Ganga Saran vs Ram Charan Ram Gopal

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 56 of 1951

Decision Date: 1 November 1951

Coram: Saiyid Fazal Ali, Hiralal J. Kania, Mehr Chand Mahajan

In this case the Supreme Court of India delivered its judgment on 1 November 1951. The matter was reported by the author Saiyid Fazal Ali and was heard by a bench consisting of Justice Saiyid Fazal Ali, Justice Hiralal J. Kania and Justice Mehr Chand Mahajan. The parties before the Court were Ganga Saran, the petitioner, and Ram Charan Ram Gopal, the respondent. The decision was recorded under the citation 1952 AIR 9 and 1952 SCR 36. The judgment also appeared in the citator references R 1954 SC 44 (10), R 1959 SC 135 (20) and R 1968 SC 522 (7). The dispute involved the Indian Contract Act of 1872, specifically section 56, which deals with contracts that become impossible to perform. The headnote of the judgment summarized the essential facts: the respondents had undertaken to deliver sixty-one bales of cloth to the appellant by 17 November 1941, agreeing that they would continue sending goods “as soon as they are prepared” from Victoria Mills and would deliver the goods “up to Magsar Badi 15, Sambat 1998.” The respondents contended that because they had not received the cloth from Victoria Mills before the prescribed date, performance had become impossible through an event beyond their control, and they claimed that the contract was therefore void under section 56 of the Indian Contract Act.

The Court examined the terms of the agreement and held that a proper construction showed that delivery was not conditioned on the respondents actually receiving the goods from Victoria Mills. The phrase “prepared by the Mills” was interpreted only as a description of the goods, while the expressions “as soon as they are prepared” and “as soon as they are supplied to us by the said Mill” indicated merely the process by which delivery would occur. Consequently, the doctrine of frustration could not be invoked in this circumstance. In addition, the Court observed that the respondents had not demonstrated that they had placed an order with Victoria Mills and that the mill had subsequently failed to supply the goods. This failure constituted a clear breach of the contractual obligation to deliver, entitling the appellant to recover damages. The Court relied on the authorities Harnandrai v. Pragdas (L. R. 15 I.A. 9) and British Movietone News v. London Cinemas [1951] 2 A.E.R. 617 in reaching its decision. Procedurally, the judgment arose out of Civil Appeal No. 56 of 1951, which was an appeal by special leave from a judgment and decree of the High Court of Allahabad delivered on 14 February 1946 in Appeal No. 240 of 1943. That judgment itself stemmed from a decree dated 19 January 1943 of the Court of the Civil and Sessions Judge, Kanpur, in Original Suit No. 34 of 1942.

The original suit was tried before the Court of the Civil and Sessions Judge at Kanpur, bearing Original Suit No. 34 of 1942. The appellant was represented by Achhru Ram, assisted by P. S. Safeer, while the respondent-firm was represented by S. P. Sinha, assisted by K. N. Aggarwala. The judgment was delivered on 1 November 1951 by Justice Fazl Ali, who signed the judgment as FAZL ALI J. This judgment records an appeal made by special leave against a decision of the Allahabad High Court. The High Court had set aside the trial court’s decree that had been in favour of the appellant. The appeal concerns a suit that the appellant had instituted to recover damages from the respondent-firm for alleged breach of a contract concerning the supply of cloth.

According to the record, between 10 April and 18 April 1941 the appellant and the respondent-firm entered into five separate contracts. Under those contracts the respondent-firm agreed to supply the appellant with a total of 184 bales of cloth, each bale being manufactured to certain specifications at the New Victoria Mills in Kanpur and at the Raza Textile Mills in Ramput. Of the 184 bales, the appellant actually received 99 bales, leaving a dispute over the remaining 85 bales. On 17 October 1941 the parties reached a settlement in which they agreed that the respondent-firm would deliver an additional 61 bales to the appellant, with the delivery to be completed on or before 17 November 1941. The written terms of that settlement were set out in Exhibit 4 and read, in part, as follows: “61 bales as noted below are to be given to you by us. We shall continue sending goods as soon as they are prepared to you up to Magsar Badi 15 Sambat 1998. We shall go on supplying goods to you of the Victoria Mills as soon as they are supplied to us by the said Mill… We shall go on delivering the goods to you up to Magsar Badi 15 out of the goods noted above which will be prepared by the Mill.” Because the respondent-firm failed to deliver the agreed 61 bales, the appellant transmitted a telegraphic notice on 20 November 1941 stating: “Give delivery of our 61 bales through Bank. Otherwise suing within a days.” No reply was received to that notice. Consequently, the appellant filed the suit on 23 April 1942, claiming a monetary loss of Rs 9,808 and odd, which he said represented the loss caused by the increase in market price of the cloth, together with costs and interest. The respondent-firm defended the suit on several grounds, but the principal defence – and the only one considered in this appeal – was that the contract had become impossible to perform because of circumstances beyond its control, invoking the doctrine of frustration. The trial court rejected that defence, but the Allahabad High Court upheld it, leading to the present appeal. The sole issue for determination is whether the facts of the case justify the application of the doctrine of frustration of contract, a doctrine that is reflected, to the extent it applies in this country, in sections 32 and 56 of the Indian Contract Act, 1872.

