendered void.
• Doctrine of Legality: Contracts that involve illegal actions are void to the extent of the illegal obligations. However, the existence of an illegal option does not necessarily void the entire contract, provided there are independent legal alternatives that can stand on their own.
• Public Policy: The principle also reflects the public policy considerations underlying contract law. The courts will not allow the enforcement of agreements that promote illegal activities, as this would undermine the rule of law and public morality.

23.  Section 59—Application of payment where debt to be discharged is indicated

• General Rule on Appropriation of Payments
• In England, the general rule since Clayton’s Case (1816) 1 Mer, p. 608 is that when a debtor makes a payment, the debtor has the discretion to appropriate the payment to any debt they choose. The creditor must comply with the debtor’s choice of appropriation.
• This principle is confirmed by Per Blackburn J in City Discount Co v McLean (1874) LR 9 CP 692, 700. Thus, when a debtor designates a specific debt to be discharged, the creditor must adhere to this instruction.
• Intimation by Debtor and Binding Appropriation
• If a debtor pays money with express intimation that it should be applied to discharge a particular debt, and the creditor accepts the payment under those terms, the creditor cannot later alter the agreed appropriation without the debtor’s consent. This rule applies even to government revenue payments, as established in Mahomed Jan v Ganga Bishun Singh (1910) 38 Cal 537.
• The debtor’s express intimation must occur at the time of payment (Chhangur Sahu v Ratan Sugar Mills Ltd, (1958) All LJ 311). If no such intimation is made, the creditor has the right to appropriate the payment to the debt that arose first in time, as indicated in Relu Mal v Ahmad, AIR 1926 Lah 183.
• Several Distinct Debts
• This rule applies specifically to cases involving several distinct debts and does not apply where there is only a single debt that must be paid in instalments. Interest is not considered a debt distinct from the principal amount, as indicated in Bansi Lal v Sant Ram, AIR 1965 Punj 375, and Cory Bros. & Co v The Mecca, (1897) AC 286 (294).
• Therefore, when the amount of a decree is to be paid by instalments, the decree-holder is not obligated to apply payments to the specific instalments mentioned by the debtor, as seen in Fazal Husain v Jiwan Ali (1906) All WN 135, and Harikisondas v Nariman, (1927) 29 Bom LR 950; 104 IC 673; AIR 1927 Bom 479.
• Furthermore, this section, along with sections 60 and 61, does not apply where the debt has been merged into a decree. In such cases, the rule that governs is either the terms of the decree itself or the general provisions related to the execution of money decrees, as shown in Industrial Credit & Development Syndicate v Smithaben H Patel, (1999) 3 SCC 80; AIR 1999 SC 1036, and Gurpreet Singh v Union of India, (2006) 8 SCC 457.

24.  Section 60—Application of payment where debt to be discharged is not indicated

·       Creditor’s Right to Appropriate Payments

o   Under the relevant provisions, specifically referenced in section 60 of the Contract Act, if the debtor does not make a specific appropriation at the time of payment, the right to appropriate the payment devolves upon the creditor. This right can be exercised until the last moment without the need for explicit declaration of intention.

o   As illustrated in Seymour v. Pickett (1905), the creditor retains the right to appropriate even while being examined during trial.

o   In Ram Shah v. Lal Chand (1940), the Privy Council clarified the conflicting decisions regarding the timing of the creditor’s election to appropriate payments, affirming that the creditor can appropriate payments to either principal or interest.

o   This aligns with the ruling in Cory & Bros & Co v. The Mecca (1897), where it was established that a creditor is not required to make an immediate appropriation but, once made and communicated to the debtor, limits future appropriations to the stated application.

·       Contract of Guarantee

• A notable aspect of creditor-debtor relations is the binding nature of the creditor’s appropriation on the surety. In the case of Kukreja Ltd v. Said Alam (1941), it was established that the surety is legally bound by the creditor’s choice of appropriation.

