CHAPTER IV: OF THE PERFORMANCE OF CONTRACTS
This chapter explains what it legally means to fulfill your promise.
Contracts which must be performed
Section 37: Obligation of parties to contracts
This is the most fundamental rule of performance.
Part 1: The Obligation to Perform
Legal Text: “The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law.”
Simple English: This is the core of a contract. You must do what you promised (this is “performance”) or at least offer to do it (this is “offer of performance”). You can’t just ignore your promise. The only way out is if this Act (or another law) provides an excuse (e.g., the contract becomes void, or the other party lets you off the hook).
Practical Example: You’ve signed a contract to paint a house by Saturday. You must show up on Saturday and paint (perform). Or, you must at least show up with your paint and ladders, ready to work (offer to perform).
Part 2: What happens if you die?
Legal Text: “Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.”
Simple English: If you die, your legal heirs/representatives are still bound to fulfill your promises… unless it was a personal promise that only you could fulfill.
Practical Example (Debt/General Duty – from Act): “A promises to deliver goods to B on a certain day on payment of Rs. 1,000. A dies before that day.” A’s legal heirs must deliver the goods, and B must pay the heirs. A debt or delivery obligation passes to your heirs.
Practical Example (Personal Skill – from Act): “A promises to paint a picture for B by a certain day… A dies before the day.” This contract is dead. A’s heirs cannot be forced to paint, and B cannot be forced to accept a painting from them. The promise was personal to A.
Section 38: Effect of refusal to accept offer of performance
This section explains what happens when you try to do your part, and the other person stops you.
Part 1: The “I Tried!” Rule
Legal Text: “Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract.”
Simple English: If you (the promisor) make a valid “offer of performance” (you show up, ready, willing, and able to do your part) and the other person (the promisee) refuses to accept it, then:
It’s not your fault the contract wasn’t performed.
You do not lose your rights (e.g., you can still sue for payment).
Practical Example: You are a caterer (promisor). You show up at the wedding venue at the agreed-upon time with all the food (a valid “offer of performance”). The groom (promisee) refuses to let you in, saying he changed his mind. You are not responsible for “non-performance,” and you can still sue the groom for the full payment.
Part 2: The Conditions for a Valid Offer of Performance
Legal Text: “Every such offer must fulfil the following conditions:—”
Simple English: To count as a valid “offer of performance,” your “I tried!” must meet three conditions:
(1) it must be unconditional;
Simple English: You can’t add new terms at the last minute.
Practical Example: You cannot say, “I’m here with the catering, but you have to pay me an extra ₹10,000 or I’m not unloading the truck.” This is not a valid offer.
(2) it must be made at a proper time and place, and under such circumstances that the person… may have a reasonable opportunity of ascertaining that the person… is able and willing there and then to do the whole of what he is bound by his promise to do;
Simple English: You must show up at the right time and place, and you must actually be ready to do the whole job.
Practical Example: You can’t show up for the wedding catering at 3 AM. You can’t show up with only half the food. Both are not valid offers.
(3) if the offer is an offer to deliver anything… the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver.
Simple English: The other person must be allowed to inspect the goods.
Practical Example (from Act): “A contracts to deliver to B… 100 bales of cotton… A must bring the cotton to B’s warehouse… under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality contracted for…”
Section 39: Effect of refusal of party to perform promise wholly
This section deals with “anticipatory breach” or total refusal.
Legal Text: “When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.”
Simple English: If the other party completely refuses to do their side of the deal (e.g., “I’m not paying you!”) or makes it impossible for them to do it (e.g., “I sold the car I promised you to someone else”), you (the innocent party) have a choice:
Option 1: Put an end to the contract. You can cancel the contract immediately and sue them for damages.
Option 2: Acquiesce (agree) to continue. You can ignore the refusal, keep the contract alive, and wait for them to (hopefully) change their mind.
Practical Example (Option 1 – from Act): “A, a singer, enters into a contract with B… to sing at his theatre two nights in every week… On the sixth night A wilfully absents herself… B is at liberty to put an end to the contract.” B can fire A and sue her for damages.
