This article is written by Shivangi Tiwari, a second-year student pursuing B.A. LL.B. from Hidayatullah National Law University, Raipur. This is an exhaustive article dealing with Offer of Performance.
The term “offer” has been defined under Section 2(a) of the Indian Contract Act, 1872. An offer is an expression of willingness made by a person to do or abstain from doing any act or omission with a view to obtaining the assent of the person to whom such an offer of act or abstinence is made.
The term performance in its literal sense means the performance of a task or action. In its legal sense “performance” means the fulfilment or the completion of the obligations which they have towards the other party by virtue of the contract entered into by them. For example, ‘A’ and ‘B’ enter into a contract, the terms of the contract state that A has to deliver a book to B on payment of the consideration of five hundred rupees. Here, B pays to A rupees five hundred and as stipulated in the contract, A delivers him the book.
Section 37 of the Contract Act talks about performance. According to the Section, there are two types of performance which are:
- Actual performance: Actual performance of the contract means the actual discharge of the liability or obligation which a person has undertaken to perform and there remains no other task which he is obliged to discharge under the promise. He is said to have made the actual performance of the promise.
- Attempted performance: At times when the performance becomes due. The promisor is not able to discharge his obligation or perform his duty because he is prevented by the promisee in doing so. This situation where the promisor actually intended to perform his obligation or discharge his duty but is prevented from doing so by an intervening disability is known as the attempted performance of a promise.
Attempted performance is also known as Tender. A tender can be of two types:
- Tender of goods and services: The discharge of the contract to deliver goods and services is completed when the goods are tendered for acceptance in accordance with the terms of contact. If the goods and services so tendered are not accepted they are to be taken back by the offeror and he is discharged from his liability.
- Tender of money: where the debtor tenders the money which is to be paid to the creditor but the debtor refuses to accept the money. The debtor is not discharged from the lability to pay back the money. Therefore, a tender of money can never result in the discharge of debt.
This article exhaustively deals with the tender of performance and its different aspects, the performance of a contract and joint promises and joint liabilities arising thereto.
Tender of performance
Section 37 to Section 39 specifically deals with the performance of the contract by the parties thereto. According to Section 37 of the Indian Contract Act, 1872 the parties to a contract are under the obligation to either perform or offer to perform the promises which have been agreed upon under the contract. Section 2(b) of the Indian Contract Act defines the meaning of promise as a proposal made by the offeror which has been accepted by the offeree. Thus, each party is under a legal obligation to perform his obligation which has been agreed upon under the terms of the contract. Unless the terms of contract expressly exempts or dispenses the performance of obligation upon the person.
The promises made by the parties to the contract after their death binds their representatives provided that no contrary intention appears from the terms of the contract. For example, if there is a contract between two persons ‘A’ and ‘B’ in which A promises to deliver to B some goods on the payment of a certain amount of money by B on a particular day. However, if A dies before the completion of contract, in that case, A’s representative will be bound by the promise made by him and therefore they are under the obligation to deliver goods to B and B is also under the obligation to pay the specified amount to A’s representative.
However, in the case where the promise is made with regards to the personal skills and art of the person then his representative will not be bound by the promise made by him. For example, in the case where A promised B to make him painting on a specified day for a certain price. A dies before the performance of the contract. Neither the representatives of A are not bound by the promise made by A nor B can compel the representative for the specific performance of the promise made by A.
The obligation of parties to perform
The obligations in a contract are those duties by which the parties to the contract have to abide by. In a contract, the parties to the contract usually exchange something of value in the eyes of the law. The thing which is decided to exchange can be the product, services, money, etc. An example of contract obligations is with the sale of a product such as an automobile. One party has the obligation to transfer ownership of the car, while the other has the obligation to pay for it. The contract will specify the terms that regulate the obligations, such as the method and amount of payment, and the time or place of delivery.
