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Mugneeram Bangore and Co. Vs. Satyabrata Ghosh and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKolkata High Court
Decided On
Case NumberA.F.A.D. No. 318 of 1949
Judge
Reported inAIR1951Cal332,55CWN222
ActsContract Act, 1872 - Section 56
AppellantMugneeram Bangore and Co.
RespondentSatyabrata Ghosh and anr.
Appellant AdvocateAtul Chandra Gupta and ;Bijan Behari Das Gupta, Advs.
Respondent AdvocateN.C. Sen Gupta and ;Arabinda Guha, Advs.
DispositionAppeal allowed
Cases ReferredCricklewood Property and Investment Trust Ltd. v. Leighton
Excerpt:
- das gupta, j.1. the question for decision in this appeal is whether a contract for the sale-of land stood dissolved on the requisition of this land and other lands closely by the government of west bengal for an indefinite period, in consequence of which it became impossible to complete the construction of roads, which was an integral part of the contract. the appellant company had, in furtherance of a scheme of developing land in the vicinity of the dhakuria lakes within greater calcutta, invited offers for the numerous plots of land covered by the scheme. under this scheme, the company's plan was to enter into contracts for the sale of lands with different parties, accept a very small portion of the consideration money, as earnest money, undertaking to construct roads and drains in.....
Judgment:

Das Gupta, J.

1. The question for decision in this appeal is whether a contract for the sale-of land stood dissolved on the requisition of this land and other lands closely by the Government of West Bengal for an indefinite period, in consequence of which it became impossible to complete the construction of roads, which was an integral part of the contract. The appellant company had, in furtherance of a scheme of developing land in the vicinity of the Dhakuria Lakes within Greater Calcutta, invited offers for the numerous plots of land covered by the scheme. Under this scheme, the company's plan was to enter into contracts for the sale of lands with different parties, accept a very small portion of the consideration money, as earnest money, undertaking to construct roads and drains in order that the lands contracted to be sold might be suitable for building purposes, and agreeing to complete the conveyance on receipt of the balance of the consideration money after the construction of such roads and drains. The subject-matter of the present litigation is one of many contracts into which the company entered in furtherance of this scheme. This contract was between the company and one Bejoy Krishna Roy and is dated 5-8-1940. The express terms of the contract are to be found in the receipt which the appellant company gave to Bejoy Krishna Roy on receipt of rupees one hundred and one only, as earnest money, after the company had accepted his offer to purchase. The receipt is in these words :

'Received with thanks from Babu Bejoy Krishna Roy of 28 Tollygunge Circular Road, Tollygunge, the sum of Rs. 101/- (Rupees one hundred and one only) as earnest money having agreed to sell to him or his nominee 5 K. ch. sq. ft. more or less in plot No. 76 on 20 and 20 ft. Road in Premises No. Lake Colony Scheme No. 1, Southern Block, at the average rate of Rs. 1000/- (Rupees one thousand only) per cotta.

The conveyance must be completed within one month from the date of completion of roads on payment of the balance of the consideration money, time being deemed as the essence of the contract. In case of default, this agreement will be considered as cancelled with forfeiture of earnest money.

Mokarari Mourashi.

Terms of payment: One-third to be paid at the time of registration and the balance within six years bearing Rs. 6/- per cent, interest per annum.'