Practical Example (Option 2 – from Act): “On the sixth night, A wilfully absents herself. With the assent of B, A sings on the seventh night.” B has acquiesced (agreed) to continue the contract. He cannot now fire A for the sixth-night breach (though he can still claim compensation for that one night’s loss).
Section 40: Person by whom promise is to be performed
This section answers, “Who must do the job?”
Legal Text: “If it appears from the nature of the case that it was the intention of the parties… that any promise… should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it.”
Simple English: This breaks all promises into two types:
Personal Skill: If the promise relies on your specific skill, talent, or trust (like a famous artist, a specific surgeon, or a musician), then you must do it yourself.
General Work: If it’s a general job (like paying money, delivering goods, or painting a standard fence), you can hire someone else (an agent) to do it for you (or your legal heirs can, as seen in S.37).
Practical Example (Personal Skill – from Act): “A promises to paint a picture for B. A must perform this promise personally.” A cannot hire a different artist to paint it for him.
Practical Example (General Work – from Act): “A promises to pay B a sum of money.” A can pay it himself, or he can send his assistant (a “competent person”) to deliver the cash for him. B must accept it.
Section 41: Effect of accepting performance from third person
Legal Text: “When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.”
Simple English: If you are owed a promise (e.g., you are owed money) and you accept the payment/performance from a random third party, you cannot later go back and sue the original person who made the promise. The matter is settled.
Practical Example:
Rohan owes you ₹5,000.
Vikram, Rohan’s friend, comes to you and says, “I know Rohan owes you ₹5,000. Here, I’ll pay it for him.”
You accept the ₹5,000 from Vikram.
The debt is now discharged. You cannot later sue Rohan for the same ₹5,000.
Section 42: Devolution of joint liabilities
Legal Text: “When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the death of any of them, his representative jointly with the survivor or survivors, and, after the death of the last survivor, the representatives of all jointly, must fulfil the promise.”
Simple English: This section explains the internal responsibility when a group makes a promise (like a joint loan).
If all are alive: All promisors (e.GET., A, B, and C) must fulfill the promise together.
If one dies: The responsibility passes to the legal heirs of the dead person plus the surviving partners. (e.g., A’s Heirs + B + C).
If all die: The responsibility passes to the legal heirs of all the promisors (e.g., A’s Heirs + B’s Heirs + C’s Heirs).
Practical Example:
Anu, Ben, and Chris jointly take a business loan from a bank.
If Anu dies, the bank can legally claim the debt from Anu’s legal heirs, Ben, and Chris together.
Important Note: This rule (S.42) describes who is internally liable. The next section (S.43) describes who the lender can actually sue (which is much simpler).
Section 43: Any one of joint promisors may be compelled to perform
This is a very important section for anyone who co-signs a loan or enters a group contract.
Part 1: The “Any One” Rule
Legal Text: “When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any [one or more] of such joint promisors to perform the whole of the promise.”
Simple English: If a group of people (A, B, C) make a joint promise (like a loan), the person they promised (the bank) can pick any single one of them (e.g., just A) and force that one person to pay the entire debt.
Practical Example (from Act): “A, B and C jointly promise to pay D 3,000 rupees. D may compel either A or B or C to pay him 3,000 rupees.” D doesn’t have to sue all three; he can pick the richest one and get the full amount.
Part 2: The “Right of Contribution”
Legal Text: “Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract.”
Simple English: This is the internal rule for the group. The person who was forced to pay the whole amount can then turn around and sue his partners to force them to pay their share.
Practical Example: The bank (D) forced A to pay the entire ₹3,000. A can now sue B for his share (₹1,000) and sue C for his share (₹1,000).
Part 3: Sharing the Loss from Default
Legal Text: “If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.”
Simple English: If one of the partners is broke (insolvent) and can’t pay his share, the other partners have to split that loss.
Practical Example (from Act):
A, B, and C owe ₹3,000. C is forced to pay the full ₹3,000.
C asks A and B for their ₹1,000 shares.
A is insolvent (broke) and can only pay ₹500.
The “loss” from A’s default is ₹500 (his unpaid share).
This ₹500 loss must be shared equally by the other partners, B and C.
So, B must pay his own ₹1,000 + ₹250 (his half of A’s loss) = ₹1,250.
