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V.L. Narasu Carrying on Business Under the Name and Style of Narasu Pictures Circuit Vs. P.S.V. Iyer and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai High Court
Decided On
Case NumberOriginal Side Appeal No. 49 of 1950
Judge
Reported inAIR1953Mad300; (1952)2MLJ832
ActsContract Act, 1872 - Sections 39 and 56; Evidence Act, 1872 - Sections 101 to 103
AppellantV.L. Narasu Carrying on Business Under the Name and Style of Narasu Pictures Circuit
RespondentP.S.V. Iyer and ors.
Appellant AdvocateN. Rajagopala Iyengar, Adv.
Respondent AdvocateS. Sankara Iyer, ;T.S. Rangarajan, ;K.S. Sankara Ayyar, ;V. Sundaresan and ;A.K. Sriraman, Advs.
DispositionAppeal allowed
Cases ReferredJoseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd.
Excerpt:
contract--frustration, doctrine of--condition implied by law--contract void and inoperative in certain events--change of circumstances to be fundamental--contract act (ix of 1872), sections 56 and 39--combined effect of--frustration avoids contract unless preceded by conduct amounting to repudiation--self-induced frustration, meaning of;even though a contract might on the face of it be absolute and positive, it may nevertheless be subject to an implied condition that, in certain events, it should become inoperative and void. this principle is well established in the class of cases known as frustration cases. in the cases to which the doctrine of restraighten applies, there will be implied in the contract a condition that it will cease to be operative if the basis on which it rests.....1. this is an appeal by the defendant against the judgment and decree in c. s. no. 118 of 1947 on the file of the original side of this court. the appellant is the managing director of a company called the presidency talkies ltd., which owns a cinema house called "the paragon talkies" the plaintiff is the producer of a film called "rukmangadan". on 31-8-1946 an agreement was entered into between the parties, (ex. p. 1) for exhibiting this picture in the paragon talkies. the agreement runs as follows:31st august 1946"tomr. p. s. v, aiyar,messrs. ayyar productions,mount road, madras.dear sir,in continuation to our letter of the 28th inst. and with further reference to our personal interview of the 30th, we agree to release your picture 'rukmangadan' featuring g. n. b. and others, in.....
Judgment:
1. This is an appeal by the defendant against the judgment and decree in C. S. No. 118 of 1947 on the file of the Original Side of this court. The appellant is the Managing Director of a company called the Presidency Talkies Ltd., which owns a cinema house called "the Paragon Talkies" The plaintiff is the producer of a film called "Rukmangadan". On 31-8-1946 an agreement was entered into between the parties, (Ex. P. 1) for exhibiting this picture in the Paragon Talkies. The agreement runs as follows:

31st August 1946

"To

Mr. P. S. V, Aiyar,

Messrs. Ayyar Productions,

Mount Road, Madras.

Dear Sir,

In continuation to our letter of the 28th inst. and with further reference to our personal interview of the 30th, we agree to release your picture 'Rukmangadan' featuring G. N. B. and others, in continuation of "Mayamachindra" in our Paragon Talkies, Madras, on the following terms:

1. Date of release: In continuation to 'Mayamachindra' failure on your part to supply your picture immediately in continuation of "Mayamachindra" shall make this contract null and void, but on or before 10-10-1946.

2. Percentage: Sixty per cent of the nett collections, for the first week, 55 per cent for the second week and 50 per cent thereafter throughout to be to your share.

3. Hold over: The picture will be stopped when the weekly nett collections fall below the hold over figure of Rs. 3600 nett.

4. Publicities: All publicities inclusive of Banners, Posters, press publicities, Theatre decorations, etc., to be done by you, and towards our share of advertisement charges we will pay you a sum of Rs. 125 per week for the first eight weeks and thereafter Rs. 100 only per week.

5. General: Usual Theatre free passes will be issued by us. Your share of the picture will be paid at the end of each week.

Yours faithfully

for Narasu Pictures Circuit,

(signed) V. L. Narasu

I agree to the above for Ayyar Productions,

(signed) P. S. V. Ayyar."

The picture was put on board on 23-10-1946 and was running till 5-12-1946. In the beginning of December 1946 there were heavy rains and on the night of 5th December a portion of the rear wall of the talkies collapsed and three persons were killed. On receipt of this information the Police telephoned to Mr. Meeran. Engineer of the Corporation of Madras to inspect the premises and report on their condition. The report which he sent is Ex. P. 2(a). Therein he stated that pending a thorough investigation by him which could not then be carried out owing to rains, "the performance in the Theatre should be suspended". On this, the Commissioner of Police directed the defendant "to suspend shows in the Talkies from today onwards until further orders, as the Engineer of the Corporation of Madras, has certified that the Talkies is unfit to be used for the shows at present" (Exs. P. 2 dated 6-12-1946). By Ex. P. 3 the defendant communicated this to the plaintiff on the same day.

2. On 14-12-1946 the premises were again inspected both by the Corporation Engineer and the Commissioner. The Engineer was definitely of the opinion that the building was "unsafe for being used as a Cinema Theatre or for any other public purpose". On this, the Corporation Commissioner wrote to the Commissioner of Police Ex. P. 4 as follows:

"In my opinion, the whole building should be pulled down immediately so as to avoid any further mishaps and should be reconstructed as I do not consider the existing structure to be sound......Under the circumstances, I would request you to cancel the licence already issued to the Paragon Talkies and not to renew it until the building is reconstructed and the Chief Engineer to Government certifies it to be sound and safe."

