DISCHARGE BY PERFORMANCE

Actual Performance
A contract is said to be discharged by performance when both the parties perform all their
promises, both express and implied, which are set out under the contract and there is nothing
remaining to perform. The obligation is considered performed only if the performance
complies with the standard of performance required. A failure to do so constitutes a breach.

Attempted Performance
When the promisor offers to perform his obligation, but promisee refuses to accept the
performance. This offer of Performance is also known as tender of Performance.

Important Sections: S37, S38, S40, S41, S42-S45 (Performance of Joint promises), S46-
50, S55

TENDER OF PERFORMANCE (Effect of Refusal to Accept Offer of

Performance: S 38)

Offer of Performance by promisor – promise doesn’t accept this offer – Promisor is neither
responsible for non-performance, nor does he lose his right under the contract.

If the promisor ‘offers’ to perform his obligation under the contract to the promise, this offer
is then termed ‘tender of performance’. This then, has to be accepted by the promisee, if the
promisee doesn’t accept the offer, then the promisor will not be responsible for any non-
performance. It entitles him to sue the promisee for breach of contract. It can be said that a
tender of performance is equivalent to performance. For example, where the obligation of a
contracting party was for conversion of arhar, whole pulse into dal and the work was
completed and accepted by the other party, the obligation of the contractor came to an end -
Food Corporation of India v. Surana Commercial Co (2003) 8 SCC 636.

The essentials of a valid Tender:

The tender of performance in order to be termed as fulfilled must comply with the following
conditions:

1. The tender of performance must be unconditional.

This is mentioned in S. 38(1) of the Contract Act. A tender is said to be conditional when it
is not in accordance with the terms of the contract.

2. The tender must be made at a proper time and place S38 (2)
The tender must be made within the time and at the place specified as in the contract. If so
made, the promisor is under no further responsibility, if the tender is not accepted-
Arunachela Chetty v. Krishna Iyer 90 IC 481. This principle was first established in the
case of Startup v. Macdonald, (1843) 64 RR 810 in which, the defendant bought of the
plaintiff ten tons of linseed oil to be delivered within the last 14 days of the month of March.
The plaintiff tendered on the last of the 14 days at 9 in the night. The defendant refused to
accept owing to the lateness of the hour. He was held liable for the breach as the jury found
out that, though the hour was unreasonable, yet there was time for the defendant to have
taken in and weighed the goods before midnight. He should, therefore have accepted the
tender and “then no doubt, the contract would have been literally performed”.

3. It must be made by a person who is able and willing there and then to perform –S38(2)
- It must be the case that if promisee agrees to get performance done, then promisor is able
to perform at that moment.

4. The person by whom it is made is bound by his promise to do the whole of what he has
promised to do -
The tender must be made in such a manner that the other party has an opportunity to
determine whether the person making the tender is able and willing to his obligations under
the contract. In the case of Alcon Constructions v. Board of Trustees, AIR 1982 Goa 9 it
was held that a tender made to any one of the promisees’ has the same legal consequence as
a tender to all of them.

5. The person to whom tender made may have a reasonable opportunity of ascertaining the
quality of goods.

TIME AND PLACE FOR PERFORMANCE:

No time fixed - Section 46- When no time for performance is specified in the contract, it
must be done within a reasonable time. Hungersford Investment Trust Ltd v. Haridas
Mundhra (1972) 3 SCC 684 - What is a reasonable time is in each particular case, a
question of fact. Unreasonably long delay cannot be regarded as reasonable.

Date and place known - Section 47 - In a contract where in the date of performance is
fixed, it must be performed during the usual business hours of the day and at the place
where such a performance ought to be performed. If the promisor brings the goods after
the business hours and they are not received, it cannot be said that the promise has been
performed.

Saraswati Trading Agency v. Union of India, (2002) 1 ICC 1038 - When a promise has
to be performed within a certain time, it must be performed on any day before the lapse of
that time.

Day known – place not fixed - Application/Offer to Perform required – Promisee’s

duty to approach - Section 48- When a promise is to be performed on a certain day, and
the promisor has not undertaken to perform it without application by the promisee, it is the
duty of the promisee to apply for performance at a proper place and within the usual hours
of business.

Place not fixed- Application/Offer to Perform not required – Promisor to approach -

Section 49- When a promise is to be performed without an application by promisee and no
place is fixed, it is the duty of the promisor to apply to the promisee to appoint a reasonable
place for the performance of the promise, and to perform it at such a place.

In the case of L.N.Gupta v. Tara Mani, AIR 1984 Del 49 where in a promissory note
executed at Bangalore stated that it would be payable at Bangalore or at any place in India.
The payee settled in New Delhi and demanded payment there. It was held that under Sec.49
it is the duty of the debtor to seek his creditor and to pay him there.

Section 50 - The time and manner of performance of any promise can be sanctioned by the
promisee.

WHEN TIME IS AN ESSENCE FOR CONTRACT

Commercial Contracts in India very oftenly contain a clause of “Time is the essence of the
Contract”. This clause becomes imperative considering the fact that sometimes the
transactions are of enormous value and any kind of delays on the part of one party can entail
very large amounts of losses for the other. A time-of-essence provision is a powerful
weapon, since it can give an otherwise minor delay the legal effect of a material breach of
contract.

