DOCTRINE OF FRUSTRATION

Abstract:

The Doctrine of Frustration, as outlined in Section 56 of the Indian Contract Act, 1872, renders contracts void due to the impossibility of performance arising after the contract was made and which is not in the hands of the party. The doctrine evolved from English legal principles, with landmark cases such as Atkinson v. Ritchie and Krell v. Henry demonstrating its application. Section 56 outlines this principle, differentiating between initial and subsequent impossibility. The article explains the grounds on which doctrine applies, like destruction of the subject matter, government intervention, etc. The doctrine is distinct from force majeure; the doctrine of frustration comes into play where unexpected events are not covered by a force majeure clause, while force majeure clauses usually list specific events. Both doctrines aim to provide relief from rigid contractual obligations under challenging and unpredictable conditions.

Introduction:

In The Indian Contract Act, 1872, Section 2(h) defines a “contract” as “an agreement enforceable by law.” When two parties outline their promises and duties in a written agreement, and when such written agreement becomes enforceable by law, it qualifies as a contract. If a party does not fulfil its obligations, it constitutes a breach of contract, making that party liable for the failure. The Doctrine of Frustration serves as an exception; it applies when a contract becomes impossible to perform due to unforeseen or insurmountable circumstances, thereby rendering it void.

In such circumstances, the promisee gets an exemption from its obligation, and the promiser also can’t compel him to fulfil his promise. The doctrine of frustration is not specifically defined in the Indian Contract Act, 1872, but Section 56 of the Indian Contract Act, 1872 states that when a contract becomes impossible or by reason of some event that could not be prevented by the promiser, it becomes void.

Evolution of doctrine of frustration

The doctrine of frustration can be traced back to the notion of absolute liability, which was the basis of contracts in England. It stated that a party to a contract must fulfil their legal obligation, which they are deriving from the contract, and could not use a defence of later impossibility of performance.

To balance the effects of absolute liability, the notion of frustration was created. In the case of Atkinson v. Ritchie (1809), the court ruled that loading a British ship at a foreign port became impossible due to the commencement of war between the two nations. Hence, the contract is frustrated.

A significant advancement in the doctrine of frustration occurred with the English court case Krell v. Henry (1903). In this case, a contract was made to hire a flat for the coronation of King Edward VII, but for some reason the coronation was cancelled. It was ruled by the court that the plaintiff could not ask for the rent because the coronation, which was the core basis of the contract, had been cancelled, thus resulting in the contract being frustrated. This case established that the doctrine applies to contracts in which the core primary purpose has been destroyed.

The Doctrine of Frustration

The Doctrine of Frustration can be described as a special case of discharge of contract by an impossibility of performance arising after the contract was made and which is not in the hands of the party to contract.”.

In American law, the concept is known as the Theory of Impossibility and Impracticability, while English law refers to it as the Frustration of Contract and Frustration of Purpose under the Doctrine of Frustration and under Indian Legal System. The term “frustration of contract” is not specifically defined. However, Section 56 of the Indian Contract Act also regulates the agreement to perform impossible acts in India. It allows the court to void a promisor’s promise to perform an act that is impossible to perform. The entire contract will be rendered void when an act becomes impossible or illegal to carry out due to unforeseen circumstances that are beyond the control of the parties.

Frustration should not arise from self-induced circumstances. In the eyes of the law, self-created impossibility is no impossibility and cannot be treated as a ground for frustration of contract. According to Section 56, paragraph 2, the event leading to frustration must be beyond the promisor’s control. In the case of Maritime In National Fish Ltd. v. Ocean Trawlers Ltd., 1935 AC 524, the court held that the essence of frustration is that it should not be due to the act of parties.

Indian position:

Indian law relating to the impossibility of performance is contained in Section 56 of the Act. Section 56 (first paragraph) provides that an agreement to do an impossible act is void. The second paragraph of Section 56 provides that if, after the formation of a contract, any of the following circumstances exist, then the contract becomes void:

1. The act becomes impossible.
2. The act becomes unlawful because of some reason that the promisor could not prevent.

Para 1 of Section 56 talks of initial impossibility. Para 2 of Section 56 talks of subsequent or supervening impossibility. In Satyabrata Ghose v. Mugneeram Bangur 1954, Justice Mukherjee held that the basic idea upon which the doctrine of frustration is based is that of the impossibility of the performance of the contract. The term ‘impossible’ as used in Section 56 includes not only physical impossibility but also practical impossibility.

Further, in the case of Ganga Saran v. Ram Charan, the Supreme Court noted that the doctrine of frustration is essentially a facet of the legal principle related to the discharge of contracts due to subsequent impossibility or illegality after the agreement is made and hence comes within the purview of Section 56 of the Indian Contract.