C (who paid the bank) is entitled to receive ₹1,250 from B and ₹500 from A.
Explanation: Sureties (Guarantors)
Legal Text: “Explanation.—Nothing in this section shall prevent a surety from recovering from his principal, payments made by the surety on behalf of the principal, or entitle the principal to recover anything from the surety…”
Simple English: This section doesn’t apply to a co-signer (surety) in the same way. A co-signer who is forced to pay the loan can recover the entire amount from the main debtor.
Practical Example (from Act): A and B are only sureties (co-signers) for C, who is the principal debtor. C fails to pay. The bank forces A and B to pay. A and B can jointly sue C to recover the entire amount they paid, not just a “contribution.”
Section 44: Effect of release of one joint promisor
Legal Text: “Where two or more persons have made a joint promise, a release of one of such joint promisors by the promisee does not discharge the other joint promisor or joint promisors; neither does it free the joint promisors so released from responsibility to the other joint promisor or joint promisors.”
Simple English: This is another critical rule for joint promises.
Lender’s Side: If the bank “releases” one partner (A) from the debt, it does not mean the other partners (B and C) are also released. The bank can still sue B and C for the full original amount.
Partner’s Side: Even if the bank “releases” A, A is still legally responsible to his partners (B and C) for his share. The “release” only works between the bank and A.
Practical Example:
A, B, and C jointly owe a bank ₹3,00,000.
The bank manager is a friend of A and tells him, “I officially release you from this debt.”
The bank can still sue B for the entire ₹3,00,000.
If B is forced to pay the full ₹3,00,000, B can still sue A for his ₹1,00,000 share (his “contribution”). A’s release from the bank does not protect him from his partners.
Section 45: Devolution of joint rights
Legal Text: “When a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and, after the death of any of them, with the representative of such deceased person jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.”
Simple English: This is the opposite of Section 42. This is about who has the right to collect a debt (the “promisees”) when a promise is made to a group.
If all are alive: All the partners (e.g., B, C, and D) together must demand payment.
If one dies: The right to collect passes to the legal heirs of the dead partner plus the surviving partners (e.g., B’s Heirs + C + D).
Practical Example (from Act):
A borrows ₹5,000 from two business partners, B and C, promising to repay “B and C jointly.”
B dies.
A cannot just pay C the full amount. To be legally discharged, A must pay the money to B’s legal heirs and C together. The right to collect the debt is joint.
Time and place for performance
Section 46: Time for performance… when no application is to be made and no time is specified
Legal Text: “Where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time.”
Simple English: If the contract says you must do something (like deliver goods) but doesn’t set a deadline, you must do it within a “reasonable time.”
Legal Text (Explanation): “Explanation.—The question ‘what is a reasonable time’ is, in each particular case, a question of fact.”
Simple English (Explanation): “Reasonable time” is decided by common sense and the context of the deal.
Practical Example: You order a pizza. No time is specified. “Reasonable time” is 30-45 minutes. It is not 8 hours or “next week.” If you order a custom-built sofa, “reasonable time” might be 4-6 weeks, not 45 minutes.
Section 47: Time and place for performance… where time is specified and no application to be made
Legal Text: “When a promise is to be performed on a certain day… the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed.”
Simple English: If the contract sets a date (e.g., “Jan 1st”) but no specific time, you must perform it:
At the agreed-upon place (e.g., the warehouse).
During “usual hours of business” on that day.
Practical Example (from Act):
A promises to deliver goods to B’s warehouse on January 1st.
A shows up with the goods at 10 PM, long after the warehouse has closed for the day.
A has failed to perform his promise because he did not deliver during “usual hours of business.”
Section 48: Application for performance on certain day to be at proper time and place
Legal Text: “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.”
Simple English: This applies to contracts where the promisor is “on call” on a specific day. It is the customer’s (promisee’s) duty to ask for the performance at a proper time and place.
Practical Example:
You hire a DJ for your wedding on “Saturday, the 25th.”
The DJ (promisor) is “on call” for you that day. It is your duty (promisee) to apply for performance by telling him the proper place (the wedding hall) and proper time (e.g., “be set up by 7 PM”). You can’t just expect him to guess.
