[Last Name] 1

LAW OF CONTRACT – II

DISCHARGE OF CONTRACT BY IMPOSSIBILITY OF

PERFORMANCE

SUBMITTED BY: SUBMITTED TO:

PRIYANKA Dr. MANPREET KAUR

18195 (Assistant Professor of Law)

Group no. 09

RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB

PATIALA – 147006
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ACKNOWLEDGMENT

On completion of this project it is my privilege to acknowledge my heartfelt gratitude and

indebtedness towards my teachers for their valuable suggestion and constructive criticism. Their

precious guidance and unrelenting support kept me on the right path throughout the whole project

and very much thankful to teacher in charge and project coordinators for giving me this relevant

and knowledgable topic. I wish to express my sincere gratitude and encouragement in carrying

out this project work. I also wish to express my thanks to my group members and my friends for

their ideas because of which this project became more captivating. I am also thankful to my

institutional library for providing a broad range of books to learn more.

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SUPERVISOR’S CERTIFICATE

Dr. Manpreet Kaur Place: Patiala, Punjab

Date: 15-03-2019 Rajiv Gandhi National University of Law, Punjab

This is to certify that the Dissertation entitled Contracts Project: “Discharge of contract by

impossibility of performance” submitted to Rajiv Gandhi National University of Law, Punjab

in partial fulfillment of the requirement of the BA.LLB (Hons.) course is an original and bonafide

work carried out by Ms. Priyanka under my supervision and guidance. No part of this project has

been submitted to any university for the award of any degree.

Dr. Manpreet Kaur (Supervisor)

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INDEX

Sr. No. TOPIC

Introduction to the topic
• Discharge of contract
1. Discharge of contract by performance
2. Discharge of contract by agreement or consent
3. Discharge of contract by impossibility of performance
3.1 The doctrine of frustration
Doctrine of frustration not applicable
3.2 Death or incapacity of a party
3.3 Frustration by virtue of legislation
3.4 Frustration due to change of circumstances
3.5 Position in India
3.6 No frustration of executed contracts
3.7 No frustration by mere likely delay in performance
3.8 Impossibility does not mean mere commercial difficulty
3.9 Restoring benefit received under an agreement discovered to be void or
contract becoming void

4. Discharge of contract by lapse of time

5. Discharge of contract by operation of law
6. Discharge by breach of contract
7. Conclusion
8. Bibliography
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INTRODUCTION TO THE TOPIC

When an agreement, which was binding on the parties to it, ceases to bind them, the contract is

said to be discharged. 1 In other words, discharge of contract means ‘termination of the

contractual relationship between the parties’. There are various modes of discharge of contract , a

contract may be discharged either in a positive way (by performance) or in negative (by breach

or failure to perform contractual obligation by either of the parties).

Discharge of contract -

A contract may be discharged in the following ways :

• By performance of the contract

• By agreement or consent

• By impossibility of performance

• By lapse of time

• By operation of law

• By breach of contract

1
Bangia, R.K., Law of Contract, Allahabad Law Agency, Faridabad
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1. BY PERFORMANCE (Section 37)

A contract is said to be discharged if the parties to a contract fulfill their obligations arising

under the contract within the time and in the manner prescribed. In such a case, the parties are

discharged and the contract comes to an end. 2

Performance of a contract is the most usual mode of its discharge. It may be Actual performance

or attempted performance (tender).

• Actual performance: When both the parties perform their promises, the contract is

discharged. Performance should be complete, precise and according to the terms of the

agreement. Most of the contracts are discharged by the performance in this manner.

• Tender or Offer of Performance – Tender or offer of performance means ‘offer made by

the promisor to promisee expressing his willingness to perform his part of the obligation

under the contract. It is also known as attempted performance,.

Example : ‘A’ offers to sell his house to ‘B’ for $100000 and ‘B’ accepts the same letter ‘B’

paid the amount in full and ‘A’ handed over the house to ‘B’. Here the parties have fulfilled their

obligations. The contract is said to be discharged by performance.

2. DISCHARGE BY AGREEMENT OR CONSENT : (Section 62 to 67)

2
Source: www.srdlawnotes.com, “Discharge of contract”

Acessed on 14th March, 2019.

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A contract rests on the agreement of the parties. As it is an agreement which binds them, so by

their agreement or consent they may be discharged.

