Chapter -9 Q&A CA.

Yagya Raj Joshi

Subjective Questions

1. Explain Doctrine of Frustration of Contract. In what conditions the performance of

promise becomes impossible?

If valid contract is made at the formation but it becomes impossible to perform later on
due to some subsequent events, it is known as subsequent impossibility. It is also known
as supervening impossibility or doctrine of frustration or fundamental changes in the
following situations. Doctrine of frustration applies only if following conditions are
satisfied:

a. It becomes impossible after the formation of the contract.

b. It has been caused by an event beyond the control of the contracting parties.
c. It is not caused due to the negligence of the parties.

Section 531 of MCCA, 2074 provides, Discharge of contracts in the event of

fundamental changes in circumstances:

1. If it becomes impossible to perform a contract as a result of fundamental change in

the circumstance existed at the time of conclusion of the contract, the act according
to the contract need not be performed.
2. Without prejudice to the generality of sub-section (1), emergence of any of the
following circumstances shall be deemed to constitute a fundamental change in the
circumstance existed at the time of conclusion of a contract:
a. If the contract becomes illegal and thereby it cannot be performed,
b. If it becomes impossible to perform the contract due to emergence of
situations beyond human control such as war, flood, landslide, fire,
earthquake and volcanic eruption,
c. If the subject matter essential for the performance of the contract is destroyed
or damaged, or exists no longer, or such a subject matter could not be
obtained,
d. If the contract is so concluded that its performance depends on the personal
ability, skill or talent of a person and the performance of the contract
becomes impossible by the reason that such a person dies or becomes
insane or is incapable of performing the contract because of physical or
mental disability.

2. Explain the termination of contract by operation of law.

Termination of contract means ending up of contractual relation between parties. It also

terminates the duty and rights to enforce obligations of the other party to the contract.
Termination of contract is also called as discharge of a contract. Contracts are terminated
mainly either by operation of law or by acts of the parties.

In certain situation contract can be terminated by the operation of law, as in following cases:

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a. Death: Since, the contract involving personal skill or qualification cannot be

performed by the legal representative of the deceased person, the contract is
said to be terminated by death. If any benefit was received by the deceased
person before his death, it must be restored.
b. Insolvency: Any person adjudicated as an insolvent by the court shall be
discharged from all the liabilities incurred by him in any contract entered by him,
up to the date of insolvency. In such case, all the assets and liabilities shall be
taken over by the official receiver and liabilities shall be discharged by the
available assets on proportionate basis.
c. Unauthorized material alteration: When a party to contract unilaterally makes
significant changes in the body of contract, i.e., written deed, it will be called as
unauthorized material alteration of the contract. Unilateral material alteration of
contract discharges other party from the liabilities of the contract. However, minor
or clerical alteration would not affect.
d. Rights and obligations are vested in same party: If rights and obligations under
the contract vests in the same party, the other party is said to be discharged from
the contract.

3. Mention the modes of termination of contract.

Termination of contract means ending up of contractual relation between parties. It also

terminates the duty and rights to enforce obligations of the other party to the contract.
Termination of contract is also called as discharge of a contract. Contracts are terminated
mainly either by operation of law or by acts of the parties.

Various modes of terminating contracts are as follows:

a. Termination by performance: When parties to contract perform their duties

and obligation completely, it is known as termination by performance.
b. Termination by lapse of time: Obligation as per the contract should be fulfilled
within stipulated or reasonable time otherwise it is considered as termination
by lapse of time.
c. Termination by mutual agreement: If parties to a contract mutually agree to
terminate the contract without performing is known as termination by mutual
agreement.
d. Termination by operation of law: In certain situation contract can be
terminated by the operation of law. For example, if a contract is about to use
of personal skills and knowledge of a party but subsequently he/she dies then
it is impossible to perform and contract will be terminated. This is known as
termination by operation of law.
e. Termination by breach of contract: A contract is said to be terminated by
breach of contract, if any party to the contract refuses to perform his/her part
of the contract or by his act makes it impossible to perform his obligation
under the contract.

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f. Termination by impossibility: If a contract is not possible to perform then it

would be terminated because of impossibility to performance.

