INTRODUCTION
Section 2 of the Indian Contract Act of 1872 proves that a proposal, when accepted, becomes a promise which, when accompanied by a consideration, results in an agreement. Lastly, an agreement combined with enforceability makes a valid contract.[1] Section 10 mentions the agreements, which are contracts.[2] Thus, the main objective is the performance of the contract so formed after being filtered through its essentials.
One of the reasons for the non-performance of this contract is impossibility. In this case, if it is the plaintiff’s pre-requisites without which the other party would not be able to act on the agreement, are not fulfilled due to impossibility, can the defendant demand the consideration, blaming it on the former, or is the contract declared completely void and therefore not voidable at the other party’s option?
SECTION 56
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.[3] The impossibility of performing could vary in two different circumstances: initial and subsequent. Section 56 of the Indian Contract Act, 1872 in itself lists three specific situations that allow the check of the eligibility for usage of the same:
- An agreement to do a void act.
- A contract that was initially valid but, due to certain reasons of some event, has become impossible to perform or simply unlawful.
- A situation in which one party is aware either from the starting stage or with “reasonable diligence” while the other party or promisee does not know about it. In such a case, the latter must be compensated due to non-performance of the promise.[4]
The clauses mentioned above can be decoded into three simple terms, namely:
1. Void Agreements that involve initial impossibility, also called “Pre-Contractual Frustration[5],”
- Subsequent Impossibility due to a supervening event, and
- Void Contracts, respectively.
SECTION 65
With the second clause, Section 65 enters into the play, definitely with exceptions. It is such part of the Indian Contract Act 1872, which follows the Doctrine of Unjust Enrichment or the Doctrine of Restitution by either of the parties.
Section 65 specifies the obligation that one has to compensate those who have received an unfair advantage, which is applicable in case of a void agreement or a contract that becomes void.[6] The effect of this principle can only be laid down in cases when the parties have entered into a valid contract, and few benefits have been passed, and later becomes void. It is to be noted that it does not apply when the parties know of the voidability of the type of contract.[7]
A reasonably similar clause can be witnessed in agreement 20 of this Act, which mentions an agreement between two parties in which both parties are mistaken about a material fact to the agreement. This is also declared void agreement.[8] Thus, it can be concluded that Section 56(3) does not have a remedy under Section 65.
SECTIONS 56 AND 65 WOUND UP
Taylor v. Caldwell[9] is a landmark judgment that represents Section 56 of the Contract Act. It involves two parties: a hirer and a singer designated to sing for four concert dates, but on the first day, the concert hall was destroyed by fire without the fault of either of the parties. The concerts could take place once it is repaired, but for the dates fixed, there is no chance of completion of the contract and, therefore, rendered void due to subsequent impossibility. Herein, both parties were excused from performing their promises.
Adding another perspective, what if the singer was paid in advance for all four concerts and none took place due to a resultant frustrated contract?
Shouldn’t the rule of ‘Quantum Meruit,” which means “as much as one earns,” be followed? Wouldn’t this be a clear case of Unjust enrichment? There are three factors formulated to check its usage:
- Whether there has been an enrichment?
- Whether the enrichment is at the cost of the defendant?
- Whether it’s unjust or unfair?[10]
Thus, the party receiving the benefit that he has not equally paid back must return it so that the status quo of both parties is maintained. There has been special usage of this principle under the treatment of breach of contract in minors and its utilisation.[11]
In Satyabrata Ghose v. Mugneeram Bangur,[12] the defendants owned a huge piece of land in Calcutta and began its development for residential purposes after accepting a small amount of earnest money at the time of sale. Due to some reason, the land was suddenly acquired for military purposes. They believed that the agreement was now impossible and that it was cancelled. It was held that the contract was not impossible to perform since the construction had not started when the land was taken over, and it was a mere delay in its completion and was temporary. Hence, the defence of Section 56 was not allowed, and Section 65 was automatically applied. This case also helps differentiate between earnest money and advance paid. Though in this case, either could not be refunded, it brings clarity to the concept that only the advances can be recovered and not the earnest money in a situation otherwise.[13]
B.P. Exploration Co. (Libya) Ltd. v. Hunt[14] is a perfect case that explicitly mentions the application of both Sections 56 and 65 side by side. There was agreement between the two parties, and consideration was partly carried out, but the government seizure led to a frustrated contract. Granting the plea for a just sum of money, the Court ruled “unjust enrichment” and awarded the compensation accordingly.
CONCLUSION
The creation of Section 56 in the Indian Contract Act of 1872 is noteworthy and significant, but when coupled with Section 65, it relies on as its solution considering the exception mentioned above. Therefore, these Sections are used as collateral to each other and play a crucial part in cases where the normal performance of a contract is disrupted.
Author(s) Name: Simran Sethia (Symbiosis Law School, Noida)
Reference(s):
[1]The Indian Contract Act 1872, s 2
[2]The Indian Contract Act 1872, s 10
[3]Joseph Constantine Steamship Line, Ltd. v Imperial Smelting Corporation, Ltd. [1942] A.C. 154
[4] The Indian Contract Act 1872, s 56
[5] G. M. Sen, ‘Doctrine of Frustration in the Law of Contract’ (1972) Special Issue: Law of Evidence and Contract
<https://www.jstor.org/stable/43950178> accessed 27December 2023
[6] The Indian Contract Act 1872, s 65
[7] Sharmin Godrej Irani, ‘Validity of a contract, voidable contract and void agreement as given Indian Contract Act, 1872’ (SCCONLINE BLOG, 30 January 2021)
<https://www.scconline.com/blog/post/2021/01/30/validity-of-a-contract-voidable-contract-and-void-agreement-as-given-under-indian-contract-act-1872/> accessed 26 December 2023
[8] G. M. Sen, ‘Doctrine of Frustration in the Law of Contract’ (1972) Special Issue: Law of Evidence and Contract
<https://www.jstor.org/stable/43950178> accessed 27December 2023
[9]Taylor v Caldwell [1863] 3 B & S 826
[10] RK Bangia, ‘Contract-1’ (9th edn, Allahabad Law Agency 2023)
[11]Leslie Ltd. v Sheill [1914] 3 K.B.607
[12]Satyabrata Ghose v Mugneeram Bangur [1954] AIR 44
[13]Charanjit Singh v Har Swaroopair AIR [1926] PC 1
[14]B.P. Exploration Co. (Libya) Ltd. v Hunt [1982] 1 All ER 925
