Performance (Tender) – The Indian Contract Act 1872 Notes

 

Introduction
Under the Indian Contract Act, 1872, the concept of performance plays a crucial role in determining the fulfillment of obligations under a contract. Performance of contract refers to the carrying out of the duties and promises made by both parties involved in a contract. Once the parties fulfill their respective promises, the contract is said to have been performed. Section 37 of the Indian Contract Act lays down the obligations of the parties to a contract, stating that the parties must either perform or offer to perform their promises unless such performance is dispensed with or excused under the provisions of the Act.

One critical aspect of performance is the tender of performance, where one party offers to fulfill its obligations but is either prevented from doing so by the other party or the latter refuses to accept the performance. This article will discuss what is performance of contract, the concept of tender of performance, and the various types of performance under Indian contract law.

What is Performance of Contract?

The performance of contract refers to fulfilling the terms agreed upon by the parties in the contract. It is the completion of the obligations and promises by each party. A contract can be performed either by the parties themselves or by a third party on their behalf if the contract permits. Performance can be actual or attempted depending on whether the obligations have been fulfilled or an attempt has been made to do so.

Section 37 – Obligations of Parties to Perform

Section 37 of the Indian Contract Act mandates that the parties to a contract must either perform or offer to perform their obligations as agreed. If one party fails to perform or refuses to accept the performance of the other party, they are in breach of the contract, which can give rise to remedies such as damages.

Example:
A agrees to deliver goods to B on a specified date. A delivers the goods as promised, fulfilling his obligation, while B accepts the goods and makes the agreed payment. Here, both parties have performed their contractual obligations.

Types of Performance of Contract

1. Actual Performance:
   Actual performance occurs when both parties fulfill their respective obligations as per the terms of the contract. Once actual performance is completed, the contract is discharged.
   Example: A sells his car to B, and both parties fulfill their obligations—A delivers the car, and B pays the agreed amount. The contract is thus discharged through actual performance.

2. Attempted Performance (Tender of Performance- Section 38):
   Attempted performance, also known as a tender of performance, happens when one party offers to perform their part of the contract, but the other party refuses to accept it. Despite the refusal, the party making the offer is considered to have discharged their obligation.
   Example: A offers to pay B the price of goods as agreed in the contract, but B refuses to accept the payment. A’s tender of performance discharges A’s liability.

Promisor is not responsible for non performance and they can sue the promisee for breach of contract – nor he (promisor) thereby lose his rights under the contract.

Essential of Valid tender

• Unconditional
• At a proper place
• For whole obligation
• Of exact amount and in legal tender money
• At proper time
• Reasonable opportunity to Promisee

What is Tender of Performance Under the Indian Contract Act?

Tender of performance refers to an offer made by one party to fulfill their part of the contract. If the other party refuses to accept the offer or obstructs the performance, the offering party is deemed to have performed their part of the contract and is discharged from further liability. Section 38 of the Indian Contract Act, 1872, provides that if one party offers to perform and the other party refuses to accept it, the party making the offer is no longer liable for non-performance, and the contract may be discharged.

Tender or offer of performance to be valid must satisfy the following conditions:-

1. It must be unconditional
   Ex :- ‘X’ offers to ‘Y’ the principal amount of the loan. This is not a valid tender since the whole amount of principal and interest is not offered.
2. It must be made at a proper time and place.
   Ex:- If the promisor wants to deliver the goods at 1 am. This is not a valid tender unless it was so agreed;
3. Reasonable opportunity to examine goods.
   Ex:- Delivery of something to the promise by the promisor promise must have reasonable opportunity of inspection.
4. It must be for the whole obligation :- goods and amount.
   Ex:- ‘X’ a debtor, offer’s to pay ‘Y’ the debt due in installments and tenders the first installment. This is not a valid tender minor deviation – not invalid [Behari lal v ram gulam]
5. It must be made to the promise or his duty authorized agent.
   Ex:- It must be person who is willing to person his part of performance.
6. In case of payment of money, tender must be of the exact amount due and it must be in the legal tender.

