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obligation arises in contract- legal opinion

 SHORT NOTE ON LEGAL OPINION

FACTS:

M/S INDIA CHEMICAL is a supplier of xyz chemical to suncare pharma, which

is used to make certain medicines. My client had an agreement for the timely

supply of the said chemical. The said agreement has a clause if your client fail to

supply the chemical in time, Suncare will suffer huge lose & as such on this

account my client undertook to compensate Rs 50 lakhs. During the National

Lockdown in March 2020, labourers working at my client left the factory &

further, the raw material chain was disrupted & as such my client failed to supply

chemical to Suncare Pharma. There was huge demand for medicines during that

period. Suncare Pharma could also not produce & thereby suffered huge loss in

crores. Now Sun Pharma has demanded Rs 10 lakh from my client in term of the

agreement.

ISSUE:

Is it possible to get out from contractual obligation that arises in the contract.

LAW:

A contract is a private legislation between the parties. Parties can decide

obligation, terms, condition, etc. Contract is a legally binding agreement

enforceable by law. There are issues arises when parties want to dissolve their

legal contractual obligation in the contract. Doctrine of Frustration is a way out to

dissolve their contractual obligation. The Doctrine of Frustration applied on the

following conditions:

 Unforeseeable supervening events

 The performance of the contract is impossible

 No fault of the parties concerned

ORIGIN OF DOCTRINE OF FRUSTRATION:

The genesis of the doctrine of frustration dated back in 1861 in the Court of

England in the case of Taylor V. Caldwell (1861-1873) where the English Court

provide relief by discharging parties from the contractual obligation. The court also

stated that express condition not mention in the contract, Court can implied


inference and provide relief to the aggrieved party in the contract. There is also a

clause name Force Majure where parties can be absolved from the contractual

obligation when circumstances are beyond control or unforeseeable.

JUDGEMENTS:

In the case of Satyabarat Ghose V. Mugneeram Bangur (1954) & Mugneeram

Bangur V. Gurbachan Singh (1954) court stated that in India, no such express

clause of Force Majeure is required as is done by the counts in England. The court

held that if change in circumstances & performance in contract is impossible,

aggrieved person can discharge from contractual obligation. Section 56 of Indian

Contract Act provided that if subsequent act become impossible or unlawful in

performance, there is no obligation upon parties to perform the contract. Section 32

of the Indian Contract Act, contingent contract to do or not to do anything if an

uncertain future event happen cannot be enforced by law unless & until that event

has happened.

SUPREME COURT RULING:

In the case of Ganga Saran V. Firm Ram Charan (1952) the Supreme court held

that subsequent event performance of contract become onerous, but parties are

responsible for it. They cannot take the benefit of section 56 of Indian Contract

Act. In the case of Satyabhrata V. Mugneeram (1954) the court held that the law

of frustration as developed in England not applicable in India. Section applicable

only in case of supervening impossibility of performance or illegality of the act.

Section 56 of Indian Contract act is a positive law and applicable only in case of

supervening impossibility of performance or illegality of the act. In the judgements

the court also highlight the major difference between India Law & English Law.

English law look after intention of the parties whereas Indian Law look after

change in circumstance which lead to the impossibility of the performance of the

contract. In the case of MS Alopi Prasad & Sons LTD. V. Union of India (1960)

the Supreme Court held that change in circumstances that impacted on price

increase or decrease, in these cases dissolution from the obligation were not

allowed. In these type of contracts, only consideration in whether parties never

agreed to be bound in fundamentally different situation which had unexpectedly

emerged. In the case of Naihati Jute Mills LTD. V. Hyaliram Jaganath (1968),


the court has no general power to absolve a party from the performance merely

because the performance has become onerous on account of an unforeseeable

event. In the case of Energy watchdog V. CERC (2017) the court held that when

the parties submitted their bids, this was a risk they knowingly took and cannot

take the plea of section 56 under Indian Contract Act. In the case of M.P. Power

Management Company V. Renew Clean Energy PVT. LTD. (2018), the delay

in commissioning the project due to unavoidable circumstances or subsequent

unforeseen reason such as change in location of the project is not Force Majeure

event. The delay can be considered & condoned keeping in view other factors such

as construction of the plant, investment of huge amount in purchasing the land and

development of plant.

OPINION:

In my opinion, contract is a private legislation between the parties & they are

bound by the term of the contracts. Section 56 can be invoked only if there is no

force majeure clause. Mere the contact had become more onerous to perform but

not fundamentally altered, one cannot be absolved from their responsibility to

perform.

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