Performance of Reciprocal Promises

These are called concurrent conditions. Neither party is in breach for not going first, and neither can sue without showing he was ready and willing. Note the standard: not that he performed, but that he was ready and willing to. A seller who had the goods and was prepared to hand them over has satisfied it, even though he never actually delivered because the buyer would not pay.

Readiness and willingness is a phrase to remember, because it reappears as the central requirement of a suit for specific performance under section 16 of the Specific Relief Act 1963. See [Personal Bars to Relief].

Section 52: the order of performance

"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."

Its illustrations:

"(a) 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.

(b) 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."

Two rules, and the second is the interesting one. Where the contract fixes the order, that order governs. Where it does not, the court asks what the nature of the transaction requires, and illustrations (a) and (b) show the reasoning: a builder must build before he is paid, because that is how building contracts work; and a seller of a stock in trade need not part with it before the security he bargained for is given, because otherwise the security would be worthless.

The three kinds of reciprocal promise

The Act does not name them, but the classification is standard and MU expects it.

• Mutual and independent. Each party performs without waiting for the other. Failure by one does not excuse the other, who must perform and sue for damages.
• Mutual and dependent. One party's performance depends on the other's having been performed first. Section 54 deals with the default.
• Mutual and concurrent. Both are to be performed at the same time. Section 51 governs.

Section 53: preventing the other party from performing

"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 non-performance of the contract."

Its illustration:

"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."

Two remedies together. The contract becomes voidable at the option of the party prevented, and he is entitled to compensation for the loss. He is not put to a choice between them: the illustration expressly gives him compensation if he elects to rescind.

The prevention must be by the other party, and the party prevented must have been ready and willing. A contractor who could not have done the work anyway cannot complain that he was stopped.

Section 54: default in the promise that must come first

"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."

Its four illustrations, and each is a standard problem:

"(a) 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.

(b) 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.

(c) 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.

(d) 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."

The rule in a sentence: the party who should have gone first, and did not, loses the right to demand the other's performance and must pay compensation.

Illustrations (b) and (c) are the two shapes examiners use most. In (b) the employer was to supply the materials and did not; in (c) the buyer was to pay first and did not. In each case the other party is released and is entitled to compensation.

The four sections compared

A worked example

Sarita contracts with Tarun that Tarun shall construct a boundary wall on her plot for eight lakh rupees, Sarita supplying the cement.

• The contract says nothing about who goes first. Section 52's second limb applies: the nature of a building transaction requires the work to be done before payment, as illustration (a) to section 52 says.
• Sarita never supplies the cement and the wall cannot be built. This is section 54 and illustration (b) to it almost exactly. Sarita's promise had to be performed first, so she cannot claim the wall, and she must compensate Tarun for his loss.
• Sarita supplies the cement, Tarun is ready to start, and Sarita locks the gate and refuses him entry. Section 53: she has prevented him. The contract becomes voidable at Tarun's option, and if he rescinds he may recover compensation for his loss.
• The contract had said the price was payable on delivery of the completed wall, and on completion Sarita refuses to pay unless Tarun does extra work. Payment and handover are simultaneous, so section 51 applies: Tarun need not hand over unless Sarita is ready and willing to pay, and she cannot demand handover while she is not.
• Tarun sues for the price. What must he show? That he was ready and willing to perform his reciprocal promise, which is the standard under section 51.

What it does NOT mean

"A party suing must have actually performed." Under section 51 he must have been ready and willing, which is a different and lesser thing.

"The contract must always say who performs first." Where it does not, section 52 supplies the order the nature of the transaction requires.

"A party prevented from performing must choose between rescission and damages." Section 53 gives both, and the illustration says so.

"A defaulting party can still insist on the other side's performance." Section 54 is exactly the opposite where his was the promise to be performed first.

"Reciprocal promises are the same as contingent contracts." They are not. A contingent contract depends on an event collateral to the contract; reciprocal promises depend on each other. See [Contingent Contracts].

Quick revision

• s.2(f): reciprocal promises are promises forming the consideration or part of the consideration for each other.
• s.51: where they are to be simultaneously performed, no promisor need perform unless the promisee is ready and willing. Concurrent conditions. Illustration: goods to be paid for on delivery.
• s.52: the order is as the contract expressly fixes, and otherwise as the nature of the transaction requires. Illustration (a) build then pay; illustration (b) security before the stock in trade.
• Three kinds: mutual and independent, mutual and dependent, mutual and concurrent.
• s.53: a party who prevents the other from performing makes the contract voidable at that party's option, and must pay compensation.
• s.54: the party who should perform first and fails cannot claim the reciprocal performance and must compensate. Illustrations: the cargo, the scaffolding, the buyer who pays late, the seller who delivers late.
• Ready and willing reappears in s.16 of the Specific Relief Act 1963.

Test yourself

1. Define reciprocal promises and state the rule where they are to be performed simultaneously. Section 2(f) defines reciprocal promises as promises which form the consideration or part of the consideration for each other. Where they are to be simultaneously performed, section 51 provides that no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise, so neither party can demand performance without showing his own readiness.

2. How is the order of performance determined? By the contract where it expressly fixes the order, and otherwise, under section 52, in the order which the nature of the transaction requires. Illustration (a) has the builder building before he is paid, and illustration (b) has the seller of a stock in trade entitled to the promised security before he parts with the stock.

3. What is the effect of one party preventing the other from performing? Under section 53 the contract becomes voidable at the option of the party prevented, and he is entitled to compensation from the other party for any loss sustained in consequence of the non performance. The illustration confirms that a party who elects to rescind still recovers compensation.

4. State the rule in section 54 with an illustration. Where reciprocal promises are such that one cannot be performed, or its performance cannot be claimed, until the other has been performed, and the promisor of the latter fails to perform it, he cannot claim performance of the reciprocal promise and must make compensation. Illustration (b) is the builder's case: the employer refuses to furnish the scaffolding and timber, the work cannot be executed, the builder need not execute it, and the employer must compensate him.

5. What are the three kinds of reciprocal promise? Mutual and independent, where each performs without waiting for the other so that failure by one does not excuse the other; mutual and dependent, where one party's performance depends on the other's having been performed first, which is the case section 54 governs; and mutual and concurrent, where both are to be performed at the same time, which is the case section 51 governs.