IMPOSSIBILITY OF PERFORMANCE/FRUSTRATION OF CONTRACT

IMPOSSIBILITY OF PERFORMANCE/FRUSTRATION OF CONTRACT

When an agreement, which was binding on the parties to it, ceases to bind them, the contract is said to be discharged. A contract may be discharged in the following ways-

(1) By Performance of the contract

(2) By Breach of the contract

(3) By Impossibility of performance

(4) By Agreement and Novation

 

(3) Discharge by impossibility of performance

If the performance of a contract is impossible, the same is void. Section 56, deals with this question. The first paragraph of Section 56 provides that an agreement to do an act impossible in itself is void. The second paragraph provides that a contract to do an act, which becomes unenforceable, if the act becomes: (a) impossible; or (b) for reason of some event which the promiser could not prevent. This Section also provides that it becomes so unenforceable when the act becomes impossible or unlawful.

1. Initial Impossibility

Section 56 says: "An to do an act impossible in itself is void" The object of making any contract is that the parties to it would perform their respective promises. If a contract is impossible of being performed, the parties to it will never be able to fulfil their object, and hence such an agreement is void. For example, A agrees with B to discover treasure by magic. The performance of the agreement being impossible, the agreement is void. Similarly, an agreement to bring a dead man to life is also void. Section 56 is based on the maxim, "les non cogit ad impossibilia" means "the law does not compel a man to do what he cannot possibly perform."

Impossibility here means not only physical impossibility, but also legal impossibility. If there is no possibility of the performance of the contract because it would be unlawful to do that, the agreement is void. Such cases also fall under Section 23 which declares that every agreement of which the object or consideration is unlawful is void. 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. The arrangement by A to marry B is void.

Sometimes, the fact that the performance of the contract is impossible or unlawful may be within the knowledge of the promisor, but the promisee may not be knowing about the same, must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise."

For example, if a married man knowing that he cannot marry again promises to do so, he is bound to compensate the other party for the breach of promise. The law on the point is contained in Section 56 (para 3) which reads - as under:

"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 compensate the promisee for the loss sustained by the promisee resulting from the non-performance of the contract”

2. Subsequent Impossibility

The performance of the contract may be possible when the contract is entered into but because of some event, the performance may subsequently become impossible or unlawful. Section 56 (para 2) makes the following provision regarding the validity of such contracts:

"A contract to do an act which after the contract is made, becomes impossible or, by reason some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful."

It means that every contract is based on the assumption that the parties to the contract will be able to perform the same when the due date of performance arrives. If because of some event, the performance has either become impossible or unlawful, the contract becomes void. Section 56 explains this point with the help of the following illustrations:

(i) A and B contract to marry each other. Before the time is fixed for the marriage, A goes mad. The contract becomes void.

(ii) A contract 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.

(iii) A contract 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 becomes void.

Doctrine of frustration

When the performance of the contract becomes impossible, the purpose which the parties have in mind is frustrated. If the performance becomes impossible, because of a supervening event, the promisor is excused from the performance of the contract. This is known as doctrine of frustration under English law, and is covered by Section 56 of the Indian Contract Act. The basis of the doctrine of frustration was explained by Mukherjea, J. In the Supreme Court decision of Satyabrata Ghose v. Mugneeram A.I.R. 1986, Delhi 158. in the following words:

"The essential idea upon which the doctrine (of frustration) is based is that of impossibility of performance of the contract; in fact, impossibility and frustration are often used as interchangeable expressions. The changed circumstances make the performance of the contract impossible and the parties are absolved from the further performance of it as they did not promise to perform an impossibility.... The doctrine of frustration is really an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of Section 56 of the Contract Act."

Death or incapacity of a party?

When the nature of the contract requires the personal performance of the contract by a particular person, the contract is deemed to be conditional upon the continued life or good health of the person so that it is possible for him to perform the contract.

Thus, in case of contract based on personal skill or confidence of the parties, the death of a party in such a case, puts an end to the contract, and, therefore, the representatives cannot be made liable to perform such a contract. For example, A promises to paint picture for B by a certain day at a certain price. A dies before the day. The contract cannot be enforced either by A's representative or by B

In Robinson v. Davisons (1871) L.R Ex. 269, the defendant's wife, who was an eminent piano player, promised to play piano at a concert on a particular day. She was unable to give her performance due to illness. It was held that the performance of the contract depended on the continued good health of the defendant's wife and the contract was discharged due to her illness. The defendant could not be made liable to pay compensation for the non-performance of the contract. Frustration by Virtue of Legislation Where, a law promulgated after the contract is made, makes the performance of the agreement impossible, the agreement becomes void.

Frustration due to change of circumstances

The doctrine of frustration has been extended to those cases, where there was no physical impossibility of performance of the contract, but because of the change in circumstances the adventure was frustrated, or by the literal performance of the contract the main object of the contract could not be fulfilled. The case of Krell v. Henry explains the point. In this case, the defendant agreed to hire the plaintiff's flat for June 26 and 27, 1902, the days on which the coronation procession of Edward VII was to pass along a particular road. The defendant's purpose for hiring the flat on the specified dates was to a view of the coronation procession. The defendant paid some amount by way of rent in advance and promised to pay the balance subsequently. Due to the King's illness, the procession was cancelled. On the defendant's refusing to pay the balance of the agreed rent, the plaintiff sued him for the same. It was observed that viewing of the procession was the foundation of the contract, and by the of the procession, the purpose of the contract could no longer be achieved, and as such, the parties were discharged from performing their further obligations. Consequently, the plaintiff was held not entitled to recover the balance of the agreed rent.

