This article is written by Sujitha S, pursuing law at the School of Excellence in Law, Chennai. This article tries to analyse the aspect of contracts dealing with the refusal of an offer of acceptance. It further briefs on the persons involved and its legal implications with relevant case laws.

Introduction

There are certain conditions that must be followed in order to make a contract. Following the creation of the contract, the next stage is the fulfilment of the object that the parties intended. The responsibility of any party under the contract ends if the object is met. The performance of a contract is essential for its discharge. The most fundamental definition of performance is to fulfil the contract’s requirements. The general rule of performance is that a contractual commitment must be fulfilled exactly and entirely. According to common perception, performance entails carrying out all components of the contract that the parties have agreed to, and if all aspects are not met, the contract is not properly executed. As a result, the promisor must offer to execute his obligation to the promise. This is known as a “tender of performance.” The promisee then has to accept the performance. If he refuses, the promisor is not accountable for non-performance and does not lose his contractual rights. If the other party rejects the offer of performance, the other party has the right to sue for breach of contract. This article discusses the refusal of such an offer.

Performance of a contract

In India, Section 37 of the Indian Contract Act, 1872 clarifies the need to perform a contract’s obligations. Unless the performance is dispensed with or excused under the terms of the Indian Contract Act or any other legislation, each party is required to execute his or her responsibility under the contract. The Section also states the extent to which the promises bind the legal representatives of deceased promisors.

Illustration:

On payment of Rs. 1000, ‘A’ pledges to deliver products to ‘B’ on a specific day. Before that day, ‘A’ had passed away. The products must be delivered to ‘B’ by ‘A’s representatives, and ‘B’ must pay ‘A’s representatives Rs. 1000.

Obligation to perform 

A contract provides a legal obligation that remains until it is discharged. The duty to perform is unwavering. The conditions of the agreement bind both parties. For example, the lessee cannot claim immunity from liability under the lease by claiming that his name on the lease was only Benami, and that the true lessee was his father. On the other hand, where all of the partners had signed documents in furtherance of the bank in connection with the loan on behalf of the firm, a simple declaration by one of them that he alone was liable to repay the loan would not bind the bank, because the bank had a contract with all of the principal borrowers. If the contract does not include a contingency, a party cannot claim extra consideration based on the fact that he had to spend more funds to handle the contingency.

In M/S. Kanoria Chemicals vs. U.P. State Electricity Board & Ors(1997), the electricity board published a notification requesting interest on late payments of power costs, which was delayed. But the petition was eventually dismissed. The petitioners sought to overturn the surcharge/interest demand, claiming that the sum could not be paid because of the stay order. The Supreme Court dismissed the writ petition, ruling that interim orders did not relieve the petitioners of their obligation to pay sums owed, nor did they prohibit them from paying the electrical rates.

In M. Kamalakannan vs. M. Manikanndan (2011), the purchaser of the property kept some money in order to persuade the seller to fulfil certain duties, such as evicting tenants and giving over empty possession.  The relevant paperwork indicated that the transaction was a sale with consensus ad idem. The Madras High Court held that non-payment of a portion of the selling amount did not constitute a breach of contract since it was a completed contract.

In Geo-Group Communications Inc vs. JOL Broadband Ltd (2009), the parties signed an agreement that was completely implemented without the need for further documentation. The agreement was presented as a preliminary and unofficial copy for discussion purposes only. When there arose a dispute over the documentation, the Supreme Court determined that the agreement was complete and that the claimant was entitled to remedy.

Submission of tender is a proposal

It is a proposal, not a contract when a tender is presented in response to an invitation. It demands acceptance. The tender’s validity time is usually four months, as stated in the tender itself. Naturally, no acceptance can be made once the time limit has passed. In the case of Great Eastern Energy Corpn Ltd vs. Jain Irrigation Systems Ltd (2010), the Bombay High Court concluded that loss of the security deposit amount by accepting the offer after the validity time had expired and the tenderer had failed to fulfil was not lawful.

Promises bind representatives of the promisor

Additionally, the provision states that unless the contract expressly states otherwise, a promise binds the promisors’ representatives in the event of his death. In United India Insurance Co Ltd vs. Kiran Combers & Spinners, (2007), the insurer, being a representative, could not be awarded the benefit of any structural problem not observed by the company, since it had verified that the insured building was a first-class structure.

Further, the Orissa High Court decided in Smt. Basanti Bai vs. Prafulla Kumar Routrai (2006) that this concept would apply even if the promisor had left no legal successor. However, in this case, the appellant was not aided by this legal argument, since she had failed to prove the existence of the claimed agreement.

Offer of performance: tender

The promisor must make an offer to the promisee to fulfil his contractual obligations.  This offer for performance is referred to as a ” tender.” The promisee must then accept the performance. The promisor is not accountable for non-performance, nor does he lose his rights under the contract if he refuses. In other words, if the other party rejects the tender for performance, the promisor is excused from further performance and has the right to sue the promisee for breach of contract. This is how Section 38 of the Indian Contract Act, 1872 operates.

