Discharge of Contract by Performance

Introduction

Discharge by performance occurs when parties to a contract fulfill their contractual obligations. It ends the legal connection between parties, releasing them from further duties. Performance must be complete, timely, and in the manner prescribed by the contract.

Meaning / Definition

Performance means the execution of duties that a party is obliged to perform under a contract. A contract is discharged by performance when each party completes their obligations as agreed, either fully or in accordance with the contract terms. Section 37 of the Indian Contract Act, 1872, governs discharge by performance for general contracts.

General Contracts

• Each party must perform obligations exactly as agreed.
• Performance may be actual or tendered (attempted).
• Actual performance: Party performs obligations fully, ending the contract.
• Tender / Attempted performance (Section 38): Offer of performance at the proper time and place.
  • Must be unconditional.
  • Must be at proper time and place.
  • Must be made to the proper person.
  • Must relate to the whole obligation.
  • Promisee must have opportunity to inspect what is offered.

Effect of Refusal to Perform (Section 39)

• If a party refuses or disables themselves from performing, the promisee may end the contract.
• Example: A singer contracted to perform six nights, skips the sixth night: B may end the contract.
• If promisee consents to continuation after default, contract continues but damages may be claimed.

Acceptance of Performance by Third Person (Section 41)

• If the promisee accepts performance from a third party, they cannot enforce it against the original promisor.

Performance of Joint Promises (Sections 42-45)

• Joint promisors must perform together.
• On death, the legal representatives of deceased must fulfill the promise jointly with surviving promisors.
• Section 43:
  • Promisee can compel any joint promisor to perform fully.
  • Promisor who performs can claim contribution from others.
  • If one defaults, remaining promisors bear deficiency.
• Section 44: Release of one joint promisor does not discharge others.
• Section 45: Rights to claim performance pass to legal representatives of joint promisees after their death.

Time and Place for Performance (Sections 46-50)

• Parties may specify time and place for performance.
• Reasonable time (Section 46): If time not fixed, performance must occur within reasonable time.
• Specified time (Section 47): Must perform on that day during usual business hours at proper place.
• Application by promisee (Section 48): Performance on request if promisor has not undertaken to perform without demand.
• No specified place or application (Section 49): Promisor must request reasonable place and perform there.
• Manner and time prescribed by promisee (Section 50): Performance according to instructions discharges promisor.

Time as Essence of Contract

• Time is essential when:
  • Parties expressly agree,
  • Delay causes injury, or
  • Nature of contract requires punctual performance.
• Section 55: If time is essence and promisor fails, contract is voidable at promisee’s option.
• In mercantile contracts, delivery time is generally essential; payment time is not.

Performance of Reciprocal Promises (Sections 51-54)

• Reciprocal promises form consideration for each other.
• Order of performance (Section 52):
  • Fixed order must be followed.
  • If not fixed, order implied by nature of transaction.
• Preventing performance: Party preventing reciprocal promise allows other to rescind and claim compensation.

Practical Example

• G contracts B to execute work for Rs. 1,000. B is ready but G prevents performance. B may rescind contract and claim compensation for losses due to G’s obstruction.

Summary

• Discharge by performance occurs when parties complete contractual obligations.
• Performance may be actual or tendered; tender is legally equivalent to performance if valid.
• Refusal or prevention of performance allows promisee to end contract or claim damages.
• Joint promises require all joint promisors or their representatives to perform; release of one does not discharge others.
• Time and place for performance can be fixed by contract or implied as reasonable.
• Time may be essence; failure when it is gives promisee right to rescind.
• Reciprocal promises require order of performance; obstruction entitles compensation.