This was communicated to the defendant, who thereupon wrote Ex. P. 5 to the plaintiff on 19-12-1946. Therein, after setting out the above facts, the defendant wrote "consequently we regret to inform you that our contract to exhibit your picture 'Rukmangadhan' at the Paragon Talkies has lapsed because of impossibility of performance." A cheque for Rs. 307-15-6 being the amount due to the plaintiff on account of the collections on the 4th and 5th December 1946 was also enclosed along with Ex. P. 5 and was received by the plaintiff without prejudice to his rights under the contract. After a preliminary exchange of notices, Ex. P. 7 and Ex. P. 8, the plaintiff instituted the suit, out of which the present appeal has arisen claiming Rs. 85000 as damages for breach of contract by the defendant. In the plaint, it is alleged that under the agreement between the parties the defendant was under an absolute obligation to exhibit the picture; that he was further negligent in that he did not maintain the Theatre in a proper state of repair; and that, therefore, he was in default and liable for damages. The defendant filed a written statement denying that he was under any absolute liability to exhibit the picture whether the Theatre was in existence or not; he also denied that he was negligent in the maintenance and upkeep of the Theatre. He contended that the contract had in the events which had happened become impossible of performance and frustrated; that he was, therefore, discharged from his liabilities thereunder, and that, in any event, the damages claimed were excessive. The suit was heard by Mr. Mack J. who held that there was in the contract an implied warranty by the defendant "that the Paragon Talkies would be available for the running of this picture throughout the period the parties contemplated"; and that further "the plaintiff had succeeded in proving positively default or neglect on the part of the defendant in addition to establishing the breach of the implied warranty in the suit contract." On the question of damages, he held that there were no data available for determination of the same and awarded a decree for Rs. 25000 in favour of the plaintiff. The defendant appeals.

3. On the contentions that have been urged before us three questions arise for determination :

(1) Whether the liability undertaken by the defendant under Ex. P. 1 was absolute and whether he is, in consequence, liable for a breach of warranty; or whether there has been frustration of the contract so as to discharge him from his obligations thereunder;

(2) Whether the defendant is liable on the contract on the ground that the frustration resulted from his own default or neglect, and

(3) to what damages, if any, the plaintiff is entitled.

4. On the first question, it is necessary to refer to the facts on which the contentions are based. Under Ex. P. 1 the appellant agreed to exhibit the picture in "our Paragon Talkies". This Theatre belonged to the Presidency Talkies Ltd. of which he was the Managing Director and in which he held the majority of shares and the agreement was for sharing of collections between the producer of the picture and the owner of the Theatre. The continued existence of the Theatre is the fundamental basis on which this agreement rests and that is also implied in Clause (3) which prescribes the hold over figure and Clause (5) which refers to the issue by the defendant of the "usual Theatre free passes". The following observations of Justice Blackburn in -- 'Taylor v. Caldwell, (1863) 3 B & S 826: 122 E R 309 at 312 construing a similar agreement aptly apply to the suit contract:

"The effect of the whole is to show that the existence of the Music hall in the Surrey Gardens in a state fit for a concert was essential for the fulfilment of the contract--such entertainments as the parties contemplated in their agreement could not be given without it."

5. It is also established that it had become impossible to exhibit the picture in Paragon Talkies after 5-12-1946. On 6-12-1946 the Commissioner of Police prohibited further shows in the Talkies pending final orders and eventually the Theatre itself was condemned and ordered to be pulled down and the licences which had to be obtained under the Cinematograph Act and the City Police Act were cancelled. The theatre itself was in fact pulled down and a fresh theatre was constructed by April 1948. Thus, the contract had become impossible of performance both by reason of the cancellation of the licences and the disappearance of the very theatre in which, under the agreement, the picture had to be exhibited.

6. These facts are not seriously in dispute. The argument on behalf of the plaintiff, however, is that when there is a contract in writing embodying the terms agreed to by the parties, that alone should govern the rights of the parties and that in the absence of a provision excusing non-performance in the events which happened, the defendant would be liable for damages for breach of the agreement; and that the same result would follow, if it is held that the defendant had impliedly warranted that the theatre would be available for the performance of the contract in which case he would be liable for damages for breach of warranty. As observed in an old English case -- 'Paradyne v. Jane', (1647) Aleyn, 26

"When the party, by his own contract, creates a duty or charge upon himself, he is bound to make it good, it he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract."

It is not disputed that the rights and obligations of parties to a contract are those that flow from the terms to which they have agreed under the contract and that what the court has to do is merely to interpret those terms for the purpose of giving effect to them. "When a lawful contract has been made ......a court of law has no power to discharge either party from the performance of it", and "no court has an absolving power" per Earl Loreburn in -- 'F. A. Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd.', (1916) 2-A. C. 397 at pp. 403 and 404. But that, however, does not conclude the matter. It is settled by a long course of decisions that even though a contract, might on the face of it be absolute and positive it may nevertheless be subject to an implied condition that in certain events it should become inoperative and void. In -- 'Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd. (1942) A. C. 154, Lord Wright observed:

"It is true that a contract absolute in terms may be absolute also in effect. The contractor, if he cannot perform, must pay damages. 'Prima facie', the actual language governs. But a contract absolute in terms is not necessarily absolute in effect. It is in all cases a question of construction as Lord Cranworth L. C. pointed out in -- 'Couturier v. Hastie', (1856) 5 H. L. C. 673 at p. 681."

This principle is well established in the class of cases known as frustration cases. A leading case on the subject is -- "Taylor v. Caldwell, (1863) 3 B & S 826: 122 E R 309 at pp. 312 and 314, already referred to. The facts of that case were that Messrs. Caldwell and Bishop who were the owners of a Music Hall, called the Surrey Gardens, agreed with Messrs. Taylor & Louis that they should have the use of the hall on 4 specified days for music concerts. Before the due dates the Hall was burnt by an accidental fire. Taylore & Louis sued Caldwelt & Bishop for damages for breach of contract and the contention on their behalf was that there being no provision in the contract absolving the defendant from liability in case the premises were destroyed, they -were liable absolutely for damages for breach of the contract. The decision in -- 'Paradyne v. Jane', (1647) Aleyn 26 was relied on in support of this contention. Hepelling this contention and holding that the contract had come to an end, Blackburn J. observed as follows:

"The parties when framing their agreement evidently had not present to their minds the possibility of such a disaster, and have made no express stipulation with reference to it, so that the answer to the question must depend upon the general rules of law applicable to such a contract. There seems no doubt that, where there is a positive contract to do a thing, not in itself unlawful, the contractor must perform it or pay damages for not doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burthensome or even impossible......But this rule is only applicable when the contract is positive and absolute, and not subject to any condition either express or implied; and there are authorities which, as we think, establish the principle that where, from the nature of the contract, it appears that the party must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specific thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the things shall exist, the contract, is not to be construed as a positive contract, bus as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor.