Example of Tender of Performance:
A agrees to paint B’s house by a certain date. A arrives at B’s house with the necessary equipment on the agreed date, but B refuses to let A begin the work. Since A was ready and willing to perform, A is deemed to have tendered performance, and B’s refusal discharges A from further obligation.

Legal Provisions Governing Performance and Tender

• Section 37: Performance of Promise
  • Section 37 of the Indian Contract Act, 1872, outlines the basic obligation of parties to perform their respective promises. It ensures that contracts are binding and enforceable, subject to the provisions of the Act that may excuse or modify the requirement for performance.
• Section 38: Effect of Refusal to Accept Performance
  • Under Section 38, if one party offers to perform its obligation and the other party refuses to accept it, the party offering to perform is deemed to have fulfilled its duty, even though the actual performance did not take place. The refusal does not result in a breach of contract on the part of the offering party.

Types of Tender

• Tender of goods and services
  When a promisor offers to delivery of goods or service to the promise, it is said to be tender of goods or services, if promisee does not accept a valid tender, It has the following effects:
  • The promisor is not responsible for non – performance of the contract.
  • The promisor is discharged from his obligation under the contract. Therefore, he need not offer again.
  • He does not lose his right under the contract. Therefore, he can sue the promise.

• Tender of money
  Tender of money is an offer to make payment. In case a valid tender of money is not accepted, it will have the following effects:
  • The offer or is not discharged from his obligation to pay the amount.
  • The offer or is discharged from his liability for payment of interest from the date of the tender of money.

Effect of refusal of party to perform promise Wholly Sec 39.

Promisor – Refuse – Promise – wholly

Promisee can put – can end of the contract or – he can continue the contract if he has given his consent either by words or – by conducts in its continuance.

Result – claim damages. [compensation]

Who can demand performance?

1. Promisee – stranger can’t demand performance of the contract.
2. Legal Representative – legal representative can demand Exception performance.
   • contrary intention appears from the contract
   • contract is of a personal nature.
3. Third party – Exception to “stranger to a contract”

Person by whom promise is to be performed Sec 40

[who will perform the contract ]

1. Promisor himself :- include personal skill, taste or art work.
   Ex:- ‘A’ promises to paint a picture for ‘B’ as this promise involves personal skill of ‘A’. If must be performed by ‘A’.
2. Promisor or agent :- [does not involves personal skill]
3. Legal Representative [does not involve personal skill and taste]
4. Third person [Sec 41] :- Acceptance of promise from the third party:-
   If the promisor accepts performance of a contract by a third party, he can’t after wards enforce the performance against the promisor although the promisor had neither authorized not ratified the act of the third party.

[In other meaning once the promise accepts the performe from a third person, he cannot compel the promisor the perform the contract again]

Performance of Joint Promises:-

Two or more person make a promise

• Performed by all the joint promisor [42]

• All the joint promisor – liable

• Thus in India the liability of joint promisors is joint as well as several.

In England, however the liability of the joint promisors is only joint and not several and accordingly all the joint promisors must be sued jointly.

• Liability of joint promisor [43]

1. Liability – joint as well as several [unless express A + B + C 900 D. D may compel either A, B or C or any of two of them or all of them.
2. Where a joint promisor has been compelled to perform the whole promise, be may compel every other joint promisor to contribute equally with himself to the performance of the promise (unless a contrary intention appears from the contract).
   C – 9000 – D    A(3000)  +  B(3000) – C
3. If any one of the joint promisors make default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares
   A + B + C – 9000                                (A) – Insolvent B + C = 4500 + 4500 = 9000

Sec 44:- Release of one joint promisor :- where one of the joint promisors is released other joint promisors shall continue to be liable.
[In English law if one joint promisor – discharge then all the joint promisors discharge]

Sec 45:- Rights to claim performance of joint [Devolution of joint rights]

1. During their joint lives – all the joint promisors .
2. After the death of any of them – The representative of such deceased promise jointly with the surging promise
3. With the representatives of all jointly.
   Ex:- ‘A’ in consideration of Rs 50,000 lent to him by ‘B’ and ‘ C’ promises ‘B’ and ‘C’ jointly to replace them that sum with interest on a day specifies.
   ‘B’ dies. The right to claim performance rests with ‘B’ representatives jointly with ‘c’ during ‘C’ life.
   And after ‘C’s death with the representatives of ‘B’ and ‘C’ jointly .