4. Write short notes on:

a. Actual breach

Breach of contract means promisor not doing something provided in the contract. Breach of
contract results in termination of contract. Section 535(1) of MCCA, 2074, provides that, a
person is said to have breached contract, in case party to contract does not meet liability under
the contract.

Actual breach occurs when one person refuses to fulfill his/her obligation when it is due. Such a
refusal may be either express or implied or abstaining from doing something. Actual breach of
contract may be of following types:

i. Actual breach of performance on the due date: If one person fails or refuses to
perform or if he seems to be incapable of performing his obligation by his action
and conduct, at the time fixed for performance, it is known as actual breach on
due date. If time is essence of the contract, failure to perform on the due date
results in breach of contract. However, if time is not essence of the contract, the
other party may accept the performance even after the due date and may claim
damages, if any.

ii. Actual breach during the performance of the contract: If one party fails or refuses
to perform his obligation during the performance of the contract, it is known as actual
breach during the performance of the contract. It occurs when one party performs his
obligation but other doesn’t or when one party perform his obligation but not strictly
according to the terms of the contract. Breach of non-essential terms, however,
doesn’t amount to breach of contract but allows aggrieved party to claim the damage,
if any.

b. Anticipatory breach

If one party refuses altogether to perform his obligation or signifies his unwillingness even
before the time fixed for performance has arrived, it is known as anticipatory breach. In other
words, it is declaration by one party of his intention not to perform his obligation under the
contract. Thus, it is a premature destruction of the contract i.e., repudiation of the contract
before the due date of performance. Anticipatory breach of contract may happen in following
ways:

i. By renunciation: When one party announces his intention of not performing

the contract, in advance of the due date of performance. It means
renunciation occurs when prior to the date of performance, the promisor
absolutely refuses or disables himself from the performance of his obligations.

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ii. By creating some impossibility: If before the due date of performance, one
party does anything making the contract impossible to occur, the contract is said
to be breached.

c. Initial Impossibility

Impossibility of performance is a doctrine whereby one party can be released from a contract
due to unforeseen circumstances that render performance under the contract impossible. If the
impossibility exists at the time of making a contract, it is known as initial impossibility.
Impossibility can be categorized as follows:

i. Subjective and objective impossibility

ii. Factual and practical impossibility
iii. Legal impossibility
iv. Initial Impossibility and Supervening Impossibility

d. Supervening impossibility

If valid contract is made at the formation but it becomes impossible to perform later on due to
some subsequent events, it is known as subsequent impossibility. It is also known as
supervening impossibility or doctrine of frustration or fundamental changes in the situation.
Doctrine of frustration applies only if following conditions are satisfied:

i. It becomes impossible after the formation of the contract

ii. It has been caused by an event beyond the control of the
contracting parties
iii. It is not caused due to the negligence of the parties.

Past Questions

1. What do you mean by termination of contract? Mention various modes of termination of

contract. [June-2013]

Termination of contract means ending up of contractual relation between parties. It also

terminates the duty and rights to enforce obligations of the other party to the contract.
Termination of contract is also called as discharge of a contract. Contracts are terminated
mainly either by operation of law or by acts of the parties.

Various modes of terminating contracts are as follows:

a. Termination by performance: When parties to contract perform their duties

and obligation completely, it is known as termination by performance.
b. Termination by lapse of time: Obligation as per the contract should be fulfilled
within stipulated or reasonable time otherwise it is considered as termination
by lapse of time.

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c. Termination by mutual agreement: If parties to a contract mutually agree to

terminate the contract without performing is known as termination by mutual
agreement.
d. Termination by operation of law: In certain situation contract can be
terminated by the operation of law. For example, if a contract is about to use
of personal skills and knowledge of a party but subsequently he/she dies then
it is impossible to perform and contract will be terminated. This is known as
termination by operation of law.
e. Termination by breach of contract: A contract is said to be terminated by
breach of contract, if any party to the contract refuses to perform his/her part
of the contract or by his act makes it impossible to perform his obligation
under the contract.
f. Termination by impossibility: If a contract is not possible to perform then it
would be terminated because of impossibility to performance.