In the case of M. Kamalakannnan v. M. Manikanndan, there was a contract between the plaintiff and the defendant for the sale of the property. The plaintiff, in this case, retained some part of the money which was stipulated under the terms of the contract in order to compel the defendant for the performance of some of the obligations like vacating the property which was occupied by the tenants and handing over the vacant property to the plaintiff. The contention by the defendant was that non-payment of some part of the consideration resulted in the infringement of the terms of the contract.
In Geo-Group Communications INC v. IOL Broadband Ltd, the parties to the contract signed an agreement and they fully acted the terms of the agreements so much so that there arose no further need for the documents to be executed any further. The agreement was described as one of the preliminary and tentative drafts made for the purpose of discussion and deliberation only. When the contract was challenged in the court of law, the court held that the agreement was valid and it entitles the claimant for relief.
Submission of tender tantamounts to a proposal
When in response to an invitation a lender is submitted it is considered to be a proposal to contract and not the contract itself. In M/S Great Eastern Energy vs M/S Jain Irrigation Systems Ltd, the tender specified the validity period for four months. The court held that after the expiry of the period of tender, no acceptance could be made. The forfeiture of the security deposit amount by acceptance of the tender after the expiry of its validity period and failure of performance by the tenderer was not improper.
Promises bind the representatives of the promisor
The proviso attached to Section 37 of the Act provides that in case of the death of the promisors the representative of such promisors would be bound by the promises made by them unless a contrary intention appears from the terms of the contract. In the case of Basanti Bai vs Sri Prafulla Kumar Routrai, that in case a person dies without leaving behind any legal representative, then, in that case, the liability to perform the promise on his behalf would fall upon the person who acquires interest over the subject matters of the contract through that deceased party. The Cuttack High Court, however, held that in the present case, the plaintiff was not able to enjoy the above mentioned legal proposition as she was unable to prove the existence of the agreement which was alleged by her.
Clause for renewal
The Clause for renewal is the provision by which the terms of the contract initially agreed upon are renewed or recommenced.
In Hardesh Ores Pvt. Ltd vs M/S. Hede And Company, the terms of the contract contained a renewal clause. The party which have the authority in accordance with the terms of the contract to renew the same exercised it. However, the other party refused to accept the new terms caused by renewal. The Supreme Court held that in such a case the best course of action for the party who is empowered by the terms of the contract to renew the terms of the contract is to get the renewal declared and enforced by the court of law or to get the declaration of renewal of contract by the court.
Tender of performance
The offeror should offer the performance of an obligation under the contract to the offeree. The offer is made is called the “tender of performance”. It is the discretion of the promisee to accept the offer. In case the promisee chooses not to accept the offer then neither the offeror could be held liable for the non-performance of the terms of the contract nor he loses his rights under the terms of the contract. Therefore, it is a settled principle that non-acceptance of the tender of performance would result in the exclusion of the promisor from further performance of the terms of the contract and he is also entitled to sue the other party for not performing the terms of the contract. Section 38 of the Contract Act makes it clear that a tender of performance tantamounts to performance. Every tender of performance must fulfil a certain essential condition:
- Section 38(1): The offer should be unconditional;
- Section 38(2): The offer must be made at a proper time and place so as to allow the party to have a reasonable time for ascertaining that the person who is making the offer to him is competent to enter into a contract;
- Section 38(3): If the offer to the offeree is such as to deliver some goods addressed to the offeree then it is the duty of the offeror to provide reasonable time to the offeree in which he can ascertain that the goods offered to him is the same by which the offeror is bound under the terms of the contract.
Tender of performance should be unconditional
Subsection 1 of Section 38 states that a tender to valid must be unconditional which means that it should not be accompanied with any clause, provision or condition precedent or subsequent. In Haji Abdul Rehman Haji Mahomed, the court, in this case, explained the situations in which the tender becomes conditional. According to the court, when a tender does not follow the terms of the contract which were originally drafted and agreed upon by the parties, the tender becomes conditional. The reason for making it a necessary is because of the fact that it is not reasonable to compel a party to accept the modified or altered terms of contract which were not initially agreed upon by the parties. For example, if A offers to pay B a certain sum of money if B agrees to sell certain goods to him. It is a conditional tender and therefore it is invalid. Similarly in a case where A sent a single cheque for two items, only one of which was due at the time, while the other was payable after some time. The cheque being one and indivisible could be accepted as whole or not at all. It was held that the promisee was within his right in rejecting cheque.
