Section 56 occurs in Chapter IV of the Indian Contract Act which relates to performance of contracts and it purports to deal with one circumstances under which performance of a, contract is excused or dispensed with on the ground of the contract being-void. The section stands as follows:
“An agreement to do an act impossible in itself is void. A contract to do an act which after the contract is made, becomes impossible, or, by reason of some event which the promiser could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
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 promise sustains through the non-performance of the promise”
Analysis of the Section
The first paragraph of the section lays down the law in the same way as in England. It speaks of something which is impossible inherently or by its very nature, and no one can obviously be directed to an act. The second paragraph enunciates the law relating to discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done. The wording of this paragraph is quite general, and though the illustrations attached to it are not at all happy, they can not derogate from the general words used in the enactment.
This much is clear that the word “impossible” has not been used here in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticbale 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 upset the very foundation upon which the parties rested their bargain, it can very well be said that the promisor found it impossible to do the act which he promised to do.
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 impossibility of performance of the contract: in fact impossibility and frustration are often used as interchangeable expressions. The changed circumstances, it is said, 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 parties shall be excused, as Lord Loreburn[1] says, “if substantially the whole contract becomes impossible of performance or in other words impracticable by some cause for which neither was responsible,.”
In Joseph Constantine Steamship Line Limited v. Imperial Smelting Corporation Ltd.[2], Viscount Maugham obseryed that the “doctrine of frustration is only a special case of the discharge of contract by an impossibility of performance arising after the contract was made.”
Lord Porter agreed with this view and rested the doctrine on the same basis.
The question was considered and discussed by a Division Bench of the Nagpur High Court in Kesari Chand v. Governor- General in Council[3] and it was held that the doctrine of frustration comes into play when a contract becomes impossible of performance, after it is made, on account of circum- stances beyond the control of the parties. The doctrine is a special case of impossibility and as such comes under section 56 of the Indian Contract Act.
The Supreme Court in Satyabrata Ghose vs Mugneeram Bangur [1954 AIR 44, 1954 SCR 310] held that,
“that 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 Indian Contract Act. It would be incorrect to say that section 56 of the Contract Act applies only to cases of physical impossibility and that where this section is not applicable, recourse can be had to the principles of English law on the subject of frustration.
It must be held also that to the extent that the Indian Contract Act deals with a particular subject, it is exhaustive upon the same and it is not permissible to import the principles of English law dehors these statutory provisions. The decisions of the English courts possess only a persuasive value and may be helpful in showing how the courts in England have decided cases under circumstances similar to those which have come before our courts. It seems necessary however to clear up some misconception which is likely to arise because of the complexities of the English law on the subject. The law of frustration in England developed, as is well known, under the guise of reading implied terms into contracts.”
First formulation of doctrine
The court implies a term or exception and treats that as part of the contract. In the case of Taylor v. Caldwell[4], Blackburn J. first formulated the doctrine in its modern form. The court there was dealing with a case where a music hall in which one of the contracting parties had agreed to give concerts on certain specified days was accidentally burnt by fire. It was held that such a contract must be regarded “as subject to an implied condition that the parties shall be excused, in case, before breach, performance becomes impossible from perishing of the thing without (1). default of. the contractor.”
Again in Robinson v. Davison[5] there was a contract between the plaintiff and the defendant’s wife (as the agent of her husband) that she should play the piano at a concert to be given by the plaintifl on a specified day. On the day in question she was unable to perform through illness. The contract did not contain any term as to what was to be done in case of her being too ill to perform. In an action against the defendant for breach of contract, it was held that the wife’s illness and the consequent incapacity excused her and that the contract was in its nature not absolute but conditional upon her being well enough to perform.
Bramwell B. pointed out in course of his judgment that in holding that the illness of the defendant incapaciated her from performing the agreement the court was not really engrafting a new term upon an express contract. It was not that the obligation was absolute in the original agreement and a new condition was subsequently added to it; the whole question was whether the original contract was absolute or conditional and having regard to the terms of the bargain, it must be held to be conditional.
The English law passed through various stages of development since then and the principles enunciated in the various decided authorities cannot be said to be in any way uniform. In many of the pronouncements of the highest courts in England the doctrine of frustration was held “to be a device by which the rules as to absolute contracts are reconciled with a special exception which justice demands”[6]. The court, it is said, cannot claim to exercise a dispensing power or to modify or alter contracts. But when an unexpected event or change of circumstance occurs, the possibility of which the parties did not circumstance occurs, the possibility contract is taken to be not what the parties actual intended, but what they as fair and reasonable men would presumably have intended and agreed upon, if having such possibility in view they had made express provsion as to their rights and liabilities in the event of such occurrence as observed in Joseph Constantine Steamship Co. v. Imperial Smelting Corporation Ltd.[7].