Section 49: Place for performance… where no… place fixed…
Legal Text: “When a promise is to be performed without application by the promisee, and no place is fixed for the performance… it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance… and to perform it at such place.”
Simple English: If the contract is “Seller will deliver goods to Buyer on Jan 1st,” but no place is mentioned, the seller (promisor) can’t just sit at home. It is the seller’s duty to call the buyer (promisee) and ask them, “Where would be a reasonable place for me to deliver this?”
Practical Example (from Act):
“A undertakes to deliver a thousand maunds of jute to B on a fixed day.”
No delivery location is in the contract.
A must call B to “appoint a reasonable place” (e.g., B’s warehouse). A must then deliver the jute to that place.
Section 50: Performance in manner or at time prescribed or sanctioned by promisee
Legal Text: “The performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions.”
Simple English: This is a flexibility rule. The person receiving the promise (the promisee) can change the “how” or “when” of the performance. If the promisor does what the promisee asks, it counts as a valid performance.
Practical Example 1 (Manner – from Act):
B owes A ₹2,000.
A (the promisee) prescribes a new manner: “Instead of giving me cash, just transfer the ₹2,000 to my bank account with C-Bank.”
B (the promisor) does the bank transfer. This is a valid performance and the debt is discharged.
Practical Example 2 (Manner – from Act):
A desires B, who owes him ₹100, to send him a ₹100 note by post.
B (the promisor) does exactly that. The moment B puts the letter in the post, the debt is discharged (even if the letter gets lost in the mail), because B followed the exact manner prescribed by A.
Performance of reciprocal promises
“Reciprocal promises” are the “this-for-that” promises that make up a contract (e.g., I promise to deliver goods, and in return you promise to pay). This section explains how they are performed.
Section 51: Promisor not bound to perform, unless reciprocal promisee ready and willing to perform
Legal Text: “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.”
Simple English: This is the “you show me yours, I’ll show me mine” rule for “Cash on Delivery” style deals. If we are supposed to perform our promises at the exact same time, I don’t have to do my part (e.g., hand over the goods) unless you show me that you are “ready and willing” to do your part (e.g., show me the cash).
Practical Example (from Act):
A and B contract that A shall deliver goods to B, to be paid for by B on delivery.
A does not have to hand over the goods unless B is ready and willing to pay.
B does not have to pay the money unless A is ready and willing to hand over the goods.
Section 52: Order of performance of reciprocal promises
Legal Text: “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.”
Simple English: This section answers “Who goes first?”
Expressly Fixed: If the contract says who goes first (e.g., “Payment must be made before delivery”), you must follow that order.
Nature of Transaction: If the contract doesn’t say, you must use common sense based on the “nature of the transaction.”
Practical Example (Expressly Fixed): A contract for a custom-built website says, “Client will pay a 50% deposit before work begins.” The client must pay the deposit first, before the developer is required to start working.
Practical Example (Nature of Transaction – from Act): “A and B contract that A shall build a house for B at a fixed price.” The nature of this deal requires that A must build the house first before B is required to pay the price (or in stages as the work is completed).
Section 53: Liability of party preventing event on which the contract is to take effect
Legal Text: “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… for any loss…”
Simple English: If you stop the other person from doing their part of the deal, two things happen:
The innocent party (who was stopped) can cancel the contract (it’s “voidable”).
The innocent party can also sue you for compensation for any losses they suffered.
Practical Example (from Act):
“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… but A prevents him from doing so.”
(e.g., A is a builder, B is a painter. B shows up to paint, but A has locked the house and refuses to give B the key).
B can cancel the contract and sue A for his lost profit and the cost of the crew he hired for the day.
Section 54: Effect of default as to that promise which should be first performed…
Legal Text: “When a contract consists of reciprocal promises, such that one of them cannot be performed… 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…”
Simple English: This applies to promises that are dependent (like in S.52). If I can’t do my part until you do your part first, and you fail to do your part, then:
I am excused from doing my part.
You cannot sue me for not performing.
I can sue you for any losses I suffered because of your failure.
Practical Example (from Act):
“A contracts with B to execute certain builder’s work for a fixed price, B supplying the scaffolding… B refuses to furnish any scaffolding…”
A cannot do his work (builder) until B does his part first (supply scaffolding).