2. The present respondent was nominated by Bejoy Krishna Roy for the purpose of the contract, on 30-11-1941. Prior to this date, however, on 12-11-1941, the Collector of 24 Parganas passed an order requisitioning the plot of land which was the subject-matter of this contract, and many other plots of land of this scheme. Possession of the lands thus requisitioned was taken on behalf of the Army authorities on 14-11-1941. The requisition was for the duration of the War and a period thereafter. Construction of roads and drains which had been taken up was thus interrupted, and could not be completed because of the occupation of the area by the Military authorities. In 1943, the Company addressed a letter to Bejoy Krishna Roy, informing him of the requisition of the lands by the Government and stating that as the proposed roads and drains could not be constructed during the continuance of the War and possibly for many years, even after the termination of the War, the Company had decided to treat the agreement as cancelled, and give him 'the option of taking refund of the earnest money' within one month from the receipt of the letter. An alternative offer was also made under which he would have to complete the registration of the conveyance within one month from the receipt of the letter, on payment of the balance of the price of the land as agreed upon, and the company would make the roads and drains, as soon as the circumstances would permit after the termination of the war. It was further stated in this letter that if he did not exercise his option in any of these two ways, the agreement would be deemed to have been cancelled and the earnest money forfeited.

3. The respondent, who as the nominee of Bejoy Krishna Roy received this letter did not exercise either of these options offered, but in January 1946, brought the action out of which this appeal has arisen, asking for a declaration that the contract of 5-8-1940, is subsisting and that the plaintiff is the nominee of Bejoy Krishna Roy, and entitled to get a conveyance executed and registered on payment of the stipulated price in the manner described in the contract, after the construction of the road and drains shown in the plan. The main contention of the defendant company was that on the possession of the lands of the scheme, by the Government under the Defence of India Rules the performance of the contract as contemplated became indefinitely impossible, and the contract terminated by frustration, its implied foundation being gone. This contention, as well as other contentions of the defendant with which we are no longer concerned in view of the statement of Mr. Atul Chandra Gupta, the learned Advocate for the appellant that he will not press these, was rejected by the trial Court, and also by the learned District Judge in appeal, and the suit was decreed by the trial Court, and that decree was confirmed by the District Judge.

4. Mr. Gupta for the appellants has pressed before us the contention that the contract stood dissolved by frustration, as its performance became indefinitely impossible.

5. The doctrine of frustration, which had been incorporated into the English law, from the Roman law, several centuries ago, though not in the developed form which it has now assumed, was embodied in the Indian Contract Act, in its Section 56, para. 2 in these words:

'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.'

6. For a proper understanding of the principles underlying the doctrine of frustration of contracts as embodied in the Indian Contract Act, which is necessary for the proper application of the law in practice, it is helpful to consider the different theoretical bases advanced in the discussion of this doctrine in the English Courts, and the observations of eminent Judges of those Courts as regards the practical application of this doctrine.

7. The majority of the English Judges appear to be in favour of what has been called 'the implied term theory' as the basis of frustration. If the supervening event which stands in the way of the performance of the contract is such that the Court can say that if they had thought of it, they would have said 'all is over between us' the Court should imply this term in the contract that if this happens, this contract will cease to be of force.

8. The most obvious cases of application of this theory arise out of the destruction of the subject-matter of the contract.

9. In Taylor v. Caldwell, (1863) 3 B. and S. 826 : (32 L. J. Q. B. 164) where the plaintiff claimed damages for the breach of an agreement by the defendant to give plaintiff the use of a music hall, the hall having been accidentally destroyed by fire before the contract date, Blackburn J., held that the contract was subject to an implied condition that the parties should be excused in case, before breach, performance became impossible from the perishing of the thing without default of the contracts.

10. In Krell v. Henry, (1903) 2 K. B. 740 : (72 L. J. K. B. 794), the question arose as regards the extent of the application of this doctrine of frustration and Vaughan Williams J., gave the following reply (p. 749) :

'I think that you first have to ascertain, not necessarily from the terms of the contract, but if required from necessary inferences drawn from the surrounding circumstances recognised by both contracting parties, what is the substance of the contract and then to ask the question whether the substantial contract needs for its foundation the assumption of the existence of a particular state of things. If it does, this will limit the operation of the general words, and in such case, if the contract becomes impossible of performance, by reason of tie non-existence of the state of things assumed by both contracting parties, as the foundation of the contract, there will be no breach of the contract thus limited.'

