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
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.
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.
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.
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.
Impossible or unlawful act
If the promisor promises to do something which is impossible to do, then the contract is void. This section, thus, deals with the ‘Doctrine of Frustration’.
The conditions that should be satisfied in order to invoke this section are –
- The cause should not be a result of a default of the parties.
- The cause must be unforeseeable and inevitable.
- The cause must render the entire contract impossible to do.
There are two scenarios which are illustrated below-
This is when the promisor and promisee enter into a contract to do any act which they both know is impossible to do then the contract is void.
If the promisor promises to do an act that he knows can not be done, then he is liable to pay compensation for the losses suffered by the promisee due to his incapability to perform the act.
Thus, Ashok promises to supply Navya a coat made of bear fur. Navya wishes to wear this coat for a television interview. But, Ashok is aware that it is impossible for him to supply a bear coat to her in this season, but he still promises to sell her one and enters into a contract with her. In this situation, Navya can void the contract and can ask compensation for the losses she suffered.
At the time of making the contract, the act might have been possible and lawful, but later on, it became impossible to do due to some reasons. In this case, the contract becomes void when the act becomes impossible to do.
Taking from the previous example, at the time that Ashok enters the contract, he will be able to provide a coat made of bear fur to Navya. But after he enters the contract, the Government puts a ban on the supply of products made of bear fur. Now Ashok can not supply Navya with the coat she wanted. Thus, the contract becomes void when the Government passes the law.
Section 57– Reciprocal promises or legal and illegal acts
The parties may have entered the contract to do legal acts. But after the contract was established, under specific conditions, they agreed to do illegal acts. In this case, the previous legal acts are valid and the preceding illegal acts are held void.
For example, Ashok promises to supply coats to Navya. Navya then promises to sell such coats on the black market for more profits. Here Ashok’s promise to supply coats to Navya is valid but Navy’s promise to sell such coats on the black market is invalid.
Alternative promise of legal and illegal acts Parties may promise to do legal acts that branch off into illegal acts. For example, Preeti promises to pay back her loan to Rohit. But this loan shall be paid with black money. Thus, while Preeti’s promises to pay back the loan is valid, the promise to pay with black money is invalid.
In Mrs Saradamani Kandappan vs. Mrs S. Rajalakshmi and Ors, Sadarmani was paying for a piece of land to Rajalakshmi in instalments. Before the payment of the last instalment, Sadarmani wanted to see the title document Rajalakshmi failed to show it and Saradamani thus did not pay the last instalment.
Thus, Rajalakshmi terminated the contract. Sadarmani moved to the court and argued that failure to show the title document was the reason she could not pay the last instalment. The court ruled that these two promises (the promise to show the title document and the promise to pay for the last document) were exclusive as Sadarmani could pay the last instalment without showing the title document. Thus, Sadarmani should have paid the last instalment.
In M/S Citadel Fine Pharmaceuticals vs M/S Ramaniyam Real Estates Pvt. Ltd. and Ors. (2011), it was stated that the intentions of the parties expressed in the contract are imperative to signal whether the time is of the essence when the nature of the transaction does not make it very clear.