Performance is the natural and most common mode of discharging a contract: each party does exactly what they promised, and the contract's obligations come to an end. Two recurring complications arise in practice: how payments are applied when a debtor owes multiple debts, and how performance operates when several persons are jointly bound.
Legal Framework
| Section | Act | Scope |
|---|---|---|
| S.37 | Indian Contract Act, 1872 | Parties must perform or offer to perform their respective promises, unless performance is dispensed with or excused |
| S.59 | Indian Contract Act, 1872 | Appropriation of payments where debtor indicates a particular debt |
| S.60 | Indian Contract Act, 1872 | Appropriation where debtor gives no indication: creditor may apply payment to any lawful debt |
| S.61 | Indian Contract Act, 1872 | Appropriation where neither party indicates: payment applied in order of time, discharging earlier debts first |
| S.42 | Indian Contract Act, 1872 | Devolution of joint promises on death of a joint promisor |
| S.43 | Indian Contract Act, 1872 | Any one of joint promisors may be compelled to perform, subject to contribution |
| S.44 | Indian Contract Act, 1872 | Effect of release of one joint promisor |
| S.45 | Indian Contract Act, 1872 | Devolution of joint rights on death of a joint promisee |
Appropriation of Payments
Where the debtor indicates (S.59). If a debtor, owing several distinct debts to the same creditor, makes a payment either expressing or implying which debt it is meant to discharge, and the creditor accepts, the payment must be applied to that debt.
Why: The debtor, as the one making payment, has the primary right to direct how their own money is applied.
Where the debtor gives no indication (S.60). The creditor may apply the payment to any lawful debt actually due, including a time-barred debt.
Why the creditor gains this discretion: Once the debtor forgoes the opportunity to direct application, the creditor, having accepted payment without a specified purpose, is entitled to protect their own interest by choosing which debt to treat as satisfied.
Where neither party appropriates (S.61). The payment is applied in discharge of debts in order of time, whether or not they are time-barred, and if debts are of equal standing, proportionately.
Why: In the absence of any express choice by either party, a neutral, chronological default avoids arbitrary judicial guesswork about the parties' likely intention.
Performance by Joint Promisors and to Joint Promisees
Devolution on death of a joint promisor (S.42). When two or more persons jointly promise, unless a contrary intention appears, all such persons must jointly fulfil the promise during their lives, and after the death of any of them, their representatives jointly with the survivors, and after the death of the last survivor, the representatives of all jointly, must fulfil the promise.
Any one may be compelled, subject to contribution (S.43). The promisee may compel any one or more of the joint promisors to perform the whole promise, unless a contrary intention appears from the contract. Each promisor may compel every other joint promisor to contribute equally, or as agreed, unless a contrary intention appears.
Why this rule protects the promisee: Requiring the promisee to pursue every joint promisor simultaneously, or in a fixed proportion, would needlessly complicate enforcement; allowing recovery of the whole from any one promisor, who can then seek contribution from co-promisors, places the burden of internal apportionment on the promisors themselves, not the promisee.
Effect of release of one joint promisor (S.44). Releasing one joint promisor does not discharge the other joint promisors, nor does it free the released promisor from liability to contribute to the others.
Illustrations
-
Appropriation, debtor indicates: A owes B two separate debts, one for Rs. 10,000 and another for Rs. 20,000. A sends a payment of Rs. 10,000, explicitly stating it is meant to clear the smaller debt. B accepts the payment. Under S.59, the payment must be applied to the Rs. 10,000 debt as directed.
-
Joint promisors, any one compelled: A, B, and C jointly promise to repay a loan of Rs. 3 lakh to D. D may sue A alone for the entire Rs. 3 lakh, under S.43, leaving A to separately recover contribution of Rs. 1 lakh each from B and C.
-
Release of one promisor, others remain liable: D releases A from the joint promise to repay the loan, in exchange for a partial settlement from A alone. B and C remain liable to D for the balance, and A remains liable to contribute their share to B and C if D recovers more from them than A's own share would have been.
Recall Check
- Under S.60, what discretion does a creditor have when a debtor makes a payment without specifying which debt it should discharge?
- Why can a promisee compel any single joint promisor to perform the entire promise under S.43?
- What is the effect of releasing one joint promisor on the liability of the remaining joint promisors?
Distinctions
| Basis | S.59 Appropriation | S.60 Appropriation | S.61 Appropriation |
|---|---|---|---|
| Who indicates | Debtor | Creditor (debtor gave no indication) | Neither party |
| Default rule | Applied to the debt the debtor specified | Creditor's choice, any lawful debt | Chronological order, earliest debts first |
| Rationale | Debtor's primary right over their own payment | Creditor's residual discretion once debtor defaults on specifying | Neutral default absent any party's choice |
Flashcards
Q: What does S.37 require of parties to a contract? A: To perform or offer to perform their respective promises, unless performance is dispensed with or excused.
Q: Under S.59, whose indication governs how a payment is appropriated? A: The debtor's, if made at the time of payment and accepted by the creditor.
Q: Under S.60, can a creditor apply an unindicated payment to a time-barred debt? A: Yes, the creditor may apply it to any lawful debt actually due, including a time-barred one.
Q: Under S.43, can a promisee recover the entire joint debt from a single joint promisor? A: Yes, unless a contrary intention appears from the contract, subject to that promisor's right to seek contribution from co-promisors.
Q: Does releasing one joint promisor discharge the remaining joint promisors from liability? A: No, the remaining joint promisors continue to be liable.
Exam Scenario
A owes B three separate debts: Rs. 5,000 (due last year, now time-barred), Rs. 8,000 (due six months ago), and Rs. 12,000 (due last month). A sends B a payment of Rs. 8,000 without any accompanying instruction on which debt it should settle. B wishes to apply it to the time-barred debt to revive its recoverability. Advise B on whether this appropriation is valid.
Approach: Apply S.60, which governs appropriation where the debtor has given no indication of which debt the payment is meant to discharge. Confirm that S.60 expressly permits the creditor to apply such an unindicated payment to any lawful debt actually due, including one that is time-barred, since the provision does not restrict the creditor's choice to only currently enforceable debts. Conclude that B's appropriation to the time-barred debt is valid and within his discretion under S.60.
See Also
- Discharge by Agreement : an alternative mode of discharge distinct from actual performance, addressed through mutual consent to alter or end the obligation.