The tender of performance must be made at a proper time and place
Section 38(2) of the Act mandates that the tender of performance should necessarily be made at a time and place and under such circumstances so as to afford the person to whom the offer is made a reasonable opportunity to ascertain that the offeror is able and bound to do whatever he has promised under the terms of contract to do.
In P.L.S.A.R.S., Sabapathi Chetty (Deceased) Vs. Krishna Aiyar, the court held that generally, the parties to the tender of performance fix the time and place. The tender of performance should mandatorily be made at the time and place stipulated under the contract. If the performance is made within the stipulated time and place then the promisor is under no further obligations.
In Startup v. Macdonald, the defendant purchased ten tons of linseed oil to be delivered to the plaintiff within the last fourteen days of the month of March. The plaintiff tendered the defendant at night on the fourteenth day. The defendant however citing the lateness of the tender rejected the acceptance of the tender. The court, in this case, held that the defendant should be held liable for the breach of the terms of the contract and the contention made by him that the late acceptance of the tender was made could not be entertained because, although the acceptance was made lately still the acceptance, was made before midnight.
In Afovos shipping co. v. R Pagnan, an international contract was entered into by the plaintiff and defendant. The term of the contract provided that the payment which formed the consideration of the contract should reach on the 14th day of the month, however, the defendant repudiated the contract before the 14th day of the month. The court held that the defendant should have delayed the repudiation of the contract till 14th of the month.
Section 138(2) of the Act also provides that the tender must be made under such circumstances so as to allow the other party to get reasonable opportunity to ascertain that the person who is making the tender is capable and willing to fulfil all the conditions mentioned under the contract. Section 138(3) of the Act provides that the goods which are subjected to tender must be same as mentioned under the description of the tender otherwise the tender will be invalid.
In Dixon v. Clark the court held that the fact that payment was tendered and refused in no ways discharges the debtor from his liability to make good of the payment of a debt.
In Vidya Vati vs Devi Das, the principle of old standing which was given in the above-mentioned case was endorsed. In the debtor was under the obligation of paying back his loan in order to recover the vacant possession of his premises and his tender was also rejected. However, the court held that debtor was not released from the obligation to pay prior to his recovery of the possession.
By whom contracts must be performed
Section 40 of the Contract Act contains provisions regarding the performance of the contract. The Section provides that if by the terms of the contract it appears that the intention of the parties to the contract was such that any promise contained in it must essentially be performed by the promisor himself and no other person on his behalf can perform his promise. In all the other contracts the terms of which do not indicate any similar intention then in the absence of the promisor for the performance of the promise any other competent person can perform the promise on his behalf. For example where A promises to B a certain sum of money. The money could be paid to B by A personally or by any other authorized person authorized by A on his behalf. If in the above case A dies without authorizing the person who can make the payment on his behalf. Then his representative will be bound to make the payment on his behalf or they can appoint any other person to do so.
Effect of accepting performance by the third party
Section 41 of the Contract Act contains provisions regarding the effect of acceptance of performance of promise by the third party. The Section provides that where the promisee agrees to performance of a promise which is made to him by the offeror, by the third party. He can not at a later point of time enforce the contract against the promisor who initially promised to perform the promise.
If the terms of the contract indicate that from the very beginning of entering into the contract the parties to the contract intended specific performance of the promise by the promisor himself. The effect of reflection of such intention would be that the promise should essentially be performed by the promisor himself and the promise can not be enforced against his legal representative nor can his legal representatives can enforce the promise. This type of situation can usually be seen in cases which involve the personal skills of the promisor himself.