There seems little doubt that this implication tends to further the great object of making the legal construction such as to fulfil the intention of those who entered into the contract."

The learned Judge then referred to various, other classes of contracts including personal contracts in which it had been held that the death of the person had put an end to them and observed:

"In none of these cases is the promise in words other than positive, nor is there any express stipulation that the destruction of the person or thing shall excuse the performance; but that excuse is by law implied, because from the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of the particular person or chattel."

7. The principles enunciated above are firmly established in the law of England and have been affirmed by decisions of the highest authority. In -- 'Bank Line Ltd. v. Arthur Capel Co.', (1919) A. C. 435 at 445 Viscount Haldane observed:

"What is clear is that where people enter into a contract which is dependent for the possibility of its performance on the continued availability of the subject-matter and that availability comes to an unforeseen end by reason of circumstances over which its owner had no control, the owner is not bound un-less it is quite plain that he has contracted to be so."

In -- 'Hirji Mulji v. Cheong Yue Steamship Co. Ltd.', (1926) A. C. 497 at p. 507, the law is thus stated by Lord Sumner:

"An event occurs, not contemplated by the parties and therefore not expressly dealt with in their contract, which, when it happens, frustrates their object. Evidently it is their common object that has to be frustrated, not merely the individual advantage which one party or the other might have gained from the contract. If so, what the law provides must be a common relief from this common disappointment and an immediate termination of the obligations as regards future performance. This is necessary, because otherwise the party would be bound to a contract, which is one that they did not really make. If it were not so, a doctrine designed to avert unintended burdens would operate to enable one party to profit by the event and to hold the other, if he so chose, to a new obligation."

8. The principle of the decision in -- 'Taylor v. Caldwell', (1863) 3 B & S 826: 122 E R 309, is not confined to cases where a specific thing, 'de certo corpore', the continued existence of which is the basis of the contract, has perished before the time for performance. It has been applied to eases in which there is such a vital change of circumstances as to render the contract obsolete and unreal. In -- 'Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd.', (1942) A. C. 154 at p. 172, Viscount Maugham classified the frustration cases into four groups. He observed:

"Frustration may occur as I have already mentioned in very different circumstances. First, in cases resembling the present where there has been the destruction of a specific thing necessary for the purpose of the contract. Secondly, where performance becomes virtually impossible owing to a change in the law. Thirdly, where circumstances arise which make the performance of the contract impossible in the manner and at the time contemplated. Fourthly, where performance becomes impossible by reason of the death or incapacity of a party whose continued good health was essential to the carrying out of the contract."

9. In Halsbury's Laws of England, Vol. 7, page 213, the law on the subject is stated in the following terms:

"Where it appears from the nature of the con-tract and the surrounding circumstances that the parties have contracted on the basis that some specified thing without which the contract cannot be fulfilled will continue to exist or that a future event which forms the foundation of the contract will take Place, the contract, though in terms absolute, is to be construed as being subject to an implied condition that if before breach, performance be-comes impossible without default of either party and owing to circumstances which were not contemplated when the contract was made, the parties are to be excused from further performance."

10. The result of the authorities, therefore, is that in the class of cases to which the doc-trine of frustration applies, there will be implied in the contracts a condition that they will cease to be operative if the basis on which they rest disappears or becomes fundamentally altered. This, however, is a rule of construction and must yield to any contrary intention which the agreement might disclose. But our attention has not been drawn to anything in Ex. P. 1 indicative of a contrary intention. We are therefore, unable to accede to the contention of the respondent that a warranty by the defendant that the theatre would be available for performance during the entire period of the contract should be implied therein. On the other hand, on the finding that the continued existence of the Paragon Talkies was the basis on which both parties entered into the contract and that performance therein became impossible both by reason of the cancellation of the licences and the disappearance of the Theatre, there must be implied in the agreement a condition that it should terminate in case the licenses are cancelled or the Theatre ceases to exist.

11. Mr, K. S. Sankara Iyer, the learned Advocate for the respondent put forward two contentions based on -- 'F. A. Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum Products Co. Ltd.', (1916) 2 A. C. 397. One is that the principle of frustration would not apply when the performance under the contract is a continuing one extending over a period, whether fixed or indeterminate, as distinguished from a single venture or a specific act and that, therefore, there could be no frustration of an agreement like Ex. P. 1. In support of this position, the following observations of Lord Parker were relied on:

"There is, so far as I can find, no case in which this principle has been applied to time charterparties as distinguished from charterparties which contemplate particular voyages."

It was argued that if the principle of frustration was inapplicable to time charterparties, it would for the same reason be inapplicable to a continuing contract like Ex. P. 1. It may be mentioned that Viscount Haldane did not share this opinion and observed that the contract being for a period was only an element to be taken into consideration; while Lord. Atkinson expressed himself definitely against this view. He observed :

"I am quite unable to agree with the contention urged by the respondents that the principle of these decisions can never apply to a time charter."

This controversy was set at rest by the decision in -- 'Bank Line Ltd. v. Arthur Capel & Co.', (1919) A C 435, where it was held that the fact that the charterparty was for a time did not exclude the application of the doctrine of frustration. This contention must, therefore, be rejected.