11. The importance of being circumspect before limiting an absolute contract by reading into it an implied term in this manner was stressed by Lord Atkin in Bell v. Lever Brothers Ltd., (1932) A. C. 161 at p. 226 : (101 L. J. K. B. 129), where he says :

'Nothing is more dangerous than to allow oneself liberty to construct for the parties contracts which they have not in terms made by importing implications which would appear to make the contract more business-like or more just. The implications to be made are to be no more than are necessary for giving business efficacy to the transaction, and it appears to me that both as to existing facts and future facts, a condition would not be implied unless the new state of facts makes the contract something different in kind from the contract in the original state of facts. Thus, in Krell v. Henry, (1903) 2 K. B. 740 (784) : (72 L. J. K. B. 794), Vanghan Williams J. finds that the subject of the contract was 'rooms to view the procession', the postponement therefore made the rooms not rooms to view the procession. This also is the test finally chosen by Lord Summer in Bank Line Ltd. v. Arthur Capel and Co., (1919) A. C. 435 : (88 L. J. K. B. 211), agreeing with Lord Dunedin in Metropolitan Water Board v. Dick Kerr and Co., (1918) A. C. 119 at p. 128 : (87 L. J. K. B. 370) where dealing with the criterion for determining the effect of interruption in 'frustrating a contract' he says, 'an interruption may be so long as to destroy the identity of the work or service, when resumed, with the work or service when interrupted.'

12. Another lucid statement of this principle of implying a term for frustration into an absolute contract, is made by Lord Loreburn in F. A. Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd., (1916) 2 A. C. 397 at p. 403 : (85 L. J. K. B. 1389) where he says :

'When a lawful contract has been made and there is no default, a Court of law has no power to discharge either party from the performance of it, unless either the rights of someone else, or some Acts of Parliament give the necessary jurisdiction. But 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. In this same case, Lord Haldane stated the principle in these words (p. 406) :

'When people enter into a contract, which is dependant for its possibility of its performance on the continued availability of a specific thing and that availability comes to an end by reason of circumstances beyond the control of the parties, the contract is prima facie regarded as dissolved. The contingency which has arisen is treated in the absence of a contrary intention made plain as being one about which no bargain at all was made.'

14. Later in this speech, Lord Haldane said: 'The occurrence itself may yet be of a character and extent so sweeping that the foundation of what the parties deemed to have had in contemplation has disappeared, and the contract itself has vanished with this foundation.'

15. This passage was considered by Goddard J. (as he then was) in W. J. Tatem Ltd. v. Gamboa, (1939) l K. B. 132 : (108 L. J. K. B. 34) to offer a better theoretical basis for the doctrine of frustration, than the theory of the implied term. At pp. 136, 137 his Lordship said:

'Whatever be the true doctrine of frustration, I prefer, if I may, to rely on the passage in Lord Haldane's speech in F. A. Tamplin Steamship Co. Ltd. v. Anglo Mexican Petroleum (Products Co. Ltd,, ( (1916) 2 A. C. 397 : 85 L. J. K. B. 1389) which was quoted by Lord Sumner in Larrinaga and Co. Ltd. v. Societe Franco Americaine des Phosphates de Medulla Paris, ((1922) 27 Com. Cas. 160), Lord Sumner first said, 'so far as the ships are concerned this is not a contract de certo corpore at all'.

I read that because the present case seems to me to be eminently one de certo corpore. The cerium corpus is this particular ship, the Molton, chartered for a particular service. Lord Sumner continued : 'Nor can It be said that' (he then quoted Lord Haldaue) -- 'the foundation of what the parties are deemed to have had in contemplation has disappeared and the contract Itself has vanished with the foundation'. That seems to me to be the surest ground on which to rest the doctrine of frustration, and I prefer it to founding it on implied terms.'

16. As has been pointed out, however, by Professor Winfield and others, the theory of the disappearance of the foundation is not essentially different from the theory of the implied term, and the better opinion seems to be that the two theories are two ways of stating the same principle.