In this appeal the Court observed that the doctrine of frustration of contract is embodied in sections thirty-two and fifty-six of the Indian Contract Act, 1872. The appellant challenged the judgment of the High Court on two principal grounds. First, the appellant contended that the High Court had misread the agreement dated the seventeenth of October, 1941, which both parties relied upon. Second, the appellant argued that the High Court had given undue weight to an abstract legal doctrine and had not given sufficient attention to the factual matrix of the case. The Court agreed with both of these contentions. The Court held that the construction placed upon the agreement by the High Court and the consequent conclusion were erroneous, and it set out the High Court’s interpretation as recorded in the leading judgment of Wali Ullah J. The High Court had stated: “It seems to me that the parties clearly intended that the defendant was to supply the goods to the plaintiff if and when – and only in that event – the particular goods were prepared by the Victoria Mills and were supplied to the defendant between the seventeenth of October, 1941, and the seventeenth of November, 1941. As the fundamental assumption on which the contract was made ceased to exist during the time of performance and consequently it became impossible for the defendant to fulfil the contract, it must be held that the contract was discharged by supervening impossibility.” The Court noted that this construction was the same as the one put forward by the defendant-respondents in the earlier case of Harnandrai v. Pragdas, which had been rejected by the Privy Council. In Harnandrai v. Pragdas the provision regarding delivery read: “The said goods are to be taken delivery of as and when the same may be received from the Mills.” The Mills, engaged in fulfilling certain Government contracts, failed to perform their agreement with the defendants, and consequently the defendants were unable to supply the goods to the plaintiffs. The Privy Council was asked to determine the meaning of the contract and whether its performance had been frustrated. The Privy Council answered: “It was also suggested that the words ‘as and when the same may be received from the Mills’ should be construed, as if they were ‘if and when the same may be received from the Mills.’ This is to convert words, which fix the quantities and times for deliveries by instalments into a condition precedent, to the obligation to deliver at all, and virtually makes a new contract. The words certainly regulate the manner of performance, but they do not reduce the fixed quantity sold to a mere maximum, or limit the sale to such goods, not exceeding 864 bales, as the Mills might deliver to the defendants during the remainder of the year.” Their Lordships further observed that the Mills were presumed to continue existing, and that the continuation or even the destruction of the Mills would not necessarily affect a contract between third parties in absolute terms. The Court agreed with the Privy Council’s reasoning and applied the same principles to the present agreement. The Court concluded that the agreement did not make the delivery of the goods contingent upon their being supplied by Victoria Mills to the respondent firm. Rather, the phrase “prepared by the Mill” was merely a description of the goods, and the expressions “as soon as they are prepared” and “as soon as they are supplied to us by the said Mill” were understood to refer only to the process by which the goods would be made available, not to a condition precedent that could render the contract void if the Mill failed to supply them.

In this case the Court observed that the mere closing or even the destruction of the Victoria Mills would not, by itself, affect a contract that existed between third parties in absolute terms; however, the factual record showed that the Mills continued to exist and continued to manufacture the goods that were the subject of the dispute, although those goods were subsequently made for and delivered to a different purchaser. The Court agreed with the reasoning expressed by the Privy Council and held that the considerations applied by that higher authority must likewise guide the construction of the agreement that is before this Court. Accordingly, the Court found that the language of the agreement did not convey the idea that delivery of the goods was conditional upon the goods being supplied to the respondent firm by the Victoria Mills. It was difficult for the Court to accept any suggestion that the parties had ever contemplated a situation in which the goods might not be supplied at all.

The Court further explained that the phrase “prepared by the Mill” should be understood merely as a description of the goods to be supplied, and that the expressions “as soon as they are prepared” and “as soon as they are supplied to us by the said Mill” merely describe the manner in which delivery was to be effected. The Court stressed that what required interpretation was a commercial agreement drafted in a fairly ordinary form, and cited Lord Sumner’s observation that “there is nothing surprising in a merchant’s binding himself to procure certain goods at all events, it being a matter of price and of market expectations.” Because the true construction of an agreement depends on the ordinary meaning of the words employed and not on subsequent statements made by the parties, the Court considered it unnecessary to refer to any post-contractual explanations offered by the parties.