12. The second contention is that even on the facts as found in the present case, there was no scope for the application of the doctrine of frustration. The argument is that there could be no frustration, unless the change of circumstances is of a permanent and fundamental character; that the cancellation of the licences and demolition of the theatre were temporary features; that it was possible to build a new theatre in accordance with the police requirements within a measurable period and that was in fact done by April 1948; and such temporary interruptions could not be held to frustrate the contract. Reliance is placed on the decision of the majority of the House in --'F. A. Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum Products Co. Ltd.', (1916) 2 A C 397. In that case, a steamship was chartered for a period of five years under a charter-party dated 18-5-1913. In December 1914 the vessel was requisitioned by the Admiralty and structural alterations were made so as to make it suitable for transport of troops. At this juncture the owner of the vessel brought an action for a declaration that the contract dated 18-5-1912 had come to an end as a result of requisition by the Government. The majority of the House consisting of Lord Buckmaster L. C. Earl Loreburn and Lord Parker held that there was no frustration of the contract, while Viscount Haldane and Lord Atkinson held the contrary. Earl Loreburn stated the principles applicable in the following words:

"A Court can and ought to examine the contract and the circumstances in which it was made, not of course to vary, but only to explain it, in order to see whether or not from the nature of it the parties must have made their bargain on the footing that a particular thing or state of things would continue to exist. And if they must have done so, then a term to that effect will be implied, though it be not expressed in the contract. In applying this rule it is manifest that such a term can rarely be implied except where the discontinuance is such as to upset altogether the purpose of the contract. Some delay or some change is very common in all human affairs, and it cannot be supposed that any bargain has been made on the tacit condition that such a thing will not happen in any degree."

13. This statement of the law does not materially differ from what Viscount Haldane stated. He observed:

"And where the interruption is simply one of an interim character and likely to cease so soon as to leave the rest of the period stipulated free for the revival of the rights and duties of the parties after what amounts to no more than a temporary cessation of the power of performance, then, not only where there is an express stipulation covering the case which has occurred, but possibly even where there is no such stipulation, the contract may be regarded as not becoming destroyed but only suspended..... But if the facts be such that it appears that the power of performance has been wholly swept away to such an extent that there is no longer in view a definite prospect of this power being restored, then the contract must be looked upon as being wholly dissolved, and the courts cannot take any course which would in reality impose new and different terms on the parties."

As was remarked in -- 'Bank Line Ltd. v. Arthur Capel & Co.', (1919) A C 435 the difference between the two views expressed in --'F. A. Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum Products Co. Ltd.', (1916) 2 A C 397 was not so much with reference to the principles applicable as to their application to the facts of the case.

14. On these principles, the question to be determined is whether the change of circumstances established in this case was of an interim and temporary character which left the contract alive and capable of being performed at a future date or whether it was so sweeping and fundamental that it killed the contract itself. That is a question of fact to be determined on a consideration of all the facts and circumstances of the case.

15. What then are the facts? There is an order of the Police authorities condemning the theatre as unsafe and directing it to be pulled down. That was done. Was there thereafter any further obligation on the part of the appellant to rebuild the theatre? If not, on what ground is it to be held that the contract still subsisted in a state of suspended animation? To visualise the situation, could the plaintiff have obtained in 1947 after the old theatre had been demolished and before the new theatre had been built a declaration that the contract. Ex. P. 1 was subsisting between the parties and could be put into operation if and when a new theatre was constructed? If the contention of the respondent is right, he would be entitled to such a declaration. To grant such a declaration would be in 'the words of Rowlatt J. in -- 'Distington Hematite Iron Co. Ltd. v. Possehl & Co.', (1916) 1 K B 811 at p. 814, "Not to maintain the original contract but to substitute a different contract for it." It is this feature that completely distinguishes this case from -- 'F. A. Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum Products Co. Ltd.', (1916) 2 A C 397, in which the steamship which was the subject-matter of the contract continued to exist, though having been requisitioned by the Admiralty, it was not immediately available for performance under the contract.

16. Then again, the theatre which came into existence in 1948 was far different from the one which was pulled down, in point of structure, accommodation and earning capacity. This appears on the evidence of D. W. 2 who stated that the entire structure of the old theatre was pulled down, new foundation and new structures made and that the new theatre provided accommodation for 100 people more in the higher classes and the balcony. Thus the Paragon talkies which came into existence in 1948 was substantially different from the Paragon talkies which was the subject-matter of the contract, Ex. P. 1.

17. The nature of the trade is again a very material element in determining whether the events which happened merely suspended the performance under the contract or put an end to it. It is well known feature of the Cinema business that the pictures have an ephemeral existence and their attractions are evanescent. When they are first put on board, they draw crowds and after running their course for a season of longer or shorter duration they lose their hold over the cinema-going public and are consigned to the limbo of oblivion, seldom to be seen again on the screen. The exhibition of "Rukmangadhan" in 1948 would commercially be a proposition totally different from the continuance of "Rukmangadhan" in December 1946 in terms of Ex. P. 1. In -- 'Jackson v. The Union Marine Insurance Co. Ltd.', (1875) 10 C P 125, there was a charterparty in November 1871 under which the ship was to proceed with all possible despatch from Liverpool to Newport and there load a cargo of iron rails and then proceed to San Franscisco. On its way from Liverpool to Newport on 3-1-1872 the ship ran aground amidst rocks. The charterer threw up the charter on 15-2-1872. In an action by the owner of the ship on the charterparty, it was held that the delay which must happen in carrying out repairs to the ship frustrated the agreement as a commercial venture and that both parties were released from their obligations thereunder. The repairs were in fact completed in August 1872. In --'Metropolitan Water Board v. Dick Kerr & Co. Ltd.', (1918) A C 119 the defendant agreed in 1914 to contruct a reseryoir within six years. In February 1916 the . Ministry of Munitions prohibited him from proceeding with his work under the contract. In May 1916 the plaintiff sued for a declaration that the agreement of 1914 was still subsisting. The defendant contended that it had come to an end. It was held that the interruption caused by the prohibitory order issued by the Ministry of Munitions was of such a character and duration as to make the contract, when resumed, a different one from the contract which was interrupted and that therefore, the agreement had been frustrated and ceased to be operative.

