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    Question

    As per Section 54 of the Indian Contract Act, 1872, what

    legal consequence arises when a promisor whose reciprocal promise is to be performed first fails to perform? 
    A The other party must still perform their reciprocal promise or face damages Correct Answer Incorrect Answer
    B Both parties are mutually discharged from all obligations Correct Answer Incorrect Answer
    C The promisor who failed first can still demand performance from the other party Correct Answer Incorrect Answer
    D The other party is not bound to perform, and the promisor in default is liable to compensate for any loss Correct Answer Incorrect Answer
    E Only monetary damages can be awarded; specific performance is unavailable Correct Answer Incorrect Answer

    Solution

    Section 54 provides: "When a reciprocal promise is to be performed first by one party, and such party breaks his promise or is disabled by the promisor of the other promise from performing it, the promisee is not bound to perform his promise, and any compensation to which he would otherwise be entitled in respect of the non-performance of such promise shall not be diminished merely because of the failure of the promisor to perform or his being disabled from performing his promise." This section protects the party who was to perform second by releasing them from obligation if the first promiser fails. Additionally, the party released from performance can claim compensation for losses incurred due to the breach. In Zakir Hussain v. Sunshine Agrisystem (2017), the court held that the non-performance of a preceding reciprocal promise absolves the other party from performing the subsequent promise and entitles them to recover damages.

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