·       Application of Payments to Principal and Interest

• Where a debt accrues interest, any payments received without a specific appropriation are first applied to cover the interest. This principle is reinforced in Venkatadri Appa Row v. Parthasarathi Appa Row (1921), which stipulates that unless the debtor explicitly appropriates a payment to the principal, the creditor is not obliged to accept it as such.
• If the debtor does appropriate, and the creditor accepts it, the creditor is bound by this appropriation, as seen in Nemi Chand v. Radha Kishen (1921).
• Moreover, if the creditor accepts a payment “without prejudice” or “under protest,” the amount will still be appropriated towards interest, even if the debtor intended it for principal payment, as established in Leela Hotels Ltd v. Housing & Urban Development Corp Ltd (2012).

·       Appropriation in Decrees and Arbitral Awards

• In cases where a debt has merged into a decree, the creditor (decree-holder) is not required to inform the debtor (judgment-debtor) that payments have not been appropriated as specified. As per the ruling in Industrial Credit & Development Syndicate v. Smithaben H Patel (1999), the rule of appropriation in such scenarios is that payments must follow the decree’s directives.
• In absence of explicit direction, payments are allocated first towards interest and costs, and then towards the principal amount. This principle also extends to arbitral awards that attain finality under section 36 of the Arbitration and Conciliation Act, 1996.

·       Debt Barred by the Law of Limitation

o   Notably, when the debtor does not make any specific appropriation, the creditor retains the authority to apply the payment to any lawful debt, even if it is barred by limitation. This is particularly relevant in contexts involving running accounts that extend over multiple years.

o   In Bishun Perkash v. Siddique (1916), it was established that a creditor may appropriate payments towards the earliest items that are barred by limitation and may pursue claims for any balance not so barred.

 

25.  Section 61—Application of payment where neither party appropriates

• Interpretation of Section 61: This section should be read in conjunction with Section 60. It is crucial to understand that it does not establish a rigid rule of law but provides a framework for application when the intentions of the parties are unclear.
• Intention of the Parties: The determination of the parties’ intentions requires examining:

• • Express Agreements: Any explicit terms agreed upon by the parties.
  • Mode of Dealing: The practical interactions and dealings between the parties, which can reveal their mutual understanding and practices.

• Treatment of Accounts: The section allows for the possibility that accounts, which might have been intended to be treated separately, could be considered as continuous based on the parties’ conduct.

• • Appropriation of Payments: In instances where accounts are treated as continuous, any payments made will be allocated to the earliest unpaid item of the combined account. This principle is exemplified in the case of Hooper v. Kecy (1876) 1 QB Div. 178.

• Mortgage of Joint Hindu Family Property: In the Full Bench case Gajram Singh v. Kalyan Mal, the court was presented with the issue of whether a mortgagee could allocate payments made by the mortgagor towards a portion of the mortgage debt that was not incurred for legal necessity.
• Legal Necessity and Mortgage: The key question was whether a mortgage executed by the manager of a joint family could be partially relieved of debts not raised for legal necessity when no explicit appropriation of payments had been made by either party.
• Court’s Findings:

• • Ascertainment of Debts: The court held that until the two portions of the debt (one for legal necessity and one not) were distinctly identified, the creditor could not apply a payment to an unspecified part of the debt.
  • Definitive Distinction: Once the debts were clearly delineated, they constituted two distinct obligations, allowing for the creditor to appropriate payments accordingly.
  • Failure to Appropriation: Since the creditor had not made an appropriation in the trial court, the court ruled that any payments made should be distributed rateably between the two portions of the debt.

·       Key Principles Established:

• Continuity of Account Treatment: Parties may inadvertently treat accounts as continuous, impacting the appropriation of payments.
• Requirement of Specification in Debts: Creditors cannot allocate payments to unidentified debts; proper identification is essential for lawful appropriation.
• Rateable Distribution Principle: In cases where explicit appropriation has not occurred, payments should be equitably divided between distinct debts.

26.  Section 62—Effect of novation rescission, and alteration of contrac

·       Assent of All Parties

• Requirement of Assent: Novation, alteration, or rescission of a contract necessitates the assent of both parties involved. This is a question of fact in each case.
• Unilateral Actions:
• Envisaged Actions: A unilateral novation, alteration, or rescission may occur if such actions were anticipated in the original contract.
• Implied Acceptance: Acceptance may also be implied through silence, known as acceptance sub silentio.