In Jai Durga Finvest (P) Ltd vs. State of Haryana and Ors., (2004), the issue was related to the contract on the mining lease. This contract could not be completed due to certain acts and omissions on the side of the government. Hence, the Supreme Court of India did not permit the forfeiture of security money.

In United India Insurance Co Ltd vs. M/S. Pushpalaya Printers, (2004), the insurance includes, among other things, the protection of buildings in case of damage caused by “impact.” Eventually, a passing bulldozer inflicted damage to the structure without really touching it. The issue was whether the harm was covered by Insurance or not. The Supreme Court determined that the harm was caused by impact and that the insurance company is liable to pay the required. 

Who must perform

Usually, the contract should be executed by the promisor himself, although it can also be fulfilled by his agents or legal representatives in specific circumstances. Normally, the following  can perform a  contract:

  • Promisor: If it seems from the nature of the contract that the parties intended for the promise to be completed by the promisor himself, such promise must be fulfilled by the promisor. This is most common in contracts involving individual skill, taste, or artistic works. For instance,  ‘A’ agrees to paint a painting for ‘B’.  This promise requires ‘A’s own expertise, it must be fulfilled by ‘A’.
  • Agent: When a contract does not require the promisor’s personal skill, the contract may be fulfilled by the promisor or any competent person hired by him for the purpose. For example, if ‘A’ promises to “pay ‘B’ a sum of money,” ‘A’ may fulfil this promise by paying the money personally to ‘B’ or by having it paid to ‘B’ by his authorised agent.
  • Legal representative: Contracts that do not need any individual skill or taste can be carried out by the promisor’s legal representative after his demise. For instance, ‘A’ agrees to deliver products to ‘B’ on a specific day in exchange for a payment of Rs. 2,000. ‘A’ passes away before the appointed time. ‘A’s legal representatives must deliver the products to ‘B’, and ‘B’ must pay ‘A’s legal representatives Rs. 2,000. If, on the other hand, the contract includes some personal skill or taste, it expires when the promisor dies.
  • Third person: A contract may be completed by a third party in some instances if the promisee agrees to the arrangement. Once the promisee accepts the performance of a third party, he cannot compel the promisor to fulfil the contract again, according to Section 41.
  • Performance of joint promises: When two or more people make a joint promise, Section 42 states that the joint promisors must keep the promises throughout their lives. If one of them dies, his legal agents and survivors must carry out the promise together. For example, ‘A’, ‘B’ and ‘C’ agree to pay Rs. 3,000 to ‘D’ jointly. ‘A’ dies, ‘B’ and ‘C’, as well as ‘A’s legal agent, are jointly and severally responsible to ‘D’ for the sum. The ‘devolution of joint liabilities’ rule is the name for this regulation. It is, nevertheless, subject to the requirement that the contract contains no other intention. In other words, if the contract reveals an opposite purpose, the rule stated above will not apply.

Who can refuse an offer of performance

Promisee

In several contracts, the promisee is the only person who may demand that the promise be fulfilled. Even though the contract was formed to his advantage, a third party cannot necessitate performance. For instance, ‘A’ pledges ‘B’ to pay ‘C’ Rs. 500. ‘B’, not ‘C’, is the one who has the authority to demand answers.

Legal representative

If the promisee dies, his legal representative can claim execution unless the contract expressly states otherwise or the contract is of a personal character. For instance, ‘A’ agrees to marry ‘B’. However, before getting married, ‘A’ dies. As it is a personal contract, ‘B’s legal representative cannot claim for the fulfilment of the pledge from ‘A’.

Third party

Even if he is not a party to the contract, the third party might demand performance in some extraordinary circumstances. In other words, even a stranger to a contract may enforce an obligation:

  • The beneficiary of a trust has the right to enforce the contract. In Nawab Khwaja Muhammad Khan vs. Nawab Husaini Begam (1910), Husaini Begam sued her father-in-law Khwaja Muhammad Khan for Rs. 15,000 in arrears of allowance known as Kharchi-i-Pandan-betel box expenditures (Pinmoney) owing to her by Khwaja Khan under an agreement established between him and her father, in consideration of her marriage to Khwaja Khan’s son. The bride and groom were both minors when they got married. The guarantee was held by the Bombay High Court to be enforced by Husauni Begam.
  • The provision of marriage expenditures for female members of a Joint Hindu Family operates on the same concept, entitling the female member to claim for such expenses on a split between male members as held in Rukhminibai vs. Govind (2008).
  • In the case of an obligation or liability that results from a previous performance. For example, when ‘X’ gets money from ‘Y’ with the purpose of delivering it to ‘Z’ and acknowledges to ‘Z’ that he has received it, ‘X’ becomes ‘Z’s agent and is obligated to pay the money to him.
  • In the event of a family settlement, if the terms of the agreement are reduced to paper, family members who were not initially participants in the dealing may enforce the agreement as observed in the case of Shuppu Ammal And Anr. vs. K. Subramaniam And Ors. (1909)
  • When a contract is assigned and the benefit under the contract is assigned, the assignee can enforce the contract. This was very well emphasised in the case of Krishna Lal Sadhu And Anr. vs. Pramila Bala Dassi (1928).