Since B failed, (1) A does not have to build, (2) B cannot sue A for not building, and (3) A can sue B for compensation (e.g., for the profit he lost on the job).
Section 55: Effect of failure to perform at fixed time, in contract in which time is essential
This is a critical section that deals with deadlines.
Part 1: When Time is Essential
Legal Text: “When a party… fails to do any such thing at or before the specified time, the contract… becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.”
Simple English: If a deadline is critical (“time is of the essence”), and the other party is late, the innocent party has the right to cancel the entire contract.
Practical Example: You order a wedding cake to be delivered by 5 PM on your wedding day. “Time is essential.” If the baker tries to deliver it at 11 PM, you can refuse to accept it (cancel the contract) and sue for damages.
Part 2: When Time is NOT Essential
Legal Text: “If it was not the intention of the parties that time should be of the essence… the contract does not become voidable… but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.”
Simple English: If the deadline is not critical, the contract is still valid. The innocent party cannot cancel the deal just because it’s late. However, they can claim compensation for any losses caused by the delay.
Practical Example: You order a new sofa with a “delivery by Friday” estimate. It arrives on the following Monday. You cannot refuse to accept the sofa (time was not “of the essence”). But, if you had to pay to rent a sofa for the weekend, you can claim compensation for those rental costs.
Part 3: Accepting Late Performance
Legal Text: “If… the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation… unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so.”
Simple English: This is the “waiver” rule. If time was essential (like the wedding cake), but you decide to accept the late performance anyway (e.g., you accept the cake at 11 PM), you lose your right to sue for damages… UNLESS… at the exact moment you accept the late item, you give notice that you still plan to claim compensation.
Practical Example: The late cake arrives. You say, “Fine, I’ll take it, but I am not paying you the full price because you are late.” You have given notice and can now claim compensation. If you had just said, “Thank goodness, bring it in,” you would have waived your right to claim compensation.
Section 56: Agreement to do impossible act
This crucial section is often called the “Doctrine of Frustration.”
Part 1: Impossible from the Start
Legal Text: “An agreement to do an act impossible in itself is void.”
Simple English: If a deal is for something that is already impossible, the agreement is void from the beginning.
Practical Example (from Act): “A agrees with B to discover treasure by magic. The agreement is void.”
Part 2: Becomes Impossible or Unlawful Later (“Frustration”)
Legal Text: “A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.”
Simple English: If you make a valid contract, but later something happens out of your control that makes it (a) physically impossible or (b) illegal to perform, the contract “becomes void.”
Practical Example (Impossible – from Act): “A contracts to act at a theatre for six months… On several occasions A is too ill to act. The contract to act on those occasions becomes void.” (It became impossible due to sickness).
Practical Example (Unlawful – from Act): “A contracts to take in cargo for B at a foreign port. A’s Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.” (It became illegal).
Part 3: Compensation for Known Impossibility
Legal Text: “Where one person has promised to do something which he knew… to be impossible or unlawful, and which the promisee did not know… such promisor must make compensation to such promisee for any loss…”
Simple English: If you promise to do something that you know (or should have known) is impossible or illegal, but the other person doesn’t know, you are not excused. You must pay compensation to the other person for their losses.
Practical Example (from Act): “A contracts to marry B, being already married to C… A must make compensation to B for the loss caused to her by the non-performance of his promise.” A knew the marriage was legally impossible, but B did not.
Section 57: Reciprocal promise to do things legal, and also other things illegal
Legal Text: “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.”
Simple English: This is the “Separation Rule.” If your deal has two separate parts (one legal, one illegal), the law will “sever” them. The legal part remains a valid contract, and the illegal part is a void agreement.
Practical Example (from Act):
“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 Legal Part: “A will sell the house to B for ₹10,000.” This is a valid contract.
The Illegal Part: “B will pay ₹50,000 to use it for gambling.” This is a void agreement.
Section 58: Alternative promise, one branch being illegal
Legal Text: “In the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.”
Simple English: If the deal is “I will do X OR Y,” and X is legal but Y is illegal, the contract is only valid for the legal option (X). The illegal option (Y) is treated as if it never existed.
