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CERTIFICATE

The Case entitled “ Effect of refusal to accept offer of performance ”


submitted to the Symbiosis Law School, Noida for Contracts as part of
Internal assessment is based on my original work carried out under the
guidance of Dr. Kanan Divetia. The research work has not been submitted
elsewhere for award of any degree. The material borrowed from other
sources and incorporated in the research work has been duly
acknowledged.

Signature of the candidate

Date:
ACKNOWLEDGEMENT

It was a very good experience working on this project. It was a learning


experience and I got to learn a lot from this project and I am sure that this
will help me in future.
I want to thank Dr. Kanan Divetia for allotting me this topic for the project.
I would also like thank to SLS Noida for giving us the opportunity to do
research in our very first semester and I am sure that this will us to conduct
better research works in future.

This project couldn’t have been possible without the unflinching support
and help by Professor Kanan Divetia.
Index

Sr. No. Name of the Page Number


Topic
1 Introduction 4-7
2 Explanation 7-11
3 Judgements 11-13
4 Literature Review 13
5 Conclusion 14
6 Bibliography 14
Effect of refusal to accept offer of Performance

Introduction of Topic

- Offer

Under the Contract Act, Section 2(a), an individual has made an offer when
implying the readiness to do or not do a specific action that will mutually
benefit the other party involved in the agreement. An offer must be made
with the intention to become legally binding upon acceptance. A contract
becomes binding when the offer has been unconditionally accepted.

The two main parties involved in making an offer include:

1) The offeror, which is the individual making the offer to the other (also
called proposer)
2) The offeree, which is the individual having the offer made to them
(also called proposee).

Under section 2(c) of the Contract Act, an offeree becomes the acceptor
when accepting the proposal made by the offeror.1

- Agreement
The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When
the person to whom the proposal has been made signifies his assent
thereto, the offer is said to be accepted. Thus, the proposal when accepted
becomes a promise.”

So as the definition states, when the offeree to whom the proposal is made,
unconditionally accepts the offer it will amount to acceptance. After such an
offer is accepted the offer becomes a promise.

1
https://www.upcounsel.com/what-is-a-valid-offer-in-contract-law
Example - A offers to buy B’s car for rupees two lacs and B accepts such an
offer. Now, this has become a promise.

When the proposal is accepted and it becomes a proposal it also becomes


irrevocable. An offer does not create any legal obligations, but after the offer
is accepted it becomes a promise. And a promise is irrevocable because it
creates legal obligations between parties. An offer can be revoked before it
is accepted. But once acceptance is communicated it cannot be revoked or
withdrawn.2

- Consideration

Consideration is the benefit that each party receives, or expects to receive,


when entering into a contract. Consideration is often monetary, but it can
be a promise to perform a specific act, or a promise to refrain from doing
something. In order for a contract or agreement to be legally binding, every
party to the contract must receive some type of consideration. In other
words, a contract is a two-way street, so each party must receive
something of value from the other party or parties. Illegal or immoral acts
are not legally considered to serve as consideration.3

Example - Shubham agrees to sell his car to Raju for Rs 50,00,000. Raju’s
payment serves as consideration for Shubham’s promise to sell the car to
him. Shubham’s consideration is his promise to sell him the car.

- Contract
An agreement between two or more parties creating obligations that is
enforceable or otherwise recognizable at law. A contract is an agreement
enforceable by law. Contracts are promises that the law will enforce. The
law provides remedies if a promise is breached or recognizes the

2
https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/acceptance/
3
https://legaldictionary.net/consideration/
performance of a promise as a duty. Contracts arise when a duty does or
may come into existence, because of a promise made by one of the parties.
To be legally binding as a contract, a promise must be exchanged for
adequate consideration. Adequate consideration is a benefit or detriment
which a party receives which reasonably and fairly induces them to make
the promise/contract. For example, promises that are purely gifts are not
considered enforceable because the personal satisfaction the grantor of the
promise may receive from the act of giving is normally not considered
adequate consideration. Certain promises that are not considered contracts
may, in limited circumstances, be enforced if one party has relied to his
detriment on the assurances of the other party. A contract means an
agreement which is enforceable by law. An agreement consists of reciprocal
promises between the two parties. In case of contract, both the parties are
legally bound by the promise made by him. A contract to perform a promise
could arise in these ways: by agreement and contract, standard form
contracts, and promissory estoppel.4

- Performance of contract

The term ‘Performance of contract’ means that both, the promisor, and the
promisee have fulfilled their respective obligations, which the contract
placed upon them.