On the facts -- 'Metropolitan Water Board v. Dick Kerr & Co. Ltd.', (1918) A C 119 is very near the present case. The position of the defendant on whom Ex. P. 2 and Ex. P. 4 had been served by the Commissioner of Police in this case is not different from that of the defendant in -- 'Metropolitan Water Board v. Dick Kerr & Co. Ltd.', (1918) A C 119 on whom a prohibitory order had been served by the Ministry of Munitions in February 1916. Moreover, that was a building contract, whereas the present one is a commercial contract as to which the following observation, of Lord Finlay L. C. is apposite:

"It was not disputed, as I understand the argument for the appellants, that in the case of a commercial contract, as for the sale of goods or agency, such a prohibition would have brought it to an end."

It was held that the position was the same even with reference to the building contract. In -- 'Bank Line Ltd. v. Arthur Capel & Co.'. (1919) A C 435 there was a charterparty dated 16-2-1915 for a period of one year. On 11-5-1915 the steamer was requisitioned by the Admiralty, but released in September. The owner sold the vessel to a third party and in an action on the charterparty for damages for non-delivery, it was held that the requisition and detention of the steamer destroyed the identity of the chartered service and entitled the defendants to treat the charterparty as at an end. The latest case on the subject in England is the one reported in -- 'Morgan v. Manser', (1948) 1 K B 184, where a contract entered into in 1938 for a period of ten years was held frustrated and not merely suspended by the defendant being called for war service in 1940. In the light of the principles adopted in the above cases, it is impossible to hold that the interruption in this case was merely of a temporary character and that the entire contract was not frustrated.

18. It was also sought to be contended that the Paragon talkies theatre was not in such an unsafe condition in December 1946 as to be required to be demolished completely; that by reconstructing the walls with bricks the theatre might have been put in a working condition; and that, therefore, the appellant could not plead frustration. There is unimpeachable documentary evidence that the theatre was unsafe for use by the public. That was the opinion which P. W. 2 himself expressed as recorded in Ex. P. 4. The opinion of the Government Engineer was that the structure was quite unsound and that the whole building should be pulled down and properly reconstructed (vide Ex. P. 9). As against this, we are unable to attach any weight to the oral evidence on the side of the plaintiff, that the theatre could have been set right by reconstruction of the walls. But apart from that, there was the order of the appropriate authorities directing the demolition of the theatre and the appellant was bound to carry out that order and had no choice in the matter. Likewise the order of the Police Commissioner cancelling the licences was final and not open to question. These orders struck at the very foundation of the contract and rendered it impossible of performance. Our conclusion on the first question accordingly is that in the events which happened, the agreement became frustrated and the appellant was discharged from his obligations thereunder.

19. On this conclusion, the question next arises for consideration whether the frustration of the contract was due to the default or neglect of the defendant. Mr. N. Rajagopalan, the learned advocate for the appellant, did not controvert the position that if frustration was brought about by the default or neglect of the appellant, he would continue to be liable on his obligations under the contract. The very authorities which recognise that frustration terminates the contract also lay down that it must be without default or neglect of either party. The controversy before us has been as to what constitutes default or neglect for the purpose of this rule and whether such default or neglect has been established against the appellant. The authorities in which this question had actually to be decided are few; and it cannot be said that the law on the subject is finally settled in England.

20. In -- 'Bank Line Ltd. v. Arthur Capel & Co.', (1919) A C 435 at p. 452, there are certain observations in the speech of Lord Sumner which may be taken as the starting point for discussion. He observed: "I think it is now well settled that the principle of frustration of an adventure assumes that the frustration arises without blame or fault on either side. Reliance cannot be pleaded on a self-induced frustration; indeed, such conduct might give the other party the option, to treat the contract as repudiated." The words "self-induced" frustration are important and furnish a clue to the solution of the question. They clearly imply that the act or omission which results in frustration must be something deliberate and intentional; frustration cannot be said to bo "self-induced" if what is shown is merely passive negligence. This inference is further reinforced by the observation that the conduct must be such as to amount to a repudiation of the agreement. Now, an agreement can be repudiated either by words expressive of an intention not to perform the contract or conduct from which the said intention could be gathered. That is what is laid down in Section 39 of the Contract Act. Mere failure to perform a contract without more cannot be said to be a repudiation of it. It would follow from this that it is not every negligent act or omission to which the frustration might ultimately be traced that can be held to be default or neglect such as would exclude the application of the principle of frustration. It should be of such a character that it might be fairly inferred therefrom that the promisor has no intention of performing the contract and has in effect repudiated it. The conduct must be such as could be held to amount to repudiation within the meaning of Section 39 of the Contract Act.

21. The authorities on the subject may now be reviewed. In -- 'Mertens v. Home Freeholds Co.', (1921) 2 K B 526 the facts were that one Lawrence agreed on 12-5-1916 to construct a house for the plaintiff on terms which were un-remunerative. On 14-7-1916 an order was made by the Minister of Munitions prohibiting all construction of works except under licence which could be issued under certain circumstances. Lawrence welcomed this notification as "a God-send", deliberately shirked work and delayed the construction with the result that the licence was, as desired, refused. The plaintiff completed the building through other agencies in 1919 and sued the defendant who was a partner of Lawrence for damages. On the question of frustration which was raised by the defendant Lord Sterndale M. R. observed as follows:

"But, so far as I know, it has never been held that a man is entitled to take advantage of circumstances as a frustration of the contract if he has brought those circumstances about himself..... For instance, to go back to the leading case of -- 'Taylor v. Caldwell', (1863) 3 B & S 826: 122 E R 309, where the frustration was the destruction of a music hall he letting of which was the subject matter of the contract, I do not think any authority has gone so far as to decide that if the defendant had burned down the music himself, he would have been entitled to say the subject matter was gone and the contract was frustrated, and I am certainly not prepared to go to that length myself."

