Page 69 - DCOM103_COMMERCIAL_LAW

Commercial Law

Notes Practical note for business executives. The business executives must note that the circumstances,
on the basis of which a contract was entered into, may undergo radical changes, for no fault of
either party as a result whereof the contract may even become impossible to perform as s.56
provides, inter alia, that the subsequent illegality or impossibility of the agreement renders it
void. We have observed earlier that ‘impossibility’ means legal impossibility and does not cover
commercial impossibility. Thus, a strike may create a difficult situation, but it does not amount

to ‘impossibility’ in the legal sense. It is a case of mere commercial impossibility, which if the

parties desire, may specifically provide for in the contract. Such a provision is contained in what
is known as ‘force majeure clause’ in the contract. The effect of such a clause is to totally dispense
with the performance of all obligations arising otherwise than under a contract.
Effect of supervening impossibility. There are three effects of supervening impossibility: (i) A
contract to do an act which, after the contract is made becomes impossible or by reason of some
event which the promisor couldn’t prevent, unlawful, becomes void when the act becomes
impossible or unlawful (s.56). (ii) Where a person has promised to do something which he knew,
or with reasonable diligence, might have known and which the promisee did not know to be
impossible or unlawful, such promisor must make compensation to such promisee for any loss
which such promisee sustains through the non-performance of the promise (s.56). (iii) When a
contract becomes void, any person who received any advantage under such contract is bound
to restore it, or to make compensation for it to the person from whom he received it (s.65). Thus,
where A contracts to sing for B at a concert for ` 1,000, which are paid in advance. A is too ill to
sing. A must refund to B ` 1,000.

6.2.4 Discharge of a Contract by Operation of Law

Discharge by operation of law may take place in four ways:

1. By death. Death of the promisor results in termination of the contract in cases involving
personal skill or ability.
2. By insolvency. The insolvency law provides for discharge of contracts under certain
circumstances so where an order of discharge is passed by an insolvency court the insolvent
stands discharged of all debts incurred previous to his adjudication.
3. By merger. When between the same parties, a new contract is entered into, and a security
of a higher degree or a higher kind is taken, the previous contract merges in the higher
security. Thus a right of action on an ordinary debt would be merged in the right of suing
on a mortgage for the same debt.
4. By the unauthorised alteration of terms of a written document. Where any of the parties
alters any of the terms of the contract without seeking the consent of the other party to it,
the contract terminates.
Further, Limitation Act, 1963, provides certain periods for fi ling suits, etc., in certain situations
and if the party entitled to the remedy does not enforce its right within the prescribed time, then
it is deprived of the remedy at law. In a way, this amounts to discharge of contract.

6.2.5 Discharge of Contracts by Breach

A breach of contract is one party’s failure, without a legal excuse, to live up to any of its promises
under a contract. A contract terminates by breach of contract. If the promisor has not performed
his promise in accordance with the terms of the contract or where the performance is not excused
by tender, mutual consent or impossibility or operation of law, then this amounts to a breach
of contract on the part of the promisor. The consequence of this is that the promisee becomes
entitled to certain remedies. The breach of contract may arise in two ways: (i) anticipatory and
(ii) actual.

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