Example - A visits a stationery shop to buy a calculator. The shopkeeper


delivers the calculator and A pays the price. The contract is said to have
been discharged by mutual performance.

Section 27 of Indian contract Act says that :

The parties to a contract must either perform, or offer to perform, their


respective promises, unless such performance is dispensed with or excused
under the provisions of this Act, or any other law.

4
https://www.lawctopus.com/academike/contracts-and-quasi-contracts/
Promises bind the representatives of the promisor in case of the death of
the latter before performance, unless a contrary intention appears in the
contract.

Thus, it is the primary duty of each contracting party to either perform or


offer to perform its promise. For performance to be effective, the courts
expect it to be exact and complete, i.e., the same must match the
contractual obligations. However, where under the provisions of the
Contract Act or any other law, the performance can be dispensed with or
excused, a party is absolved from such a responsibility.5

Example - P promises to deliver goods to Q on a certain day on payment of


Rs 1,000. P expires before the contracted date. P‘s representatives are
bound to deliver the goods to Q, and Q is bound to pay Rs 1,000 to P‘s
representatives.

Explanation as per statute

Section 38 : Where a promisor has made an offer of performance to the


promise, and the offer has not been accepted, the promisor is not
responsible for non-performance, nor does he thereby lose his rights under
the contract.

Every such offer must fulfil the following conditions –

1) It must be unconditional.
2) It must be made at a proper time and place, and under such
circumstances that the person to whom it is made may have a
reasonable opportunity of ascertaining that the person by whom it is
made is able and willing there and then to do the whole of what he is
bound by his promise to do.
3) If the offer is an offer to deliver anything to the promisee, the
promisee must have reasonable opportunity of seeing that the thing

5
https://accountlearning.com/performance-of-contract-meaning-types-of-performance/
offered is the thing which the promisor is bound by his promise to
deliver.

An offer to one of several joint promisees has the same legal consequences
as an offer to all of them.

Example – P contracts to deliver to Q at his warehouse, on the 1 st March


2018, 100 bales of cotton of a particular quantity. In order to make an offer
of performance with the effect stated in this section, P must bring the cotton
the cotton Q’s warehouse on the appointed date, under such circumstances
that Q may have a reasonable opportunity of satisfying himself that the
thing offered is cotton of the quality contracted for, and that there are 100
bales.

Essentials of valid performance

1) It should be unconditional (Section 38)


2) It should be performance by promisor or by his representative
(Section 40)
3) It should be performed at proper time specified in the agreement or
within a reasonable time (Section 46-47)
4) It should be performed at the place specified in the agreement or at
the place to be appointed by the promise (Section 49)
5) The promise must have reasonable opportunity to ascertain (a) the
thing offered and (b) whether the performance is of the whole or of
a part [Section 38(1)(3)].

Offer to perform or Tender

The subject-matter of the present section is to be found under the head of


‘Tender’ in English books.
The first sub-section is chiefly, though not exclusively, appropriate to an
offer of payment, the second and third concern offers of other kinds of
performance, such as delivery of goods.

The principles were laid down in England in 1843 in Startup v. Macdonald:


“The law considers a party who has entered into a contract to deliver goods
or pay money to another as having substantially performed it, if he has
tendered the goods or money to the party to whom delivery or payment
was to be made, provided only that the tender has been made under such
circumstances that the party to whom it has been made has had a
reasonable opportunity of examining the goods or the money tendered, in
order to ascertain that the thing tendered really was that it purported to
be”.

Offer must not be of part only

With regard to the validity of an offer performance, it must be not only


unconditional, but entire, that is, it must be an offer of the whole payment
or a performance that is due.

