Performance of Contract under Sections 37 to 39 of the Indian Contract Act, 1872: The Obligation to Perform, Actual and Attempted Performance, Essentials of a Valid Tender, and Refusal to Perform Wholly

Chapter IV opens with three sections that set the framework for everything that follows. Section 37 states the obligation and identifies its only escapes. Section 38 deals with the party who is ready and willing but is met by a promisee who will not accept, and gives him a way of protecting himself without actually performing. Section 39 deals with the opposite case, where a party refuses to perform or puts it out of his power to do so, and gives the other party an election. Between them they cover the two things that can go wrong before the time for performance arrives: the promisee will not take performance, or the promisor will not give it.

1. The Obligation: Section 37

Section 37, Indian Contract Act, 1872

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 of any other law.

Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.

Illustrations. (a) A promises to deliver goods to B on a certain day on payment of one hundred rupees. A dies before that day. A's representatives are bound to deliver the goods to B, and B is bound to pay the hundred rupees to A's representatives. (b) A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract cannot be enforced either by A's representatives or by B.

1.1 Actual and attempted performance

The section offers the promisor two ways of satisfying his obligation. Actual performance is doing what was promised, and it discharges the obligation. Attempted performance, or tender, is an offer to perform which the promisee refuses to accept; it does not discharge the obligation in every case, but it discharges the promisor from liability for non-performance and preserves his own rights. Section 38 states its requirements.

1.2 Performance by representatives

The second paragraph binds the representatives of a deceased promisor unless a contrary intention appears. The two Illustrations show where the line falls. A contract to deliver goods is impersonal and passes to the estate; a contract to paint a picture depends on the skill of the particular person and dies with him. The liability of the representatives is limited to the extent of the estate that has come into their hands, and they are not personally liable beyond it.

The same refusal, two very different consequences

2. Tender of Performance: Section 38

Section 38, Indian Contract Act, 1872

Where a promisor has made an offer of performance to the promisee, 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 a reasonable opportunity of seeing that the thing 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.

2.1 The essentials of a valid tender

It must be unconditional. A tender coupled with a demand the promisee is not bound to meet is no tender. Offering payment on condition that the creditor sign a discharge in full of all claims, where more is owed, is a conditional tender.
It must be of the whole obligation. A tender of part of what is due is ineffective, unless the contract provides for performance in instalments.
It must be at a proper time and place. Within the period fixed, during usual business hours, and at the place at which performance is due under Sections 47 to 49.
It must be made to the proper person, that is the promisee or his authorised agent, and an offer to one of several joint promisees suffices.
The promisor must be able and willing there and then to perform the whole of what he is bound to do, and the promisee must have a reasonable opportunity of ascertaining that.
Where goods are tendered, the promisee must have a reasonable opportunity of inspection to see that they answer the contract description.

📖 Dixon v. Clark, (1848) 5 CB 365

Facts: A debtor pleaded that he had tendered the sum due before the action was brought, that the creditor had refused to accept it, and that he had always been ready and willing to pay. The question was what such a plea requires and what its effect is.

Held: The court explained the nature of the plea of tender. A valid tender requires an offer of the exact sum due, in lawful money, made unconditionally and without requiring the creditor to give anything in return beyond a receipt. Its effect is not to discharge the debt, which remains payable, but to show that the debtor was never in default. The debtor who pleads tender must also bring the money into court and show continuing readiness to pay.

Ratio: A tender of money must be unconditional and of the exact amount due. It does not extinguish the debt but relieves the debtor of the consequences of default, and must be kept good by bringing the money into court.

2.2 Tender of goods and tender of money compared

	Tender of goods	Tender of money
Effect if refused	The promisor is discharged from liability for non-performance and may treat the contract as broken by the promisee	The debtor is relieved of default but the debt remains payable; he is not discharged
Additional requirement	The promisee must have a reasonable opportunity of inspection under Section 38(3)	The sum must be the exact amount due and in legal tender
Continuing obligation	The promisor need not tender again	The debtor must remain ready and willing and, if sued, must bring the money into court
Interest and costs	Not applicable	A valid tender stops the running of interest from its date and protects the debtor in costs
Risk in the subject matter	Ordinarily passes to the promisee on a valid tender that is refused	Not applicable

⚠ A valid tender of money does not extinguish the debt

This is the single most frequent error on Section 38. Refusal of a tendered payment does not wipe out the liability. What it does is protect the debtor: he ceases to be in default, interest stops running from the date of the tender, and if the creditor afterwards sues, the debtor who pleads tender and brings the money into court will ordinarily recover his costs. The obligation to pay survives, and the creditor may demand the money at any time. The position is different for a tender of goods, where refusal ordinarily entitles the seller to treat the contract as broken by the buyer.

3. Refusal to Perform: Section 39

Section 39, Indian Contract Act, 1872

When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

Illustrations. (a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during the next two months, and B engages to pay her one hundred rupees for each night's performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to put an end to the contract. (b) In the same case, if with B's assent A sings on the seventh night, B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A's failure to sing on the sixth night.

