V.L. Narasu v. P.S.V. Iyer

V.L. Narasu v. P.S.V. Iyer

AIR 1953 Mad 300

(Section 56, Frustration, Section 39, breach)

FACTS:

Defendant contracted with plaintiff to screen latter’s film in his cinema house until the net collection fall below some stipulated amount. Later there were unprecedented heavy rains which made a wall of cinema house to collapse owing to some latent defects, leading to death of three persons. There were inspections going on, licenses were suspended, and orders for demolition of theatre were also given. In view of alleged ‘impossibility’ of performance the contract was abrogated by defendant.

ISSUES:

1.  Whether the liability undertaken was absolute and in consequence of which, defendant must be held liable for damages for breach of warranty; or whether there has been frustration of contract so as to discharge him from his obligations thereunder u/s 56?
2. Whether it was self-induced frustration brought about by conduct of defendant such that he will be held liable for breach of contract u/s 39?

HELD:

Where parties bind themselves by absolute and positive obligations under a contract which, to their knowledge, is dependent for the possibility of its performance on the continued availability of the subject matter (either a thing or, a person as in personal contracts) and that availability comes to an unforeseen end by reason of circumstances over which its owner had no control, the owner is not bound in the absence of any express or implied warranty that the subject matter will continue to exist, unless he intends so either from express provisions of the contract or from the surrounding circumstances. (Taylor v. Caldwell) The principle of Taylor case is not limited to a specific thing, which formed the subject matter of contract, perished before its execution, rather has been extended to such a vital change of circumstances as to render the contract unreal (Alope v. State of UP). In such cases, the contract, though in terms absolute, must be construed as being subject to an implied condition that if before breach, performance becomes impossible due to an unforeseen event, without default of either party, the parties are to be excused from further performance.

In present case, as implied from express provisions of contract, the continued existence of theatre was the fundamental basis on which parties contracted. It is also established that it had become impossible to screen the movie any longer in view of cancelled licenses and demolition orders, events which were not in contemplation of parties when they so contracted and were totally unforeseen over which defendant had no control. There was neither any implied warranty for the continued existence of the theatre nor any positive obligation of defendant to be bound by contract in such fundamentally altered circumstances. Hence, there was implied a condition that the agreement should terminate in case licenses are cancelled or theatre ceases to exist without the default of any party.

S.39:  Reliance cannot be placed by defendant on ‘self-induced’ frustration; indeed such conduct gives the other party to treat the contract as repudiated and claim for damages. A party is faulty in ‘self-inducing frustration’ if the act or omission which results in frustration is deliberate and intentional on its part and not merely ‘passive negligence’. Conduct must amount to repudiation of the contract as u/s 39: either from express words making clear the intention of the party not to perform the contract or conduct from which such intention could be implied. Therefore, mere negligent act or omission doesn’t amount to repudiation and it must be to such a degree that the intention of the party not to perform his obligations could be deduced. Therefore, the combined effect of S.56 and S.39 is that frustration renders a contract void, unless there has been a conduct antecedent to frustration amounting to repudiation thereof. Once defendant has established frustration, the onus lies on plaintiff to show that the frustration was ‘self induced’.

In present case, firstly, there were several construction defects as pointed out but they were latent, secondly, there was unprecedented rainfall on the day when mishap took place, thirdly, nothing was alleged to be done or omitted to be done by defendant to intentionally repudiate a contract. Hence, plaintiff hasn’t discharged his burden to prove deliberate omission on part of defendant to take due care to maintain the safety standard in theatre, such that there was no “self-induced frustration” as alleged.

There can be no frustration unless the change in circumstances is: 1) of a permanent nature so as to render the contract impossible to be performed on any future date or, 2) of fundamental nature or, 3) of such a duration, so as to make the contract, when resumed, a different one from the original contract. Nature of contract and surrounding circumstances are to be taken into account while applying the aforementioned test.

In present case, there was no obligation of the defendant to construct a new theatre in accordance with statutory requirements as immediately after its demolition. Further, the gap of two years which took the completion of theatre made the contract, if to be resumed, altogether different from the original one, for the screening of the same film which had released before two years or more was not commercially viable for the defendant and would no longer drew crowds. Therefore, in present case, nature of the contract made any duration for which it would have been subsisting a really short one.

QUESTION(S):

Q. If a steamer on voyage in charter-party agreement is either requisitioned by Admiralty or if delivery of goods is delayed due to be time to be taken for repairs mid-voyage, can the contract held to be frustrated on account of “impossibility of performance”?

A. The time which would be taken for the release of steamer from requisition or for repairs to be done vitiated the contract as a commercial venture, hence, the nature of contract made the contract, if to be resumed after the happening of such events, totally different from the one which in which parties entered into. Hence, contract can be held to be frustrated. (Narasu)

 

Author: Vishrut Kansal (National University of Juridical Sciences, Kolkata)