Identify the promise and acceptance before closing it
Section 41 of the Indian Contract Act, 1872 provides that when a promisee accepts performance of the promise from a third person, the promisee cannot afterwards enforce it against the original promisor. Identify the particular promise, the third party's actual performance and what the promisee accepted. A proposed substitute or delivery attempt does not establish acceptance.
Read the applicable text: Indian Contract Act, 1872, sections 40, 41, 62 and 63.
Distinguish the contractor's performance arrangement
Section 40 separately addresses who may perform the promise. If the nature of the case shows that the parties intended personal performance, the promisor must perform the promise personally. In other cases the promisor or its representatives may employ a competent person to perform it. Do not assume that a subcontractor authorised by the original promisor is a new legal counterparty. Establish whether the original obligation was fulfilled, and distinguish this from an agreement to substitute or alter a contract under section 62.
Reconcile each accepted item, remaining duty and claim
Where a third party pays or delivers part, establish whether the promisee accepted it only on account or in satisfaction of the entire obligation. Section 63 separately permits the promisee to dispense with or remit performance, extend time, or accept another satisfaction; a receipt alone does not show which, if any, was agreed. The numerical examples assume acceptance only for the stated portion unless expressly specified. Match amounts or units to the identified original obligation and isolate quality disputes, unperformed milestones and independent obligations. Do not infer a waiver or release from a generic bank credit, shared warehouse receipt or inconsistent ledger entry.
Preserve the legal and financial audit trail
Match the agreement, accepted evidence, settlement terms and ledger posting. Store third-party identity and authority where relevant. Distinguish operational acceptance from a document signed only to acknowledge receipt, and escalate contested evidence before reversing an accrual or releasing security. Do not collect the same discharged obligation twice.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Fully accepted third-party payment
A debtor owes ₹90,000 under one promise. A third person pays ₹90,000, which the creditor expressly accepts as its performance. The working balance for that promise is ₹0.
Illustrative example 2: Accepted part payment
A third person pays ₹36,000 against a ₹90,000 obligation, expressly accepted on account only. The ledger shows ₹54,000 remaining, subject to the contract.
Illustrative example 3: Only conforming units accepted
Of 80 required units, a third party delivers 50. The promisee accepts 42 and rejects eight. On the assumed divisible contract, 38 units remain unfulfilled.
Illustrative example 4: Two separate promises
The customer accepts ₹25,000 from a third party for the full first promise; a separate ₹60,000 promise is untouched. Remaining aggregate is ₹60,000 out of the original ₹85,000.
Illustrative example 5: Net receipt does not identify discharge
The bank shows ₹48,000 after an intermediary deducted ₹2,000 from a ₹50,000 transfer. If acceptance covers only the ₹48,000 received and there is no contrary arrangement, ₹2,000 remains under review rather than being automatically waived.
Illustrative example 6: Correct a duplicate demand
A ₹75,000 obligation has accepted third-party performance of ₹55,000. A later demand for the full ₹75,000 includes ₹55,000 already accounted for; on the stated facts the remaining working claim is ₹20,000.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the exact promise | Contract and obligation schedule |
| 2 | Check who may perform | Personal-service and delegation clauses |
| 3 | Identify the actual performer | Third-party records |
| 4 | Verify completed performance | Payment or delivery evidence |
| 5 | Confirm what was accepted | Authorised receipt, communication or settlement |
| 6 | Separate full and partial cases | Item-level allocation |
| 7 | Distinguish a new contract | Novation or alteration memo if relevant |
| 8 | Track unresolved performance | Open obligation and exceptions |
| 9 | Correct duplicate billing or claims | Ledger and demand reconciliation |
| 10 | Retain release evidence | Reviewed closing file |
Sixteen practitioner FAQs
1. Is an offer to perform enough?
No. Section 41 concerns accepted performance.
2. Must the promisee be satisfied with a substitute proposed by the promisor?
Apply the contract and the applicable performance rules.
3. Can performance be accepted only in part?
Document the divisible obligation and the scope of acceptance.
4. Does receipt necessarily amount to legal acceptance?
No. Examine the document, authority and conduct.
5. Can a bank narration alone close the original invoice?
Verify that the payment was accepted for that promise.
6. Is a delegated contractor a substituted debtor?
Not automatically; distinguish delegation and novation.
7. Which section addresses personal performance?
Section 40.
8. Which section addresses substitution of a contract?
Section 62.
9. Can a rejected delivery discharge the contract?
Do not treat it as accepted performance without evidence.
10. What if the substitute provided a different thing?
Check whether the promisee accepted it in satisfaction under section 63 and identify the obligation discharged.
11. Does acceptance extinguish unrelated promises?
No. Identify the exact obligation it covers.
12. What if settlement covers a group of invoices?
Reconcile the covered obligations and allocation terms.
13. Can the original promisor still be charged for a distinct claim?
Review the independent legal and contractual basis separately.
14. Does the accounting entry decide legal discharge?
No. It records a conclusion supported by facts and law.
15. Who should approve a disputed release?
Use the contract and internal authority matrix, with legal review where needed.
16. What evidence prevents double collection?
A linked acceptance record, settled balance and revised demand statement.