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Contract Law-Contract law pdf notes for BA LLB , LLB

Contract Law Pdf:Principles on breaches of contract and Remedies

Contract Law-Contract law pdf notes for BA LLB, LLB

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Q. 2. “Impossibility of Performance, as a rule, is not an
excuse for non-performance of a contract.”
Or
“A contract to do an act which, after the contract is made,
becomes impossible, becomes void when the act becomes
impossible.” Comment
Or
Discuss the discharge of contracts by “Impossibility of
Performance”. Also critically examine the Doctrine of
Frustration in this regard.
Ans. Contract Law-Impossibility of performance is an important ground on which
parties are discharged from their obligations under the contract.
In England, the law regarding the discharge of contracts is based on what is popularly known as the Doctrine of Frustration. As pointed
out by Anson, “Most legal systems make provisions for the discharge of
a contract where subsequent to its formation, a change of circumstances
renders the contract legally or physically impossible of performance. In
English law, such a situation is provided for by the doctrine of frustration.”
In Satyabrata v. Mugneeram, B.K. Mukherjee, J. rightly remarked,
“Although various theories have been propounded by the Judges and
Jurists in England regarding the juridical basis of the doctrine of
frustration yet the essential idea upon which the doctrine is based is that
of the impossibility of performance of the contract: in fact impossibility
of performance and frustration are often used as interchangeable
expressions. The changed circumstances, it is said, make the performance
of the contract impossible and parties are absolved from the further
performance of it as they did not promise to perform an impossibility.
The doctrine of Frustration and Commercial Contracts: During the
first World War, business was dislocated and a number of cases of
the frustration of contracts on the ground of impossibility of performance
came before the courts.(Contract Law)
In F.A. Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum
Products Ltd., Lord LOREBURN observed: “When this question arises
in regard to a commercial contract, the principle is the same, and the
language as to frustration of the adventure merely adapts it to the case
in hand.’
Similarly, in Joseph Constantine Steańship Line, Ltd., y, Imperial
Smelting Corpn, Ltd., Viscount Maugham observed: “The doctrine of
frustration is only a special case of the discharge of the contract by an
impossibility of performance arising after the contract was made.”
Grounds of Frustration(Contract Law pdf)
(1) Destruction of the subject matter of the Contract: Where the
performance of the contract becomes impossible by the destruction of
the specific thing essential to that performance is that the contract is discharged.
(2) Non-occurrence of a particular state of things. The doctrine
of frustration has also been applied in case of non-occurrence of a
the particular event which is essential for the performance of the contract.
The postponement of the coronation of the prince owing to his sudden illness
in Krell v. Henry, the facts and decision of which have been referred
earlier, is a good illustration of such cases.
(3) Death of Incapacity of the party : Where the performance of
a contract depends upon the personal services of a party, the death or
incapacity of such a party may be trected to be a valid ground for
frustration of contract. A leading case on the point is Robinson v. Davison.
In this case, the defendant’s wife was a famous pianist (Piano-player).
She contracted for performing a concert but could not fulfil her promise
because of a serious illness. The plaintiff brought an ac ion to claim
damages for non-performance (breach) of the contract. The Court held that
in this case, the continued health of the pianist was a condition attached
to the agreement. Her serious illness was a valid ground on the basis of
which she was discharged from her obligation under the contract.
(4) Change of circumstances: If the change of circumstances make
the performance of the contract impossible, the contract will frustrate
and parties will be discharged from their obligations under the contract.
If, however, despite the change of circumstances, the performance is still
possible, the contract will not be deemed to have been discharged.
(5) Building Contracts: Where the execution of the contract is
delayed or otherwise becomes impossible by the happening of an external
event, the contract is discharged. But much will depend upon the facts
and circumstances and each case has to be judged on its own merits.
(6) Change in Law:: The performance of a contract may also
become legally impossible by the change in the law. If the performance
becomes legally impossible, the contract will be discharged.
(7) Legislative or Government Intervention : Yet another ground
for, the frustration of contract is legislative or government intervention.
(Contract Law pdf)
Theories of Frustration
(1) The Theory of Implied Term: According to this theory, the
courts, after examining the circumstances under which the contract was
made find that it was made on the footing that a particular state of things
would continue to exist (.e., if the court finds an implied term of the
effect) though it may not be expressly written in the contract, and if such
a state of things ceases to exist (for example, if the subject-matter
perishes), they will absolve the parties from their obligations under
contract. A classic exposition of the Theory of Implied Term was made
by Lord LOREBURN in FA. Tamplin Steamship Co. Ltd. v.
Anglo-Mexican Petroleum Products Ltd. in the following words:
“A court can and ought to examine the contract and the
circumstances in which it was made, not of course to varying, but only to
explain it, in order to see whether or not from the nature of it the parties
must have made their bargain on the footing that a particular thing or
state of things would continue to exist. And if they must have done so,
then a term to that effect will be implied, though it be not expressed in
the contract….It is….the true principle, for no court has an absolving
power, but can infer from the nature of the contract and the surrounding
circumstances that a condition which was not expressed was a foundation
on which the parties contracted.”