Then, accepting the finding of the Official Referee that Lawrence knowing that he had made a bad bargain, and having made up his mind to get out of- it, deliberately delayed the work in order to get the licence refused, the learned Judge observed:

"That being so, it seems to me that Lawrence cannot be allowed to take advantage of the intervention of the Minister of Munitions, which is what he played for and what he got."

There cannot be any doubt that on the facts as found, this was a case of "self-induced" frustration; and that the conduct of Lawrence amounted to a repudiation of the contract before the Ministry of Munitions refused the licence. In -- 'Maritime National Fish Ltd. v. Ocean Trawlers Ltd.', (1935) A C 524, the facts were that the respondents were the owners of a ' Trawler called St. Cuthbert. The appellants chartered it in July 1932 for a period of one year for the purpose of fishing. Under a Canadian Statute licences had to be taken from the Government for taking out trawlers for deep-sea fishing. The appellants who chartered other trawlers as well applied for licence to use five trawlers. They were informed that licences would be granted for use of only three trawlers which they were asked to name. They mentioned the names of other trawlers and omitted St. Cuthbert. Consequently, no licence was issued for taking out St. Cuthbert. The appellants claimed that the contract had, under the circumstances, come to an end by frustration. In rejecting this contention Lord Wright observed as follows :

"The essence of 'frustration' is that it should not be due to the act or election of the party ..... It cannot in their Lordships' judgment be predicated that what is here claimed to be a frustration, that is, by reason of the withholding of the licence, was a matter for which the appellants were not responsible or which happened without any default on their part. In truth, it happened in consequence of their election. If it be assumed that the performance of the contract was dependent on a licence being granted, it was that election which prevented performance, and on that assumption it was the appellants' own default which frustrated the adventure; the appellants cannot rely on their own default to excuse them from liability under the contract."

This again is clear authority for the position that there must be some act or election of the party which brings about the frustration.

This question came up for considerable discussion in. -- 'Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd.', (1942) A C 154. The point for decision there was whether the party who pleaded frustration had in law the burden cast on him of proving that it was without any default or neglect on his part. The decision of the House was that it was not for him to prove the negative and that when once he had established frustration, it would be for the other side to prove that it was brought about by the default or negligence of the party who sought to rely on it. But the question what would amount to default or negligence for the purpose of this rule came in incidentally for consideration. Viscount Simon L. C. has the following on this subject:

"For purposes of clearness and to avoid possible misunderstanding hereafter, I must add (though this is not necessary for the present decision) that I do not think that the ambit of "default" as an element disabling the plea of frustration to prevail has as yet been precisely and finally determined. 'Self-induced' frustration, as illustrated by the two decided cases already quoted, involves deliberate choice, and those cases amount to saying that a man cannot ask to be excused by reason of frustration if he has purposely so acted as to bring it about. 'Default' is a much wider term and in many commercial cases dealing with frustration is treated as equivalent, to negligence. Yet in cases of frustration of another class, arising in connection with a contract for personal performance, it has not, I think, been laid down that, if the personal incapacity is due to want of care, the plea fails. Some day it may have to be finally determined whether a 'prima donna' is excused by complete loss of voice from an executory contract to sing if it is proved that her condition was caused by her carelessness in not changing her wet clothes after being out in the rain. The implied term in such a case may turn out to be that the fact of supervening physical incapacity dissolves the contract without inquiring further into its cause, provided, of course, that it has not been deliberately induced in order to get out of the engagement."

Referring to this aspect Lord Russell observed:

"My Lords, I desire to add a word in relation to the phrase 'self-induced frustration'. No question arises on this appeal as to the kind or degree of fault or default on the part of the contractor which will debar him from relying on the frustration. The possible varieties are infinite, and can range from the criminality of the scuttler who opens the seacocks and sinks his ship, to the thoughtlessness of the 'prima donna' who sits in a drought and loses her voice. I wish to guard against the supposition that every destruction of corpus for which a contractor can be said, to some extent or in some sense, to be responsible, necessarily involves that the resultant frustration is self-induced within the meaning of the phrase."

Lord Wright discussed this matter at some length. He observed:

"The Court of Appeal do not define what in this context is the meaning of 'fault' or 'default'..... In -- 'Sailing Ship Blaimore Co. Ltd. v. Macredie', (1898) A C 593 at p. 607, Lord Watson observed: 'The rule of law applicable to contracts is that neither of the parties can by his own act or default defeat the obigations which he has undertaken to fuliil. Willes J. in the passage already cited, gave as an instance of a party preventing performance the case of a man poisoning before delivery a horse which he has promised to deliver. Lord Sumner, in speaking of a self-induced frustration, has clearly in mind positive acts against the faith of the contract which amount to a repudiation and would justify rescission. This test would apply to -- 'Mortens v. Home Free-holds Co.', (1921) 2 K B 526 at p. 607, and--'Maritime National Fish Co. Ltd. v. Ocean Trawlers', (1935) A C 524 On the other hand, mere negligence seems never to have been suggested as sufficient to constitute 'fault' in this connection."

Lord Porter, discussing this question referred to passages in the text book of Salmond & Win-field on Contracts and observed:

"A contractor who negligently destroys the subject-matter of the contract is not free from blame and in some cases may not be within the exception 'without default' as used in the cases, but I prefer to leave the question for determination until it comes directly in issue."

Thus, though the point now under consideration was not actually decided, there is a pronounced trend in favour of the view that the default or negligence for the purpose of this rule must be something more than mere negligence and that it must be such conduct as could be construed as repudiation of the agreement.

