Illustrations
(a) A agrees with B to discover treasure by magic. The agreement is void.
(b) A and B contract to marry each other. Before the time fixed for the marriage A goes mad. The contract becomes void.
(c) A contracts to marry B, being already married to C, and being forbidden by the law to which he is subject to practice polygamy. A must make compensation to B for the loss caused to her by the non-performance of his promise.
(d) A contracts to take in cargo for B at a foreign port. A's government afterwards declares was against the country in which the port is situated. The contract becomes void when war is declared.
(e) 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 becomes void.
The term 'impossible' has been defined by the Supreme Court as-"The term impossible has not been used in the sense of physical or literal impossibility. Thus 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.
Section 56 is based on the maxim. "les non cogit ad impossibilia" which means the law does not compel a man to do what he cannot possibly perform.
Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd., (1942) AC 154: 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.
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 superventing event the promisor is executed from the performance of the contract. This doctrine is known as doctrine of frustration under English law and contained in section 56 of Indian Contract Act.
The doctrine of frustration comes into play in two types of situations - First where the performance is physically cut-off and where the object has failed. The performance of the contract had become physical impossible because of the disappearance of the subject-matter but it also extends to the cases where the performance of the contract is physically possible, but the object the parties had in mind failed to materialise.
According to Anson. Most legal system make provisions for the discharge of a contract where subsequent to its formation, a change of circumstances renders the contract legally or physical impossible of performance.
Satyabrata v. Mungeeram, MANU/SC/0139/1954 : AIR 1954 SC 44: Although various theories has been propounded by the judges and jurist in England regarding the juridical basis of the doctrine of frustration yet the essential idea upon the doctrine is based is that of the impossibility of performance and frustration are often used as interchangeable expressions.
Where the performance of contract becomes impossible by the destruction of the specific thing essential to that performance that contract is discharged.
Taylor v. Coldwell, (1863) 3 B&S 826 (QB): The defendant had agreed to let the plaintiff the use of their music hall between certain dates for the purpose of holding a concert there. But before that first day on which a concert was to be given. The hall was destroyed by fire without the fault of either party.
The plaintiffs sued the defendants for their case. It was held that the contract was not absolute, as its performance depended upon the continued existence of the hall.
It was, therefore subject to the implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of thing without default of the contractor.
W.B., K.V.I.B. v. Sagare Baneerjee, (2003) 1 CC: Where the tenanted premises comprised land and building, the court said that once the structure was completely destroyed, the tenancy ceased. No right was available to the tenant to apply for possession if the landlord re-constructed the premises.
If the change of circumstances make performance of the contract impossible, the contract will frustrate and parties will be discharged from their obligation 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.
Purshottam Das v. Batala Municipal Corporation, AIR 1949 EP: A municipal committee leased out certain tanga stand to the plaintiff for Rs. 5000. But no tanga driver came forward to use the stand throughout the year and the plaintiff could not realize anything. He sued for the refund of his money.
The plaintiff obtained the lease and the committee granted the same to him on the assumption that the tanga stands would be used by drivers and the plaintiff would recover frees from them, but for reasons which both sides could not help the drivers did not use the stands. The doctrine of frustration would be applied here.
The doctrine of frustration has also been applied in case of non-occurrence of a particular event which is essential for the performance of the contract.
Krell v. Henry, (1903) 2 KB 740: There was a contract to hire a room to review a proposed coronation procession was held to have frustrated when the procession was postponed. For this result to follow it is necessary that the happening of the event should be the foundation of the contract.
Where the performance of a contract depends upon the personal services of a party, the death or incapacity of such a party may be treated to be a valid ground for frustration of a contract.
Robinson v. Davison, (1871) LR 6 Exch 269: There was a contract between the plaintiff and the defendant's wife who was an eminent pianist that she should play the piano at a concert to be given by the plaintiff on a specified day on the morning of the day in question. She informed the plaintiff that she was too ill to attend the concert. The concert had to be postponed and the plaintiff lost a sum of money.
The plaintiff's action for breach of contract failed. The court said that under the circumstances she was not merely excused from playing, but she was also not at liberty to play, if she was unfit to do so.
A contract will be dissolved when legislative or administrative intervention has directly operated upon the contract as to transform the contemplated condition of performance.
Water Board v. Dick Kerr & Co. Ltd., (1918) AC 119: A firm of contractor contracted with the water board to construct a reservoir to be completed within six months. But by a notice under the Defence of Realm Act, the contractor were required to cease work on their contract and they stopped the work accordingly.
The interruption created by the prohibition was of such a character and duration so as to make the contract when resumed a different contract from the contract when broken-off and the contract had ceased to be operative.
Satyabrata Ghose v. Mugneeram Bangur & Co., MANU/SC/0139/1954 : AIR 1954 SC 44: The defendant company started a scheme for the development of a tract of land into a housing colony. The plaintiff was granted a plot on payment of earnest money. The company undertook to construct the roads and drains.
In the mean time, a considerable portion of the land was required by the State during the second world war for military purposes.
The contract was not frustrated. The intervention was not so long as to upset the whole bargain.
