CMA Foundation · Fundamentals of Business Laws and Business Communication

Performance of Contracts for CMA Foundation Paper 1

Performance of contracts means the parties must either perform their promises or offer to perform them, unless the law excuses them. If a valid tender is refused, the promisor is not responsible for non-performance and keeps his rights. A refused tender of money does not discharge the debt. Check the tender's conditions first, then apply the section.

What this chapter covers

This chapter deals with what happens after a contract is made. The Indian Contract Act, 1872 says each party must perform the promise, or offer to perform it. It also says what follows when one side offers to perform and the other refuses, or when one side blocks the other from performing.

The chapter is short and built on four linked ideas: the duty to perform (Section 37), the offer of performance called a tender, the effect of refusing a valid tender (Section 38), and the promisee's duty to give reasonable facilities (Section 67). Each idea leads to the next, so they are best learned as one chain.

The opening part of Section 38 says: where a promisor has made an offer of performance to the promisee and it has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract.

Section 38 then lists conditions, in clauses (1) to (3), that the offer must meet to be a valid tender:

Clause (1): it must be unconditional.
Clause (2): it must be made at the proper time and place, and in circumstances where the promisee can ascertain that the promisor is able and willing there and then to do the whole of what he promised.
Clause (3): for an offer to deliver goods, the promisee must get a reasonable opportunity to see that the thing offered is what the promisor is bound to deliver.

The closing paragraph of Section 38 adds the rule for joint promisees: an offer to any one of them has the same legal consequences as an offer to all.

Two further points are taught along with tender, and they come from general principles, not from the wording of Section 38:

The offer must be made to the promisee or his authorised person.
For money, the exact amount due must be offered in legal tender.

A refused tender of money does not discharge the debt. The debtor remains liable to pay. What the opening part of Section 38 gives him is that he is not responsible for non-performance and does not lose his rights under the contract.

Section 67 covers a related situation. If the promisee neglects or refuses to give the promisor reasonable facilities for performance, the promisor is excused for any non-performance caused by that neglect or refusal. This does not by itself end the contract.

This chapter connects to the rest of Paper 1 in two ways. It builds on the earlier chapters on offer, acceptance, consideration and free consent, which decide whether a contract exists at all. It also leads into discharge of contracts, breach and remedies, where non-performance has consequences.

This chapter is small, so you can finish it quickly and be ready for any question on it. The questions are usually short, rule-based and scenario-driven, which suits an MCQ paper with no negative marking. The rules are few, and clear conditions let you eliminate wrong options fast. Strong scores here also give you a base for the discharge and breach chapters, where the same ideas return in different forms.

Performance of Contracts: topics in the order to study them

1Obligation of Parties to Perform Contracts (Section 37)Start here because it sets the basic duty to perform or offer to perform, which the other topics build on.
2Offer of Performance (Tender) and Its EssentialsNext, learn what makes a tender valid, because Section 38 only works when the tender meets those conditions.
3Effect of Refusal to Accept Offer of Performance (Section 38)Study this after tender, since it states the result of a valid tender being refused. Note that a refused tender of money does not discharge the debt.
4Neglect of Promisee to Afford Facilities (Section 67)Finish with this, as it covers a related situation where the promisee prevents performance, and it is easier once you know tender and refusal.

How to prepare Performance of Contracts

Aim for rule clarity, not memorising text. Most questions give a short situation and ask you to pick the legal result.

Read Section 37 in plain words and note that parties must perform or offer to perform, unless performance is excused by law or by agreement.
List the essentials of a valid tender in a short checklist of your own. From Section 38 itself: unconditional (clause 1), proper time and place with the promisor able and willing there and then to do the whole promise (clause 2), and a reasonable chance to see the thing offered for goods (clause 3). Add the closing-paragraph rule that an offer to any one of joint promisees is enough. Then add the two extra principles: made to the promisee or his authorised person, and the exact amount for money. Recite it until it is automatic.
Link tender to Section 38 by writing one line: valid tender refused means the promisor is not responsible and does not lose his rights, but a money debt is not discharged.
Learn Section 67 as the promisee's duty to give reasonable facilities, and note the effect when he fails to do so.
Make three small scenarios per topic using rupees and Indian names, and decide the legal result before checking your notes.
Practise MCQs and, for each wrong option, name the exact condition that makes it wrong.
Revise the checklist and the section-to-effect pairs the day before the exam.