In India, the provision relating to “time as the essence of contract” is contained in Section
55 of the Indian Contract Act, 1872:
Part I- the Section provides that if something is promised to be done at a specified time and
the same is not performed, the contract becomes voidable at the option of the promise, if it
was the intention of the parties that time should be of the essence of the contract.
Part II- Further, the section provides that if it was the intention of parties to make time of
the essence, the promisee is entitled to claim compensation for any loss caused by the
default.
Part III- Finally, the section goes on to say that if time is intended to be of the essence by
the parties but performance is accepted on some other time, compensation cannot be
claimed by the promise unless he gives such a notice to the promisor.

Intention of the parties

In Indian law the question whether or not time is of the essence of the contract would
essentially be a question of the intention of the parties which are to be gathered from the
terms of the contract. An express stipulation in this matter cannot be a conclusive
determination of the intention of the parties. If the contract in its terms provides that time is
the essence of the contract, but other terms of the agreement show that the parties did not
intend time to be of the essence, the court has held that time is not of the essence. The
intention of the parties can be ascertained from:
(a) The express words used in the contract;
(b) The nature of the contract itself;
(c) The nature of the property which forms the subject matter of the contract;
(d) The surrounding circumstances.
It has been held in the case of China Cotton Exporters v. Beharilal Ramcharan Cotton
Mills Ltd. that in commercial contracts time is ordinarily of the essence of the contract.
The rule is that except in commercial contracts, the ordinary presumption is that time is not
of the essence of the contract. This presumption can be rebutted by showing the intention of
the parties.

G.Pillai vs P. Nandan - Time is presumed not to be of essence in contracts relating to

immovable property.

Construction contracts- time is of essence in contracts in the field of construction because

it is a commercial service. The termination of contract was held to be proper where the
contractor was not able to do anything to carry out repair of a flood protection dam in spite
of extension of time. The matter of time was very important factor in the contract. (Nevilal
Robita Construction (P) Ltd v. State of Bihar, AIR 2005 Pat 190)

The onus to plead and prove that time is of essence of the contract is on the person alleging
it, thus giving opportunity to the other party to adduce rebuttal evidence that time was not of
essence. Where both the parties are engaged in business and articles are purchased by one
party from the other party for business purposes the transaction falls within the term
‘mercantile transaction. ’

Terms in the Contract and consequence of failure to perform promise in time

In order to ascertain whether time was intended to be of the essence or not, the terms and
conditions of the agreement should be carefully read. If the parties intend to make time of
essence, they must express this intention in clear and unambiguous terms. If no time is
specified, the question of time being of the essence does not arise at all. However, merely
specifying the time at which the contract has to be performed does not make time the
essence of the contract. If the contract provides that in case of delay by any party the contact
would be held to be cancelled, it raises a strong evidence towards the parties intending the
time to be of the essence.

Thus, where promise is not performed in stipulated time it renders contract voidable at the
option of party who does not cause delay. However, delay by itself does not put an end to
the contract (Jain Mills and Electrical Stores v. State of Orissa, AIR 1991 Ori 117).

Extension of time
Since one party to the contract cannot unilaterally alter or vary the terms thereof he also
cannot extend the time thereof without the other party’s intimating its consent or agreement
thereto by any of the methods stated in section 4 of the Contract Act. Therefore, time for
performance can be extended only by an agreement arrived at between the promisor and
promisee. A mere extension of time and nothing more is only a waiver to the extent of
substituting the extended time for the original time and not an utter destruction of the
essential character of time. Where one party intimated to the other about the extension of
time, but the other party did not communicate any acceptance, time for performance was not
extended.
When time is not of the essence
Time is not of the essence where the contract when contract is not rendered voidable on
delay and there is provision for damages for delayed completion, or for extension of time in
certain circumstances, despite express provision making time of the essence, or provision of
a default clause. These provisions are inconsistent with the intention to make time of
essence. Time was not of essence where the time for performance was extended twice and
the object of a purchase was not a commercial undertaking.

Time is not of the essence when the contract did not specify a date for the completion, but
merely provided for completion to take place as soon as reasonably expected. A party’s
general right to have the contract performed within reasonable time is unaffected by the fact
of time not being of the essence. Time was held to be not of essence where in a contract for
import and supply of sugar, the port of discharge had not been named and the surveyor not
been appointed without whose certificate the question of payment did not arise. Thus, if the
intention of the parties was not such that essence of time was not stressed upon then, in such
a case the contract does not become voidable by the failure to do such things at or before the
specified time. The party has to perform the contract even it is delayed.

Acceptance after the specified time and Waiver

When a party waives his right by taking benefit under a contract after the fixed time, he
cannot rely on time being of the essence of the contract in order to avoid a contract. A claim
for compensation under this section would be barred, if the promisee accepts performance
after stipulated time unless he had given notice to the promisor of his intention to do so. In
the case of State of Kerala v. M.A Mathai , it was held that if there are any delays in the
performance of reciprocal obligations by an employer, the contractor gets the right to avoid
the contract but if he does not avoid the contract and accepts the belated performance, he
cannot claim compensation for any loss sustained to him due to delay in performance,
unless he gives a notice of the same to the delaying party.

CONCLUSION
From the above analysis of the concept of time as the essence of the contract, in light of the
provisions of the Indian Contract Act, it may be concluded that the question as to whether
time is of the essence of the contract or not, can only be answered by looking at the
intention of the parties. Clauses such as extension of time and imposition of liquidated
damages or penalty etc. may go against the intention of the parties to make time of the
essence since the parties find an adequate remedy in the way of penalty or LD. It may also
be concluded that in case of a commercial or mercantile contract, time is presumed to be of
the essence.