17. In Hirji Mulji v. Cheong Yue Steamships Co., (1926) A. C. 497 : (95 L. J. P. C. 12l), Lord Sumner described the doctrine of frustration as a device by which the rules as to absolute contracts are reconciled with a special exception which justice demands (p. 510). By this, Lord Sumner does not appear to have intended to offer a new theoretical basis for frustration, as distinct from the implied term theory. There are several passages in this judgment which show that Lord Sumner accepted as correct and sufficient the theory of implied term.

18. Immediately before describing the doctrine of frustration as mentioned above, he said:

'Frustration ...... is explained in theory as a condition or term of the contract, implied by the law ab initio, in order to supply what the parties would have inserted had the matter occurred to them, on the basis of what is fair and reasonable, having regard to the mutual interests concerned, and of the main objects of the contract : see per Lord Watson in Dahl v. Nelson Donkin and Co., (1881) 6 A. C. 38.' (p. 510).

Earlier in the judgment at p. 504 his Lordship said :

'The doctrine of frustration rests upon a term or condition implied in the contract. In contemplation of law, the parties, if they had anticipated and had taken into consideration, the events which ultimately frustrated the object of their adventure, would have made provision for it, and again, in contemplation of law, the legal operation of those events upon the contract is the very thing for which that term would have provided. Hence, in implying that term to give a foundation for a legal conclusion, the law is only doing what the parties really (though subconsciously) meant to do themselves.'

19. It seems clear, therefore, that when Lord Sumner described the doctrine of frustration as a device by which the rules as to absolute contracts are reconciled with a special exception which justice demands, he was not throwing any doubt on the implied term theory, but was saying that this device of implying a term was adopted by the Courts to reconcile the rules as to the objections arising out of absolute contracts with 'an exception which justice demands.'

20. In some recent cases, however, Lord Wright has expressed dissatisfaction with the implied term theory, and has based on the above statement of Lord Sumner a theory that the doctrine of frustration is invented by the Court in order to supplement the defects of the actual contract, and in so supplementing, the Court cannot and need not consider what the parties would have done, if they had thought of the event which had actually provided.

2l. In Denny, Mot and Dickson Ltd. v. James B. Fraser and Co. Ltd., (1944) A. C. 265 : (113 L. J. P. C. 37) Lord Wright says:

'The parties did not anticipate fully and completely, if at all, and provide for what actually happened. It is not possible to my mind, to say that if they had thought of it they would have said : 'Well if that happens, all is over between us.' On the contrary they would almost certainly on one side or the other, have sought to introduce reservations or qualifications. As. to that the Court cannot guess.'

Lord Wright apparently thinks that in most cases, it is clear that if the parties had contemplated the possibility of the event, one or the other would have been unwilling to treat it as a case of discharge of the contract. He would, therefore, ask the Court to consider in every case in which there is a dispute between two parties whether a contract has been frustrated, whether it will be fair and just in the circumstances of the particular case, that the contract should be held to be frustrated. With the greatest respect to Lord Wright, I feel this would be a disastrous rule to apply in practice. It will in effect make the Judges arbiters of justice in accordance with individual notices of what is fair and just instead of arbiters of justice in accordance with law.

22. A consideration of the English authorities convinces me that with the single exception of Lord Wright, all the eminent Judges who have pronounced on the doctrine of frustration speak with one voice. Some inquire if the supervening event is such that the Court should say that if the parties had thought of it, they would have said 'If this happens, all is over between us.' Others prefer to inquire what the foundation of the contract was, and if that foundation has disappeared. All agree in saying that the Court has to ascertain the substance of the contract -- not from the express words alone, but if necessary, from surrounding circumstances, and then proceed to examine if what can be performed in spite of the supervening event, is substantially the same as what was agreed to be performed. If the substance of the contract as contemplated by the parties cannot be performed because of the supervening event, the Court will imply a term that in such an event, the contract will be void; and it is only where the foundation of the contract as contemplated has disappeared because of the supervening event, that the Court can find that the contract cannot be performed because of that event. If the foundation remains, the contract will continue to be capable of performance. In my judgment, these principles which emerge from an examination of the English authorities should be accepted as the basis of the doctrine of frustration of contracts as embodied in the Indian Contract Act, and they should be applied to the solution of the question, whenever raised in our Courts, whether a contract has been frustrated or not.