Joint promises

When a person makes a joint promise to two or more people, the promise may be demanded either by

  • All the promisee jointly.
  • In the event of the death of any of the joint promisees, by the deceased person’s representatives, in concert with the remaining promisees.
  • In the event of the death of all joint promisees, by their joint representatives. As a result, joint promisees’ rights are solely joint, and none of them may demand performance unless it was previously agreed. For example, ‘A’ pledges B and ‘C’ to return them Rs. 5,000 plus interest on a specific date in exchange for a consideration of Rs. 5,000 lent to him by ‘B’ and ‘C’. ‘B’ dies. During ‘B’s lifetime, the right to claim performance is shared by ‘B’s representation and ‘C’, and after ‘C’s death, it is shared by ‘B’s and ‘C’s representatives.

Effect of refusal to accept an offer of performance

Section 38 states that if the promisee rejects the promisor’s offer of performance, the promisor is not liable for non-performance. The promisor will not be considered to have performed the duty if the promisee refuses to accept the performance. It liberates the promisor from having to execute that obligation. However, it does not cancel the contract. It allows the promisor to terminate the contract and sue for damages. It also lays out the requirements for a valid offer to perform, including the following:

  • It must be unconditional;
  • It must be made at an appropriate time and place, and under such conditions that the person to whom it is made has a reasonable opportunity to determine that the person is competent and willing to execute the entire thing he is obligated to do by his promise there and then;
  • If the offer is to deliver anything to the promisee, the promisee must have a fair chance to inspect the object given to ensure that it is the thing that the promisor is obligated to deliver under his promise.

Refusing a money tender does not relieve the debtor of his liability to pay. Indeed, he must remain ready and prepared to do so. The tender may serve as a good defence in debt recovery, exempt him from paying interest beyond the tender date, and entitle him to court fees.

The tender must be unconditional

The tender must not have any conditions attached to it. The tender should be open-ended. A tender must not only comply with the contractual requirements, but it must also be devoid of any conditions, as it is unreasonable to force the other party to accept an altered or otherwise modified performance. For example, ‘A’ submitted a single cheque for two products, one of which was due at the time and the other was payable later. As the cheque is one and indivisible, it can either be accepted in its entirety or in part. The promisee was found to be within his rights to refuse the check.

In Haji Abdul Rahman vs. Haji Noor Mahomed (1892), the highest amount acquired through tenders was deemed to be less, thus, a conference of all tenderers was summoned to allow them to revise their figures. The adoption of the best deal so obtained was ruled to be not arbitrary. In Navin Chandra vs. Yogendra Nath Bhargava (1965), the landlord received two cheques from the tenant. The landlord refused to accept these cheques and demanded that the rent be paid in cash. The landlord sued the tenant for eviction since he did not pay in cash. The tenant claimed that because he had offered payment (by cheque), it was a lawful tender of rent payment, and thus the landlord could not evict him. A debtor cannot claim a legal right to make payment via cheque if the creditor insists on being paid in cash unless the cheque is recognised as a valid tender by agreement or custom. The landlord was justified in denying payment by cheque on the grounds that it was not a legal tender because the parties were not business people, the debt did not emerge from a business transaction, and there was no agreement or practice authorising payment by cheque. As a result, the ejectment operation was successful.

Tender must be made at a proper time and place

The contract often specifies the time and place of performance. If the promise is made in this manner, the promisor has no further obligations if the tender is not approved. This was established in Startup vs. Macdonald in 1843. In this case, the defendant purchased ten tonnes of linseed oil from the plaintiff to be delivered during the final 14 days of March. The plaintiff filed his complaint on the fourteenth day, at 9:00 p.m. Due to the hour being late, the defendant declined to accept. He was found accountable for the infringement because the jury determined that, while the hour was unreasonable, the defendant had enough time to take in and weigh the products before midnight. He should have accepted the tender, and the contract would have been actually completed as a result.

Moreover, the tender must be submitted in such a way that the opposite party has a fair chance to determine whether the person submitting the offer is capable and willing to execute the whole of his contract obligations. If the tenderer is required to provide anything to the promisee, the latter must have a fair chance to inspect the item delivered to ensure that it is the item that the promisor is obligated to deliver under his promise. To put it another way, the items presented must match the contract description; otherwise, the tender will be rejected. If there are numerous joint promisees, the promisor is not obliged to offer performance to each of them. A tender to any of them has the same legal implications as a tender to all of them.

