Satyabrata Ghose vs. Mugneeram Bangur & Co.

Citation: 1954 AIR 44

Facts

Satyabrata (plaintiff), assignee of Bejoy Krishna Roy, sued defendant alongwith Bejoy as
party defendant, for wrongfully repudiating the contract of developing the lands which were
sold to the plaintiff, and asked for specific performance of the same. Defendant took the
defence of frustration as the lands which needed to be developed were temporarily
requisitioned by the Govt. under the defence rules such that for unspecified period of time,
any development work if executed on the land would be illegal. The contract was made at a
time when war conditions were prevailing and any such requisition was imputed to be in
contemplation of the parties while forming contract. Further, no time was specified in the
contract.

Issue:

Whether the contract was rendered illegal and hence frustrated u/s 56? If not, what should be
reasonable time within which performance of contract was to be given u/s 46?

Held

‘Impossibility’ u/s 56 doesn’t mean literal impossibility to perform (like strikes, commercial
hardships, etc.) but refers to those cases where a supervening event beyond the contemplation
and control of the parties (like the change of circumstances) destroys the very foundation
upon which the contract rests, thereby rendering the contract ‘impracticable’ to perform, and
substantially ‘useless’ in view of object and purpose which the parties intended to achieve
through the contract.

Though under the English Law, frustration developed under the guise of reading implied
terms in the contract upon which parties rested the fundamental assumption as to the
performance (i.e. when an unexpected change of circumstances render the contract
impossible to perform, Courts apply the test of what the reasonable men as parties to such a
contract would have stipulated under the unexpected change of events), however, Indian Law
treats the two subjects of study completely different u/s 32 and 56. Therefore, where a Court
in India while interpreting the contract, is convinced about the existence of an implied (S.9)
or express term in the contract, that the contract shall be discharged upon happening of
certain event, the matter will be dealt u/s 32 and will be completely outside the purview of
S.56.

In the present case: Firstly, war condition were known to the parties while entering into the
contract such they were aware of the possible difficulty in performance of the contract, in
such circumstances, the requisition of property did not affect the root of the contract;
Secondly, no stipulation as to time was provided in the agreement such that the work was to
be completed within a reasonable time, but having regard to the nature of the development
contract and the knowledge of the war conditions prevailing during the contract, such a
reasonable time was to be relaxed. Therefore, the contract had not become impossible of
performance u/s 56.

Holroyd v Marshall

Holroyd v Marshall (1862) 10 HLC 191, 11 ER 999 was a judicial decision of the House of
Lords. In that case the House of Lords affirmed that under English law a person could grant a
mortgage or other security interest over future property, ie. property that they did not actually
own at the time of granting the charge. Prior to decision, the generally accepted principle
under English law was that pursuant to the nemo dat rule it was impossible for a person to
convey a security interest in property which they did not own at the time of granting the
charge.

The case is also notable in that no less than three persons who were, or one day would be,
Lord Chancellor, gave judgments, it is also a rare example of one Law Lord interrupting
another during their speech to object to a point in their judgment.

Facts

The underlying borrower was a businessman named James Taylor, who was engaged as a
damask manufacturer at Hayes Mill, Ovenden, near Halifax, Yorkshire; the case reports that
"[i]n 1858 he became embarrassed, [and] a sale of his effects by auction took place". The
Holroyds purchased all of his machinery, they subsequently sold it back to him, but because
he could not pay for it, the purchase price was left outstanding and a security interest was
granted over the machinery. However, the indenture granting the security interest not only
referred to the existing machinery, but separately to:
"... all machinery, implements, and things which, during the continuance of this security,
shall be fixed or placed in or about the said mill, buildings, and appurtenances, in addition to
or in substitution for the said premises, or any part thereof ..."

The indenture was duly registered under the Bills of Sale Act 1854 (17 & 18 Vict, c. 36).

As time passed Taylor sold and replaced some of the machinery, and bought some new
machinery. On 13 April 1860 one Emil Preller sued Taylor, and Mr Garth Marshall, the high
sheriff of York, executed a writ of scire facias against Taylor and machinery was seized in
appropriation of the claims. On 30 May 1860 the Holroyds filed a bill for relief claiming that
they had superior title; the case came initially before the Vice Chancellor, who found in
favour of the Holroyds. The judgment creditors then appealed, and the case came before Lord
Campbell LC, who reversed the decision, he held:

"My judgment rests upon Lord Bacon's maxim, 'Licet dispositio de interesse future sit
inutilis, tam fieri potest declaratio præcedens quoe sortiatur effectum, interveniente novo
actu.' Before any subsequent act is done, the assignment gives an equitable interest as
between assignee and assignor; but a legal interest subsequently, bona fide acquired before
possession taken by the equitable assignee shall prevail. The Holroyds then appealed to the
House of Lords.

Reasoning

The case was decided against the backdrop of the industrial revolution in Victorian England.
With the expansion of industry, companies were hungry for capital, and commercial parties
were exploring new ways for these companies to raise debt finance by way of debentures; as
part of that process debenture holders were seeking greater protection for themselves to
protect the capital which they invested in these new ventures to ensure that, if the company
failed, that they had a prior claim the company's assets over any competing creditors.

Judgement

Lord Westbury LC, Lord Wensleydale and Lord Chelmsford each gave judgments.