The Theory of Implied Term has been subjected to severe criticism.
As remarked by ANSON, “The implied theory was at one time accepted
but it must be admitted that it is very unsatisfactory. If used in a subjective
by a preponderate
of judicial opinion as a correct statement of the Law
expected
nor foresaw.” It has also been rightly remarked that frustration may take
place “irrespective of individuals concerned, their temperaments and
failings, their interest and circumstances.
(2) Disappearance of the Foundation of the Contract: According
to this theory, if the foundation of the contract disappears, the contract
is discharged. This theory was explained by GODDARD, J. in Tatem,
Ltd. v. Gamboa, in the following words :
“If the foundation of the contract goes, either by the destruction
of the subject matter or by reason of such long interruption or delay that
the performance is really in effect that of a different contract and the
parties have not provided what in that event is to happen, the performance
of the contract is to be regarded as frustrated.”
(3) Theory of Just and Reasonable Solution: According to this
theory, the court exercises “A qualifying power” in order to do “what is
just and reasonable in the new situation.” This theory was propounded
by the Court in British Movietone’s Ltd. v. London and District Cinemas
Ltd. Thus this theory would confer power on the judge to do what is
just and reasonable in the new situation. But in appeal, the House of
Lords rejected this theory,
(4) Change in the Obligation of the Parties: This theory was
explained by LORD RADCLIFFE in Davis Contractors, Ltd. v. Fareham
U.D.C. in the following words :
“Frustration occurs whenever the law recognises that without
default of either party a contractual obligation has become incapable of
being performed because of the circumstances in which the performance
is called for would render it a thing radically different from that which
was undertaken by the contract.”
Position of Indian Law on Frustration
The above theories enunciated in England are not applicable in
India. In India, the courts are governed by the provisions of Section 32
and 56 of the Contract Act. As aptly remarked by B.K. MUKHERJI J.
in Satyabrata v. Mugneeram : “In deciding cases in India, the only doctrine
that we have to go by is that of supervening impossibility as laid down
in Section 56 of the Contract Act, taking the word ‘impossible’ in its
practical and not literal sense.”
The learned Judge of the Supreme Court further remarked:
“….Section 56 lays down a rule of positive law and does not leave the
matter to be determined according to the intention of the parties.”
This was reaffirmed in Smt. Sushila Devi v. Hari Singh, wherein
the Supreme Court observed the following:
“Section 56 of the Indian Contract Act lays down a rule of positive
law and does not leave the matter to be determined according to the
intention of the parties. The impossibility contemplated by Section 56 of
the Contract Act is not confined to something which is not humanly
possible.”
Thus in India, the relevant provisions are contained in Section 32
and 56 of the Act. Section 32 of the Act is under Chapter III relating
to contingent contracts and lays down that a contingent contract to do
or not to do anything if an uncertain future event happens, becomes void
if the event becomes impossible. But the main doctrine is contained in
Section 56 of the Contract Act.
Provision of Section 56
Para 1 of Section 56 lays down a general rule that: “An agreement
to do an act impossible in itself void.”
A good example of this is given in illustration (a) which is as
follows: A agrees with B to discover treasure by magic. The agreement
is void. Similarly, it has been held that where a person enters into a
contract of sale on behalf of minors, the contract would be void under
this section if the said person is incompetent to act as their guardian.
So if the act is in itself impossible the agreement will be void.
Para 2 of Section 56 deals with contracts to do an act that
afterwards becomes impossible or unlawful. It says “A contract to do
an act which, after the contract is made, becomes impossible, or by
reason of some event which the promisor could not prevent, unlawful,
becomes void when the act becomes impossible or unlawful.”
Illustration
(i) A and B contract to marry each other. Before the time is fixed
for the marriage, A goes mad. The contract becomes void.
(i) A contracts to take in cargo for B at a foreign port. A’s
Government afterwards declares war against the country in which the
port is situated. The contract becomes void when war is declared.
(ii) A contracts to act at a theatre for six months in consideration
of a sum paid in advance by B. On several occasions A is too ill to act.
The contract to act on those occasions become void.
We now discuss the case of Satyabrata v. Mugneeram: This case
related to a contract for the sale of land and the question before the court
was whether, by reason of certain supervening circumstances which
affected the performance of a material part of it
, the contract was
discharged or not. The respondent company was the owner of a large
tract of land in Calcutta. It started a scheme for development of this
land for residential purposes and called it Lake Colony Scheme No. 1.
The Company entered into agreements with different purchasers for sale
of plots and accepted from them only a small portion of consideration
money. The Company undertook to construct roads and drains, etc., to
make the land suitable for building and residential purposes. One Bejoy
Krishna Roy was also a purchaser and paid Rs. 101 as earnest money
and the appellant was really the assignee of Bejoy Krishna Roy. It so
happened that subsequently the land was requisitioned by the District
Collector under the Defence of India Rules for military purposes. In
view of those circumstances, the Company decided to treat the agreement
Cancelled but gave the appellant option of taking back the earnest money
complete the agreement by paying the balance money. The plaintiff
refused either of the two alternatives and claimed that the Company was
bound by the terms of the agreement from which “it could not, in law
if the event becomes impossible. But the main doctrine is contained in
Section 56 of the Contract Act.
