Introduction:
A tender is nothing but an offer. An “offer to perform” is referred to as a “tender” under English law. Generally, parties to a contract must either perform or offer to perform, their respective promises, unless the performance is dispensed with or excused under the provisions of the Contract act or any other law.[1] Section 38 of the Indian Contract Act,1872 deals with the “effect of refusal to accept the offer of performance”. But the word “tender” is not used in Section 38 of the act. An invitation for tenders for the supply of goods or for the execution of works is not an offer, it is an invitation to offer. It is the only attempt to ascertain whether an offer can be obtained within such a margin as the employer is willing to adopt or not.
When the promisor has made a valid offer of performance/tender to the promisee, then if the offer has not been accepted by the promisee, the promisor is not responsible for non-performance and he doesn’t lose any rights under the contract. A valid tender of performance is the same as performance. It is also known as “attempted performance” or “tender.”
Essential Requisites to a Valid Tender/Offer of Performance:
The essential requirements of a valid offer of performance/tender are stated under Section 38 of the Indian Contract Act, 1872.
Tender must be unconditional[2]
Subclause (1) of Section 38 provides that the tender must be unconditional, which means tender must be free of any provision, clause or condition precedent or subsequent. In order to be legally enforceable, an offer of performance should not only be based on the contractual terms, but the promisor should also not attach any condition to it, because it is not reasonable to compel the other party to accept an altered or otherwise modified performance, whatsoever.[3]
For example, if X offers to pay Y a certain sum of money if Y agrees to sell certain goods to him (X). In this scenario, X placed a condition on Y, that if Y agrees to sell, X pays a certain sum of money to Y. It is a conditional tender, so it is invalid.
In the case of Sitaram v Ramrao[4], the appellants wanted the mortgagees to accept the sum of Rs. 1,000 either in full satisfaction of the amount due on the mortgage or to release the property sold to them out of the mortgaged property, the court held that the tender of the promisor to pay only a fraction of the total amount and consideration of the part payment as full payment will amount to inflicting a condition. Thus, the tender was considered invalid. The Court further said that the promisor has no right to demand any condition and the promisee is justified in refusing.
Tender 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.[5]
In other words, the tender of performance should be necessary at a proper time and place and under circumstances so as to afford the person to whom the offer is made a reasonable opportunity to ascertain that the promisor/offeror is able and bound to do whatever he has promised under the contracts to.
Tender Must be Made at a Proper Place and Time
- Tender must be made in the place stipulated in the compliance contract, or if a provision is not made, then in the place determined by law. The general principle of customary law is that the debtor must search for the creditor and make offers wherever the creditor is found. The place of residence of the creditor at the time the contract is made will often be considered, by a just implication of the fact, the place of contract.
- The tender must be made in a timely manner. A tender of debt before the due date is not a valid tender, and will not prevent interest from running on a loan.
- In P L S A R S Arunachalam Chettiar, legal representative of P L S A R S Sabapathi Chetty (Deceased) v. Krishna Aiyar[6], the court held that generally, the parties to the tender of performance fix the time and place. The tender of performance should mandatorily be made at the time and place specified under the contract. If the performance is made within the specified time and place, then the promisor/offeror is under no further obligations.
Tender Should be Made in the Legal Tender
The payment must be offered in the tender is to be the currency of the country (legal tender)[7]. If the currency offered is in the form of foreign currency, a court in India would have the jurisdiction to pass a decree for the sum expressed in foreign currency subject to permission of the foreign exchange authorities under the FERA, 1973 [ Now FEMA, 1999]. Regarding the date for converting foreign currency into Indian Rupees, it was held that a court should pass an order for conversion of foreign currency on the date of final judgement.[8]
Tender Must be Made by the Proper Person
The tender may be made by the promisor himself or through his agent. A Tender for payment of shares by the purchaser’s advocate was sufficient proof of readiness and willingness.[9]
Person Making the Tender Must be Able and Willing to Fulfil Their Obligation
Sub Section (2) of Section 38 provides that the tender must be made 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 and then to do the whole of what he is bound by his promise to.[10]Being able means having the means, being capable of doing what is required. Being willing means being favourably disposed, favourably inclined, agreeable, having made a conscious decision to do something.