Practical Example (from Act):
“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 for A to pay ₹1,000 and for B to deliver rice. The “or smuggled opium” part is void and unenforceable.
Appropriation of payments
This section (59-61) provides the 3-step rules for when a Debtor owes multiple separate debts to the same Creditor and makes one payment. (e.g., You owe your landlord for March rent, April rent, and a window repair bill).
Section 59: Application of payment where debt to be discharged is indicated
Legal Text: “Where a debtor, owing several distinct debts to one person, makes a payment to him, either with express intimation, or under circumstances implying, that the payment is to be applied to the discharge of some particular debt, the payment, if accepted, must be applied accordingly.”
Simple English: Rule 1: The Debtor Decides.
When the Debtor makes a payment, they have the first right to say which specific debt it’s for.
This can be “express” (writing “for March rent” on the check) or “implied” (paying the exact amount of the window repair bill on its due date).
If the Creditor accepts the money, they must apply it as the Debtor intended.
Practical Example: You owe your landlord (a) ₹15,000 for rent and (b) ₹2,000 for a broken window. You send a payment of ₹2,000 with the note “for the broken window.” The landlord must use that ₹2,000 to clear the window debt. He cannot legally apply it to your rent debt.
Section 60: Application of payment where debt to be discharged is not indicated
Legal Text: “Where the debtor has omitted to intimate and there are no other circumstances… the creditor may apply it at his discretion to any lawful debt actually due… whether its recovery is or is not barred by the law… as to the limitation of suits.”
Simple English: Rule 2: The Creditor Decides.
If the Debtor makes a payment without saying what it’s for (no note, no “implied” circumstance), then the Creditor gets to decide how to apply it.
The Creditor can apply it to any debt he chooses, even a “time-barred” debt (a debt so old he can’t sue for it anymore).
Practical Example: You owe the same landlord (a) ₹15,000 for rent and (b) a ₹2,000 debt from 5 years ago (which is now time-barred). You send a blank payment of ₹5,000. The landlord can, at his discretion, apply ₹2,000 to the old, time-barred debt and the remaining ₹3,000 to your rent. You cannot complain later.
Section 61: Application of payment where neither party appropriates
Legal Text: “Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionably.”
Simple English: Rule 3: The Law Decides (By Date).
If the Debtor doesn’t specify which debt the payment is for (Rule 1 fails)…
And the Creditor also doesn’t apply it to a specific debt (Rule 2 fails)…
Then the law automatically applies the payment to the debts in the order they were incurred, starting with the oldest one first.
This applies even if the oldest debt is “time-barred” (too old to be sued for).
If all debts are from the exact same date (“equal standing”), the payment is split proportionally among them.
Practical Example:
You owe a supplier for three invoices:
Invoice A (from Jan 1st): ₹2,000
Invoice B (from Feb 1st): ₹4,000
Invoice C (from Mar 1st): ₹3,000
You send a blank payment of ₹5,000. You don’t say what it’s for, and the supplier just deposits it without applying it.
The law (Section 61) steps in:
It first pays off the oldest debt: Invoice A (₹2,000).
You have ₹3,000 left.
It applies the remaining ₹3,000 to the next oldest debt: Invoice B.
Result: Invoice A is fully paid. Invoice B is partially paid (with ₹1,000 remaining). Invoice C is untouched.
Contracts which need not be performed
This sub-chapter explains the legal ways a contract can be discharged (ended) without performance.
Section 62: Effect of novation, rescission, and alteration of contract
Legal Text: “If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract, need not be performed.”
Simple English: This section gives you three ways to change a deal, all of which must be agreed to by all parties.
Novation (Substitute): You replace the old contract with a brand new contract. This can involve new terms or even new people.
Rescission (Cancel): You both just agree to cancel the original contract and walk away.
Alteration (Change): You keep the same contract but change some of its terms (e.g., change the deadline or the price).
In all three cases, the original promise doesn’t need to be performed anymore.
Practical Example (Novation – from Act): “A owes money to B… It is agreed between A, B and C that B shall thenceforth accept C as his debtor, instead of A.” The old contract (A owes B) is gone. A new contract (C owes B) has replaced it. This is Novation.