Lord Westbury started by noting that the respondents had conceded that if the mortgagees
(the Holroyds) had an equitable interest in the added machinery then it could not be seized by
them as judgment creditors, he then stated that "[t]he question may be easily decided by the
application of a few elementary principles long settled in the Court of Equity." He noted that
a contract for sale of any property would immediately pass a beneficial interest in that
property, and this applied not only to real estate but also to personal property; this drove him
to the inevitable conclusion that:

There can be no doubt, therefore, that if the mortgage deed in the present case had contained
nothing but the contract which is involved in the aforesaid covenant of Taylor, the mortgagor,
such contract would have amounted to a valid assignment in equity of the whole of the
machinery and chattels in question, supposing such machinery and effects to have been in
existence and upon the mill at the time of the execution of the deed.”

He accepted that a contract for the sale of property which does not exist at the time is law.
However, he felt that there was a crucial distinction between the position at law and in equity:

“If a vendor or mortgagor agrees to sell or mortgage property, real or personal, of

which he is not possessed at the time, and he receives the consideration for the contract, and
afterwards becomes possessed of property answering the description in the contract, there is
no doubt that a Court of Equity would compel him to perform, the contract, and that the
contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser
immediately on the property being acquired.”

Therefore he concluded, “Apply these familiar principles to the present case; it follows that
immediately on the new machinery and effects being fixed or placed in the mill, they became
subject to the operation of the contract, and passed in equity to the mortgagees, to whom
Taylor was bound to make a legal conveyance, and for whom he, in the meantime, was a
trustee of the property in question.”

Lord Wenslydale affirmed that if an agreement was specifically enforceable, then once the
property was acquired, then an incohate interest in the property vested immediately.

Section 7

Barrow, Lane & Ballard, Ltd v Phillip Phillips & Co, (1929) 1 KB 574

Luckily the law in the UK is very strict as well as it is made sure that nobody is victim of any
kind of unfairness in sale agreements. This case of Remi is again a unique one however as the
law says that price of the product should be the same at the time of transaction as it was
display either on shelves or any other medium. Remi might be lucky as he did conversation
by means of the Ear Ltd via email which means they did confirmed the original price plus
when Remi agreed, he was informed that the price has changed. Where there is a contract for
the sale of specific goods, however the goods perished before the contract devoid of the
knowledge of the seller, the contract is void (s.6). Section 6 might apply even if only part of
the goods has perished (Barrow, Lane & Ballard Ltd v Phillip Phillips & Co [1929] 1 KB
574; Sealy and Hooley, p.285). Under the contract one party (the seller or the buyer) might
have agreed to take the risk that the goods do not exist at the time of the contract; in which
case that party will be liable should the risk arise. (McKendrick, 2000)

Section 6 might seem to resemble the doctrine of common mistake in the general law of
contract, however goods that have never existed cannot be said to have perished (as to
whethers.6 reproduces the decision in Courturier v Hastie [1856] 5 HL Cas 673, see Sealy
and Hooley, p.283–84). (McKendrick, 2000)

The goods will have perished where they exist however have lost their commercial character:
for example, dates perished where underwater for 2 days in addition to impregnated by means
of sewage (Asfar v Blundell [1896] 1 QB 123. The problem by means of this case is that it
was not a decision under the Sale of Goods Act as well as there is a contrary – if rather
dubious authority, Horn v Minister of Food [1948] 2 All ER 1036).

Under s.7, where there is an agreement to sell specific goods in addition to, devoid of any
fault on the part of either party, the goods perish subsequent to the agreement as well as
before the risk has passed to the buyer, the agreement is avoided. Note that this section does
not apply where there is a contract of sale.

McRae v Commonwealth Disposals Commission, (1951) 84 CLR 377

Facts

The Commonwealth Disposals Commission sold McRae a shipwreck of a tanker on the

"Jourmand Reef", near Samarai supposedly containing oil. The McRae brothers went to
Samarai and found no tanker, and that there was no such place as the Jourmand Reef. It later
became clear that the Commission officer had made a 'reckless and irresponsible' mistake in
thinking that they had a tanker to sell (the Court found that they had relied on mere gossip).
The McRae brothers incurred considerable expense in fitting out a salvage operation.
The McRae brothers commenced an action claiming damages against the Commission. First
they claimed damages for breach of contract to sell a tanker at the location specified. Second,
they claimed damages for fraudulent misrepresentation that there was a tanker. Third, they
claimed damages for a negligent failure to disclose that there was no tanker at the place
specified after the fact became known to the Commissioner. CDC argued there was no
liability for breach of contract because it was void given the subject matter did not exist.

Furthermore, in relation to the expenditure incurred by McRae, the CDC argued that “Non
constat [It is not clear or evident] that the expenditure incurred by the plaintiffs would not
have been equally wasted. If the promise that there was a tanker in situe had been performed,
she might still have been found worthless or not susceptible of profitable salvage operations
or of any salvage operations at all. How, then… can the plaintiffs say that their expenditure
was wasted because there was no tanker in existence?"

Issues

At first instance, it was held that there was no contract between the complainant and the
defendant. However, this decision was appealed by McRae. The complainant sought damages
from the defendant for breach of contract, fraudulent misrepresentation of the oil tanker and
for damages since they did not disclose the information about the oil tanker when it came to
their knowledge that it did not exist. The defendants argued that they had no liability to pay
damages for breach of contract, as it was void by common mistake that the oil tanker did not
exist. The issue in this case was whether the complainant could recover damages and if the
contract could be void by a common mistake.

Held

It was held that the complainant was entitled for damages from the defendant. The contract
was not null and void because of a common mistake. A contract did exist between the
complainant and the defendant and since this oil tanker did not exist, this was a breach of
contract. Thus, the complainant was entitled to damages for breach of contract and for the
purchase price amount of the oil tanker, as well as the expenses paid out for the salvage
operation.