We have seen above under ‘void agreements’ that an agreement to do an act impossible in itself is void. When the performance of a contract becomes subsequently impossible, the contract becomes void.
When a contract was capable of being performed at the time it was entered into but subsequently its performance becomes impossible, it is called supervening impossibility. Impossibility may exist at the time of formation of the contract or arise subsequent to the formation of the contract. In both the cases, the contract is discharged due to impossibility of its performance, for law does not recognize what is impossible. Impossibility creates no obligation.
Impossibility must be physical or legal impossibility and not impossibility in reference to ability or circumstances. Commercial impossibility i.e. extreme or unforeseen cost or difficulty of performance is no excuse. In the absence of any capacity to perform contract, parties are not absolved from their obligation to carry out the contract.
The word impossible has not been used in the sense of physical or literal impossibility. The performance of an act may be literally impossible but it may be impracticable and useless from the point of view of the object and purpose which the parties had in view, and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do. Impossibility and frustration are often used as interchangeable expressions. The doctrine of frustration is really an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of section.
Events subsequent to frustration of contract cannot be invoked to revive the contract so as to seek specific performance thereof
Cases of supervening impossibility
1. Destruction of the object necessary for performance of the contract.
2. Change of law
3. Death or personal incapacity
4. Out break of war
5. Non-existence of particular state of things which forms the basis of the contract.
In all the above cases, performance of an obligation becomes impossible and, therefore, the contract is discharged.
Exceptions: Difficulty of performance, commercial impossibility, strikes and lockouts, civil disturbances, riots, failure of one of the objects when contract is entered into for several objects, default or failure of a third person on whose word the promisor relied, increase in the cost of performance, are not covered by the doctrine of supervening impossibility, and therefore the contract is not discharged.
If the performance of contract is rendered unlawful either for determinate or indeterminate period of time, the contract would not stand discharged unless the ban on its performance exited on the day or during the time in which it has to be performed.
By agreement or by consent: Contract can be terminated or discharged by mutual express or implied agreement between the parties in any of the following ways:
By Novation: (Sec 62) If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
When a new contract is substituted for an existing contract, either between the same parties or between different parties ‘novation’ occurs. For example, in case of transfer of partnership share by a partner, as a result of which a new partnership is constituted and the creditors agree to look upon the new partnership firm for the liabilities of the old form, novation occurs, whereby the liabilities and obligations of the old partnership form are discharged.
Novation means the wiping out of the original contract as well as the creating of a new valid contract. If the new agreement is invalid it cannot serve as novation, and the original contract continues unless the rights there under are expressly abandoned.
Therefore, novation may occur in two ways:
(1) New party is substituted for the old one
(2) Parties may substitute new contract for the old one.
One of the essential requirements of ‘novation’ is that there should be complete substitution of a new contract in place of the old. A substituted contract should rescind or later or extinguish the previous contract. But if the terms of the two contracts are inconsistent and they cannot stand together, the subsequent contract cannot be said to be in substitution of earlier contract.
(1) A owes money to B under the contract. It is agreed between A, B and C that B shall henceforth accept C as his debtor instead of A. The old debt of A to B is at end and a new debt from C to B has been contracted.
(2) A owes B Rs 10,000. A enters into an agreement with B, and gives B a mortgage of his (A’s) estate for Rs 5,000 in place of the debt of Rs 10,000. This is a new contract which extinguishes the old.
(3) A owes B Rs 1,000 under a contract B owes C Rs 1,000. B orders A to credit with Rs 1,000 in his book, but C does not assent to the arrangement. B still owes C Rs 1,000 and no new contract has been entered into.