Grounds for Doctrine of Frustration

1. Destruction of subject matter: When the subject matter of a contract no longer exists in that case, doctrine of frustration.

 In the well-known case of Taylor v. Caldwell, Taylor rented a music hall to host four concerts. But a week before the first concert, the venue was destroyed by fire. When Taylor attempted to sue for breach of contract and seek damages that he suffered, the court found the contract to be frustrated due to the destruction of the hall, which was essential to the agreement.

2. Change of circumstances: A contract is deemed frustrated if circumstances arise that make the performance of the contract impossible in the manner and at the time contemplated.
3. Death or incapacity of party: If a contract specifies that a party must perform personally and the performing party dies before the performance of the contract, then in that case the contract is considered frustrated.
4. Government intervention: A contract will be frustrated when government regulations or administrative actions make it illegal or impossible to fulfil a contract.
5. Non-occurrence of contemplated event: At times the performance is physically possible, but owing to the non-occurrence of contemplated event, the object that the parties had in mind is frustrated.
6. Outbreak of war: If the war has made the performance of the contract either extremely challenging or impossible, the contract will be considered void.
7. Force majeure: when a situation goes beyond the control of the parties, such as terrorist incidents, pandemics (like COVID-19), etc. It might render contract performance either unfeasible or impossible. These situations are classified as force majeure.

Effects of Doctrine of Frustration   

When the doctrine of frustration is applied and a contract’s performance is disrupted, several key effects come into play:

1. Automatic Termination of Contract: Any event that triggers the doctrine of frustration to come into play automatically terminates the contract. Once this termination occurs, the parties are not required to formally rescind the contract. 
2.  Discharge of Further Obligations: Both parties to the contract are released or get relief from any further obligations once the contract is frustrated. 
3. Accrued Obligations Remain Unchanged: Any legal rights or obligations that existed before the contract was frustrated remain intact, and all events that have occurred before continue to have their effect and remain unaffected.

FORCE MAJEURE versus DOCTRINE OF FRUSTRATION

Doctrine of frustration and force majeure are two legal principles that address scenarios where parties get exemption from legal obligations that arise from contracts. Force majeure refers to a clause, often included in contracts, that identifies specific, extraordinary events—such as wars, natural disasters, or government actions—that prevents a party from performing their contractual obligations. For such an event to be covered, parties need to be listed in the contract and be beyond the control of the parties.

In contrast, the doctrine of frustration comes into play where unexpected events are not covered by a force majeure clause, while force majeure clauses usually list specific events that can excuse you from the contractual obligations.

The doctrine of frustration basically prevents a party from fulfilling their legal obligations when unforeseen events make performance impossible, especially when force majeure clauses are not listed in their contract.

Conclusion:

The Indian Contract Act, 1872, establishes that a contract is enforceable by law, and if a party does not fulfil its obligations, it is considered a breach of contract. The doctrine of frustration serves as an exception to it. It states that when a contract becomes impossible to perform, it becomes void.

The Doctrine of Frustration, rooted in English legal traditions and refined through imported court cases, provides a way to handle contracts when unforeseen events make performance impossible. Unlike force majeure, which demands specific events to be listed in the contract, the doctrine of frustration applies where unexpected situations are not covered by such clauses. But more or less both doctrines aim to relieve parties from rigid obligations under tough and unpredictable conditions, promoting justice in contract law.

Frequently Asked Questions (FAQ) on the Doctrine of Frustration

1. What is the Doctrine of Frustration?

The Doctrine of Frustration can be seen as a specific instance where a contract is discharged due to performance becoming impossible after the agreement was made, 

and was not controlled by the party to the contract.

2. Can frustration arise from self-induced circumstances?

Self-created impossibility is no impossibility in the eyes of law and cannot be treated as a ground for frustration of control. The impossibility must be due to external factors beyond the parties’ control, as outlined in Section 56 and reinforced by cases like National Fish Ltd. v. Ocean Trawlers Ltd.

3. Does the Doctrine of Frustration apply to all contracts?

The doctrine applies specifically to contracts where unforeseen events make performance impossible or illegal and which go beyond the control of the party. It does not apply to contracts where performance is merely difficult or inconvenient.

4.What distinguishes the Doctrine of Frustration from force majeure?

Force majeure refers to specific extraordinary events listed in a contract that prevent performance, such as natural disasters, wars, etc. If events are not listed, then it is very difficult to apply force majeure. The doctrine of frustration applies to unforeseen events not covered by such clauses, making performance impossible in a broader sense.

 Author- Shivam Kumar,A student at Lloyd law college