Time place and manner of performance [46 – 50]

1. No time is specified for performance [Sec 46]
   • Time of performance is not specified + promisor agreed to perform without, a demand from the promise the performance must be made within a reasonable time. Reasonable time – in each particulars case – a question of fact.
2. Time specified but hour not mentioned [47].
   Time of performance specified + promisor agreed to perform without application by the promisee
   • Performance must perform on the day fixed during the usual business hours and at the place at which the promise ought to be performed.
3. Where Time is fixed and application to be made [48]
   • Proper place and within the usual hour of business
   • Promisee to apply for performance
4. Performance of promise where no place is specified and no application is to be made by the promise [49]
   • It is the duty of the promisor to apply to the promise to appoint a reasonable place for the performance and perform it at such appointed place.
5. Performance in manner or at time prescribed or sanctioned by promise [50]
   • In such prescribed manner and
   • Prescribed time

Ex:- ‘A’ desires ‘B’ who owes him Rs 10,000 to send him a promissory note for Rs 10,000 by Post. The debt is discharged as soon as ‘B’ puts into the post a letter containing the promissory note duly addressed to ‘A’.

Performance of reciprocal promises

Reciprocal Promise :- Promises which form the consideration or part of consideration for each other as called reciprocal promises.

1. Mutual and Independent:- Such promises all to be performed by each party independently without waiting for the other party to perform his promise can’t excuse himself on the ground of non-performance by the default party.

1. Mutual and Dependent:- Sue damage . The performance of promise by one party depended on the prior performance of the promise by other party.
   [The party at fault becomes liable to pay compensation to the other party may sustain by the non performance of the contract – [54]
2. Mutual and concurrent: – when reciprocal promises are to be performed simultaneously a promisor need not perform his part unless the promise is ready and willing to perform [51]

Order of performance of reciprocal promises [52]

• Where the order in which reciprocal promises one to be performed is expressly fixed by the contract – they must be performed in that order.
• Order is not expressly fixed – nature of transaction requires

Ex :- ‘A’ and ‘B’ contract that ‘A’ shall build a house for ‘B’ at a fixed price ‘A’ promise to build the house must be performed before its promise to pay for it.

Sec 53 :- One party preventing – voidable at the option of the other party so prevented.

– Compensation for loss

Sec 54 :- Legal and illegal

Legal – valid, illegal – void

Sec 58:- alternative promise, one branch being illegal legal branch alone can be enforced.

• A – B – 1000 rupees
• Deliver – rice + smuggled goods

Time as the essence of the contract (Sec 55)

Where time is essence – the concerned parties must perform their respective promises within the specified time.

Time are fact :- time is specified for the performance of the contract is not by itself sufficient to prove that time is essence of the contract- Intention of the parties.

Time is generally considered to be the essence of the contract :-

• where the parties have expressly agreed to treat as the essence of the contract.

• Delay operates as an injury to the party and

• Nature and necessities of the contracts requires it to be performs within the specified time.
  • Delivery of the goods – considered – essence of the contract payment of the price – No

[However in case of sale and purchase of an immoral property, the time is presumed to not the essence of the contract]

Time is essence of the contract – party tails to perform

• In time – the contract becomes voidable at the option the other party.

Time is not essence – only claim damages for delay in performance

Assignment of contract :- (a) by – operation of law

• Death
• Insolvency

(b) By an act of parties

Assignment is a made of transferring rights.

Rules regarding assignment

• The liabilities or obligations under a contract can’t be assigned
• The rights and benefits under a contract which not of a personal nature can be assigned.
• An actionable claim can always be assigned

	Succession	Assignment
Meaning   Time Voluntary Act   Written document Scope	Deceased person – Legal represent On the death of a person Not      voluntary      automatic      by operation of law No. required   Liability and rights	Person – another person   During the life time of a person Voluntary Required assignment deed Rights

Appropriation of Payments :- [ Sec 59 – 61]

• Appropriation means application of payments – The question of appropriation of payments arises when a debtor owes several debts to the same creditor and make a payment that is not sufficient to discharge the whole indebtness.

