Reciprocal Promises: All you need to know about!
Generally, we think that contracts involve a promise made by only one party. One party usually makes a promise to do something or to abstain from doing something in exchange for consideration. But many a time, it is found that both parties to an agreement make mutual promises to do something or to abstain from doing something. These are called reciprocal promises. In this article, we have discussed the meaning of reciprocal promises and the rules relating to them.
What are Reciprocal promises?
Reciprocal promises are defined under Section 2(f) of the Indian Contract Act, 1872. The section defines reciprocal promises as those “promises which form the consideration or part of the consideration for each other”. In these cases, each party is under an obligation to perform his own promise as well as accept the performance of the other party’s promise.
There are three types of reciprocal promises:
Mutual and independent promises:
The promises are called mutual and independent when each party must perform his or her part of the promise independently without waiting for the other party to perform or to be ready to perform.
Conditional and dependent promises:
The promises are referred to as conditional and dependent when the performance of one party is reliant upon the prior performance of the other party.
Mutual and concurrent promises:
When both parties must fulfill their promises at the same time, they are said to be mutual and concurrent.
How should reciprocal promises be performed?
The law prescribes certain rules regarding the performance of reciprocal promises. These are as follows:
Performance of mutual and concurrent promises:
Section 51 outlines the rule by stating that when reciprocal promises are to be performed concurrently, the promisor is not required to perform his part of the promise unless the promisee is ready and willing to perform his or her part. Thus, the promisor is bound to perform only when the promisee is ready to perform his or her part.
For example, A and B agree that A will deliver goods to B and that B will pay for them at the time of delivery. In this scenario, A is not required to deliver the goods unless B is ready and willing to pay for them upon delivery, and B is not required to pay for the goods unless A is willing to deliver them upon payment.
Performance of conditional and dependent promises:
As discussed earlier, in the cases of conditional and dependent promises, the performance of the promise by one party is contingent upon the prior performance by the other party of his or her part of the contract. If the party that is obligated to perform first fails to do so, then he cannot seek performance from the other party. In addition to this, the party who is at fault is also responsible for making up whatever losses the other party may have suffered as a result of the non-performance of the contract (Section 54 of the Indian Contract Act).
For example, A enters into a contract with B to execute some specific construction work for a fixed price. B has to supply the equipment and timber needed for the work. But B refuses to supply any equipment or timber. As a result, the work cannot be completed. Now, A is not required to execute the work, and B is obligated to compensate A for any loss that may be incurred by him as a result of the non-performance of the contract.
Performance of mutual and independent promises:
As is evident from the name itself, such promises are those that are to be performed independently by each party, without having to wait for the other party to fulfill his or her part. If one party fails to keep his promise, the other party cannot excuse himself from the performance of the contract on the ground that the defaulting party did not perform. However, here the aggrieved party is entitled to claim damages from the defaulting party.
What should be the order of performance under reciprocal promises?
Sometimes there may arise an issue with regard to the order in which reciprocal promises should be performed. For this purpose, Section 52 of the Indian Contract Act states that where the order in which reciprocal promises are to be fulfilled is expressly fixed by the contract, they must be performed in that order only; and where the order is not expressly fixed by the contract, they must be performed in the order that the nature of the transaction requires.
For example, A and B agree that A will construct a house for B at a fixed price. The promise made by A to build the house must be executed before the promise made by B to pay for it.
Effects of prevention of performance (Section 53)
It can sometimes happen that one party to a reciprocal promise hinders the other from performing his or her part of the promise. In this case, the contract can be voidable at the option of the party who was prohibited from performing it, and he is also entitled to compensation from the other party for any losses that he may have incurred as a result of the non-performance of the contract.
To take an example, suppose A and B agreed that B will carry out some specific work for A for 15,000 rupees. B was ready and willing to carry out the work as required. However, A prevents him from doing so. Here, the contract is voidable at the option of B, and if he chooses to rescind it, he is entitled to compensation from A for any losses he has suffered as a result of the contract’s non-performance.
Reciprocal promises to do legal and illegal things
As per Section 57 of the Contract Act, if reciprocal promises have two parts, the first part involves a promise to do certain legal things and the second part involves certain other things to do (under specified circumstances) that are illegal, the legal part is a valid contract and the illegal part is void.
For example, When A agrees to sell his house to B for Rs. 55,000 and A insists, and it is further agreed that if the house is utilized as a gambling house, B would pay an additional amount of Rs. 85,000. In this example, the first part is valid since it is legal, but the second part is invalid because it is illegal.
Relevant case laws
Saradamani Kandappan vs S. Rajalakshmi & Ors (2011)
In this case, the Honourable Supreme Court treated the reciprocal promises as mutual and independent. Saradamani had agreed with Rajalakshmi to buy a plot of land in installments. Saradamani paid all of the installments but demanded Rajalakshmi to show the title documents before making the final payment. Rajalakshmi refused, and Saradamani was unable to pay the final installment.
Rajalakshmi terminated the contract because the last installment was not paid on time. Saradamani filed a case, and after several forums of litigation, the Supreme Court held that the two promises, namely, payment of the final installment and disclosing the title documents, were mutual and exclusive. It went on to say that because the contract did not make payment contingent upon review of the title documents, the refusal of Saradamani to pay was incorrect.
J.P. Builders vs. A. Ramadas Rao (2010)
In this case, the Court emphasized the definitions of readiness and willingness. A common form of reciprocal promise is where the parties have to simultaneously perform their respective obligations. If the other party is not “ready” and “willing” to perform his or her respective promise, the party willing to perform his promise will be excused from doing so.
Conclusion
Many commercial contracts often take the form of reciprocal promises. Here, each party undertakes to perform something as well as accept the performance of the other party. These types of promises are categorized into three types, namely mutual and independent, mutual and concurrent, and conditional and dependent.
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