Reasonable opportunity

A tender must be written in such a way that the person receiving the goods has a reasonable amount of time to verify if the items are of the quality specified in the contract. The Act solely demands a reasonable chance for inspection. It is the responsibility of the receiving party to check, not the delivering party, that the items are in accordance with the contract. A few pointers are:

  • The goods do not have to be in the delivering party’s hands; control is sufficient.
  • As observed in the case of In Re: Andrew, Yule And Co. vs. Unknown (1931), the natural place of evaluation is the place of delivery.
  • A tender that did not reveal the sender’s identity is deemed invalid.
  • An insurance cover containing currency notes totalling the whole amount owed is not legal tender since the creditor was not obligated to accept the insured cover and take risk of it, not comprising the complete amount due.

Tender in case of joint promises

In the instance of numerous joint promisees, it is stated in Section 38 of the Indian Contract Act, 1872, that an offer to one of the several joint promisees has the same legal implications as an offer to all of them. It is evident from the preceding explanation that where there are many joint promisees, an offer of performance, that is, a tender to one of them, will be recognised as a valid tender. 

Is it true that if the promisor tenders the performance to one of the joint promisees and it is accepted, the promisor is discharged? In this regard, Indian law varies from English law. The Madras High Court in Barber Maran vs. Ramana Goundan, (1897), held that Section 38 did not require the debtor to satisfy all joint promisees before obtaining a complete discharge and that a release of a mortgagor by one of two mortgagees on payment of the mortgage debt discharged the mortgagor as against the other mortgagee. Later, in M. Annapurnamma vs. U. Akkayya And Two Ors. (1912), a full Bench of the Madras High Court upheld the judgement and concluded that one of the numerous payees of a negotiable instrument might offer a valid discharge of the entire obligation without the cooperation of the other payees.

The principle of the decision in the Barber Maran case applies only where there are two or more joint promisees. It does not extend to co-heirs who are not joint promisees but heirs of a single promisee, and a release of the debtor by one of the heirs of the deceased creditor in exchange for payment of the amount owing on the bond is not a valid discharge. This rule does not apply when a debt is owed by a joint Hindu family and that is only owed by one person. In such a circumstance, he is the person who is prima facie entitled to recover it, and a payment made to him is a proper discharge of the obligation; if the payment is given to any other family member, it is not a discharge, unless there are circumstances explaining the payment. When a bond is transmitted to the manager of a joint Hindu family, payment to a junior family member during the manager’s lifetime does not relieve the promisor of his obligation under the bond.

Liability for refusal to accept an offer of performance

As previously stated, in case of a tender, if the promisor is willing to perform the contract and offers it to the promisee, who is under no obligation to accept it, then, the promisor cannot be held liable for non-performance of the contract, nor does he lose his contractual rights.  Similarly, neglecting to provide a reasonable opportunity for the promisor to complete the tender or contract discharges the promisor from the performance of the contract. The promisor, on the other hand, has the option of either terminating the agreement or suing for damages for breach of contract. Section 73 of the Indian Contract Act, offers compensation for losses or damages incurred by breach of contract. When a contract is infringed, the party who suffers loss or damage as a result of the breach is entitled to compensation.

In Govind Prasad Dalmia vs. West Bengal State Electricity Board (2014), the corporation supplied at agreed prices and there was no proof that the opposite party accepted supply at escalating costs. The supplier postponed supplies in the hope that the increased prices would be paid. The agreed penalty amount was levied rather than damages for the breach, and the deduction from the invoices was deemed reasonable. In Kunwar Singh Rawat vs. State of Uttaranchal and Anr. (2007), the government has secured a contract for the construction of classrooms in the state. Eventually, the school building was damaged after the work was done before the remaining amount was paid. The contractor was permitted to recover the balance money after the inquiry report found that the damage was caused by floods and landslides rather than bad construction.

Conclusion

Under Section 2(a) of the Indian Contract Act of 1872, the term “offer” is defined. An offer is an expression of a person’s willingness to do or refrain from performing any act or omission in exchange for the consent of the person to whom the offer is made. In its literal sense, the term performance refers to the execution of a job or action. In legal terms, performance refers to the parties’ fulfilment or execution of their obligations to one another arising from the contract they have entered into. Tender is another term for an offer of performance. Section 38 of the Indian Contract Act, 1872, lays forth the requirements for a lawful offer of performance or tender. If the promisor offers to perform the contract to the promisee, and if the promisee rejects the offer, the promisor cannot be held liable for non-performance of the contract, nor does he lose his rights under the contract. The aggrieved party has the option of filing a lawsuit for damages or terminating the contract.

References


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