The performance of a contract may also become legally impossible by the change in law. If the performance becomes legally impossible, the contract will be discharged. The change in the law must be such as to strike at the root of the agreement, and not merely to suspend or hinder its operation in part.
Shyam Biri Works Pvt. Ltd. v. U.P. Forest Corporation, AIR 1990 SC 205: Section 56 lays a positive rule relating to frustration and does not leave the matter of frustration to the court to be determined. There can be no agreement on altered circumstances and it has also been held that if a consideration of the terms of the contract in the light of the circumstances when it was made show that the parties never agreed to be bound in a fundamentally different situation which unexpected by arise the contract cease to bind at that point, not because the court in its discretion considers it just but on true construction it does not apply in that situation.
Satyabrata Ghose v. Mugneeram Bangur and Co., MANU/SC/0139/1954 : AIR 1954 SC 44: 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.
Illustrations
(a) A and B agree that A shall sell a house for 10,000 rupees, but that if B uses it as a gambling house, he shall pay A 50,000 rupees for it.
The first set of reciprocal promises, to sell the house and to pay 10,000 rupees for it, is a contract.
The second set is for an unlawful object, namely, that B may use the house as a gambling house, and is a void agreement.
Illustration
A and B agrees that A shall pay B 1000 rupees, for which B shall afterwards deliver to A either rice or smuggled opium.
This is a valid contract to deliver rice, and a void agreements as to the opium.
Illustrations
(a) A owes B, among other debts, 1000 rupees upon a promissory note, which falls due on the first June. He owes B no other debt of that amount. On the first June. A pays to B 1000 rupees. The payment is to be applied to the discharge of the promissory note.
(b) A owes to B among other debts, the sum of 567 rupees. B writes to A and demands payment of this sum. A sends to B 567 rupees. This payment is to be applied to the discharge of the debt of which B had demanded payment.
Essentials:
(1) Where the debtor owes several debts to one person.
(2) The debts in question must be distinct.
(3) The debtor must intimate the creditor expressly or impliedly that the payment be applied to the discharge of some particular debt.
(4) If the above conditions are satisfied, the creditor is bound to apply the payment for the discharge of the debt or intimated to him by the debtor.
This section contain a general rule for appropriation of payment towards several distinct debts and not towards various heads of one debt. It was not applicable in a case in which the principal and interest amount were due on single debt.
Clayton, Re, (1816) 1 Mer 572: When a debtor make a payment he may appropriate it to any debt, he pleases, and the creditor must apply it accordingly.
I.C.D.S. Ltd. v. Smithaben H. Patel, MANU/SC/0092/1999 : AIR 1999 SC 1036: To several distinct debt payable by a person and not to the various heads of one debt. The principal and interest due on a single debt or decree passed on such debt. Carrying subsequent interest cannot be held to several debts. Accepting such an argument would amount to during violance to the language employed in the section and the purpose sought to be achieved by it. Besides it would also be contradictory in terms.
Essentials
(i) where the debtor does not indicate the application of the payment for the discharge of particular debt.
(ii) the creditor does not appropriate it to discharge of any distinct debt due.
(iii) the payment shall be applied in discharge of the debts in order of time,
(iv) irrespective of the fact as to whether they are or not barred by the law in force for the time being or to the limitation of suits.
(v) if the debts are of equal standing, the payment shall be applied in discharge of each proportionately.
According to Anson: Contract rests on the agreement of the parties, as it is their agreement which binds them, so by their agreement they may be discharged.
According to Cheshire and Fifoot: An agreement by the parties to an existing contract to extinguished the rights and obligations that, it was created is itself a binding contract, provided that it is under the seal or supported by consideration.
Illustrations
(a) A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth accept C as his debtor, instead of A. the old debt of A to B is at an end, and a new debt from C to B has been contracted.
(b) A owes B 10,000 rupees. A enters into an agreement with B, and gives B a mortgage of his estates for 5000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old.
(c) A owes B 1000 rupees under a contract, B owes C 1000 rupees, B orders A to credit C with 1000 rupees in his books, but C does not assent to the agreement. B still owes C 1000 rupees, and no new contract has been entered into.
Novation is of the two kinds-
(a) Novation by change in the terms of the contract, and
(b) Novation by change in the parties to the contract.
Novation may also involve the substitution of a new contract for the old. The parties to a contract are free to alter the contract which they have originally entered into if they do so. Their liability as regards the original agreement is extinguished, and in its place they become bound by the new altered agreement.
Manohar Koyal v. Thakurdas Naskar, (1888) 15 Cal 319: The plaintiff sued to recover the sum of Rs. 1173 due on a bond. After the due date of the bond, the plaintiff agreed to accept Rs. 400 in cash and a new bond of Rs. 700 payable by instalment. Subsequently the defendant neither gave Rs. 400 nor the bond.
The plaintiff thereupon sued him on the original bond. The court held that the original contract was extinguished, not by novation but by breach, and the plaintiff was entitled to sue for the breach of the original contract.
