Agreements to do impossible acts are void.
Section 56 of the Indian Contract Act provides that a contract to do an act, which after the contract is made or becomes impossible or by reason of some event which the promisor could not prevent, unlawful becomes void when the act becomes impossible or unlawful.
- Once a contract becomes impossible, the Doctrine of Frustration comes into play and ends the contract.
- Doctrine of Frustration has 3 factors - impossibility of performance, change of circumstances and loss of object.
An agreement to do impossible act is void under the Indian Contract Act, 1872. Section 56 of the Act provides for a contract to do an act afterwards becoming impossible or unlawful. It states that a contract to do an act, which after the contract is made or becomes impossible or by reason of some event which the promisor could not prevent, unlawful becomes void when the act becomes impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or unlawful. -
Where one person has promised to do something which he knew or with reasonable diligence had an idea that it was unlawful or impossible 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
Section 56 of the Contract Act must be considered to be exhaustive of the law relating to the frustration of contracts in India. The agreement may be classified into the following:
- Agreements to do unlawful Act
- Agreement to do impossible act
- Agreement to do an act which is both possible and legal but which after the contract is made becomes impossible
- Agreements to do an act which is both possible and legal but which after the contract is made become unlawful by reason of some event which the promisor could not prevent becomes unlawful
Cases of illegality may be divided into 3 classed namely:
- Agreements to do an unlawful act. These are void under the provisions of section 23 of the Act.
- Contingent Agreements to do or not to do unlawful acts are also void under sec 23 of the Act.
- Contracts to do acts which after the contract is made become unlawful by reason of some event which the promisor could not prevent become void section 56 of the Contract Act.
DOCTRINE OF FRUSTRATION
The doctrine of frustration is contained in section 56 of the Indian Contract Act. The doctrine of frustration comes into play when a contract becomes impossible of performance after it is made on account of circumstances beyond the control of the parties it is a special case of discharge of the contract. The contract is at an end and future performance is excused on both sides if it wrecks the adventure beyond recognition or swamps it out of existence. The doctrine of Frustration of contract can be established upon the fulfillment of the following conditions;
- Existence of a valid contract between parties
- The contract is yet to be performed
- The performance of the contract becomes impossible or unlawful
- The impossibility to perform is caused by an event which is beyond the control of both the parties.
Factors of Frustration of Contract:
1. Impossibility of performance:
Doctrine of Frustration of contract arises from the impossibility to do an act. But the principle is not confined to physical impossibilities. It was held in the case of Satyabrata Ghose vs. Mugneeram Bangurn & Co & Anr3, that 'impossible' has not been used in Section 56 of the Act in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and useless, and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do. Therefore, if the object of the contract is lost, the contract is frustrated.
2. Change of Circumstances:
Courts declare frustration of a contract 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. 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.4
3. Loss of object
The impossibility contemplated by Section 56 of the Act is not confined to something which is not humanly possible, as held in the case of Sushila Devi vs. Hari Singh.5 The Court stated that if the performance of a contract becomes impracticable or useless having regard to the object and purpose of the parties, then it must be held that the performance of the contract became impossible. But the supervening events should take away the very basis of the contract and it should be of such a character that it strikes at the root of the contract. As it was a case of lease of property, which after the unfortunate partition of India and Pakistan, the property in dispute which was situated in India, went onto the side of Pakistan, hence, making the terms of the agreement impossible.
RULE OF CONSTRUCTION
Rule of Construction is a standard utilized for deciphering lawful instruments, particularly agreements and resolutions.
Not very many nations have classified the standards of development. Most states treat the guidelines as simple traditions not having the power of law. Contra proferentem and ejusdem conventional are two instances of rules of development.
As indicated by Contra proferentem rule, if a provision in an agreement has all the earmarks of being questionable, it ought to be deciphered against the interests of the individual who demanded that the proviso be incorporated.
Moreover, ejusdem generis decide states that where a law records explicit classes of people or things and afterward alludes to them when all is said in done, the overall explanations just apply to similar sort of people or things explicitly recorded
CASE LAWS ON AGREEMENT TO DO IMPOSSIBLE ACT
• Satyabrata Ghose v. Mugneeram Bangura & Co &Anr- ‘Impossible’ in Section 56 of the Act was held not to be used. It may not be literally impossible to fulfil an act, but it may be unworkable and useless and if an unfavourable occurrence or a change of circumstances totally disrupts the very foundation on which the parties have negotiated, it is quite likely that the promising party finds it impossible to do the act he has promised to do. Therefore, if the object of the contract is lost, the contract will be frustrated.
