Theoretical overview
When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.
The contract can be performed –
(1) Where the parties have expressly agreed to treat it as of the essence of the contract;
(2) Where delay operates as an injury;
(3) Where the nature and necessity of the contract requires it to be so construed, for example, where a party asks for extension of time for performance.
IMPOSSIBILITY OF PERFORMANCE AND FRUSTRATION
S. 56 States that 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 promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
The doctrine of frustration comes into play in two types of situation, first, where the performance is physically cut off, and, second, where the object has failed
Specific grounds of frustration
- Destruction of subject-matter
- Change of Circumstances.
- Non-occurrence of contemplated event.
- Death or incapacity of party
- Government, administrative or legislative intervention
- Intervention of War.
- Application to leases
S. 65 states that 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 which was not enforceable for inadequacy of stamps, was held to be refundable.
Rights under a contract are assignable unless the contract is personal in its nature or the rights are incapable of assignment either the law or under an agreement between the parties..
Relevant sections
Section 55- time for performance.
S. 56. Agreement to do impossible act. —An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful.—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.
S. 65. Obligation of person who has received advantage under void agreement, or contract that becomes void.—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 which was not enforceable for inadequacy of stamps, was held to be refundable.
Important case laws
Bhudra Chand v Betts (1915) 22 Cal LJ 566: 33 IC 347.
Held: Entitled to recover as parties intended that time should be of the essence. This was confirmed by the circumstance that the D obtained an extension of the time, if time were not of the essence, he needn’t have asked for extension.
Paradine v Jane King’s Bench, (1647) Aleyn 26; 82 ER 897
Held: when the party had undertaken to perform the contract, he was bound to do so, and he could not be excused from the performance due to any reason.
Taylor v Caldwell (1863) 3 B&S 826: 122 ER 309.
Held: the contract was not absolute, and it was one which was dependent on the continued existence of the music hall.
Krell v Henry (1903) 2 KB 740 (CA)
Held: The coronation, which was the real object of the contract, was not happening, which led to the frustration of the contract and the defendant was not liable to pay the balance.
Satyabrata Ghose v Mugneeram Bangur & Co. AIR 1954 SC 44: 1954 SCR 310.
Held- 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 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 very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impos sible to do the act which he promised to do.
Commercial Hardships
Sachindra Nath v Gopal Chandra, AIR ,1949 Cal 240
Held- This is a situation of commercial hardship that makes performance unprofitable, or more expensive, but not sufficient to be excused or doesn’t bring a fundamentally different situation.
Held: Court excused the parties on ground of frustration. Doesn’t matter if potatoes had already been grown or were to be grown at the time of contract
Pameshwari Das Mehra v Ram Chand Om Prakash, AIR 1952 Punj 34, 38
Held- “It is clear that if there is entirely unanticipated change of circumstances the question will have to be considered whether this change of circumstances has affected the performance of the contract to such an extent as to make it virtually impossible or even extremely difficult or hazardous. If that be the case, the change of circumstances not having been brought about by the fault of either party, the courts will not enforce the contract.
Herne Bay Steam Boat Co v Hutton (1903) 2 KB 683 (CA)
Held- The contract was not frustrated. The contract had not been deprived of its sole commercial purpose as it was still possible to perform the day’s cruise. The Naval Review was not the only commercial purpose of the contract
Important legal Maxim
Pari delicto – The principle has also been held to apply in cases where a contract is void by reason of “unlawful object”, but the parties were not aware of it.
Points to remember
- The doctrine of frustration comes into play in two types of situation, first, where the performance is physically cut off, and, second, where the object has failed.
- An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful..
- Factors which make time of essence-
(1) Where the parties have expressly agreed to treat it as of the essence of the contract; (2) Where delay operates as an injury;
(3) Where the nature and necessity of the contract requires it to be so construed, for example, where a party asks for extension of time for performance.