Lata Construction v. Dr. Rameshchandra Ramniklal Shah, MANU/SC/0741/1999 : AIR 2000 SC 380: The Supreme Court held that the substitution of a new contract in place of the old contract which would have the effect of rescinding or completely altering the terms of the original contract should rescind or alter or extinguish the previous contract.
It is possible that by novation an obligation may be created for one party in place of another. If under an existing contract, A is bound to perform the contract in favour of B, the responsibility of A could be taken over by C. Now instead of A being liable towards B by novation C becomes liable towards B.
Illustrations
(a) A promises to point a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise.
(b) A owes B 5,000 rupees. A pays to B and B accepts, in satisfaction of the whole debt. 2000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged.
(c) A owes B 5,000 rupees. C pays to B 1000 rupees and B accepts them, in satisfaction of his claim on A. Their payment is a discharge of the whole claim.
(d) A owes B under a contract, a sum of money, the amount of which has not been ascertained. A without ascertaining the amount, gives to B and B in satisfaction thereof, accepts the sum of 2000 rupees. This is a discharge of the whole debt whatever it may be amount.
(e) A owes B 2000 rupees and is also indebted to another creditors. A makes an arrangement with his creditors, including B to pay them a composition of eight annas in the rupee upon their respective demands. Payment to B of 1000 rupees is a discharge of B's demand.
Section 63 as noted above provides the following three things:-
(1) The promisee may dispense with or remit the performance, or
(2) He may extend the time of performance.
(3) He may accept any satisfaction he thinks fit.
Section 65 of the Contract Act does not entitle a promisor for his own purposes and without the consent of the promisor to extend time for performance which had been agreed to by the parties to the contract.
Kapur Chand Godha v. Mir Nawab Himayatali Khan, MANU/SC/0030/1962 : AIR 1963 SC 250: The acceptance of less sum of money where more is due is a good discharge of the whole of the liability. The appellant having accepted the payment in full satisfaction of his claim was not entitled to sue.
Keshavalal Lallubhai Patel v. Lalbhai Trikumlal Mills, MANU/SC/0031/1958 : AIR 1958 SC 512: Section 63 permits the promisee to grant extension of time for the performance of the contract, and consideration is needed for the same. The extension of time must be by a mutual understanding between the parties. A promisee cannot unilaterally extend the time between the parties.
Jugal Kishore v. Chari & Co., MANU/UP/0155/1927 : AIR 1927 All 599: If the promisee grants the extension of time he becomes bound thereby. Therefore, if the creditor allows sometime for making the payment to a debtor, he cannot bring an action against the debtor to recover the debt, and if such an action is brought, it will be dismissed by the court as being premature.
Section 63 permits the promisee to accept any other satisfaction in lieu of agreed performance and this would discharge the promisor. For example, A owes B, under a contract, a sum of money, the amount of which has not been ascertained. A without ascertaining the amount gives B and B in satisfaction thereof accept the sum of 2000 rupees. This is a discharge of the whole debt whatever may be its amount.
Jagad Bandhu Chatterjee v. Nilima Rani, (1969) 3 SCC 455: A waiver is nothing unless it amounts to a release. It signifies nothing more than an intention not to insist upon the right.
Illustrations
(a) A pays B 1000 rupees, in consideration of B's promising to marry C. A's daughter C is dead at the time of the promise. The agreement is void, but B must repay A the 1,000 rupees.
(b) A contracts with B to deliver to him 250 mounds of rice before the first of May. A delivers 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 hundred 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 or which she had sung.
(d) A contracts to sing for B at a concert for 1000 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 the 1000 rupees paid in advance.
National Insurance Company Ltd. v. Seema Malhotra, MANU/SC/0112/2001 : AIR 2001 SC 1197: Where under a contract of insurance the insured gave a cheque to the insurer for payment of first premium amount, but the cheque was dishonoured by the drawee bank due to inadequacy of the funds in the account of the drawer, the insurer is not liable in such a situation to honour the claim of the insured.
Section 65 is based on the doctrine of restitutio in intergnum. It provides for restitution of the benefits or advantage taken by a party under the contract. According to Pollock and Mulla, an agreement discovered to be not enforceable by law and, on the language of the section would include an agreement that was void is that from its inception as from an contract that becomes void.
Tarsem Singh v. Sukhminder Singh, MANU/SC/0158/1998 : AIR 1998 SC 1400: The Supreme Court has held that section 65 which is based on the equitable doctrine provides for the restitution of any benefit received under a void agreement or contract and mandates that any person which would obviously include a party to the agreement who has received any advantage under an agreement which is discovered to be void or under a contract which becomes void, has to restore such advantage or to pay compensation for it to the person from whom he received that advantage or benefit.
Illustrations
A contracts with B to repair B's house.
B neglects or refuses to point out to A the places in which his house requires repair.
A is excused for the non-performance of the contract, if it is caused by such neglect or refusal.
Municipal Corporation, Chandigarh v. Shantikunj Investment Pvt. Ltd., MANU/SC/8077/2006 : AIR 2006 SC 1270: The Supreme Court ruled that section 67 had no application in the case and the respondents were not excused from performing their part as to the payment of instalment, rent, interest and other charges.
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