22. Turning now to the provisions of the Indian Contract Act, Section 56 is the governing section and omitting portions not relevant for the purpose of this case, runs as follows: "Section 56:

"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 is significant that whereas in the case of contracts whose performance becomes unlawful, the section requires that if should be by reason of some events which the promisor could not prevent, there is no similar limitation with reference to contracts which become impossible--in which cases the contract becomes void without more. It would appear as though under the Indian law frustration puts an end to the contract without any further question as to default or neglect of the promisor. It does not, however, follow from this that the principle of 'self-induced' frustration laid down in -- 'Bank Line Ltd. v. Arthur Capel & Co.', (1919) A C 435 adopted in -- 'Mertens v. Home Freeholds Co.1. (1921) 2 K B 526 and -- 'Maritime National Fish Ltd. v. Ocean Trawlers Ltd.', (1935) A C 524 and discussed in -- 'Joseph Constantme Steamship Line Ltd. v. Imperial Smelting Corporation Ltd.', (1942) A C 154 has no application under the Indian law. Such cases will be really covered by Section 39, which, as already mentioned, enacts that when a party to a contract repudiates his obligations thereunder, the other party has a right to treat the contract as cancelled and claim damages. The combined effect of Section 56 and Section 39 of the Contract Act is that frustration renders a contract void, unless there has been conduct antecedent to frustration amounting to a repudiation thereof and this view will be in accordance with the weight of judicial opinion in England as to the meaning of default or neglect in this context.

23. That being the legal position we have now to see whether there has been any such default or neglect on the part of the appellant as would preclude him from pleading frustration. The burden of establishing this is on the plaintiff. (Vide -- 'Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd.', (1942) A C 154). The argument of the respondent is that the theatre was "a jerry-built and unsafe structure"; that it was not a matter for surprise that it should have collapsed during the rains; that during the material period it was the appellant who held and managed the Theatre and, therefore, he cannot escape from the contract by relying on the collapse of the walls, cancellation of the licences and the demolition of the building, for which he must bear the ultimate responsibility. That the construction was not of a very substantial character clearly appears from Exs. P. 2 (a), P. 4 and P. 9. The walls were built of "brick and clay"; they were 24 feet high, while the normal height should be 20 feet; the thickness of the walls was 11", whereas it should have been 2 feet 3 inches; in some places the walls were out of plumb; there was an old crack in the eastern wall which had only been partially closed and the zinc roofing was worn out. These facts are clearly proved. But, are they sufficient to sustain a charge of default or neglect by the appellant?

24. It is now necessary to refer to some facts forming the history of this theatre. The site on which the theatre stood belongs to certain Charities. On 7-4-1932 it was leased as a vacant site to one Mr. Kamath. In 1934 the lessee constructed a theatre and named it The Paragoa Talkies. In December 1935, the Presidency Talkies Ltd., acquired the superstructure and the rights under the lease. On 22-12-1936 the Charities executed a lease of the site in favour of the Presidency Talkies Ltd. Vide D. 3. In the middle of 1945 the appellant became the purchaser of a substantial number of shares in the Presidency Talkies Ltd. and became its Managing director. Thus, whatever the defects in the construction of the theatre, the appellant was not responsible for them. There is no satisfactory evidence that he had any knowledge of the nature of the construction. Reference was made to the evidence of D. W. 2 that everybody knew that the walls were built of clay & brick. Mr. N. Rajagopalan, the learned advocate who appeared at the trial for the appellant stated that there was some mistake in the recording of this evidence. We do not propose to base our conclusion on this statement. But there is the fact that while the appellant was in the box, no questions were put to him about the condition of the walls or about his knowledge thereof. Under the circumstances it will be unsafe to build anything on the answer given by D. W. 2. Reliance was also placed on the licences Exs. P. 17 and P. 18 in which the walls are described as of brick and mortar. The argument of the respondent is that it was a misleading statement and betrays a consciousness that the walls were built of clay. But it must be remembered that the licences must have been first issued in 1934 and subsequently renewed from time to time; so that the application made in 1945 on which Exs. P. 17 and P. 18 were issued must be mechanical reproductions of the contents of previous applications. P. W. 2 was asked in examination in chief whether, when the applications for licence were made, it was represented that the "Walls were built in brick, mortar and reinforced concrete". The answer was in the negative. A careful reading of Exs. P. 17 and P. 18 shows that what was stated therein was only that the side walls were constructed of brick and mortar. This is correct as will be seen from Ex. P. 4 wherein the walls are described as "plastered over with lime mortar." There is no statement that the walls were of reinforced concrete. It was only the gallery and staircase that are described as built of cement concrete. Thus, there is no satisfactory evidence that the appellant knew that the walls were built in clay until a portion of them fell down on the night of 5th December.

25. Even if the walls had been constructed of brick and clay, it does not follow that the theatre must necessarily be unsafe. The following extract from the evidence of P. W. 2 may be quoted:

"Q. If you had known that the wall had been built in brick and clay, would the licence have been granted?

A. I do not know whether the licence would have been granted or not. It would depend on the condition of the wall. Here, with regard to these walls at the time of inspection they were considered safe."

In this connection it must be remembered that the buildings are inspected once in six months both by the Commissioner of Police and the Corporation Engineer; that directions are issued for effecting suitable repairs and alterations, and licences are renewed only after these directions are carried put. The fact that inspections are made periodically and licences renewed raises a strong presumption that the theatre was in a good condition and the appellant who came on the scene in the middle of 1945 had ample justification for acting on the issue of licences by the authorities continuously from 1934 as prima facie evidence that the theatre was in a sound condition. That the defects of the theatre, such as they were, were not visible to the ordinary eye would be clear from Ex. P. 2(a) dated 6-12-1946, wherein P. W. 2 states that other side walls were "safe to all appearances". Even in Ex. P. 4 it was stated that no "immediate danger" was apprehended to the wall "on account of the rigidity which it obtains owing to the number of cross walls at close intervals". There is, therefore, not sufficient evidence to establish that the appellant knew that the building was inherently defective or that he could have discovered it with ordinary diligence.

