M/s. Alopi Parshad and Sons, Limited v. Union of India

Facts

The plaintiffs contracted to procure and supply ghee for army personnel at rates expressly stipulated in the contract. During performance, prices rose abnormally owing to the outbreak of the Second World War. The plaintiffs, having supplied the goods and received the stipulated remuneration, claimed additional compensation for the extra expenditure caused by the price rise.

Issues

• Whether an abnormal rise in prices during performance entitles a party to remuneration beyond the contractually stipulated rates
• Whether such a change of circumstances frustrates the contract under S56

Arguments

The sellers argued the abnormal wartime rise in prices was an uncontemplated event that justified payment above the stipulated rates on grounds of equity/frustration. The Union argued the contract had been fully performed at the agreed rates and there was no liberty to rewrite the express terms.

Held

The Supreme Court held that performance had not become impossible or unlawful — the contract was in fact performed and the stipulated remuneration paid. The Contract Act does not enable a party to ignore express covenants and claim payment at different rates on a vague plea of equity. An uncontemplated rise or fall in prices, currency depreciation or unexpected obstacles does not by itself affect the bargain; a contract ceases to bind only where, on its true construction, the parties never agreed to be bound in the fundamentally different situation that emerged — not because the court thinks it just to vary the terms. Courts have no general liberty to absolve a party merely because performance became onerous. The claim was rejected.

Ratio decidendi

Commercial hardship or an abnormal price rise that merely makes performance more onerous does not frustrate a contract or justify departing from stipulated rates; frustration depends on true construction showing the parties never bargained for the fundamentally different situation, and an already-executed contract cannot be frustrated.

Significance

Leading authority that economic hardship and price escalation are not grounds of frustration in India, and that frustration applies only to executory (unperformed) contracts. Followed in Easun Engineering v. FACT, where a 400% rise was distinguished as creating a fundamentally different situation.

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