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CMA Foundation · Fundamentals of Business Laws and Business Communication · Performance of Contracts

Under Section 38 of the Indian Contract Act, 1872, what is the legal effect when a promisor makes a valid offer of performance (a tender) and the promisee refuses to accept it?

When a valid offer of performance is refused by the promisee, the promisor is not responsible for non-performance and keeps his rights under the contract. The refusal does not discharge the contract or penalise the promisor, because he has done all that the law requires of him.

  1. AThe contract is automatically discharged and the promisor loses all rights under it
  2. BThe promisor is not responsible for non-performance and does not lose his rights under the contractCorrect
  3. CThe promisor must repeat the offer every day until the promisee accepts it
  4. DThe promisor becomes liable to pay compensation to the promisee for the refusal

Explanation

Section 38 states that where an offer of performance has been made and not accepted, the promisor is not responsible for non-performance and does not lose his rights under the contract. The contract is therefore not discharged, so the option saying all rights are lost is wrong. The Section also does not make the promisor liable to pay compensation.

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