Law and You > Business Laws > Indian Contract Act, 1872 > Performance of Reciprocal Promises (Ss. 51 to 54 The Indian Contract Act, 1872)
The performance of reciprocal promises is a fundamental aspect of contract law under the Indian Contract Act, 1872. Reciprocal promises refer to a scenario where two parties make mutual promises that are dependent on each other. This concept is crucial because it establishes the framework for how these promises interact and the obligations each party has towards the other. According to Section 2(f) of the Act, a promise is an agreement between two parties to perform a certain act or provide a service. In reciprocal promises, the performance of one promise is conditioned on the performance of the other. For instance, in a sale agreement, the seller’s obligation to deliver goods is contingent upon the buyer’s promise to pay the purchase price. The Act recognizes the concept of readiness and willingness to perform as essential for enforcing reciprocal promises. If one party is ready to perform but the other is not, the willing party may seek legal remedies.
According to Section 2(b) of the Act, When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; According to Section 2(c) of the Act, the person making the proposal is called the “promisor”, and the person accepting the proposal is called “promisee”,
Section 2(d) of the Act defines the term ‘Consideration’ as “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”
Section 2(f) of the Act defines the term ‘Reciprocal Promises’ as “Promises which form the consideration or part of the consideration for each other are called reciprocal promises.”
Sections 51 to 54 of the Indian Contract Act 1872 (“Act”) are the relevant provisions which specifically pertain to reciprocal promises. While Sections 51 and 52 explain the different situations where a reciprocal promise may be relevant, Sections 53 and 54 pertain to situations where one party fails to perform its obligation.
Types of Reciprocal Promises:
- Mutual Promises: Both parties agree to perform certain actions or fulfil obligations. For example, in a sales contract, one party agrees to deliver goods, while the other agrees to pay for them.
- Conditional Promises: The promises of one or both parties are contingent upon certain conditions being met. For instance, a seller may promise to deliver goods only if the buyer pays a deposit first.
- Sequential Promises: One party’s promise must be fulfilled before the other party’s promise becomes enforceable. For example, in a construction contract, a contractor might agree to complete a project before the owner makes the final payment.
- Alternative Promises: One party may offer different options, and the other party can choose which promise to accept. For example, a contractor might offer to complete work either by a specific date or at a discounted rate.
- Concurrent Promises: Both parties are expected to perform their promises simultaneously. For example, in a rental agreement, the landlord provides the property while the tenant pays rent at the same time.
- Independent Promises: Each promise stands alone, meaning that the failure of one party to fulfil their promise does not affect the other party’s obligation to perform.
Mutual and Concurrent:
In such cases reciprocal promises are to be performed simultaneously, a promisor need not perform his part unless the promisee is ready and willing to perform his part. For example, A and B agree that A shall deliver goods to B to be paid for by B on delivery. In this case, A need not deliver the goods unless B is ready and willing to pay for the goods on delivery; and B need not pay for the goods unless A is ready and willing to deliver them on payment.
If “A” had to engage vendors through a tender process to source some raw materials for “B”, all of which, including those sourced by “B”, had to be used together, then if “A” was not “ready” and “willing” to issue tenders on time, “B” could discharge itself from performing its obligation. Concurrent performance of the reciprocal promises of “A” and “B” is,integral to the overall performance of the contract.
Mutual and Dependent:
In such cases, the performance of promise by one party depends on the prior performance of the promise by the other party. If the party who is liable to perform first, fails to perform it, then he cannot claim performance from the other party. Not only that, the party at fault becomes liable to pay compensation to the other party for any loss which the other party may sustain by the non-performance of the contract. For example, a contracts with B to execute certain building work for a fixed price. B is to supply the scaffolding and timber necessary for the work. B refuses to furnish any scaffolding or timber. So, the work cannot be executed. A need not execute the work and B will be bound to make compensation to A for any loss caused to him by the non-performance of the contract.
For example, “A,” a government organization, and “B,” a private contractor, entered into a contract for “B” to construct a bridge. The contract between “A” and “B” also provided that “A” would construct a road leading to the proposed bridge in order to allow “B” to transport large machinery and equipment to the site, then “A’s” breach of this obligation would have an effect on “B’s” ability to fulfil its portion of the agreement. The transaction would still be seen as a reciprocal commitment owing to its fundamental nature and purpose, i.e., without the road, construction on the bridge cannot begin. Even if the contract did not clearly state that building the road is a precondition to beginning work on the bridge.
