Court holds war-induced impossibility does not discharge debt when contract is fully executed on one side.

[*235] 1977 July 8

(HJICONSTANTINOU, S.D.J.)

IN THE DISTRICT COURT OF NICOSIA

Mersiandek Ltd.,

Plaintiffs,

v.

1 Christakis Marcou,

2. Stelios Marcou,

Defendants.

(Action No. 3191/76).

Contract - Impossibility of performance - Principles Applicable - Section 56(2) of the Contract Law, Cap.

149 - Claim for rents under contract for hire purchase of machinery - Contract completely executed by plaintiffs and nothing remained to be performed by defendants except payment by them of a liquidated sum - Machinery captured by, and remained under the occupation of the Turkish invasion forces - Whether further performance of the contract became impossible and whether defendants discharged from their obligation to pay the money claimed.

M. Ioannou, for the Plaintiffs,

A. Boyiadjis, for the Defendants.

JUDGMENT

The following judgment was delivered by: -

HJICONSTANTINOU, S.D.J. :In this action [*236] the plaintiffs claim the amount of £300.- with interest as rents due under a contract in writing for the hire purchase of a machine with its accessories.

The contract was entered into on the 18th of May, 1973 when the defendants took up possession of the machine with its accessories and installed same in their turpinmaking factory. The agreed contract price was £900.- payable by a first payment of £300.- and the balance by equal monthly payments of £25.- each as from 30.6.1973.

The case for the defendants is that:

(a) the machinery and accessories in question have been captured by and remain under the occupation of the Turkish troops that invaded Cyprus; (b) the defendants, through no fault of theirs, are deprived from possessing and using the said machinery, and ( c) the further performance of the contract became impossible. Consequently, the learned counsel for the defendants submitted, that under the provisions of section 56(2) of the Contract Law, Cap.149, the contract became void and the defendants are discharged from their obligation to pay the money claimed.

Section 56(2) of the Contract Law, Cap. 149 reads as follows:-

"56(2) A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful". [*237]

This section has been judicially considered

in the case of Vineent Della Tolla v. Fidias S. Kyriakides (1955) 20 C.L.R., Part II, page 89, where Hallinan, C.J. at p.92 said:-

"In our view whether a Court applies the statutory rule concerning impossibility of performance contained in s.56(2) or applies the English doctrine of an implied term, in order that a supervening impossibility of performance should excuse the non-performance of a contract, the underlying principle for not enforcing the contract is the same. This principle was stated by Lord Haldane in Tamplin S.S, Co. v. The Anglo-Mexican Petroleum Products Co. (1916) (2 A.C.397 at 406): 'The occurrence itself' (i.e. the occurrence preventing the performance of the contract) 'may yet ' be of a character and an extent so sweeping that the foundation of what the parties are deemed to have had in contemplation has disappeared and the contract itself has vanished with that foundation'. We consider that the spirit of the English authorities should be followed and that section 56(2) only applies to an impossibility which destroys the foundation of the contract".

It should, however, be stated that, following the Della Tolla case (1955) the House of Lords in 1956, by a majority of three members, rejected the implied term theory laid down in the Tamplin case (1916) which was relied upon [*238] in the judgment of Hallinan C.J. This was in the case of Davis Contractors Ltd. v. Farfham Urban District Council

(1956) 2 All E.R. 145, where at p. 160 Lord Radcliffe said:-

"….. frustration occurs where the law recognises that, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do..”

“…….. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be different thing from that contracted for".

In the case of the Cyprus Cinema & Theatre Co. Ltd. , v. Christodoulos Karmiotis (1967) 1 C.L.R. 42, Josephides, J. at p.59 said:-

"Reverting to section 56(2) of our Contract Law and relying on the test laid down in the Davis case (1956), we are of the view that the proper test for impossibility of performance should be: If the literal words of the contract were to be enforced in the changed circumstances, would this involve a significant or radical change from the obligation originally undertaken? . . . The tenant is bound to pay rent as, by his own contract, he has created such a duty or [*239] change on himself, notwithstanding that occupation of the premises was taken over by a military force of volunteers and members of the National Guard of the Republic….. because the tenant might have provided against such eventuality by his contract. There was no eviction by title paramount nor was the landlord in any way responsible for the eviction of the tenant; and in these circumstances the performance of the obligation, that is to say, the payment of the rent, was not rendered impossible, and, therefore, the tenant was not freed, by reason of the eviction, from liability under the covenant in the contract of lease . He bound himself to pay rent and it is no excuse that circumstances which he could not control and for which the landlord was not responsible, had happened and prevented his compliance".

In the case under consideration I would also lay particular stress to the fact that the contract was completely executed by the plaintiffs and nothing remained to be performed by the defendants except payment by them of a liquidated sum. In the case of the Arab Bank, Ltd., v. Barclays Bank (Dominion, Colonial and Overseas) (1954) 2 All E.R.226, Lord Morton of Henryton, cited with approval at p.232 what Lord Thankerton said at p.41 in the case of Schering , Ltd., v. Stockholms Enskilda Bank Aktiebolag (1946) 1 All E.R. 36:[*240]

"I am inclined to agree with Sir Arnold McNair’s suggestion (Legal Effects of War (1944), 2nd ed. at p.93), that the distinction between ’executed’ and ’executory’ contracts may not be very helpful in this connection, and that it may be safer to say that the effect of the outbreak of war upon contracts legally affected by it is to abrogate or destroy any subsisting right to further performance other than the right to the payment of a liquidated sum of money, which will be treated as a debt and will survive the outbreak of war..........".

And Lord Morton of Henryton further down at p. 233 cited with approval what Lord Russel of Killowen had said at p.45 in the case of Schering (supra):-

"Thus a contract which is completely executed on one side, and under which nothing remains to be performed except payment to be made by the other of a liquidated sum whether already due, or debitum in praesenti solvendum in future, is unaffected by the outbreak of war ……. and consequently contractual rights and obligations incidental to the ownership of property are not put an end to at common law by the outbreak of war…..".

A very similar to the case under consideration is the case of Takis Grivas v. Heinami Distributors (1963) 2 C.L.R. 442 where the respondents-plaintiffs entered into three [*241] contracts with the appellant-defendant prior to the 4th September, 1961, by which they agreed to sell to the appellant-defendant certain "slot machines" on terms of hire-purchase. The appellant-defendant fell into arrears with certain payments and the respondents-plaintiffs obtained judgment in the District Court of Nicosia for the sum of £1,055.000 mils against the appellant-defendant. On the 4th September, 1961 , the Council of Ministers made an Order under the provisions of section 6(2) of Cap. 151, which affected the legality of the possession and use of such machines. On the contention by the appellant-defendant that this order rendered further performance of the contracts illegal and the payments due under the contracts unenforceable, such intention being based on s. 56(2) of Cap.149 the Supreme Court held:-

"We are unanimously of opinion that the rights of the parties under the contracts in question crystallized before the Ministerial Order to such an extent that the claim of the plaintiffs for the amounts remaining unpaid were still not affected by the Ministerial Order".

In the light of all the authorities cited above, I find that the defendants’ contention that section 56(2) of Cap.

149 applies and that they are discharged from their obligation to pay the money claimed cannot be sustained. Consequently, I give judgment in favour of the plaintiffs as per claim with costs to be assessed by the Registrar and be approved by the Court.

Judgment as per claim with costs.