In a contract, the promisor and the promisee both undertake certain obligations towards each other. These obligations can also be in the form of a reciprocal promise or a promise in exchange of a promise. The Indian Contract Act, 1872, provides for the law on reciprocal promises in Sections 51-58. We will look at the provisions of each of these sections in detail.
Performance of Reciprocal Promise
Simultaneous Performance of a Reciprocal Promise (Section 51)
Some contracts consist of a reciprocal promise or promises which are to be performed simultaneously. In such cases, there is no obligation on the promisor to perform his promise unless the promisee is willing to perform his reciprocal promise.
Example: When you go to a shop, the shopkeeper agrees to give you the product in exchange for money. This is an example of a reciprocal promise where you promise to pay the value of the product and the shopkeeper promises to give you the goods on receipt of the payment. If either of you is unwilling to perform your promise, then the other can treat the contract ended.
A Sequence of Performance of a Reciprocal Promise (Section 52)
When a contract includes a reciprocal promise, the parties might agree upon the order in which the promises are performed. If that is the case, then the order, as mentioned in the contract should be followed.
However, if the contract does not specify any such order, then the order of performance of the reciprocal promises is determined based on the nature of the transaction.
Example: Peter promises to help John find a house in lieu of John’s promise to pay him a commission for the same. The contract does not specify the order of performance of the promise. However, the nature of the transaction suggests that Peter should first help John get a house before he expects him to perform his promise of paying him the commission.
One party preventing the other from the Performance of the Promise (Section 53)
In a contract consisting or reciprocal promises, if one party prevents the other from performing the promise, then the prevented party has the option of voiding the contract.
Also, the prevented party can claim compensation from the obstructing party for any loss that he might sustain due to non-performance of the contract.
Example: Peter and John entered into a contract where Peter promises to paint John’s house. In exchange, John promises to pay Peter Rs 10,000 and clear the house of all furniture before Peter begins. However, when Peter starts painting, he finds that John has not cleared the furniture as promised and does not accede to his requests too. Peter can void the contract and claim the money since John obstructed him from performing his promise.
Reciprocal and Dependent Promises (Section 54)
Imagine a contract where the reciprocal promises are dependent on each other. If the promisor who is supposed to perform his promise before the other, fails to perform it, then he cannot claim the performance of the reciprocal promise.
He is also liable to compensate the other party for any loss that he might sustain due to non-performance of the contract.
Example: Peter hires a car for a month and promises to pay the car rental company a certain amount. The company promises to send the car to his house within 24 hours of receiving the advance payment. Peter does not make the payment and fails to perform his promise. The company does not send the car either.
Peter cannot claim the performance of the company’s promise since he was supposed to perform his promise first. He will also have to compensate the company for the losses sustained by them due to him not paying the advance.
Failure to perform within the stipulated time in a time-sensitive contract (Section 55)
In a contract, where the intention of both the parties is that time is of the essence and that the promisor should perform the promise within a specific time, and the promisor fails to do so, then he is liable to pay compensation to the promisee for any loss sustained by him due to the failure.
It is important to note that in every contract, the terms can help you understand the intention. A share trade, in essence, is a contract where shares are provided in exchange for money.
In such contracts, time is of the essence since the price of the share can fluctuate with time. In other contracts, like the sale of land, while time might not be of the essence, it can be made so by expressing it in so many words in the contract.
If time is not of the essence, then the contract cannot be voided on grounds that the time for performance of promise has expired. In such cases, the promisee is only entitled to compensation from the promisor for any loss caused by the delay.
However, if the promise is not performed at a reasonable time, then the promisee can void the contract even if time is not of the essence in the case. The promisee also has the option to waive his right to void the contract if the promisor fails to perform it within a reasonable time in a time-sensitive contract.
He can accept the performance of promise at any other time. However, he cannot claim any compensation from the promisor for non-performance of the promise within the agreed time, unless he gives a notice of his intention to claim compensation to the promisor when he accepts performance of the contract.
Example: In a contract, Peter promises to pay John’s college fees for the next academic year. Although the contract does not mention a date, he needs to ensure that he pays the fees before the last date stipulated by the institution. In this case, time is of essence and Peter’s failure to perform his promise before the last date can cause losses to John.