Beyond the issue of construction, the Court turned to the pleadings of the respondents and concluded that their defence must fail on the basis of their own admissions. The defendant, in his evidence, affirmed that he had not sold the sixty-one bales of cloth to any other person at the time he received the telegraphic notice dated 20 November 1941 (exhibit 1). By that admission, the Court held, the defendant was able to supply the sixty-one bales of the contracted goods at the moment when the alleged breach was said to have occurred. Consequently, the Court was unable to find that performance of the contract had become impossible.

The Court noted, however, that the matter did not end with that finding. Guruprasad, a clerk of the Mills Company and the second witness called by the defendants, gave a statement of importance. He explained that “the customers all place their requirements before the sales manager. If the goods required are ready, they are sold to the customers and if they are not ready and if the customer wants them to be manufactured they are delivered to the customers after manufacture. An order book is maintained at the Mills.” This description reflected the customary practice at Victoria Mills. Under that practice, the burden was on the defendants to demonstrate that an order for the manufacture of the contracted goods had been placed with the Mills and that, despite that order, the Mills had failed to supply the goods. The Court noted that no such evidence had been produced by the defendants.

In the matter before the Court, the appellant contended that the defendants had placed an order for the manufacture of the contracted goods with the Mills, yet the Mills had failed to deliver those goods. The Court observed that the defendants had offered no evidence to support the claim that an order had been placed or that the Mills had been unable to supply the goods. The High Court had, in its reasoning, suggested that it might not have been possible to supply the goods within the time specified in the agreement; however, the Court noted that there was no material on record to substantiate that suggestion. Consequently, the Court concluded that the present case could not be characterized as one in which the doctrine of frustration of contract could be invoked.

The Court then turned to the legal principles governing frustration. It recalled that the doctrine had been explained in several authorities, some of which had been cited by the High Court. The most recent pronouncement on the doctrine, according to the Court, was found in the speech of Viscount Simon in British Movietone News v. London Cinemas(1). In that speech, the Lord Chancellor had approved the earlier formulation of the doctrine offered by Earl Loreburn in F.A. Tamplin S.S. Co. Ltd. v. Anglo-Mexican Petroleum Products Co., Ltd(2). The formulation stated that a court should examine the contract and the circumstances in which it was made, not to vary the contract but to explain it, in order to determine whether the parties must have bargained on the assumption that a particular thing or state of affairs would continue to exist. If that assumption was essential, the Court could imply a term to that effect even though it was not expressed in the contract. The Court emphasized that no court possessed an absolute power to discharge parties, but it could infer from the nature of the contract and surrounding circumstances that an unexpressed condition formed the foundation of the agreement.

Following this doctrinal exposition, the Court stressed that Indian courts must primarily rely on the provisions of sections 32 and 56 of the Indian Contract Act, 1872. Section 32 provides that contingent contracts dependent on an uncertain future event cannot be enforced until that event occurs, and such contracts become void if the event becomes impossible. Section 56 declares that an agreement to perform an act that is impossible in itself is void, and a contract that becomes impossible after its formation, or that becomes unlawful due to an event beyond the promisor’s control, becomes void when the act becomes impossible or unlawful. The Court examined whether the present agreement fell within either of these statutory provisions. It found that the enforcement of the agreement was not contingent upon the occurrence of an uncertain future event, and the case did not fall within the second paragraph of section 56, which was the only provision that might have been relevant to the respondents’ plea. Accordingly, the Court held that the doctrine of frustration could not be used by a defendant whose non-performance was attributable to his own default.

The Court observed that the failure to perform the contract was due to the respondent's own default. Consequently, the Court permitted the appeal, annulled the decision of the High Court, and reinstated the decree originally issued by the trial court. The Court further ordered that the appellant be awarded costs of the proceeding without limitation. The appeal was thus allowed. The appellant was represented by an agent named R.S. Narula, while the respondent's agent was identified as S.S. Sukla. In the final order, the Court set aside the judgment delivered by the High Court, which had previously affirmed the lower court's decision. By restoring the decree of the trial court, the Court effectively returned the parties to the position they were in before the appellate intervention. The award of costs to the appellant was made without any limitation, meaning that all expenses incurred in the appeal would be recovered from the respondent. The Court emphasized that the responsibility for the failure to perform lay solely with the party against whom the appeal was filed, and that no doctrine of frustration could shield that party because the non-performance was not due to an external, unforeseen event but rather to the party’s own default. Accordingly, the appeal was granted, the appellate court’s judgment was reversed, and the original decree issued by the trial court was reinstated. The Court ordered that the appellant be awarded his costs of the appeal without any restriction, thereby obligating the respondent to bear the entire expense of the appellate proceedings. The final order also noted the agents who appeared on behalf of each party: R.S. Narula acted as the agent for the appellant, and S.S. Sukla served as the agent for the respondent. Thus the decision concluded the litigation between the parties in the present case.