Fundamentals of Business Laws and Business Communication · Performance of Contracts

Effect of Refusal to Accept Offer of Performance (Section 38)

Updated 10 October 2026 · Fact-checked

Section 38 says that if a promisor makes a valid offer of performance (tender) and the promisee refuses it, the promisor is not responsible for non-performance and does not lose his rights under the contract. The refusal does not discharge the contract, which stays in force. The tender must be unconditional and for the whole promise.

Understand Effect of Refusal to Accept Offer of Performance (Section 38)

A contract must be performed. The promisor must do what he promised, and the promisee must accept it. But what if the promisor is ready and willing, and the other party simply refuses to take performance? Section 38 answers this.

An offer of performance is called a tender. When the promisor tenders performance and the promisee refuses, the law treats the promisor as having done his part. He is not responsible for non-performance. He cannot be sued for breach. He also does not lose his rights under the contract. He may enforce those rights as the law allows.

The refusal does not discharge the contract. The contract stays in force and the promisor remains bound by it. Section 38 only protects him from liability for the non-performance caused by the refusal.

This protection applies only if the tender is valid. Under Section 38, the offer must be:

unconditional;
for the whole of what the promisor is bound to do under his promise;
made at the proper time and place; and
made so that the promisee has a reasonable opportunity to ascertain that the promisor is able and willing to perform the whole promise. If goods are offered, the promisee must also be able to ascertain that the thing offered is what was promised.

The general rules on tender also expect the offer to be made to the right person. That point comes from the general rules, not from the wording of the section.

Section 38 applies to any obligation that is tendered, whether it is delivery of goods, a service or payment of money. In each case the promisor is not responsible for non-performance and does not lose his rights. If a tender of money is refused, the debt continues to exist. A tender of money does not by itself wipe out the debt.

Think of a simple case. Ravi agrees to deliver 100 bags of rice to Meena on 5 May at her shop. He arrives on 5 May with the right rice, in working hours. Meena refuses to take it. Ravi is not in breach, and Meena cannot say he failed to deliver. Ravi does not lose his rights under the contract, and the contract is still in force.

Key formulas to remember

Section 38 rule: Valid tender + refusal by promisee = promisor not responsible for non-performance + promisor keeps his rights under the contract + contract not discharged (it remains in force); Applies only when the tender is valid. A defective tender gives no protection.
Conditions of a valid tender (Section 38): Unconditional + for the whole obligation + proper time and place + reasonable opportunity for the promisee to ascertain that the promisor is able and willing to perform the whole promise (and, for goods, that the thing offered is what was promised); These are the conditions in the section itself. A conditional or partial tender is not valid, so the promisee may refuse it without penalty.
General rule on tender: Made to the right person; This comes from the general rules on tender, not from the wording of Section 38.
Tender of goods or services refused: Promisor is excused from liability, keeps his rights under the contract, and the contract remains in force; He may enforce those rights as the law allows.
Tender of money refused: Promisor not responsible for non-performance and keeps his rights; the debt continues to exist; A tender of money must be in legal tender, for the exact amount, and unconditional. Section 38 applies to any obligation tendered, but a refused tender of money does not by itself extinguish the debt.

How to solve Effect of Refusal to Accept Offer of Performance (Section 38) questions

Use this method for any question on refusal of a tender. Decide first whether the tender was valid, then apply the effect.

1Identify the promisor (the one who tendered) and the promisee (the one who refused).
2Check whether there was an actual offer of performance. A mere statement of readiness is not enough.
3Test the tender against the Section 38 conditions: unconditional, for the whole obligation, at the proper time and place, and with a reasonable opportunity for the promisee to ascertain that the promisor is able and willing to perform the whole promise (or that the goods offered are what was promised). Then apply the general rule that the offer is made to the right person.
4If any condition fails, the tender is invalid. The promisee's refusal is lawful and Section 38 does not protect the promisor.
5If the tender is valid, state that the promisor is not responsible for non-performance and keeps his rights under the contract.
6Add that the refusal does not discharge the contract. It remains in force. Do not say the contract ends, and do not say the debt is wiped out if the tender was of money.
7Write the final conclusion in one line naming the effect.

Quickest way: Two-step test for Section 38 MCQs

When to use it: Use it for any MCQ or short scenario where a promisee refuses performance.

Ask: was the tender valid (unconditional, whole, proper time and place)? If no, the promisor gets no protection.
If yes, the promisor is not responsible for non-performance and keeps his rights. This holds for goods and for money.
Eliminate options saying the contract is cancelled or the promisor loses all rights. Both are wrong under Section 38.