Offer Must be Whole of the Promise
With regard to the validity of a tender, it must be an offer of the whole payment or performance that is due[11], because an offer to pay or perform only in part/fraction is not really “an offer of performance” of an entire promise at all. If the offer of performance is not valid, the promisee will be entitled to reject such an offer. However, if partial performance is accepted, additional expenses entailed by the promisee must be borne by the promisor so tendering part performance.
Reasonable Opportunity for Promisee
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.[12] In other words, the promisee has a reasonable opportunity to inspect and the promisor is under obligation to keep his promise.
The reasonable opportunity of inspection is the receiving party’s business to verify, not the delivering party’s to supply further proof that the goods are according to the contracts. The goods need not have to be in the delivering party’s actual possession, control is enough.[13] The general place of inspection is the place of delivery. A tender that did not disclose the name of the sender/ promisor, was not a valid one.[14]
Note: An offer to one of several joint promisees has the same legal consequences as an offer to all of them, in case there is an involvement of several joint promisees. When there are more than one joint promisees, it is not necessary to communicate to each and everyone, an offer of performance, that is, a tender to one of them will be considered as a valid tender.
Conclusion:
Section 38 of the Indian Contract Act, 1872 contains the essential requisites to a valid tender and it explains the position of promisor and promisee in the case of an offer of performance. A tender is nothing but an offer, and it is an open offer whoever wishes to fulfil the obligation they can enter, but acceptance is in the hands of the promisee, if the promisee accepts then it is a binding contract. A tender is an offer to negotiate, an invitation to offer to receive offers[15], even where the reserve price is fixed.[16] The actual tender is the offer, and then if the promisee accepts the offer, it becomes a binding contract between the parties. Both parties are legally bound by the tenders, which can be enforced in a court of law. Every tender has a quoted value and the acceptor may be paid over or under or exactly that quoted value upon accomplishing the contractual condition of the tender. Tenders assist parties in carrying out long-term contracts in a seamless and reliable manner. Larger tenders may be divided into sub-tenders by the contractor or may include more than one contractor to make the tendering process easier and faster.
References:
- 1. Raghav Sehgal, A Detailed Analysis On Offer Of Performance/Tender And Liability For FailureTo Consider Tender Under The Indian Contract Law (12 July, 2021, 05:45 PM) https://lawtimesjournal.in/a-detailed-analysis-on-offer-of-performance-tender-and-liability-for-failure-to-consider-tender-under-the-indian-contract-law/
- ASSN: 126758, Essentials of a valid tender (13 July, 2021,11:25 AM) https://advocatespedia.com/Essentials_of_valid_tender
- Anjali Dhingra, Tender and its requisites (13 July, 2021, 02:50 PM) https://blog.ipleaders.in/essentials-of-valid-tender/
- Pollock and Mulla, The Indian Contract Act, 1872, (Edition 15, 2018)
Written by,
E.V.Satya Prasanth
(JY21030)
Other Sources:
[1]Section 37 of the Indian Contract Act, 1872.
[2]Section 38(1) of Indian Contract Act, 1872.
[3]Haji Abdul Rehman Haji Mahomed v. Manjibhai Khatao and Co., AIR 1926 Bom 523.
[4]AIR 1931 Nag 91.
[5]Section 38(2) of Indian Contract Act, 1872.
[6]C.R.P. No: 117 of 1922.
[7]Salik Ram Upadhia v. Jai Gopal, AIR 1955 All 350.
[8]Forasol v. Oil & Natural Gas Commission, (1984) Supp SCC 263.
[9]Sohanlal Pachisia & Co v. Bilasray Khemani, AIR 1954 Cal 179.
[10]Ismail Bhai Rahim v. Adam Osman, (1982) 2 Cal 337.
[11]Dixon v Clark, (1848) 5 CB 365
[12]Section 38(3) of Indian Contract Act, 1872.
[13]PLSARS Arunachallam Chettiar v Krishna Ayyar, (1925) 49 Mad LJ 530.
[14]Parekh Nandlal Bhimji Bhoy Choksi v Anand Govind Jog, AIR 1940 Ngp 140 at 141.
[15]SP Consolidated Engineering Co Pvt Ltd v UOI, AIR 1966 Cal 259
[16]Anil Kumar Srivastava v State of Uttar Pradesh, (2004) 8 SCC 671: AIR 2004 SC 4299
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