Tuesday, October 09, 2007

Contract Act_Practical Problems_22

A stationer agreed to supply white paper on rate contract for one year. Later, due to steep increase in market prices, the contractor stated that he would suffer very heavy loss by supplying at the contracted rates. Under the contract, the rates were tobe firm except for statutory levies. The stationer claimed that the contract had become commercially impossible of performance and that he was discharged. Comment on the legality of his plea.

Section 56 of the Indian Contract Act provides that a contract shall become void if the contracted act becomes, by reason of some event which the promisor could not prevent, impossible. However, impossibility contemplated under Section 56 is genuine or literal impossibility and shall not be deemed to include cases like failure to realise expected profits or the availability of raw materials at higher prices or with difficulty. Such situation may render a transaction commercially impossible but not really impossible. Thus, in the given case the stationer's plea shall not be acceptable and in the event of non-performance he will be held liable for breach and the consequential damages.

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