Common mistakes in Effect of Refusal to Accept Offer of Performance (Section 38)

Saying the contract ends automatically when the promisee refuses a valid tender.
Students link refusal with termination.
Fix: Remember that Section 38 only excuses the promisor from liability. He keeps his rights under the contract, and the contract is not discharged. It remains in force.
Applying Section 38 to a conditional or partial tender.
Students skip checking validity.
Fix: Always test the tender first. Only a valid tender, unconditional and for the whole obligation, gives the protection.
Believing Section 38 says a refused tender of money wipes out the debt.
Students read 'not responsible for non-performance' as 'nothing more is owed'.
Fix: Section 38 only says the promisor is not responsible for non-performance and keeps his rights. It does not discharge the contract or the debt. The debt continues to exist after a refused money tender.
Treating a verbal statement of readiness as a tender.
The words 'offer of performance' sound like an offer to perform.
Fix: A tender needs an actual attempt to perform, not just a statement that you are ready.
Thinking the promisee's refusal makes the promisor liable for damages.
Students confuse who bears the consequence of the refusal.
Fix: When a valid tender is refused, the promisor is not liable for non-performance and keeps his rights.

Worked examples

Example 1

Anil agrees to deliver 50 sacks of wheat to Bhavna at her godown in Pune on 10 June during working hours. Anil arrives on time with the correct wheat. Bhavna refuses to accept it without giving any reason. What is the legal position?

Show the solution

Promisor: Anil. Promisee: Bhavna.
Anil actually brought the wheat, so there is an offer of performance.
Check validity: the whole quantity, the agreed place, the agreed date, working hours, and the correct goods. Nothing is conditional.
The tender is therefore valid.
Under Section 38, Bhavna's refusal means Anil is not responsible for non-performance.
Anil also keeps his rights under the contract and may enforce them as the law allows. The refusal does not discharge the contract, which remains in force.

Answer: Anil is not liable for non-performance. His valid tender was refused, he keeps his rights under the contract, and the contract remains in force.

Example 2

Which statement is correct? Sunil owes Tara ₹50,000 under a contract, due on 1 July. He offers exactly ₹50,000 unconditionally at the agreed place on that day, but Tara refuses to take it. (A) Sunil loses all his rights under the contract. (B) Sunil is not responsible for non-performance and keeps his rights under the contract. (C) The contract becomes void. (D) Sunil is liable for non-performance because Tara refused.

Show the solution

Promisor: Sunil. Promisee: Tara.
The tender is of the exact amount, unconditional, for the whole sum, at the agreed place and on the due date. It is valid.
Under Section 38, when a valid tender is refused, the promisor is not responsible for non-performance and does not lose his rights. The contract is not discharged, and the debt continues to exist.
Option A is wrong because he keeps his rights. Option C is wrong because Section 38 does not make the contract void. Option D is wrong because he is not responsible for non-performance.

Answer: Option B. Sunil is not responsible for non-performance and keeps his rights under the contract. The contract is not discharged and the debt continues to exist.

Exam tips

Look for the word 'valid' or clues such as conditional, partial or wrong place. These decide whether Section 38 applies.
When options say the promisor loses his rights, the contract is void or the contract is cancelled, reject them. Section 38 protects the promisor and leaves the contract in force.
Section 38 applies to any obligation tendered, including money. For money, remember that the debt continues to exist after a refused tender. Do not pick an option saying the debt is wiped out.
Read who refused. The refusing party is the promisee. The effect falls on the promisor: he is not liable for non-performance and keeps his rights.
Link this topic with Section 37 and with offer of performance, since questions often mix them.

Practice questions from Performance of Contracts

Effect of Refusal to Accept Offer of Performance (Section 38): frequently asked questions

What does Section 38 of the Indian Contract Act say?

It says that when a promisor offers to perform and the promisee refuses, the promisor is not responsible for non-performance. He also does not lose his rights under the contract. The refusal does not discharge the contract, which remains in force. The tender must be valid for this to apply.

Does a refused tender of money wipe out the debt under Section 38?

No. Section 38 applies to any obligation tendered, including payment of money. The promisor is not responsible for non-performance and keeps his rights, but the debt continues to exist. A tender of money does not by itself extinguish the debt.

What makes a tender valid?

Under Section 38, it must be unconditional, for the whole of the promise, and made at the proper time and place. The promisee must have a reasonable opportunity to ascertain that the promisor is able and willing to perform the whole promise, or that the thing offered is what was promised. The general rules also expect the offer to be made to the right person. Missing any of these makes the tender invalid.

What can the promisor do if his valid tender is refused?

Section 38 says he keeps his rights under the contract. He may enforce those rights as the law allows. He is not responsible for non-performance, but the contract is not discharged and remains in force.