It has been held by the High Court of Calcutta that a creditor is not bound
to accept a sum smaller than he is entitled to and therefore the tender of
such a sum does not stop interest running on it.

A so-called tender of less than the debtor admits to be due is not a tender
at all, but an offer of payment on account, which the creditor may accept
or not, and risks nothing, in point of law, by not accepting, though it is
often, in point of fact, unwise not to take what one can get. He may take
the debtor’s offered payment without prejudice to his claim, such as it may
be, to a further balance or a n y other right. The debtor is entitled to a
receipt for what he pays, but not to a release. A tender will be vitiated by
the addition of any terms which amount to requiring the creditor to accept
the sum offered in full satisfaction, or to admit in any other way that no
more is due.
Offer must be unconditional

“The person making a tender has a right to exclude presumptions against


himself by saying: ‘I pay this as the whole that is due’ : but if he requires
the other party to accept it as all that is due, that is imposing a condition;
and when the offer is so made, the creditor may refuse to consider it as a
tender”.

If a tender is accompanied by a condition which prevents it being a perfect


and complete tender, the other party is entitled to reject it. A cheque being
subject to being honoured by the bank, it is a conditional tender.

Offer at proper time and place

A tender of debt before the due date is not a valid tender and will not
prevent interest from running on the loan.

Reasonable opportunity

A tender of goods must be so made that the person to whom the goods are
offered has a reasonable time to ascertain that the goods offered are goods
of the quality contracted for. A tender made at such a later hour of the
appointed day that the buyer has no time to inspect them is not good.

Reasonable opportunity of inspection is all that the Act requires: it is the


receiving party’s business to verify, not the delivering party’s to supply
further proof that the goods are according to contract. The goods need not
be in the delivering party’s actual possession; control is enough.

Tender of money

Legal tender must be in the current coin of the country. A creditor is not
bound to accept a cheque because it is a conditional payment; but if a
cheque is tendered and received and the creditor or his agent objects only
to the amount, or makes no no immediate objection at all, he cannot
afterwards object to the nature of the tender. Downright refusal by the
creditor to accept payment at all precludes any subsequent objection to the
form of the tender.

As regards the payment by cheque, in recent cases the tendency is to treat


payment by cheque as an act of a prudent and reasonable man and a good
tender of rent by a tenant. Similarly, tender rent by money order has been
held to be a proper mode.

Offer to one of several joint promisees

A tender of rent by a lessee to one of the several joint lessors and of a


mortgage to one of several mortgagees would be a valid tender under this
section.

Judgement of the some related cases

1) Jan 20,1959 (HC)


Tadepalli Kutumba Rama Sastry Vs. Seetepalli Dakshina Murthy and ors.
Court : Andhra Pradesh

Reported in : AIR1960AP178

..... : (air 1915 pc 83) has succinctly dealt with the position of equity and law in dealing
with section 55 of the indian contract actas follows: 'the law applicable to the point is contained
in section 55 of the indian contract act, 1872, which provides that - 'when a party to
a contract promises to do a certain thing at or before a specified time, or certain things at or before
..... specified times, and fails to do any such thing at or before the specified time, the contract, or
so ..... it is therefore not open to the defendant to question the imperative nature of the operation
of section 39 of the contract act in the circumstances of this case. 12. from the foregoing it
follows that having regard to the application of sections 39 and 55 of the indian contract act, we
are firmly of the opinion that the refusal of the defendant to perform his part ..... . plainly therefore
even if nothing further had happened in this case, still we are firmly of the opinion that the plaintiff
could have availed himself of the rights available under section 59 of the indian contract act, as
in this case clearly there has been a refusal on the part of the defendant to perform his part of the
.....
2) Aug 01, 1973 (HC)
Govindlal Bhikulal Maheshwari and ors. Vs. Firm Thakurdas Bhallabhadas
...
Court : Mumbai