Common mistakes in Performance of Contracts

Applying Section 38 to any offer of performance, even an invalid one.
Fix: Run the tender checklist first. Only if every condition is met do you apply Section 38.
Thinking a refused tender cancels the contract or wipes out the debt.
Fix: Remember the promisor keeps his rights under the contract. For money, the debt is not discharged: the debtor remains liable to pay.
Mixing up Section 38 and Section 67, or treating their effects as the same.
Fix: Tie Section 38 to refusal of a valid tender: the promisor is not responsible for non-performance and keeps his rights under the contract. Tie Section 67 to neglect of reasonable facilities: the promisor is excused for the non-performance that neglect caused, and Section 67 does not by itself end the contract.
Treating a conditional offer as a valid tender.
Fix: Ask whether the offer adds any condition beyond what the contract says. If it does, it is not a valid tender.
Treating a part payment or wrong amount as a valid tender of money.
Fix: For money, the exact amount due must be offered. Less or more than the amount due is not a valid tender.
Assuming performance is always compulsory.
Fix: Note that performance may be excused by law or by agreement, and look for such facts in the question.

Last-day revision: Performance of Contracts

Section 37: parties must perform, or offer to perform, their promises.
Performance can be excused by law or by agreement of the parties.
A valid offer of performance is called a tender.
Section 38, clause (1): a tender must be unconditional.
Section 38, clause (2): a tender must be made at the proper time and place, so that the promisee can ascertain the promisor is able and willing there and then to do the whole of what he promised.
Section 38, clause (3): for an offer to deliver goods, the promisee must have a reasonable chance to see that the thing offered is what the promisor is bound to deliver.
Closing paragraph of Section 38: an offer to any one of several joint promisees has the same effect as an offer to all.
Taught with tender from general principles: it is made to the promisee or his authorised person.
For a tender of money, the exact amount due must be offered in legal tender.
Opening part of Section 38: if a valid tender is refused, the promisor is not responsible for non-performance and does not lose his rights under the contract.
A refused tender of money does not discharge the debt. The debtor remains liable to pay.
Section 67: the promisee must give reasonable facilities for performance.
If the promisee neglects or refuses to give such facilities, the promisor is excused for the non-performance caused by it. The contract is not ended by Section 67 alone.
Always check whether the tender is valid before applying Section 38.

Performance of Contracts practice questions

Performance of Contracts: frequently asked questions

What is a tender in the Indian Contract Act?

A tender is an offer to perform a promise. Under Section 38 it must be unconditional and made at the proper time and place, so that the promisee can ascertain the promisor is able and willing there and then to do the whole promise. For goods, the promisee must also get a reasonable chance to see the thing offered. It is also taught that it goes to the promisee or his authorised person, and for money the exact amount is offered. Only a valid tender gives the promisor the protection of Section 38.

What happens if a valid tender is refused?

Under the opening part of Section 38, the promisor is not responsible for non-performance. He also does not lose his rights under the contract. If the tender was of money, the debt is not discharged, and he remains liable to pay.

How is Section 67 different from Section 38?

Section 38 is about refusal of a valid tender. There the promisor is not responsible for non-performance and does not lose his rights under the contract. Section 67 is about the promisee neglecting or refusing to give reasonable facilities for performance. There the promisor is excused for the non-performance caused by that neglect or refusal, and the contract is not ended by Section 67 alone.

How many MCQs can I expect from this chapter?

The number can change from term to term, so do not rely on a fixed count. The chapter is short, so it is worth learning fully to secure every question that comes from it.