·       Discharge of Existing Contract

• Discharge Clarification: The phrase “The Original Contract need not be performed” signifies that under the specified circumstances, the original contract is entirely discharged and no longer needs to be executed. The focus then shifts to the new or altered contract.

·       Novation

• As defined in House of Lords, novation occurs when a new contract replaces an existing contract, either between the same parties or different ones, wherein the old contract is mutually discharged.
• A common instance is in partnership dissolutions, where remaining partners agree to assume the liabilities of the outgoing partner.
• Example of Novation: In a partnership scenario, if Partner A owes Rs 300 to Creditor B, and A transfers his property to Partner C (who pays B), novation does not occur unless B agrees to accept C as the new debtor.

·       Assignment and Novation Distinguished

Nature of Assignment:

• • An assignment involves transferring a debt without the debtor’s consent.
  • In contrast, novation requires consent from the debtor.

Key Differences:

• • Assignment: Transfer of property.
  • Novation: Annulment of one debt followed by the creation of a new one.

 

·        New Enforceable Contract

• Failed Novation: If an attempted novation fails to create a new enforceable contract, it may still terminate the original contract if the parties intended to rescind it.
• Requirements for Proof: There must be clear evidence of the intention to rescind.
• Example of Registration Requirement: If a new contract is required to be registered but is not, it will not operate as a novation.
• Creditor’s Rights: Creditors can choose to sue either the original debtor or the new party, and continued dealings with the reconstituted firm do not prevent claims against the original debtor.

·       Alteration

• • A mere variation of terms does not equate to novation. Alteration pertains to changes that affect the fundamental nature of the contract.
  • As articulated by the Supreme Court, alterations must fundamentally change the contract, rendering the original contract unnecessary for performance

• Effect of Unauthorized Alteration of Documents

Consequences of Unauthorized Alteration: If a contract document is altered without both parties’ consent, it may disable the party making the alteration from relying on it in court.

• • Material Alteration: Any change affecting the substance of the contract or document identification is considered material.
  • Exceptions: Alterations that merely express implied terms or correct clerical errors are immaterial.
  • Material Alteration Impact: If a bond’s date is altered, extending the time for a claim, this is material and can void the bond.
  • Alteration in Mortgage: Materially altering a mortgage bond does not void it completely; it can still be used as evidence of a right if not sued upon as the altered document.

27.  Section 63—Promisee may dispense with or remit performance of promise

·       Overview of Section 63: Promisee’s Right to Remit Performance

• Section 63 allows a promisee to dispense with or remit the performance of a promise. This signifies a departure from common law principles where mutual consideration is generally required for discharge.

·       Contrast with Common Law

• Under English Common Law, both parties to an executory contract can mutually agree to discharge their obligations without satisfaction. However, an executed contract generally requires release under seal or performance for discharge.
• The Indian legal framework, as per this section, allows for discharge without consideration or new agreements, particularly where it concerns the rights of only one party.

·       Scope and Interpretation of Section 63

• Section 63.2: Clarifies that Sections 62 and 63 should not overlap:

• • Section 62 relates to agreements affecting the rights of both parties and requires consideration.
  • Section 63 addresses agreements affecting only one party’s rights, where no consideration is needed for remission.
  • A promisee can discharge the promisor without consideration or a new agreement. A promisee can validly remit a debt even if only a part is paid, establishing a complete discharge.
  • Example: If a lessor accepts a reduced rent under an oral agreement, this does not negate the discharge’s validity.

·       Remission and Future Events

• A remission may be contingent upon future events, as shown in a case where a promisee agreed to forgo claims based on the rebuilding of a lodge. If the lodge is rebuilt, the promisee cannot later claim the debt.

·       Agreement to Extend Time

• Agreements merely extending performance time do not require consideration. However, a buyer cannot unilaterally extend delivery time without jeopardizing their right to damages based on the original contract date.

·       Accord and Satisfaction

• A promisee may accept any form of satisfaction instead of insisting on performance, with the critical requirement that acceptance must be unequivocal.
• Case: In a dispute where the plaintiff signed a bill with “under protest,” it was determined there was no “accord and satisfaction” since acceptance was not unequivocal.