23. In applying these principles to the facts of the present case, we have, therefore, to ascertain the real nature of the contract. The company agreed to improve the quality of the land by constructing roads and drains and thereby making it more suitable for building purposes, and to sell this land as improved at a certain price. Nothing was said in the express terms of the contract as to the time by which the roads and drains would be constructed. In understanding the substance of the contract, it is necessary to ascertain from surrounding circumstances, whether an absolutely indefinite period of the time was in the contemplation of the parties; or whether they had in their contemplation some limit to this indefiniteness. Dr. Naresh Chandra Sen Gupta contended that the parties contemplated a reasonable time, and if the company was prevented by some reasonable cause, say, the requisition of lands by Government, from undertaking or completing the construction of the roads and drains, this period must be included in the computation of the reasonable time. Consequently, if the requisition was for an indefinite period, the reasonable time in the contemplation of parties would include this indefinite period of requisition.

24. This contention, in my opinion, should not prevail. There is no justification for thinking that the parties contemplated at all the possibility of any cause preventing the company from undertaking and completing the construction of the roads and drains. It is in my judgment important to notice that for one of the contracting parties, this was a strictly commercial venture. The company had sunk some capital in the lands of the scheme, proposed to invest some more and make a profit. They could not possibly have in their contemplation a position under which the capital sunk in the land would remain unproductive for an unascertained period. Their plan obviously was to complete the construction of roads as early as possible. The time they had in contemplation for the performance of the contract was, therefore, the period which such construction was expected to take plus the period of one month. The evidence of the contractor who was actually entrusted with the construction of the roads shows that not more than two or three years could reasonably be expected to be required for the construction of these roads and drains. The company must, therefore, be held to have in contemplation a period of time, not much exceeding two or three years, as the time for the performance of the contract.

25. The other party to the contract was a person who was trying to acquire the land as a building site. Apart from the fact that he would in most cases be anxious to get the land as quickly as possible, it is important to bear in mind the fact that he would know that he would have to complete the conveyance, within a month from the construction of the roads and drains. He must be held to have an approximately correct idea of the time that such construction would take. My conclusion, therefore, is that the time he had in contemplation for the performance of the contract was the same as was in the contemplation of the company.

26. My conclusion on a consideration of the surrounding circumstances of the contract is that the parties contemplated that the roads and drains would be constructed and the conveyance would be completed in the not distant future.

27. The requisition of the lands of the scheme, by Government interrupted the construction of the roads. The requisition was for an indefinite period, so that the contract as contemplated by the parties as regards its time of performance could no longer be performed. It would no doubt be possible to construct the roads, after the lands were derequisitioned; but what could be performed after an indefinite period of time would not be the contract that was agreed upon.

28. I am, therefore, of opinion that if the contracting parties had thought of such requisition of the lands of the scheme for the duration of a war, they would have said, 'if this happens, all is over between us.' The requisition has, therefore, frustrated the contract.

29. The same conclusion is reached, if we try to ascertain what the foundation of the contract was, and if that foundation has disappeared.

30. As the parties contemplated that roads and drains would be constructed, and the conveyance completed within a few years the foundation of the contract was that the lands would remain available for the construction of such roads and drains, without any appreciable break, for this period of time. With the requisition of the lands, for an indefinite period of time, this foundation of the contract has gone and so the contract has gone.