• Sushila Devi v. Hari Singh- The Court stated that if the performance of a contract becomes impracticable or useless in view of the object and purpose of the parties, it must be held that the performance of the contract has become impossible. But the supervening events should remove the very foundation of the contract and it should be of such a character that it strikes the root of the contract. As it had happened in a case of property lease which, after the unfortunate partition of India and Pakistan, the property in dispute which was situated in India, went onto the side of Pakistan, hence, making the terms of the agreement impossible.
• Ganga Saran v. Firm Ram Gopal- The plaintiff and the defendant entered into five contracts under which the defendant undertook to supply 184 cloth bales made by Victoria Cotton Mills. The contract provided that the seller would continue to send the goods to the buyers as soon as the mills prepared them; they would continue to supply the buyers as soon as the goods were supplied to the sellers by the mills and the goods were supplied from the goods prepared by the mills. In a suit for damages for failure to deliver the goods, the defence of frustration by circumstances beyond the seller’s control are unsustainable. It was held that the contract did not depend on an uncertain future occurrence, i.e. the goods delivered by the mills.
• Dominion of India v. Bhikhraj Jaipuria- It has been that where the performance of contract is made impossible due to unexpected emergence of a fundamentally different situation which no party has foreseen and which happened in spite of that, the frustration of the contract occurs and the contractor is discharged from liability to compensate.
• U.P. State Electricity Board v. Kanoria Chemical- Section 56; comprehensively deal with the doctrine of frustration. The principle underlying the section is that performance of a contract can be avoided if, on account of happening of an event, which is not the result of the action of either of the parties, the performance of the contract becomes impossible.
• Nirmala Anand v. Advent Corporation Pvt. Ltd- The SC held that unless the competent authorities have been moved and the application for consent or sanction has been rejected once and for all and such rejections made finally became irresolutely binding and rendered impossible the performance of the contract resulting in frustration as envisaged under section 56.
WHEN DOES S. 56 NOT APPLY?
The question about the application of Section 56 of the Indian Contract Act (ICA), 1872 was considered by the Supreme Court in Raja Dhruv Dev Chand v Raja Harmohinder Singh AIR 1968 SC 1024.
In para 10 of the above said jugement SHAH J. observed that the courts in India have generally taken the view that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease. It was one of the cases arising out of the partition of the country into India and Pakistan.
The lease agreement in question was that of an agricultural land that too for a time duration of one year only.
Here the rent was all paid and the lessee was awarded with possession over the land, even before it could be exploited for any crop, after which came partition due to which the said land became a part of Pakistan while on the other hand the parties were required to migrate to India.
The petition was an action with an intention to recover the rent that was paid.
However, such a recovery was allowed/permitted.
Â· SHAH J pointed out that completed transfers are completely outside the scope of Section 56 - "Where on account of an event beyond the parties' control, the lessor is not able to transfer possession to the lessee; the lessee would be entitled to take back his rent".
Under a lease agreement of land there is a transfer of right which enables to enjoy the land mentioned in the agreement.
Therefore, if any of the materialistic part of the property is either wholly destroyed or rendered substantially or permanently unfit, for the purpose for which it was let out, the lease may at the option of the lessee can be avoided.
Such a rule is incorporated in Section 108(c) of the Transfer of Property Act, 1872.
Thus, it could be rightly said that Section 56 has no application to completed lease, but it applies only to agreements to lease.
The provisions of Sec. 56 of the Indian Contract Act, as the article states, provide that a contract to do an act which is 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 promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
In Satyabrata v. Mugneeram the Supreme Court had observed that various theories have been propounded 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 the impossibility of performance and frustration are often interchangeable expression. Also in the case of Sushila Devi vs. Hari Singh , it was observed that the impossibility contemplated by section 56 of the Contract Act is not confined to something which is not humanely possible.
Therefore, it can be concluded by stating that the doctrine of frustration automatically brings the contract to an end at the time of the frustrating event. This is in contrast to discharge by breach of contract where the innocent party can choose whether to treat the contract as repudiated.
The content of this article is intended to provide a general guide to the subject matter.