In M/s Shanti Builders v. CIBA Industrial Workers’ Co-Operative Housing Society Ltd., where a dispute arose in connection with certain construction work that had to be done by Shanti Builders. CIBA alleged that Shanti Builders had not completed the construction work in accordance with the contract which led them to suffer heavy losses. Shanti Builders, on the other hand, alleged that it had not been given a plot of land as the contractually stipulated payment for the construction work already completed, and till such payment was not made, it would not be in a position to complete the next phase of work. After hearing the parties, the court upheld the contentions of Shanti Builders and took the view that if the performance of a contract requires a certain sequence (even if it is not explicitly stated) then such sequence must always be followed. It further held that where reciprocal promises are dependent upon each other, one party cannot insist on the performance of a promise if it has not performed its corresponding promise.
Mutual and Independent:
Such promises are to be performed by each party independently without waiting for the other party to perform his promise. If a party fails to keep his promise, the other party cannot excuse himself from performance on the ground of non-performance by the defaulting party. In such a situation, the aggrieved party can claim damages from the defaulting party. This concept, though not covered under the Act, has evolved through jurisprudence. It involves the contracting parties to undertake certain tasks which are independent of each other and their performance is not contingent upon one party performing its part of the contract. However, the performance of these mutual and independent promises is mandatory under the contract.
In Mrs. Saradamani Kandappan vs. Mrs. S. Rajalakshmi case, where Saradamani had entered into an agreement with Rajalakshmi to purchase a piece of land for which payments had to be made in multiple installments. Saradamani paid all installments, but, before the last one, asked Rajalakshmi to show the title documents. Rajalakshmi refused and, consequently, Saradamani failed to pay the last installment. Since the last installment was not paid on time, Rajalakshmi terminated the contract. Saradamani filed a case for specific performance and after litigation at multiple forums, the Supreme Court held that the two promises, i.e., payment of the final installment and showing the title documents, were mutual and exclusive. It further held that the contract did not make payment contingent upon reviewing the title documents and, therefore, Saradamani’s refusal to pay was not proper. However, since time was of the essence, the Supreme Court held that the contract stood terminated and it directed Rajalakshmi to return the payments received from Saradamani.
Promisor not Bound to Perform, unless Reciprocal Promisee Ready and Willing to Perform (S.51):
According to Section 51 of the Indian Contract Act, 1872 when a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise.
This is the case of mutual and concurrent reciprocal responses. Section 51 lays down the rule by saying that when reciprocal promises are to be performed simultaneously, a promisor need not perform his part unless the promisee is ready and willing to perform his part. For examples,
- A and B agree that A shall deliver goods to B to be paid for by B on delivery. In this case, A need not deliver the goods unless B is ready and willing to pay for the goods on delivery; and B need not pay for the goods unless A is ready and willing to deliver them on payment.
- A and B contract that A shall deliver goods to B at a price to be paid by instalments, the first instalment to be paid on delivery. A need not deliver, unless B is ready and willing to pay the first instalment on delivery. B need not pay the first instalment, unless A is ready and willing to deliver the goods on payment of the first instalment
Order of Performance of Reciprocal Promises (S. 52)
According to Section 52 of the Indian Contract Act, 1872 where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order; and where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.
Sometimes a problem arises, with regard to the order in which reciprocal promises are to be performed. According to the Act where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they must be performed in that order; and where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.
- A and B contract that A shall build a house for B at a fixed price. A’s promise to build the house must be performed before B’s promise to pay for it.
- A and B contract that A shall make over his stock-in-trade to B at a fixed price, and B promises to give security for the payment of the money. A’s promise need not be performed until the security is given, for the nature of the transaction requires that A should have security before he delivers up his stock.
Liability of Party Preventing Event on Which the Contract is to Take Effect (S. 53):
According to Section 53 of the Indian Contract Act, 1872 when a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the nonperformance of the contract.
