Discharge by Impossibility of Performance: Its types & Effect

Introduction:

Discharge of a contract implies the termination of the contractual relationship between the parties. In other words, when a contract ceases to operate as a result of which the rights and obligations of all the parties come to an end, the contract is said to be discharged. There are various ways in which a contract can be discharged, the most obvious of which is “discharge by the performance of what the contract was meant for”. But there is another way in which a contract can be terminated wherein the performance of the object for which the contract was formed is not possible. This is called “Discharge by Impossibility of Performance”. 

Discharge by Impossibility of Performance
Discharge by impossibility of performance

Discharge of a contract by Impossibility of Performance – Meaning

A contract must be capable of being executed in order to be valid. However, due to circumstances beyond the control of the parties, the execution of a contract may become impossible at times. In such instances, the contract is terminated due to the impossibility of performance. Section 56 of the Indian Contract Act states that a commitment to perform an act that is impossible in and of itself is void. This rule is based on the concept that law does not acknowledge the impossible, and that what is impossible creates no duties.

Discharge by Impossibility of performance may fall into two categories:

  1. Initial impossibility
  2. Subsequent impossibility

Discharge by Impossibility of performance: Initial impossibility

It indicates an impossibility at the time of the formation of a contract. Whether the parties are aware of the impossibility or are unaware of it, the agreement is null and void from the start. For example, A and B agree to use magic to locate a treasure. Due to the initial impossibility, the agreement is null and invalid. This type of impossibility of performance which is existing at the time of agreement is also known as pre-contractual (initial) impossibility.

Known to both parties

Where both parties to the contract are aware of the impossibility, it is known as an absolute impossibility. The agreement is void ab-initio.

Known to the promisor

If, on the other hand, the promisor is the only one who is aware of the initial impossibility while establishing the contract, he must compensate the promisee for any loss incurred as a result of non-performance of the contract. This rule is stated in Section 56, Paragraph 3. For example, A agrees to marry B despite the fact that he is already married to C and that it is against the law for him to practice polygamy. A must compensate B for the loss she suffered as a result of A’s failure to keep his promise.

Unknown to both parties

It is important to note that if both parties are unaware of the initial impossibility, the contract will be void due to mutual mistake of fact. For instance, suppose A agrees to sell his horse to B for Rs. 4000. But the horse was deceased at the time of entering into the agreement, which both parties were unaware of. Hence, this agreement has no legal force or effect.

Discharge by Impossibility of performance: Subsequent impossibility

An impossibility that arises after the contract is made is referred to as supervening impossibility. If the contract was capable of fulfillment at the time it was made, but later its performance becomes impossible or unlawful due to an event over which neither party has control, the contract becomes void and the parties are released from their duties.

If, for instance, after making a contract of marriage, one of the parties becomes insane, or if a contract is signed for the import of commodities and the import of such commodities is later prohibited by a Government Order, or if a singer contracts to sing and becomes too unwell to do so, the contract becomes void in each of these cases.

You’ll observe that supervening impossibility is not the same as an initial impossibility. In the event of an initial impossibility, the agreement is void ab-initio, and in the event of a subsequent impossibility, the contract becomes null and void.

The doctrine of supervening impossibility is contained in Para 2 of Section 56 of the Indian Contract Act. Only if the following conditions are met, the contract will be declared void on the grounds of supervening impossibility:

  • The act should have been rendered impossible.
  • The impossibility should be due to an event that the promisor was unable to prevent.
  • The impossibility must not be self-induced by the promisor himself.

The execution of a contract may later become impossible due to any of the following causes:

1. Destruction of Subject-matter of Contract

If after the formation of a contract, its subject matter is destroyed without the fault of any of the parties, the contract is discharged.

In the case of Taylor vs Caldwell [1863] 3 B. & S. 826, C had let a music hall to T for the purpose of holding a few concerts for a particular number of days. However, the music hall got accidentally burnt even before the arrival of date of the first concert. Hence, the contract was held to be void.

2. Non-existence or non-occurrence of a particular state of things

There are times when a contract is entered into on the basis of the existence or occurrence of a particular state of things. However, if the state of things that constituted the very basis of the contract no longer exists or there is a change in them, the contract is discharged.

For instance, in the case of Krell v Henry [1903] 2 K.B. 740, H had taken a flat on hire from K for witnessing a coronation procession that was supposed to occur on a pre-determined date. Although the contract did not contain any reference to this, the parties were aware of this purpose. Later, due to the illness of the King, the coronation procession was cancelled. It was held that H should be discharged from paying rent for the flat since the occurrence of the procession was the very basis of the contract. And its cancellation made the contract void.  This kind of situation where the object of a contract fails is often known as ‘frustration of contract”.

3. Death or incapacity for service

A contract is also discharged by supervening impossibility if its performance is dependent upon the qualification or personal skills of a party and death/illness/incapacity of that party renders the contract void. This is so because a man’s life is an implied condition to the contract.

Say an artist (piano player) agreed to perform at a concert and for a certain pre-defined price. But before she could do so, she got seriously ill. Hence, the contract gets discharged on account of illness. [Robinson v Davison (1871) L.R. 6 Ex. 269].

4. Change of law or stepping in of a new law

It might be possible that, after the formation of a contract, law changes or any amendment takes place in some Ordinance, Special Act, or Government rules. Due to such change, the performance of the contract becomes impossible and as such, the contract is discharged.

For example, on 1st March, D entered into a contract with P for supplying some imported goods in the month of September. However, in June of the same year, the import of those goods was banned by an Act of Parliament. Hence, the contract was discharged.

5. Outbreak of war

If two parties of different countries enter into a contract with one another and afterward, a war is declared between the nations, the contract normally becomes unlawful, impossible to perform, and hence void.

There are some exceptions too where the above rule of subsequent impossibility is not applicable. Some of the cases which do not come within the purview of supervening impossibility are as follows:

  • Difficulty of Performance
  • Commercial Impossibility
  • Default of a Third Party
  • Strikes, Lockouts, and Civil Disturbances
  • Partial Impossibility (failure of one or more of the purposes for which the contract is made)

To know more about the doctrine of supervening impossibility and its exceptions, please refer to this blog:

The Doctrine of Supervening Impossibility: An overview

Impact of Discharge by Impossibility of Performance

When a contract is discharged by the impossibility of performance, whether initial or subsequent, the contract is void. Therefore, the parties are discharged from their future obligations.

But it is important to note that Section 56, para 3 of the Indian Contract Act of 1872, says that if the promisor, while making the promise, knew or might have known with reasonable diligence that the performance of a contract is impossible or unlawful (of which the promisee had no clue), the promisor must compensate the promisee for any loss caused due to the non-performance of such contract.

In addition, when a contract is declared null and void, anybody who has benefited from such contract is obligated to return or compensate the person from whom he was benefited (Section 65). For example, A agrees to sing for B at a concert for Rs. 1,000, which is paid in advance, but A becomes unwell and is unable to perform. A must return the advance of Rs. 1,000 to B.


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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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