Generally, the rules laid down under Section 37 is that the promises of the deceased promisor will bind his representatives. Therefore, the general principle of the law of contract is that unless there appears a contrary intention in the terms of the contract. The representatives of a deceased promisor are bound by the promise of the deceased and the promises of the deceased are enforceable against his representatives.
In the case of Kapur Chand Godha vs Mir Nawab Himayatalikhan Azamjah, the court declared that the English and the Indian law differs substantially on the point of performance of the contract by the representatives of the deceased promisor, in the British law system, the rule is that the third party or the representatives of the deceased promisor could discharge his obligations only in the cases where it is clearly evident from the promise that it was the intention of the parties while the formation of the promise to bind their representatives in case any of the promisors dies, in Indian law, however, the position with respect to the performance of the promise by the representatives of the deceased on contrary to the English law and the same could be inferred from the words of Section 41 of the Indian Contract Act, which leave no ray of doubt that in cases where the appellants expressly declare the intention of the performance of their promise from the third party, they can not afterwards enforce the promise against the promisor.
Section 42 of the Indian Contract Act talks about the joint promises. When two or more promisors agree to perform the terms of the promise together they are said to have made a joint promise and the people who jointly agreed to perform the promise are called the joint promisors. The section provides that the promisors are jointly liable to fulfil the promise until the terms of the contract provide anything to the contrary. The Section also provides that in case of death of any one of the joint promisors his legal representatives will be bound by the obligation under which the promisor was in his lifetime.
Performance of joint promises
According to English law, in a case where one of the several joint promisors dies. The surviving joint promisor would be bound by the rights and liabilities of the deceased joint promisors until a single joint promisor is alive the representatives of the promisor will not acquire any rights or liabilities. This rule is sometimes considered to put the creditor in the loss as he has no security of solvency of the creditors. This lacuna of the rule is filled by Section 42 of the Indian Contract Act.
Devolution of joint liabilities
Section 42 of the Indian Contract Act deals with the devolution of joint liabilities. According to the Section in case, there are several joint promisors involved in a contract by making a promise then during the joint lives of the promisors they must fulfil the promise jointly. In case of death of any of the joint promisor, the representatives of the deceased promisor along with the surviving promisors should strive to fulfil the promise. On the death of the last surviving promisor, the representatives of all the deceased promisors would be jointly liable for fulfilment of the promise. However, this legal proposition is subject to any private arrangement between the parties to the contract.
Devolution of joint liabilities
When two or more persons enter into a joint promise then unless a contrary intention appears by the contract all promisors during their joint lives and after the death of any of them their representatives will be bound jointly along with the surviving promisor or promisors. After the death of all the promisors, the representatives of all the promisors will be bound by the promise jointly entered into by the deceased promisors.
This Section provides security to the promisee by assuring him that the promisors would be bound by the promise made by them during their joint life and after the death of either of the promisor, their representatives will be bound by the promise made by the deceased promisor.
In Gannmani Anasuya & Ors vs Parvatini Amarendra Chowdhary, the court held that Section 42 shifts the burden of the fulfilment of the promise on the representatives of the deceased promisors. However, this liability is subject to the express or implied prescription of such provision by the promisors. Such prescription by the promisors could be inferred expressly or impliedly.
Joint and several liability
Subsection 1 of section 43 of the Indian Contract Act contains the important facets of the joint promises. According to the Section when two or more persons jointly make a promise. The promisee has the authority to compel any of such joint promisors in the absence of the contract expressly prohibiting the promisee to do so.
Each promisor may compel contribution
Subsection 2 of Section 43 provides that each of the promisors in a joint promise may compel the other promisors to contribute equally with him in the performance of the promise unless a contrary intention appears from the terms of the contract.
Sharing of loss by default in contribution
Subsection 3 of Section 43 provides that in the case where any two or more joint promisors makes default in making a contribution in the promise, then the burden of loss must be borne by the remaining promisors and should make good the loss suffered by the other party by contributing in equal shares.