Reported in : AIR1974Bom164; 1974MhLJ106

..... . before we go to the authority on which reliance has been placed, it would be proper to refer
to the provisions of sections 38and 45 of the indian contract act. according to the learned
counsel for the defendant no.1, section 38 of the contract act clearly indicated that where there
are several joint promises would be sufficient to discharge the promisor from the liability under the
promise ..... amount due under the chithi and he was in law entitled to give a valid discharge to the
defendant no. 1. the learned counsel relied on the provisions of section 38 of
the indian contract act and the full bench decision of the madras high court in annapurnamma v.
akkayya ilr(1913) mad 544 in which it was held, white, c.j., dissenting, that one ..... talbot, j., put
the principle thus: the debtee's discharge of one joint and several debtor is a discharge of all'.
under the indian contract act, however, the position is entirely different as would be seen
from section 44 of that act, which provides that where two or more persons have made a joint
promise, a release of one of such joint promises by promisee ..... which was to be performed.
now, section 38 is in the following wards :'where a promisor has made an offer of performance to
the .....

3) Sept 19, 1952 (HC)


Jiwana Mal Vs. Khushi Ram
Court : Punjab and Haryana

Reported in : AIR1953P& H70

..... be still in the control of the appellant, should be handed over to the respondent as part of the
payment which he has to make.' 7. section 38, contract act, 1872, provides that offer of
performance must be uncondi- tional. clearly, the offer made on 29th of october 1949, was not
unconditional to be effective. if ..... appellate authority has come to the conclusion that the deposit
made on 29th october 1949, did not satisfy the requirements of the proviso to section 13 (2) (i) of
the act. 6. in -- 'narain das v. abinash chandar',air 1922 pc 347, lord buckmaster said: 'the tender
was accompanied by a condition ..... section 13 (2) (i) of the act. section 13 (2) (i) of
the act reads:'a landlord who seeks to evict his tenant shall apply to the controller for a direction
in that behalf. ..... 2. briefly summarized the facts of the case are these. on 11th august 1949,
khushi ram landlord applied under section 13, punjab urban rent restriction act, 1949, hereinafter
referred to as the act, for the eviction of jiwana mal tenant on the ground of non-payment of rent.
that application was rejected by ..... 19th november, 1949. 3. from the order passed by the rent
controller on 19th november 1949, the landlord appealed under section 15 of the act. 4. in the
appellate proceedings the point that arose for decision was whether the tenant had complied with
the requirements of the proviso to .....6

6
https://www.legalcrystal.com/cases/search/name:indian-contract-act-1872-section-38
Literature Review

Empirical Effects of Performance Contracts: Evidence From China


Mary M. Shirley, Lixin Colin Xu
The Journal of Law, Economics, and Organization, Volume 17, Issue 1, 1 April
2001, Pages 168–200
Published:
01 April 2001

Performance contracts (PCs)—contracts signed between the government


and state enterprise managers—have been used widely in developing
countries. China's experience with such contracts was one of the largest
experiments with contracting in the public sector, affecting hundreds of
thousands of state firms, and offered a rare opportunity to explore how PCs
work. On average, PCs did not improve performance and may have made
it worse. But China's PCs were not uniformly bad; in fact, PCs improved
productivity in slightly more than half of the participants. PC effects were
on average negative because of the large losses associated with poorly
designed PCs. Successful PCs were those that featured sensible targets,
stronger incentives, longer terms, managerial bonds, and were in more
competitive industries. Selecting managers through bidding was not
associated with performance improvement. Good PC features were more
often observed in state‐owned enterprises (SOEs) under the oversight of
local governments, that faced more competition, that were smaller in size,
and that had better previous performance.

Conclusion

In the end, I will conclude by saying that this project will help you
understand the concept of Section 38 of Indian Contract Act. I have tried
to cite other sections and acts as well which have some part of the given
the topic in order to expand one’s understanding of it. I have done the
literature review on an article as well which is closely related to Section 38
as I could not find any article directly relating to the topic I was looking for.

Bibliography

1. Contracts Impossible of Performance. (1909). University of


Pennsylvania Law Review and American Law Register

2. The Indian Contract Act, 1872, Bare Act, 2019

3. The Indian Contract Act by Sir Dinshaw Fardunji Mulla, 15th Edition

4. Website - Indian Kanoon, JSTOR.