·       Contracting Out of Section 63

• Parties may seek to exclude or restrict the doctrine of waiver through specific contractual terms. Commonly, “No Oral Modification” (NOM) clauses are used.
• In Rock Advertising, the English Supreme Court ruled that an oral amendment contradicted a written requirement, emphasizing party autonomy only extends as far as the contract allows.
• Indian Perspective: Contrasting this, the Supreme Court in Sasan Power held that contractual terms could not override the provisions of the Indian Contract Act, emphasizing Section 63’s primacy in allowing waiver through factual circumstances rather than formal requirements.

28.  Section 64—Consequences of rescission of voidable contract

• Classification of Voidable Contracts:

• • Contracts declared voidable under Section 2, Clause (i) of the Act can be classified into two categories:

• Contracts voidable at inception due to fraud or similar grounds (Sections 19 and 19-A).
• Contracts becoming voidable by subsequent default of one party (Sections 39, 53, and 55).
• General Jurisprudence Principle:

• • The principle affirmed by this section is rooted in general jurisprudence and equity, extending beyond the specific cases mentioned. The Privy Council in Muralidhar Chatterjee v International Film Co Ltd (AIR 1943 PC 34) confirmed that this section also applies to rescission under Section 39.

·       Minor’s Contract

• Competency to Contract:
• The term “person” in Sections 64 and 65 does not include minors, as per the Privy Council’s ruling in the Mohori Bibee case (LR 30 IA 114).
• Minors are not liable under these sections to compensate the other party, as indicated in Motilal Mansukhram v Maneklal Dayabrai (1921) 45 Bom 225.
• Equitable Principles:
• A minor cannot repudiate an agreement and simultaneously retain specific property acquired under it or recover money for which they have received value that cannot be restored.
• This principle aligns with general equity principles and contrasts with English law as evidenced in cases like Zalentani v Canali (1889) 24 QB Div 166.

·       Election to Rescind

• Consequences of Rescission:
• A party choosing to rescind a contract cannot simultaneously reclaim the property transferred under it while retaining money or advantages obtained. This principle was emphasized in the case Clough v L & NWR (1871) LR 7 Ex. 26.
• Rescission must be complete; partial rescission is impermissible. Upon exercising the option to rescind, the agreement is void, releasing the other party from obligations and requiring the rescinding party to restore benefits received.
• Limitation of Restoration:
• If the rescinding party has altered the subject matter of the contract or allowed a third party to acquire rights for value, rescission is no longer viable. This principle is illustrated in Clarke v Dickson (1858) EB & E 148, which highlights the limitations imposed on the rescinding party.

·       Benefit Received “Thereunder”

• Definition of Benefit:
• The terms “benefit” and “advantage” exclude “profit” or “clear profit.” The obligation to return what was received under the contract is independent of what the recipient did with the money (refer to Muralidhar Chatterjee v International Film Co Ltd (1943) 70 IA 35).
• For example, in a contract for the sale of land, if B pays a deposit of Rs 4,000 and fails to complete the sale, A may rescind the contract and retain the deposit. The deposit does not count as a benefit under the contract to sell land (Natesa Aiyar v Appavu, (1915) 38 Mad 178).
• Restoration Obligations:

• • If a party elects to end the contract under Section 39, they must return any benefit received (like part payment of the price) while still being entitled to damages for the breach by the defaulting party (Muralidhar Chatterjee v International Film Co Ltd, AIR 1943 PC 34).

29.  Section 65—Obligation of person who has received advantage under void agreement, or contract that becomes void

• Applicability: This section applies when:

• • An agreement, intended to be enforced, is later found void. This includes:
    • Cases where parties discover a mistake regarding an essential fact (refer to Section 20).
    • When a court deems an agreement void under Sections 23-30.
  • A contract that becomes void due to supervening illegality or impossibility.

• Clarification of Terms:

• • The term “agreement” refers to an “enforceable agreement.”
  • “Contract” refers to agreements that have legal binding and implications.