Provision of Section 56
Para 1 of Section 56 lays down a general rule that: “An agreement
to do an act impossible in itself void.”
A good example of this is given in illustration (a) which is as
follows: A agrees with B to discover treasure by magic. The agreement
is void. Similarly, it has been held that where a person enters into a
contract of sale on behalf of minors, the contract would be void under
this section if the said person is incompetent to act as their guardian.
So if the act is in itself impossible the agreement will be void.
Para 2 of Section 56 deals with contracts to do an act that
afterwards becomes impossible or unlawful. It says “A contract to do
an act which, after the contract is made, becomes impossible, or by
reason of some event which the promisor could not prevent, unlawful,
becomes void when the act becomes impossible or unlawful.”
Illustration
(i) A and B contract to marry each other. Before the time is fixed
for the marriage, A goes mad. The contract becomes void.
(i) A contracts to take in cargo for B at a foreign port. A’s
Government afterwards declares war against the country in which the
port is situated. The contract becomes void when war is declared.
(ii) A contracts to act at a theatre for six months in consideration
of a sum paid in advance by B. On several occasions A is too ill to act.
The contract to act on those occasions become void.
We now discuss the case of Satyabrata v. Mugneeram : This case
related to a contract for sale of land and the question before the court
was whether by reason of certain supervening circumstances which
affected the performance of a material part of it
, the contract was
discharged or not. The respondent company was the owner of a large
tract of land in Calcutta. It started a scheme for the development of this
land for residential purposes and called it Lake Colony Scheme No. 1.
The Company entered into agreements with different purchasers for the sale
of plots and accepted from them only a small portion of consideration
money. The Company undertook to construct roads and drains, etc., to
make the land suitable for building and residential purposes. One Bejoy
Krishna Roy was also a purchaser and paid Rs. 101 as earnest money
and the appellant was really the assignee of Bejoy Krishna Roy. It so
happened that subsequently the land was requisitioned by the District
Collector under the Defence of India Rules for military purposes. In
view of those circumstances, the Company decided to treat the agreement
Cancelled but gave the appellant option of taking back the earnest money
complete the agreement by paying the balance money. The plaintiff
refused either of the two alternatives and claimed that the Company was
bound by the terms of the agreement from which “it could not, in law
resile.”. Among other defences, the Company took the defence that the
the contract was discharged as it became impossible by reason of the
supervening events to perform a material part of it.
Looking at the facts and circumstances of the case, the Supreme
Court held that in this case, the performance of the contract had not
become impossible. The Court pointed out that, in the first place the
The company had not commenced the development work when the requisition
order was passed in November 1941 and hence there was no question
of interruption of work. Secondly, no time limit was fixed for construction
of roads and drains. Thirdly, the said work was also delayed because of
the scarcity of materials and various restrictions imposed by the
Government.((Contract Law)
In Mugneeram Bangur and Co. Pvt. Ltd. v. Gurbachan Singh, it was
held that “If the performance of the contract is rendered unlawful either
for a determinate period of time or for an indeterminate period of time
the contract would not stand discharged unless the ban on its performance
existed on the day or during the time in which it has to be performed.”
If the restriction imposed on the transfer of urban property under the
various legislations is for a temporary period and the restriction is
relaxable and transfers are made permissible with the sanction of the
competent authority the contract will not stand discharged.
While explaining the meaning of the term “impossible” in Section
56 of the Supreme Court observed :
“The word ‘impossible’ has not been used in the sense of physical
or literal impossibility. The performance of an act may be impracticable
and useless from the point of view of the object and purpose which the
parties had in view and if an untoward event or change of circumstances
totally upsets the foundation upon which the parties rested their bargain
it can well be said that the promisor to do.”
The exception to the Doctrine of Impossibility of Performance
Para 3 of Section 56 of the Contract Act provides for an exception
to the doctrine of the impossibility of performance. It provides the
following:
“Where one person has promised to do something, which he knew,
or, with reasonable diligence, might have known, and which the promisee
did not know to be impossible or unlawful, such promisor must make
compensation to such promisee for any loss which such promisee
sustains through the non-performance of the promise.”
In Satyabrata Ghose v. Mugneeram Bangur and Co. the Supreme
The court observed that para 3 of Section 56 should be deemed to be an
the exception to the doctrine of frustration for it, instead of discharging the
the contract makes the promisor liable to pay compensation to the promisee
for non-performance of the promise. Thus if the promisor knew or could
know with ordinary diligence that he promised to do something which
was impossible or unlawful and the promisee did not know, he must pay.
compensation to the promisee for the loss sustained by him for the
non-performance of the promise. For example, A contracts to marry B,
being already married to C, and being forbidden by the law to which he
is subject to practise polygamy. A must make compensation to B for the loss
caused to her by the non-performance of his promise.

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