Impossible or Unlawful Act (Section 56)
If two parties enter a contract, where the promisor agrees to do an impossible or unlawful act, then the contract is void.
The act can be impossible or unlawful at the time the contract was made or subsequent events can make a possible act impossible. Let’s look at both the scenarios.
Initial Impossibility
If both the promisor and promisee are aware that the act is impossible or unlawful, then the contract is void
Example: Peter promises to travel from India to the US in four hours and deliver goods to John. Since it is impossible to travel this distance within four hours, the contract is void. Even if neither the promisor nor the promisee is aware of the fact that the act is impossible or unlawful, the contract is void.
If the promisor, enters a contract with a promisee for doing an act which he knows is impossible or unlawful, then the promisor has to compensate the promisee’s losses sustained due to non-performance of the contract. It is important that the promisee is not aware that the act is unlawful or impossible in these cases.
Subsequent Impossibility
It is possible that when the contract was made, the promise was possible and lawful. However, subsequent events made it impossible or unlawful and the promisor could not prevent it. In such cases, the contract is void from the moment the act becomes impossible.
Example: Peter promises to deliver 100 kilograms of thin plastic bags to John. However, the State passes a law which bans all plastic bags. Peter could not prevent it and due to the recent law, he cannot perform his promise. Hence, the contract is void.
Reciprocal Promise of Legal and Illegal Acts (Section 57)
Imagine two or more people entering a contract consisting of a reciprocal promise, where they first do certain things which are legal and then, under certain circumstances, agree to do acts which are illegal. In such cases, the first set of promises is a valid contract but the second set is void.
Example: Peter agrees to sell his house to John for Rs 30 lakh. Further, they agree that if John opens a gambling den in the house, then John will pay him an additional amount of Rs 20 lakh. In this case, the first promise of buying the house for Rs 50 lakh is a legal and valid contract. However, the second promise is based on unlawful grounds and is hence void.
Alternative Promise of Legal and Illegal Acts (Section 58)
It is possible to make a contract with an alternative promise. If one branch of the alternative promise is legal and the other is illegal, then only the legal branch can be enforced.
Example: Peter and John enter a contract where Peter agrees to pay off John’s outstanding loan of Rs 20 lakh taken from Oliver. If Peter cannot repay the amount them he will kill Oliver. In this case, the contract is valid for Peter’s promise of repaying the loan. However, the alternative branch is illegal and hence, void.
Solved Example on Performance of Reciprocal Promise
Q: A promises to sell to B 100kgs of potato by the end of the month. Unfortunately, there was a flood and the potato crop of the entire state was destroyed. Can B enforce the contract?
Ans: No B cannot enforce the contract. This is a case of subsequent impossibility. The contract becomes void from the point in time the contract becomes impossible to carry out, i.e. when the floods happened.
K and A had entered into a contract where K was to supply 50,000 phones to A within 2 months from the date of signing of contract. K was to procure the phones from China and deliver the same to A. The rate of the phone was Rs. 5000/- a piece (inclusive of all taxes and duties). At the time of the execution of the contract, the duty was at 5% (five percent). Immediately after the execution of the Agreement, India had increased the duties to 1000% (one thousand percent). Therefore, K was finding it difficult to sell the phones at the price agreed earlier. In the circumstances, kindly advise:
a. How can K discharge such a contract?
b. How can A enforce such a contract?
K can “Discharge of Contract” Under Impossibility of performance, during post-contractual impossibility
While the following conditions are satisfying
The act should have become impossible after the formation of the contract.
2. The impossibility should have been caused by a reason of some event which was beyond the control of the promissory.
3. The impossibility must not be the result of some act or negligence of the promisor himself.
K can discharge the contract by imposibility or frustration due to unseen changes
In light of the case of registered trustees of the cashew nuts industry development fund V cashew nuts board of Tanzania,civil appeal no:18 of 2001 court of appeal of Tanzania at Dar es saalam (unreported) and the cashew nuts industry act no 18 of 2009. Explain the parties to an agency (name of parties) it provided case and the way in which it was created