Tuesday, October 09, 2007

Contract Act_Practical Problems_21

A landlord agrees with a bank to lease to it space in a building under construction and obtains an advance for the purpose. The building is, however, requisitioned by Government and, therefore, the landlord is unable to honour his obligations. What are the rights of the bank as against the landlord? Can the bank recover damages for breach of contract?
The problem in question relates to supervening/subsequent impossibility. Section 56 of the Indian Contract Act exonerates a promisor from any liability if the transaction becomes impossible of performance because of some event which the promisor could not prevent. The contract in such cases becomes void. Thus, in the above case since the Government has requisitioned the premises, the agreement to lease out the same is naturally impossible. Hence, the landlord cannot be subjected to any damages for not honouring his obligations. Bank can only ask for the return of advance on grounds of failure of consideration.

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