The explanation attached to the Section provides that nothing contained under Section 43 of the Indian Contract Act shall prevent the surety, from recovering the money which he has paid on behalf of the principal nor the Section empowers the principal from recovering anything from the surety on account of the surety’s payment made on behalf of the principal.
Below are the different illustrations provided under Section 43 of the Indian Contract Act:
- A, B and C jointly promised D to pay him 3000 rupees. D has the authority to compel either A, B or C to make payment of 3000 rupees to him.
- A, B and C jointly made a promise to D to pay him 3000 rupees. D compels C to make complete payment of 3000 rupees. Initially when A, B and C made the promise jointly each of them was liable to pay D 1000 rupees. However, in the event of the complete payment by C, C is entitled to recover from the other joint promisors, the amount which he paid to D. here in this case, A is insolvent but he is capable of making payment of half of what he was liable to pay to D therefore, A is obliged to pay 500 rupees to C whereas B would be liable to pay C, the share which was stipulated under the promise which was 1000 rupees and half of the sum which was defaulted by A that is half of 500 rupees. Therefore, B has to make payment of rupees 1250 to C.
- A, B, and C jointly promise to D to pay him 3000 rupees. A is compelled to pay the entire sum of 3000 to D. C is not in the position to pay anything to A in order to make him recover the sum which he alone has to pay to D. in this case B has to pay the amount of sum which he was under the obligation to pay to D along with that B also has to pay half of the sum which C has defaulted to pay A, that is why B has to pay to A rupees 1000 and rupees 500 which equals to rupees 1500.
- A, B, and C jointly promise to pay D rupees 3000. A and B are the sureties to C, in case of inability of C to pay D which he owed to him, A and B made the payment on his behalf. Here A and B can recover the amount paid by them on behalf of C.
Section 43 of the Indian Contract Act lays down the following three rules:
- Rule 1: When a joint promise without any express agreement to the agreement, the promisee has the discretion of specifically making only one of the joint promisors to pay the amount which was jointly promised by the promisors to pay him. A, B, and C jointly promise to pay D rupees 3000. A can compel either of the three promisors to pay him the amount stipulated in the promise.
- Rule 2: Where a specific joint promisor was compelled to pay the entire promised sum. Then he may compel the other joint promisors to pay him the amount which they were obliged to pay to the person to whom they had promised to pay the stipulated amount.
- Rule 3: Where one of the joint promisors due to his inability to make payment defaults in making a contribution to pay the stipulated amount, the remaining joint promisors must bear the cost in equal shares. For example, A, B and C promise D to pay him rupees 3000. In case C is unable to pay anything to D then the amount owed by C must be borne in equal share by A and B. in case C is able to pay half of what he is obliged to pay to D, the remaining amount must be paid by A and B in equal shares to the person whom they promised to pay the amount.
Release of one joint promisor
Section 44 of the Contract Act grants the Right to release to the creditor under which he may release either of the joint promisors from liability. The section provides that where the creditor has released either of the joint promisors from the liability. The other joint promisors are not discharged from their liabilities and they are still bound to fulfil the promise which they have made to the person. The release of the promisor from his liability towards the promisee, however, does not result in his release from the liability which he has towards the other joint promisors.
Section 44 of the Indian Contract Act marks a departure from the common law principle in which the release of one of the promisors from liability tantamounts to the release of the other promisors from their liability towards the promisee. Unless the promisee expressly provides for the preservation of rights against them.
The term “offer” has been defined under Section 2(a) of the Indian Contract Act, 1872. An offer is an expression of willingness made by a person to do or abstain from doing any act or omission with a view to obtaining the assent of the person whom such an offer of act or abstinence is made.
The term performance in its literal sense means the performance of a task or action. In its legal sense performance means the fulfilment or the completion of the obligation of the parties which they have towards the other party by virtue of the contract entered into by them. For example, A and B enter into a contract the terms of the contract states that A has to deliver a book to B on payment of the consideration of five hundred rupees. Here, B pays to A rupees five hundred and as stipulated in the contract, A in return delivers him the book. Section 37 of the Contract Act talks about performance.
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