1. Appropriation of Payments
   Sometimes, a debtor owes several distinct debts to the same creditor and he makes a payment which is insufficient to satisfy all the debts. In such a case, a question arises as to which particular debt the payment is to be appropriated. Section 59 to 61 of the Act lay down following rules as to appropriation of payments which provide an answer to this question.
   • Appropriation as per express instructions
     Every debtor who owes several debts to a creditor has a right to instruct his creditor to which particular debt, the payment is to be appropriated or adjusted. Therefore, where the debtor expressly states that the payment is to be applied to the discharge of a particular debt, the payment must be applied accordingly.
     Example : A owes B three distinct debts of Rs.2,000, 3,000 and 5,000. A sends Rs.5,000 and instructs B that the payment should be appropriated against the third debt. He is bound to appropriate the payment against the third debt only.
2. Application of payment where debt to be discharge is not indicated [60]
   If section 60 is attracted, the creditor shall have the discretion to apply such payment for any lawful debt which is due to him from the person making the payment.
   Example: A owes to B, among other debts, the sum of Rs.520. B writes to A and demands payment of this sum. A sends to B Rs.520. This payment is to be applied to the discharge of the debt of which B had demanded payment.
3. Application of payment where neither party appropriates [61]
   The payment shall be applied in discharge of the debts in order of time whether they are or are not based by the limitation Act 1963, if the debt are of equal standing (i.e. payable on the same date) the payment shall be applied in discharge of each of these debt proportionately.
   • First interest then principle
   • Director of payer not receiver.
   • Right primary of the debtor

[whatever is paid, paid according to the intention of paying it]

• [Quickquid soivitur , sovitur secundum modem solventies]

Example: A owes B, the following debts:

A sends Rs. 1,500 in the month of June. He neither expressly intimates nor circumstance of the case imply as to which debt the amount is to be applied. Moreover, B also does not appropriate the payment at his own discretion. Therefore, the payment will be appropriated in order of time. However, here in this case two debts are of equal standing. The payment will, therefore, be appropriated in order of time but to all equal standing debts. In this case, Rs.1,500 will be appropriated towards the first two debts of equal standing proportionately, i.e. in the ratio of 2:1.

Importance of Performance of Contract in Business Law

The performance of contract in business law is vital to ensure that contractual obligations are met, thus fostering trust and smooth commercial transactions. In business law, performance is essential as it determines whether the parties have fulfilled their responsibilities, leading to the discharge of the contract or legal consequences in the case of non-performance. The actual performance of a contract ensures that the contractual relationship ends on satisfactory terms, while the tender of performance protects a party that attempts to fulfill their obligation.

What is the Performance of a Tender?

Performance of a tender refers to the actual or attempted fulfillment of a contract by one party offering to complete their side of the agreement. When the tender is refused by the other party, the party offering the tender is released from their liability under the contract. The performance of a tender is a safeguard in contract law, ensuring that parties are protected from unjust refusal or obstruction by the other party.

Latest Case Law on Performance and Tender of Performance

Union of India v. Trilok Nath (2022)
In this case, the Supreme Court of India reiterated the importance of tender of performance under Section 38. The court ruled that when one party attempts to fulfill its obligations under the contract and the other party unjustifiably refuses to accept the performance, the party offering performance is deemed to have discharged its liability, and the contract can be treated as discharged.

State Bank of India v. Nitin Goel (2021)
This case dealt with the issue of attempted performance in loan repayment. The borrower made a tender of payment to the bank, but the bank refused to accept the payment due to procedural delays. The court held that the tender of performance by the borrower was valid, and the bank’s refusal did not constitute non-performance on the borrower’s part.

Conclusion

The performance of contract is a key element of contract law under the Indian Contract Act, 1872. It involves fulfilling the promises and obligations agreed upon by the parties. Section 37 of the Act governs the general principles of performance, while tender of performance under Section 38 provides protection for parties who attempt to fulfill their obligations but are met with refusal. Understanding the types of performance, including actual performance and attempted performance, is essential for law students, legal professionals, and businesses alike. The concept ensures that contracts are honored and that parties can seek legal recourse in case of non-performance.