A contract may be terminated by subsequent agreement. The new agreement may be by way of

• Novation – Section 62 of the Indian Contract Act deals with the doctrine of novation.

When a new contract is substituted for an existing one, either between the same parties or

between the new parties. If the parties to a contract for it or to rescind or alter it, the

original contract need not be performed.

• Alteration – When one or more of the terms of the contract is / are altered by the mutual

consent of the parties to the contract.

• Remission – Section 63 of the Indian Contract Act 1872 speaks about the discharge of a

contract by remission I.e., acceptance of a lesser fulfillment of the promise made.

• Waiver – which means intentional relinquishment or giving up of a right by a party

entitled thereto under a contract.

• Merger - I.e. when an inferior right accruing to a party under a contract merges into a
3
superior right accruing to the same party under a new contract.

3. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE

If the performance of a contract is impossible, the same is void, both in India and England.

3
ibid.
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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 promisor could not prevent.

This section also provides that it becomes so unenforceable when the act becomes impossible

or unlawful.

Discharge of contract by impossibility of performance usually occurs when the contractual

duty cannot be performed because of death, illness, or a reason caused by the other party.

Objective impossibility is when no one can provide the service due to frustration of its purpose,

destruction of subject matter, or supervening impossibility. Subjective impossibility occurs

when the promisor is unable to perform the service due to death or illness. 4

Initial Possibility

Section 56 says:

“An agreement to do an act impossible in itself is void.”5

4
William Herbert Page, “The development of the doctrine of Impossibility of

Performance”, Michigan Law Review, Vol. 18, No. 7 (May, 1920) pp. 589-614 (26 pages)
5
Section 56, para 1.
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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. 6

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.”

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.

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, such a

promisor must compensate the promisee for the loss sustained by the promisee resulting from the

non-performance of the contract. For example, if a married man knowing that he cannot marry
7
against promises to do so, he is bound to compensate the other party for the breach of promise.

Subsequent Impossibility

6
Illustration (a) to Section 56.
7
Ill. ( c ) to Section 56.
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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 of

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 8 :

(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 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.

(iii) 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.

In Punj Sons Pvt. Ltd. V Union of India, 9 the promisors , M/s Punj Sons Pvt. Ltd., New Delhi entered

into a contract with the Union of India for the supply of 8,420 milk containers of 20 litres each, duly coated

with “hot dip coating”. The parties well knew that such coating has to be made with tin ingots, which was

a canalized item, not available in the market without a release order of Director General of Supplies and

8
Illustrations (b), (d), and (e) respectively, to Section 56.
9
A.I.R. 1986, Delhi 158.
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Disposals. In spite of reasonable efforts on the part of the petitioners to obtain the release of necessary quota

of tin ingots, the same was not done. It was held that the performance of the cotract became impossible due

to the non-availability of the tin ingots and the contract had become void due to impossibility of

performance, and the promisors could not be made liable to pay damages for the breach of contract.

3.1 The 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 10 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.”

10
A.I.R. 1986. Delhi 158.
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3.2 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. 11

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.12 For example, A promises to paint a 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. 13

In Robinson v. Davidson14, 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.

11
Singh, Avatar, Contracts and Specific Relief, Eastern Book Co. (2008)
12
Section 37
13
Illustration (b) to Section 37.
14
(1871) L.R. Ex. 269.
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3.3 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. 15

In Rojan Mian v. Tahera Begum, 16 an agreement was entered into between the plaintiff and the defendant

on 3-12-1973 for sale and purchase of Thika Tenancy. The agreement having not been carried out, the

plaintiff filed a suit for specific performance of agreement for sale on 7-21874. During the pendency of the

suit, the Calcutta Thika Tenancy (Acquisition and Regulation) Act, 1981, amending the Calcutta Thika

Tenancy Act, 1949, was promulgated. Section 6 of this Act read with Section 4 prohibited the transfer of

Thika Tenancy rendering the performance of the agreement to sell impossible and hence void. The Apex

Court ruled that by virtue of the 1981 Act, the land under the landlord had been vested in the State and the

Thika Tenancy under the landlord became the Thika Tenant under the State.17

3.4 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. Henry18 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 have a view of the

15
Rojan Mian v. Tahera Begum, A.I.R. 2007 S.C. 2883
16
A.I.R. 2007 S.C. 2883.
17
Section 5 of the 1981 Act vested in the state, the interest of the landlords in the T.T.
18
(1903) 2 K.B. 740
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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 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.

