Performance of Contractual Promises: Dispensation and Excuse

Obligation of Parties to Perform or Offer to Perform

The statement "The parties to a contract must either perform or offer to perform their respective promises unless the performance is dispensed with or excused under the provisions of the Contract Act or of any other law" is directly derived from **Section 37 of the Indian Contract Act, 1872**. This section encapsulates the fundamental duty of contracting parties to fulfill their contractual obligations.

1. Performance of Promises (Actual Performance)

When a promisor has completed all obligations as agreed upon in the contract, it is termed actual performance. This discharges the parties from their contractual duties, bringing the contract to its natural conclusion.

• Complete and Exact Performance: For actual performance to discharge a contract, it must generally be complete and precise, adhering to the terms and conditions specified.
• Example: If 'A' agrees to sell goods to 'B' and delivers the goods conforming to the contract specifications, it constitutes actual performance.

2. Offer to Perform (Attempted Performance or Tender)

Sometimes, a promisor offers to perform their part of the contract, but the promisee refuses to accept it. This is known as an "offer to perform" or "tender of performance." **Section 38 of the Indian Contract Act, 1872**, deals with this situation. A valid tender of performance discharges the promisor from their liability, even if the performance is not actually accepted by the promisee.

• Essentials of a Valid Tender (Section 38):
  • It must be unconditional.
  • It must be made at a proper time and place, allowing the promisee a reasonable opportunity to ascertain that the person offering to perform is competent and able to perform.
  • If the offer is to deliver goods, the promisee must have a reasonable opportunity to inspect them.
  • An offer to one of several joint promisees has the same effect as an offer to all of them.
  • The tender must be for the whole obligation.
• Example: 'A' offers to deliver goods to 'B' as per the contract, but 'B' unreasonably refuses to accept them. 'A' is discharged from further liability.

When Performance is Dispensed With or Excused

The latter part of Section 37 highlights crucial exceptions where the obligation to perform is nullified or suspended. These situations are governed by various provisions within the Indian Contract Act, 1872, and other laws.

1. Impossibility of Performance (Doctrine of Frustration)

The doctrine of frustration, enshrined in **Section 56 of the Indian Contract Act, 1872**, provides that an agreement to do an act impossible in itself is void. Furthermore, if an act, after the contract is made, becomes impossible or unlawful due to an event the promisor could not prevent, the contract becomes void.

• Initial Impossibility: If the performance is impossible from the very beginning, the agreement is void *ab initio*.
• Subsequent Impossibility: If performance becomes impossible or unlawful after the contract is made due to supervening events (e.g., destruction of subject matter, death or incapacity of a party in personal contracts, change in law, outbreak of war), the contract is frustrated and becomes void.
• Case Example: Satyabrata Ghose v. Mugneeram Bangur & Co. (1954 AIR 44), the Supreme Court clarified that impossibility under Section 56 does not mean absolute physical impossibility, but rather that the performance has become impracticable or useless having regard to the object and purpose the parties had in view.

2. Agreement to Dispense With, Alter, or Remit Performance (Chapter IV, ICA)

The parties themselves can agree to discharge the contract or alter its terms through mutual consent.

• Novation (Section 62): When a new contract is substituted for an old one, either between the same parties or with new parties, the original contract is discharged.
• Rescission (Section 62): The parties may agree to cancel the contract altogether, releasing each other from their obligations.
• Alteration (Section 62): Changing one or more terms of the contract with mutual consent discharges the original contract and creates a new one.
• Remission (Section 63): The promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or accept any satisfaction instead of it.

3. Breach of Contract

When one party fails to perform their obligation, it constitutes a breach of contract. Depending on the nature of the breach (actual or anticipatory, fundamental or minor), the other party may be discharged from their obligations.

• Refusal to Perform Wholly (Section 39): If a party totally refuses to perform or disables themselves from performing their promise in its entirety, the promisee may put an end to the contract, unless they have signified, by words or conduct, their acquiescence in its continuance.
• Anticipatory Breach: If a party, before the time for performance arrives, declares their intention not to perform or does something that makes performance impossible, the other party can treat the contract as repudiated and is discharged from their obligations.

4. Waiver

A party may voluntarily give up their right to performance by the other party. This can be express or implied from conduct.

5. Merger

When an inferior right accruing to a party under a contract merges into a superior right, the contract conferring the inferior right is discharged. For example, if a tenant buys the property they are renting, the lease agreement (contract) merges into the ownership and is discharged.

6. Operation of Law

Certain events may discharge a contract by operation of law.

• Insolvency: When a person is declared insolvent, their rights and liabilities vest in the Official Receiver/Assignee, and certain contracts may be discharged.
• Death: In contracts requiring personal skill or performance, the death of the promisor discharges the contract (e.g., a contract with a specific artist). However, if the contract is not of a personal nature, the legal representatives of the deceased are bound by it, unless a contrary intention appears in the contract (**Section 37**).
• Unauthorised Material Alteration: A material alteration made in a written contract by one party without the consent of the other party may discharge the contract.

Mode of Discharge	Relevant Section (ICA, 1872)	Description
Actual Performance	Section 37	Fulfillment of all obligations by both parties.
Attempted Performance (Tender)	Section 37, 38	Offer to perform which is refused by the promisee, discharging the promisor.
Impossibility (Frustration)	Section 56	Performance becomes impossible or unlawful due to supervening events.
Novation	Section 62	Substitution of a new contract for an old one.
Rescission	Section 62	Cancellation of the contract by mutual agreement.
Alteration	Section 62	Change in terms of contract with mutual consent.
Remission	Section 63	Promisee accepts lesser performance or extends time.
Breach of Contract	Section 39	Failure of one party to perform their obligation.
Waiver	(Not explicitly codified, part of general principles)	Voluntary relinquishment of a right by a party.
Operation of Law	(Various provisions, e.g., Section 37 for death of promisor)	Discharge due to insolvency, death (in personal contracts), material alteration.

The principle articulated in Section 37, coupled with the exceptions, provides a balanced framework. It upholds the sanctity of contractual promises while offering necessary flexibility and relief in situations where performance becomes genuinely impossible, mutually undesired, or prevented by one party's actions.