26. It is argued for the appellant that there were heavy and unprecedented rains in the City from the night of the 30th November 1946 continuously till the 7th December as appears from Exs. D. 1 and D. 2 and that the collapse of the walls on the night of the 5th was due to 'force majeure'. It is just possible that for all their latent defects the walls of the theatre might have stood, had it not been for the exceptionally heavy rains. It is not necessary to pronounce on this. It is sufficient for the present purpose to say that the plaintiff has failed to discharge the burden which lies on him of proving default or neglect on the part of the appellant.

27. And even assuming that the appellant was negligent in not taking proper steps for ensuring that the theatre was in a fit condition for performing the contract, that is not, for the reasons already given, sufficient to deprive him of the benefit of the plea of frustration. In neglecting to effect the repairs to the theatre he was not actuated by any intention to break the contract, Ex. P. 1 or injure the plaintiff. His conduct had no relation to the suit contract and he did "nothing against the faith of the contract which would amount to repudiation and would justify rescission". There was no act or election on the part of the appellant made "in order to get out of the engagement". The appellant had, it would seem, invested Rs. 3 1/2 lakhs for the purchase of this theatre and it is not likely that he would have acted with gross negligence in the matter. That he believed that the theatre was in a sound condition and would be available for performing contracts appears from Ex. D. 1. It is an advertisement that a picture called "Gubbi's Hemareddy Mallamma" was to be exhibited in the Paragon Talkies in succession to "Rukmangadhan". This advertisement is dated 5-12-1946, on the evening preceding the night on wnich the walls collapsed. The appellant would certainly not have wished or played for the fall of the Paragon talkies for spiting the plaintiff or tearing up Ex. P. 1. That is admitted by the plaintiff. He only charges that the defendant was negligent. Even if there was any negligence or default on the part of the appellant, it was not such as would preclude him from relying on frustration as putting an end to the contract.

28. It remains to deal with the question of damages. On our finding that there was frustration and that there was no default or neglect on the part of the appellant, the suit must fail and the question of damages would not arise. But as the matter has been fully argued, we shall record our finding as to what damages should be awarded to the plaintiff, in case his claim is well founded. The amount claimed in the plaint is Rs. 85000 made up of (1) Rs. 60000 being the half share of the estimated collections if the picture should run from 15-12-1946 to 15-3-1947 and (2) Rs. 25000 for advertisement charges incurred. Taking the first item this figure rests on two assumptions, that the picture would have been exhibited for the three months if the Theatre were available and that the weekly collections would have been Rs. 10000. There is no legal evidence to support either of these assumptions and in the very nature of things it is not possible to adduce any satisfactory evidence on the matter. Ex. D. 4 shows the collections for this picture for six weeks commencing from 23-10-1946. It shows a steady decline, the collections for the sixth week being only Rs. 3690. Under Clause (3) of Ex. P. 1 the appellant was entitled to stop the picture if the hold over figure for the week fell below Rs. 3600. It is argued for the appellant that in the normal course if the picture had gone on for the full week, the collections should have gone below the hold over figure and that in fact for two days the 4th and 5th December only Rs. 544-8-0 were collected. It is also elicited in evidence that when once the collections begin to go down they "keep the pace" and do not rise again. The respondent replies that the decline in the collections was due to rains and that they would have recovered later on in December. The plaintiff relied on the evidence of P. Ws. 3 and 4 in support of this contention. P. W. 3 is a clerk of a firm of film producers called "Kousika combines" and he speaks to a picture called "Vikata Yogi" having run in the Gaiety Theatre during this period. Ex. P. 13 was produced as showing the actual collections and from this it was argued that though the collections went down week after week down to 3rd December they improved thereafter. But this document was rejected by Mr. Mack J. for want of proof and it has not been sought to be relied on before us. If this document is put aside, there is nothing in the evidence of P. W. 3 to help the plaintiff. He definitely admitted that he did not remember what happened two years previously. P. W. 4 is the producer of "Vikata Yogi" and he also admitted that he could not give the exact figures of collections for this picture in October and November 1046. He gave general evidence that "Rukmangadha"' was a good picture and might run from 16 to 20 weeks. This evidence apart from being vague, is not helpful as the witness does not know the hold over figure. General evidence as to what happened to other pictures in other theatres cannot be of much use, oven if it is relevant. The picture "Rukmangadan" was exhibited in the Gaiety theatre for two weeks from 23-5-1947; for two weeks from 18-10-1947 in Kinema Central; and in Brighton Talkies during the weeks 20-12-1947 to 27-12-1947. In none of these exhibitions did the weekly collections come up to the hold over figure. The plaintiff attributes it to the fact that the picture got a bad name when it was stopped in the Paragon talkies. There might have been something to be said for this if the Paragon Talkies had been in existence and exhibited other pictures. But the stoppage of "Rukmangadhan" was due to the collapse of the theatre and the evidence of the plaintiff that the public did not know of the collapse of the theatre cannot be accepted. On the second item it has not been explained to us how advertisement charges could be claimed as damages. They had not been incurred for any period subsequent to the 5th December 1946. The plaint describes the claim as "advertisement charges incurred before starting the run of the picture at Paragon talkies theatre" (Vide paragraph 25). If so, the plaintiff must have reaped the benefit of those advertisements in the collections already made in which he took his share. Mr. Mack J. observes that there are no data for assessing the damages and merely awards a decree for Rs. 25000 in favour of the plaintiff without indicating the basis on which the figure was arrived at. We are of opinion that the plaintiff on whom the burden lies has not adduced any satisfactory evidence on the quantum of damages sustained by him. Under the circumstances, we are unable to hold that the plaintiff is entitled to anything more than the sum of Rs. 2000 which the defendant was prepared to pay.

29. In the result, the appeal will be allowed and the suit dismissed with, costs of the defendant throughout to be paid by the plaintiff. The third respondent who is a liquidator will take his costs out of the estate.


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