• Exceptions:

• • Agreements known to be void at inception do not fall under this section.
  • Contracts with a stipulation for discharge upon a breach of warranty are excluded (e.g., an insurance company is not obliged to refund premiums if the assured breaches warranty regarding age).

• Case Law Reference:

• • In K. v. J. Company, the Supreme Court ruled against invoking Section 65 for K, who paid Rs 80,000 for a mining lease without necessary government approval. K’s prior knowledge of illegality precluded his claim for a refund.

·       Discovery of Void Agreements

• Interpretation of “Discovered to be Void”:
• The phrase means the moment a party becomes aware of the void nature of the agreement.
• It implies prior existence of a situation that is later found to be void.
• Exclusion of Agreements Under Section 24:
• Section 65 does not apply to agreements void due to unlawful consideration under Section 24.
• Following the principles of English law, money paid for an illegal purpose may be recoverable only if the illegal act has not been completed.
• Payments made under agreements deemed void under the Bhagdari Act, 1862, are covered under this clause. In instances where a deed of mortgage was executed without proper permission, the mortgage was declared void.

·       “When a Contract Becomes Void”

• Definition: The term encompasses voidable contracts that have been avoided and situations such as those under Section 56.

• • The Privy Council held in a mortgage case that the mortgagee could refuse to be bound by a loan contract once the basis (the mortgage) became void due to lack of required permissions.
  • A case where a godown rented by the plaintiff was destroyed by fire, leading to the plaintiff’s entitlement to a refund of unexpired rent under Section 65.
  • Auction Purchasers were granted refunds after a court cancellation of an auction contract.

·       Contracts with Corporations

• • Corporations generally require contracts to be executed under seal. Exceptions exist when:
    • The entire consideration is executed and accepted by the corporation.
  • In Mohamed Ebrahim Molla v. Commissioners for the Port of Chittagong, it was ruled that a contract not under seal, as required by statute, could not be enforced despite executed consideration.
  • In cases where contracts with municipalities fail to comply with statutory requirements, Section 65 can apply if it concerns the enforceability of agreements rather than the capacity of the corporation.

·       “Any Person”

• Obligation of Restoration:
• The obligation to restore any advantage received under an agreement extends beyond the parties to include any person benefiting from the advantage.
• In the case of a sajadanashin leasing property and receiving nazarana, the Receiver was obliged to restore the nazarana received by the khankah.

·       Understanding “Received Any Advantage”

• • Each party is required to return any payment received before the contract became void.
  • In Fibrosa Spolka Akajjna v. Fairbairn Lawson, it was stated that the right to recover pre-paid money arises from frustration due to supervening circumstances.

·       Value of Advantage and Burden of Proof

• • A party must prove the value of any advantage received after the contract became void.
  • In Govindram v. Edward Radbone, the defendant failed to prove the value of machinery received, which was central to the ruling on restoration.

30.  Section 66—Mode of communication or revoking rescission of voidable contract

• Outlines
• A voidable contract is one that is valid and enforceable unless one party exercises the right to rescind it.
• Rescission refers to the act of cancelling a contract and restoring the parties to the position they were in prior to the contract.
• The rescission of a voidable contract can be communicated or revoked following the same rules applicable to the communication or revocation of a proposal.
• This principle ensures uniformity and consistency in the manner in which contractual intentions are conveyed or withdrawn.
• Communication of Rescission:
• The communication of rescission involves the party intending to rescind the contract informing the other party of their decision.
• The rules that apply to the communication of proposals are also relevant here:
• Direct communication: This can be verbal or written, depending on the contractual context and any stipulated terms.
• Timeliness: The communication must be made within a reasonable time.
• Mode of Communication: Any reasonable mode of communication may be used unless the contract specifies a particular method.
• The rescission becomes effective once it reaches the other party or once the rescinding party has taken reasonable steps to ensure it reaches them.
• Revocation of Rescission:
• A party who has rescinded a contract may wish to revoke that decision.
• The revocation of rescission can be done similarly to the revocation of a proposal:
• Revocation Timing: Revocation must occur before the rescission takes effect.
• Mode of Revocation: The party wishing to revoke must communicate their intent to the other party, using reasonable means that align with the methods used in communicating proposals.
• Effective Date of Revocation: The revocation is effective once it reaches the intended recipient.
• Practical Considerations:
• It is essential to determine whether the contract has specific clauses that define the communication process for rescission or revocation.
• The rescission or revocation should ideally be documented to avoid disputes.
• Third-party communication may sometimes suffice, depending on the circumstances and contractual terms.
• Similarities with Proposal Rules:

The rules for proposals provide a familiar framework for rescission and its revocation:

• • Offer and Acceptance Parallels: Just as a proposal needs acceptance, rescission must be effectively communicated and may be revoked until it is formally received.
  • Notice to the Other Party: Both in the case of a proposal and rescission, the notice must be clear and unmistakable to the other party, leaving no ambiguity.
  • Reasonable Means: Whether using written notice, email, or verbal communication, the chosen method must be reasonable and should reflect the contract’s provisions or industry norms.

• Legal Effect of Rescission:
• Once a rescission is validly communicated, the contract is treated as though it never existed.
• However, if a revocation of rescission is validly communicated before the rescission takes effect, the contract remains in force as originally agreed.
• Application in Dispute Resolution:
• Disputes regarding the validity of rescission or its revocation can often hinge on whether the communication rules were properly followed.
• Courts may evaluate the timeliness, mode, and clarity of the communication to decide on the validity of either rescission or revocation.

31.   Section 67—Effect of neglect of promisee to afford promisor reasonable facilities for performance

• Overview:
• Section 67 of the Indian Contract Act, 1872 provides that if the promisee neglects or refuses to provide the promisor with reasonable facilities necessary for the performance of the promise, then the promisor is excused from any non-performance caused by such neglect or refusal.
• This provision essentially outlines that the onus is not solely on the promisor to fulfill the contractual obligations. If the promisee fails to cooperate or refuses to provide the necessary conditions required by the promisor to perform their duties, the promisor cannot be held liable for any subsequent non-performance.
• Neglect or Refusal by Promisee:

1. • Neglect or refusal by the promisee may constitute any action (or inaction) that impedes or prevents the promisor from performing their part of the contractual obligations.
   • Such neglect or refusal directly impacts the promisor’s ability to fulfill the contract, effectively excusing them from liability for non-performance.

• Provision of Reasonable Facilities:

1. • It is crucial that the promisee provides all reasonable facilities necessary for the promisor to carry out the contract. What constitutes “reasonable facilities” is typically determined by the facts and circumstances of the specific case. For instance, if the contract involves repair work, such facilities could involve granting access to the property and pointing out areas that require work.

• Excuse for Non-Performance:

1. • The promisor is excused from liability for non-performance that directly results from the promisee’s neglect or refusal. This does not imply that the entire contract is void, but only that the promisor is not liable for the failure that arose from the promisee’s own conduct.

• Illustration: A contracts with B to repair B’s house. If B neglects or refuses to point out the areas that require repair, A cannot be held responsible for not repairing the house. The neglect or refusal by B directly impacts A’s ability to perform, thereby excusing A from liability under Section 67.
• Cooperation of the Promisee:

1. • The promisee must actively cooperate to ensure that the promisor can fulfill their obligations. Failure to do so, either through direct refusal or through negligence, can serve as a valid defense for the promisor against any claim of non-performance.

• Reasonable Effort by the Promisor:

1. • The promisor must demonstrate that they were ready and willing to perform their part of the obligation, but the promisee’s neglect or refusal hindered the performance. This requirement aligns with the general principle that a party cannot benefit from their own wrongdoing or failure to fulfill an essential condition.

• Doctrine of Prevention:

1. • Section 67 is consistent with the broader doctrine of prevention, which states that a party cannot enforce a contractual obligation if they themselves have prevented the other party from fulfilling that obligation. This doctrine is a common law principle that ensures equity and fairness by not allowing one party to take advantage of their own wrongful conduct.

• Partial Excusal:

1. • It is important to note that the promisor may only be excused to the extent that the promisee’s neglect or refusal hindered performance. If there are other aspects of the contract that are unaffected by the promisee’s neglect, the promisor may still be liable to perform those unaffected obligations.