3.1 The two triggers

Refusal to perform. An express renunciation, or conduct from which a reasonable person would conclude that the party does not intend to be bound. The refusal must be clear and absolute; a statement of difficulty, a request for indulgence or an assertion of a mistaken view of the contract is not by itself a repudiation.
Disabling himself from performing. The party has put it out of his power to perform, for example by selling the specific goods to another, by incapacitating himself, or by voluntarily entering a state of affairs inconsistent with performance. Disability must be self-induced; supervening impossibility not caused by the promisor is governed by Section 56.

3.2 The requirement of entirety

Section 39 requires the refusal or disability to relate to the promise in its entirety. A partial failure does not by itself entitle the promisee to put an end to the contract; it sounds in compensation. Where the failure is of a severable part, the promisee may claim damages for that part and must perform the rest. Where the failure goes to the root of the contract and deprives the promisee of substantially the whole benefit, it is treated as a refusal of the entirety.

4. The Promisee's Election

Section 39 gives the promisee a choice, and it is a real one with consequences that follow immediately. He may put an end to the contract, or he may signify his acquiescence in its continuance. He cannot do both, and once he has elected he cannot go back.

	Putting an end to the contract	Acquiescing in its continuance
Effect on the contract	The contract is discharged as to future performance from that point	The contract remains alive for both parties
The promisee's own obligations	He is relieved from further performance	He must remain ready and willing to perform his own promises
Remedy for the breach	Damages under Section 73 for the loss caused by the breach	Damages for any loss caused by the particular default, as Illustration (b) shows
Risk to the promisee	He must be right that the other party did repudiate in its entirety, or his own withdrawal becomes the breach	He remains exposed to supervening events that may discharge both parties
How it is signified	By notice or by conduct treating the contract as at an end	By words or conduct, including continuing to accept performance

📖 Avery v. Bowden, (1855) 5 E & B 714

Facts: A ship was chartered to proceed to Odessa and there load a cargo within a stated number of running days. On arrival the charterer's agent repeatedly told the master that he had no cargo and advised him to sail away. The master nonetheless remained at the port, insisting on a cargo, until before the loading days expired the Crimean War broke out and further performance became illegal as trading with an enemy.

Held: The shipowner could not recover. Assuming that the charterer's statements amounted to a renunciation, the master had elected to keep the contract alive rather than to treat it as at an end. The contract therefore remained on foot for the benefit of both parties, and when the outbreak of war made performance unlawful the contract was discharged by that supervening event, which excused the charterer as well.

Ratio: A promisee who declines to accept a repudiation keeps the contract alive for both parties, and takes the risk that a supervening event will discharge it and defeat his claim.

⚠ Wrongly treating conduct as repudiation is itself a repudiation

The election under Section 39 is exercised at the promisee's own risk. If he puts an end to the contract on the footing that the other party has refused to perform in its entirety, and the court afterwards holds that the conduct fell short of that, then the promisee's own withdrawal is the wrongful act, and he becomes the party in breach. The safer course where the position is doubtful is to call for an assurance of performance within a stated time, and to treat a failure to give it as the refusal.

5. The Position Stated Shortly

Section 37 requires the parties to perform or to offer to perform unless performance is dispensed with or excused by the Act or by another law.
Promises bind the representatives of a deceased promisor unless a contrary intention appears, and contracts of personal skill are the standard exception.
Attempted performance under Section 38 relieves the promisor of responsibility for non-performance and preserves his rights.
A valid tender must be unconditional, of the whole obligation, at a proper time and place, to the proper person, with ability and willingness there and then, and with an opportunity of inspection where goods are tendered.
Dixon v. Clark: a tender of money must be of the exact sum and unconditional, and must be kept good by bringing the money into court.
A refused tender of money does not discharge the debt but stops interest and protects the debtor in costs; a refused tender of goods ordinarily entitles the promisor to treat the contract as broken.
Section 39 applies where a party refuses to perform or disables himself from performing the promise in its entirety.
The promisee may put an end to the contract or acquiesce in its continuance, and the election is final.
Avery v. Bowden: keeping the contract alive keeps it alive for both parties, and a supervening event may then discharge it.
A promisee who wrongly treats conduct as repudiation becomes the party in breach himself.

6. Related Topics and Provisions

Topic or provision	Connection
Anticipatory Breach under Section 39	Repudiation before the due date, and the remedies
By Whom Contracts Must Be Performed under Sections 40 to 45	Personal performance, third persons and joint promisors
Performance of Contracts under Sections 37 to 67	The chapter as a whole
Time and Place of Performance under Sections 46 to 50	What makes the time and place of a tender proper
Section 37, Indian Contract Act	The obligation and the liability of representatives
Section 38, Indian Contract Act	Tender and its three conditions
Section 39, Indian Contract Act	Refusal to perform wholly and the promisee's election
Section 56, Indian Contract Act	Supervening impossibility not caused by the promisor
Section 73, Indian Contract Act	Compensation for loss caused by breach