“In ascertaining the meaning of the contract and its application to the actual occurrences, the court has to decide, not what the parties actually intended but what as reasonable men they should have intended. The court personifies for this purpose the reasonable man.” Lord Wright clarified the position still further in the later case of Denny, Mott and Dickson Ltd. v. James B. Fraser & Co. Ltd.[8], where he made the following observations:
“Though it has been constantly said by high authority, including Lord Sumner, that the explanation of the rule is to be found in the theory that it depends on an implied condition of the contract, that is really no explanation. It only pushes back the problem a single stage. It leaves the question what is the reason for implying a term. Nor can I reconcile that theory with the view that the result does notdepend on what the parties might, or would, as hard bargainers, have agreed. The doctrine is invented by the court in order to supplement the defects of the actual contract…… To my mind the theory of the implied condition is not really consistent with the true theory of frustration. It has never been acted on by the court as a ground of decision, but is merely stated as a theoretical explanation.”
In the case of British Movietonews Ltd. v. London and District Cinemas Ltd.[9], Denning L. J. in the Court of Appeal took the view expressed by Lord Wright as stated above as meaning that
“the court really exercises a qualifying power-a power to qualify the absolute., literal or wide terms of the contract in order to do what is just and reasonable in the new situation”. “The day is gone,” the learned Judge went on to say, “when we can excuse an unforeseen injustice by saying to the sufferer ‘it is your own folly, you ought not to have passed that form of words. You ought to have put in a clause to protect yourself’. We no longer credit a party with the foresight of a Prophet or his lawyer with the draftsmanship of a Chalmers. We realise that they have their limitations and make allowances accordingly. It is better thus. The old maxim reminds us that he who clings to the letter clings to the dry and barren shell and misses the truth and substance of the matter. We have of late paid heed to this warning, and we must pay like heed now.”
This decision of the Court of Appeal was reversed by the House of Lords and Viscount Simon in course of his judgment expressed disapproval of the way in which the law was stated by Denning L.J. It was held that there was no change in the law as a result of which the courts could exercise a wider power in this regard than they used to do previously. “The principle remains the same”, thus observed his Lordship.
“Particular applications of it may greatly vary and theoretical lawyers may debate whether the rule should be regarded as arising from implied term or because the basis of the contract no longer exists. In any view, it is a question of construction as Lord Wright pointed out in Constantine’s case and as has been repeatedly asserted by other masters of law.”
These differences in the way of formulating legal theories really do not concern us so long as we have a statutory provision in the Indian Contract Act.
Legal Position in India
In deciding cases in India the only doctrine that we have to go by is that of supervening impossibility or illegality as laid down in section 56 of the Contract Act taking the word “Impossible” in its practical and not literal sense. It must be borne in mind, however, that 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.
According to the Indian Contract Act, a promise may be express or implied. In cases, therefore, where the court gathers as a matter of construction that the contract itself contained impliedly or expressly a term, according to which it would stand discharged on the happening of certain circumstances the dissolution on of the contract would take place under the terms of the contract itself and such cases would be outside the purview of section 56 altogether. Although in English law these cases are treated as cases of frustration, in India they would be dealt with under section 32 of the Indian Contract Act which deals with contingent contracts or similar other provisions contained in the Act. In the large majority of cases however the doctrine of frustration is applied not on the ground that the parties themselves agreed to an implied term which operated to release them from the performance of the contract.
The relief is given by the court on the ground of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement. Here there is no question of finding out an implied term agreed to by the parties em- bodying a provision for discharge, because the parties did not think about the matter at all nor could possibly have any intention regarding it.
When such an event or change of circumstance occurs which is so fundamental as to be re- garded by law as striking at the root of the contract as a whole, it is the court which can pronounce the contract to be frustrated and at an end. The court undoubtedly has to examine the contract and the circumstances under which it was made. The belief, knowledge and intention of the parties are evidence, but evidence only on which the court has to form its own conclusion whether the changed circumstances destroyed altogether the basis of the adventure and its underlying object. This may be called a rule of construction by English Judges but it is certainly not a, principle of giving effect to the intention of the parties which underlies all rules of construction.
This is really a rule of positive law and as such comes within the purview of section 56 of the Indian Contract Act. It must be pointed out here that if the parties do con- template the possibility of an intervening circumstance which might affect the performance of the contract, but expressly stipulate that the contract would stand despite such circumstances, there can be no case of frustration because the basis of the contract being to demand performance despite the happening of a particular event, it cannot disappear when that event happens.
Reference
Satyabarta Ghosh v Mugneeram Bangur co (1953)
[1] See Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd.[1916] 2 A.C. 397, 403
[2] [1942] A.C. 154 at 168
[3] I.L.R. 1949 Nag. 718
[4] 3 B & S. 826
[5] As Loard Wright (1) (1871) L.R. 6 Exch. 269
[6] Vide Hirji Mulji v. Cheong Yue Steamship Co. Ltd. [1926] A.C. 497 at 510
[7] [1942] A.C. 154 at 185.
[8] [1944] A.C. 265 at 275
[9] [1951] 1 K. B. 190. L/ B(D) 2SCI-7