Position in India

In India also, impossibility does not mean merely physical impossibility to perform the contract, it also includes situations where the performance of the may not be literally impossible, but because of changed circumstances, the performance would not fulfil the object which the parties had in mind. In Arti Sukhdev Kashyap v. Daya Kishore Arora', it has been held that merely because performance has to be delayed, it does not mean frustration of the contract. In this case, there was allotment of plot by the Development Authority with the condition that permission for sale could not be granted before the expiry of 10 years. Permission for sale was requested earlier than that and the same was refused as there were no exceptional circumstances for the same. It was held that since there was possibility of sale after 10 years, the contract had not been frustrated.

No frustration of Executed contracts

Section 56 covers case of executory contracts only, and does not apply to executed contracts, In Dhruv Dev v. Harmohinder Singh, A.I.R. 1968 S.C. 1024 it was held that there is clear distinction between completed conveyance and an executory contract, and events which discharge an executory contract do not invalidate a concluded transfer. In this case, A obtained from B a lease of some land in Tehsil Okara, District Montgomery for Kharif season 1947 and Rabi season 1948. After obtaining the possession of land from B, A carried on agricultural operations for Kharif cultivation and partly enjoyed benefit therefrom by taking fodder, etc. In August, 1947 due to the partition of the country, the above lands went to Pakistan, and A migrated to India. A then filed a suit to recover back the rent paid by him on the plea that the contract had been frustrated. It was held that there was no agreement, express or implied, that the rent was payable only if. A was able to personally attend to or supervise agricultural operations, and, therefore, by the above stated event, the transfer of property resulting from the lease granted by B to A had not become void. It was also observed that Section 56 did not apply to completed transfers of property. A's action for the refund of the amount was dismissed.

No frustration by mere likely delay in performance In order that the doctrine of frustration is applicable, it is necessary that the performance should become unlawful or impossible. The event should be such that the object of the parties is thereby totally upset. Merely likely delay in performance does not amount to impossibility.

The doctrine does not apply where there is merely a likely delay in the performance of the contract.

In Satyabrata Ghose v. Mugneeram, the defendant company was the of a large tract of land. It started a scheme for the development of this land for residential purposes. Under the scheme, the purchaser of a plot of land was to pay some earnest money at the time of the agreement. The defendant undertook to construct the roads and drains necessary for making the land suitable for building and residential purposes and as soon as they were completed, the purchaser was to complete the conveyance by payment of the balance of the consideration money. The plaintiff agreed to purchase one such plot and paid an earnest money of Rs. 101. Before the defendant could make the above stated development, considerable portion of the land requisitioned by the Government during the Second World War, for was military purposes. The defendant thereupon wanted to cancel the contract mainly on the ground that the contract stood discharged by frustration as the performance had become impossible because of supervening events. It was observed that the worth noting thing in this case was that there was absolutely no time limit fixed within which the roads and drains were to be made. This was left entirely to the convenience of the defendant company and the purchaser did not feel concerned about it. It was held that under these circumstances, and also because of the fact that the requisition of land was only of a temporary character, the contract was not frustrated.

Impossibility does not mean mere commercial difficulty

A distinction is drawn between the happening of an event which makes the performance of the contract impossible, beyond the control of the promisor, and an event which makes the performance only difficult or more expensive. The nature and the terms of the contract may help in deciding whether the performance has become impossible, or merely commercially difficult.

Restoring benefit received under an agreement discovered to be void or contract becoming void

It has already been noted above that when, due to the happening of some event, the performance of the contract becomes impossible or unlawful, the contract becomes void. Sometimes, an agreement may appear to be valid when made but may subsequently be discovered to be void. such like situation, is just possible that before the contract becomes void, or an agreement is discovered to be void, one of the parties may have already gained some advantage under the contract. Such benefit received by a party has to be restored to the other. The relevant provision contained in Section 65, which permits such restoration of the benefit, is as under: "When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement, or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."

Illustrations'

(a) A pays B 1,000 rupees, in consideration of B's promising to marry C, A's daughter. C is dead at the time of promise. The agreement is void, but B must repay A 1,000 rupees.

(b) A contracts B to deliver to him 250 maunds of rice before the first of May. A deliver 130 maunds only before that day, and none after. B retains the 130 maunds after the first of May. He is bound to pay A for them.

(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her a hundered rupees for each night's performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence rescinds the contract. B must pay A for the five nights on which she had sung.

(d) A contract to sing for B at a concert for 1,000 rupees which are paid in advance. A is too ill to sing. A is not bound to make compensation to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B 1,000 rupees paid in advance.

It has been noted above that Section 65 covers two kinds of situations, firstly, when a contract becomes void, and secondly, when an agreement is discovered to be void. An agreement is discovered to be void, if the same was void ab initio, but that fact was not known to the parties when they made the agreement. If any advantage has been received under such an agreement, that has to be restored back. Section 65 cannot be taken advantage of by the parties who knew from the beginning that the agreement was void. In Faqir Chand Seth v. Dambarudhar Bania, A.1.R. 1987 Orissa 50 the plaintiff advanced money to the defendant for supply of paddy, without knowing that the said agreement was in violation of the Orissa Rice and Paddy Control Order, 1965. It was held to be a case, where the agreement was "discovered to be void", and the plaintiff was held entitled to receive the refund of the advance paid by him.