Practical Example (Rescission): You agree to sell me your car, but we both change our minds before any money or keys are exchanged. We both agree to “call it off.” This is Rescission.
Practical Example (Alteration): I agree to paint your house for ₹50,000, due on Friday. You ask me to also paint the garage. We alter the same contract to a new price of ₹60,000, due next Monday. This is Alteration.
Section 63: Promisee may dispense with or remit performance of promise
Legal Text: “Every promisee may dispense with or remit, wholly or in part, the performance of the promisee made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.”
Simple English: This is the “Waiver” rule. The person who is supposed to receive the promise (the promisee) has the power to:
Dispense with (Waive): Cancel the promise entirely, freeing the other person.
Remit (Accept Less): Accept part of the promise instead of the whole thing (e.g., accept less money).
Extend the Time: Give the other person more time.
Accept Other Satisfaction: Accept something different from what was originally promised (e.g., accept a laptop instead of cash).
Practical Example (Accept Less – from Act): “A owes B 5,000 rupees. A pays to B… 2,000 rupees… and B accepts, in satisfaction of the whole debt… The whole debt is discharged.”
Practical Example (Waive – from Act): “A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise.”
Practical Example (Other Satisfaction): You owe me ₹10,000. You say, “I’m broke, but will you take my new watch as full payment?” I (the promisee) say “Yes.” The debt is discharged.
Section 64: Consequences of rescission of voidable contract
Legal Text: “When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise… The party rescinding a voidable contract shall, if he have received any benefit thereunder… restore such benefit, so far as may be, to the person from whom it was received.”
Simple English: This deals with voidable contracts (e.t., caused by fraud, coercion – S.19).
When the “innocent party” rescinds (cancels) the contract, both sides are freed from any future promises.
BUT, the “innocent party” must give back any money or benefit they have already received under the contract. This is called “Restitution.”
Practical Example:
A, a landlord, forces (coerces) B, a tenant, to sign a new lease at a very high rent, and B pays a ₹20,000 deposit.
This contract is voidable at B’s option.
B goes to court and rescinds the contract.
Consequence: B must give back the keys to the apartment (the “benefit” he received), and the court will order A to restore the ₹20,000 deposit to B.
Section 65: Obligation of person who has received advantage under void agreement, or contract that becomes void
Legal Text: “When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.”
Simple English: This is another “Restitution” rule, but for void contracts.
Discovered to be Void: If you make a deal that was already void from the start (e.t., a “mistake of fact” – S.20), but you didn’t know it, any benefit paid must be returned.
Becomes Void: If you make a valid contract, but it later becomes void (e.t., “frustration” – S.56), any advance payment or benefit must be returned.
Practical Example (Discovered Void – from Act): “A pays B 1,000 rupees in consideration of B’s promising to marry C, A’s daughter. C is dead at the time of the promise.” The agreement is void. B must repay A the ₹1,000.
Practical Example (Becomes Void – from Act): “A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing.” The contract becomes void (due to impossibility – S.56). A must refund B the ₹1,000 advance.
Section 66: Mode of communicating or revoking rescission of voidable contract
Legal Text: “The rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal.”
Simple English: How do you tell someone you are cancelling a voidable contract? The same way you’d communicate an offer or a revocation (Section 3 & 4). You must do something (an act) to show your intention, like sending an email, a legal notice, or filing a lawsuit. You can’t just think it.
Practical Example: You were tricked (fraud) into buying a fake painting. To rescind the contract, you must communicate this to the seller. You can send a text: “I’ve had the painting appraised. It’s a fake. I am hereby rescinding our contract and demand a full refund.”
Section 67: Effect of neglect of promisee to afford promisor reasonable facilities for performance
Legal Text: “If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.”
Simple English: This is the “You’re Not Letting Me Work” rule. If the person receiving the promise (the promisee) makes it impossible for the other person (the promisor) to do their job, the promisor is excused for not performing.
Practical Example (from Act):
“A contracts with B to repair B’s house.”
A (the promisor/repairman) shows up, but B (the promisee/homeowner) refuses to point out where the repairs are needed.
A is excused for not repairing the house because B neglected to provide the “reasonable facilities” (i.e., basic information) needed to do the job.