31. Consideration of what the company did in the year 1943 or thereafter, or whether prices of lands rose, or whether the company's conduct in pleading frustration has been induced by the motive to get the benefit of rising prices, is in my judgment entirely irrelevant. When frustration takes place, the occurrence is irrespective of the wishes or actions of the parties. This was emphasised by Lord Sumner in Hirji Mulji's case (1926 A. C. 497 : 95 L. J. P. C. 121) in the following words:

'Evidently, therefore, whatever the consequences of the frustration may be upon the conduct of the parties, its legal effect does not depend on their intention, or their opinions, or even knowledge as to the event which has brought this about, but on its occurrence in such circumstances as show it to be inconsistent with further prosecution of the adventure. Sometimes the event is such as to speak for itself like the outbreak of war on 4-8-1914 in Harlock v. Beal (1916-1 A. C. 486): See per Lord Wrenty. Sometimes the frustration is evident, when the gravity and the circumstances of the break-down can be known, as in Bensaude v. Thames and Mersey Marine Insurance Co., (1897 A. C. 609) sometimes, as in the case of requisition, when it can be known that in all reasonable probability, the delay will be prolonged and a fortiori when it has continued so long as to defeat the adventure.

Frustration is then complete. It operates automatically Larrimaga and Co.'s case, 1922-27 Com. Cas. 160). What the parties say and do is only evidence, and not necessarily weighty evidence, of the view to be taken of the event by informed and experienced minds.' I can find nothing in the evidence given in this case about the conduct of parties, which is of any assistance in deciding whether there has been frustration.

32. Dr. Sen Gupta the learned counsel for the respondents has rightly pointed out that the doctrine of frustration does not appear to have been applied to any contract for sale of land either in India, or in England. It is no less important to notice that there has been no case, where the Courts have refused to apply this doctrine to a contract for sale of land. The position is that as far as the reports go, no case appears to have come before the Courts, in which the question whether a contract of sale of land has been frustrated fell to be decided. That cannot be a reason for refusing to apply the doctrine of frustration to a contract of sale of land.

33. The question whether the doctrine of frustration is applicable to the case of a lease, came up for consideration in Cricklewood Property and Investment Trust Ltd. v. Leighton's Investment Trust Ltd., (1945 A. C. 221 : 1945-1 ALL E. R. 252). In May 1936, a building lease was made to the lessees for a term of 99 years. Before any building had been erected the war of 1939 broke out and restrictions imposed by the Government made it impossible for the lessees to erect the shops that they had covenanted to erect. In action brought against them for the recovery of rent they pleaded that the lease was frustrated. The House of Lords was unanimous in its conclusion that the doctrine of frustration did not apply in the circumstances of the case, even if it were capable of application to a lease, as the interruption in performance was likely to last only for a small fraction of the term. Lord Russel and Lord Goddard were of the view that the doctrine of frustration could not apply at all, as this was a demise of real property. Lord Simon took a contrary view; and so did Lord Wright. Lord Porter expressed no opinion on this question.

34. The law is, therefore, unsettled on the question whether the doctrine of frustration is applicable to a demise of property. There is nothing in the observations of their Lordships in this case which even remotely justifies a doubt as regards the applicability of the doctrine of frustration to a contract to lease, or a contract to sell, where there is no present demise.

35. In my judgment, the Courts will not be justified in refusing to apply this doctrine to a contract for sale of land,

36. My conclusion is that the doctrine of frustration is applicable to the contract which is the subject-matter of the present litigation, and that in the circumstances of the present case, the contract has been frustrated.

37. I think it proper to mention that it has not been suggested, nor is there any evidence to support such a suggestion, that any act of the appellant company contributed to the performance of the contract becoming impossible.

38. I would, therefore, allow the appeal, set aside the judgment and decrees passed by the Courts below, and order that the suit be dismissed with costs here and below.

Lahiri, J.

39. I agree.


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