Sometimes it may so happen that one party to a reciprocal promise prevents the other from performing his promise, In such a situation, the contract becomes voidable at the option of the party so prevented, and he is also entitled to claim compensation from the other party for any loss suffered due to non-performance of’ the contract.
For example, A and B contract that B shall execute certain work for A for a thousand rupees. B is ready and willing to execute the work accordingly, but A prevents him from doing so. The contract is voidable at the option of B; and, if he elects to rescind it, he is entitled to recover from A compensation for any loss which he has incurred by its non-performance.
Effect of Default as to That Promise Which Should be First Performed, in Contract Consisting of Reciprocal Promises (S. 54)
According to Section 54 of the Indian Contract Act, 1872 when a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.
This is a case of mutual and dependent reciprocal promises. In such cases, the performance of promise by one party depends on the prior performance of the promise by the other party. If the party who is liable to perform first, fails to perform it, then he cannot claim performance from the other party. Not only that, the party at fault becomes liable to pay compensation to the other party for any loss which the other party may sustain by the non-performance of the contract. For examples:
- A hires B’s ship to take in and convey, from Calcutta to the Mauritius, a cargo to be provided by A, B receiving a certain freight for its conveyance. A does not provide any cargo for the ship. A cannot claim the performance of B’s promise, and must make compensation to B for the loss which B sustains by the non-performance of the contract.
- A contracts with B to execute certain builder’s work for a fixed price, B supplying the scaffolding and timber necessary for the work. B refuses to furnish any scaffolding or timber, and the work cannot be executed. A need not execute the work, and B is bound to make compensation to A for any loss caused to him by the non-performance of the contract.
- A contracts with B to deliver to him, at a specified price, certain merchandise on board a ship which cannot arrive for a month, and B engages to pay for the merchandise within a week from the date of the contract. B does not pay within the week. A’s promise to deliver need not be performed, and B must make compensation.
- A promises B to sell him one hundred bales of merchandise, to be delivered next day, and B promises A to pay for them within a month. A does not deliver according to his promise. B’s promise to pay need not be performed, and A must make compensation.
Reciprocal Promise to Do Things Legal, and also Other Things Illegal (S. 57 ICA)
According to Section 57 of the Indian Contract Act, 1872 where persons reciprocally promise, firstly, to do certain things which are legal, and, secondly, under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement.
For example, A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as a gambling house, he shall pay A 50,000 rupees for it. The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it, is a contract. The second set is for an unlawful object, namely, that B may use the house as a gambling house, and is a void agreement.
Alternative Promise, One Branch Being Illegal (S. 58 ICA)
According to Section 58 of the Indian Contract Act, 1872 in the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.
For example, A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards deliver to A either rice or smuggled opium. This is a valid contract to deliver rice, and a void agreement as to the opium
Conclusion:
Reciprocal promises are fundamental to contract law, embodying the mutual obligations between parties that establish the framework for enforceable agreements. The performance of these promises hinges on the principle of consideration, where each party’s commitment serves as the foundation for the contract’s validity. When assessing the performance of reciprocal promises, several key factors come into play.
Firstly, the timing and manner of performance are crucial. Each party is expected to fulfil their obligations as stipulated, which often requires coordination and good faith. Failure by one party to perform can lead to a breach, impacting the other party’s ability to meet their own obligations. This interdependence highlights the necessity for clear terms and conditions in contract drafting to minimize ambiguity. Secondly, the concept of substantial performance is relevant in cases where one party may not fulfilltheir promise to the letter but has nonetheless fulfilled its essence. Courts often examine whether the breach is material and if the aggrieved party can still receive the benefits of the contract, which can affect remedies and damages.
Moreover, unforeseen circumstances, such as force majeure events, can complicate the performance of reciprocal promises, leading to potential renegotiations or claims for relief. The parties may need to explore alternatives, such as modification of terms or termination of the agreement, depending on the situation.
In conclusion, the performance of reciprocal promises is a dynamic aspect of contractual relationships, demanding clarity, cooperation, and flexibility. A thorough understanding of these elements can facilitate better compliance and reduce the likelihood of disputes, ultimately leading to more effective and harmonious contractual relationships. As such, both parties should approach their obligations with diligence and a commitment to uphold the spirit of their agreement.