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Mercantile Laws-I

Notes 2. Commercial impossibility. It means that if the contract is performed, it will result in a loss
to the promisor. Commercial impossibility to perform a contract does not discharge the
contract. A contract to lay gas mains is not discharged because the outbreak of war makes
it expensive to procure the necessary materials [M/s Alopi Pd. v. Union of India (1960) S.C.
589].
3. The promisor is not exonerated from his liability if the third person, on whose work the
promisor relied, fails to perform. Thus, a wholesaler’s contract to deliver goods is not
discharged because a manufacturer has not produced the goods concerned.
4. Strikes, lockouts and civil disturbances. Events like these do not terminate contracts
unless there is a clause in the contract to that effect. A agreed to supply B certain goods
to be produced in Algeria. The goods could not be produced because of riots and civil
disturbances in that country. Held, there was no excuse for non-performance of the contract
(Jacob v. Credit Lyonnais (1884) 12 Q.B.D 589].
5. Failure of one of the object. If the contract is made for several purposes, the failure of one
of them does not terminate the contract. A agreed to let a boat to H to
(a) view the naval review at the coronation and

(b) to cruise around fleet. Owing to the king’s illness the naval review was cancelled but
the fleet was assembled and the boat could have been used to cruise round the fl eet.

Held, the contract was not discharged (Herne Bay Steamboat C.v.Hutton K.B 740).
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.
5.6 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.

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