3.5 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 contract 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 Arora19, 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

was 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.

3.6 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, 20 it was held that there is clear distinction between completed conveyance

and an executory contract, and events which discharge an executory contract, and events which discharge

19
A.I.R. 1994 NOC 279 (Delhi).
20
A.I.R. 1968 S.C. 1024.
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an executory contract, and events which discharge an executory contract do not invalidate a concluded

transfer.

In Amir Chand v. Chuni Lal, 21 it has been held that the doctrine of frustration does not apply to contracts

creating estates or interest in land, which had already accrued. It was held that the contract of lease had not

become impossible of performance because the landlord could reconstruct the premises in the same form

in which they existed before demolition and the rights of the lessor and the lessee would then be available

in respect of the new premises.

3.7 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, 22 the defendant company was the owner 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 was requisitioned by the Government during the Second World War, for military purposes. The

defendant thereupon wanted to cancel the contract mainly on the ground that the contract stood discharged

21
A.I.R. 1990 P&H. 345.
22
A.I.R. 1954 S.C. 44
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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.

3.8 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.

In Punj Sons Pvt. Ltd. V. Union of India, there was a contract between M/s Punj Sons Pvt. Ltd. And the

Union of India under which the former agreed to supply to the latter 8,420 milk containers of 20 litres each.

The containers were to be coated with “hot dip coating”. The coating was to be done with tin ignots, which

was not available in the market. The supply of tin ignots could be obtained by the promisors on the release

of the quota by the Director General of Supplies and Disposals. In spite of reasonable efforts on the part of

the promisors, the quota was not released, and thus, without any fault on their part, they were not able to

perform the contract. It was held that the contract in this case had become impossible of being performed

and thus void. The promisors were, therefore, not liable for the non-performance of the same.

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

becoming void

It has already been noted 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
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valid when made but may subsequently be discovered to be void. In such like situation, it 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. 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.”

In Faqir Chand Seth v. Dambarudhar Bania, 23 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.

4. DISCHARGE BY LAPSE OF TIME:

The limitation act 1963, imposed an obligation on the parties in respect of certain contacts to perform within

a specified. If a contract is not performed within the period of limitation and if no action is taken by the

promise in a law court, the contract is discharged.

5. DISCHARGE BY OPERATION OF LAW

A contract may be discharged by operation of law.

It includes discharge by

• Death

• Merger

• Insolvency/Bankruptcy

23
A.I.R. 1987 Orissa 50.
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• Unauthorised Alteration of the terms of a written agreement, and

• Rights and liabilities becoming vested in the same person

• Judgement of court

6. DISCHARGE BY BREACH OF CONTRACT (Section 39)

Breach of contract means failure to perform the contractual obligation by either of the parties without

any lawful excuse. It is a ground for discharge of the contract.

Breach of contract may be -

• Actual Breach of contract may occur-

- at the time when the performance is dur, or

- during the performance of the contract

• Anticipatory breach of contract occurs when a party repudiates his liability or obligation under the

contract before the time for performance arrives. 24

24
id.
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CONCLUSION

Discharge of contract is referred when, there is a need to put an end to a contract. Discharge of contract can

be performed by various forms as described earlier. It is opted when the parties to the contract are unwilling

to perform the contract or refuse to perform the contract etc. It is basically an act of making a contract or

agreement null. So that, contract will no longer remain in existence. It is the duty of both the parties to

execute the contract in which they have entered in order to perform, as they are bound by the law

accordingly. It is the discretion of the court either to award compensation for the non-performance of

contract or order to perform, non-performed contract.

BIBLIOGRAPHY

• Bangia, R. K., Law of Contract, Allahabad Law Agency, Faridabad

• Singh, Avatar, Contracts and Specific Relief, Eastern Book Corp. (2008)

• William Herbert Page, “The development of the doctrine of Impossibility of Performance”,

Michigan Law Review

• Beatson, J. Anson’s Law of Contract, Oxford University Press, New York

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• Rao, R.S. , Lectures on Contract – I, Asia Law House, Hyderabad

Statutes:

The Indian Contract Act, 1872