Legal

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This Blog is written by Shivanshi Tripathi from Bharati Vidyapeeth New Law College Pune. Edited by Naina Agarwal.

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INTRODUCTION

In the general context, when we cannot achieve what we want due to any reason, then, there is a feeling of annoyance, which is known as frustration. However, in a contract, this term has been widely used.

The Doctrine of Frustration originated from Roman law. It deals with the impossibility of contract performance or any unsuccessful transactions, which could not be completed due to any reason, which is beyond the control of parties. The object of the Doctrine of Frustration is to find a satisfactory way of allocating the risk of supervening events. An example of this is where a hall has been booked for an event, is destroyed by fire, after the contract has been concluded, but before the date of the event.

According to the general rule of contract, the parties to a contract have to fulfill their obligations under the contract and in case if there is a breach, the party breaching the contract has to compensate the other for the damages caused. However, there is an exception to this rule, which is the Doctrine of Frustration, enshrined under Section 56 of the Indian Contract Act, 1872, which tells us that an agreement to do an impossible act in itself is void.

Section 56 speaks about two impossibilities:

1) Initial impossibility, which deals with “an agreement to do something that is intrinsically impossible is void”. For example, an agreement to bring a person back to life who is dead, being impossible to perform, is void.

2) Subsequent impossibility, which deals with something that occurs after the parties have got into a contract, which makes the performance impossible or unlawful. For example, two persons who have a contract to marry each other but before marriage, one person dies, therefore, the contract will become void.

Grounds for Frustration of Contract

1• Death or incapacity of a party

2• Frustration by virtue of legislation- Where a law came into force after the contract is made which makes the performance of the agreement impossible or unlawful and hence, the agreement becomes void.

3• Frustration due to change of circumstances because of which the main purpose for which the contract was entered has been defeated.

4• Destruction of subject-matter- In the landmark case of Taylor v. Caldwell [1], Taylor entered into a contract with Caldwell, to perform at an event, however on the day of the event, the concert hall burned down, due to which Taylor cannot perform at the event. This directly implies the impossibility of the performance of contract.

5• The intervention of war: When two people from different countries entered into a contract but after that, if both countries proclaim war against each other, then the contract will become void.

In Satyabrata Ghose v. Mugneeram [2], the Supreme Court held that the basic idea upon which Doctrine of Frustration is based is the impossibility of the performance of the contract.

Essentials for the application of Section 56

1) There exists a valid and subsisting contract between the parties (entered between a competent person followed by some consideration).

2) There must be some part of the contract which is yet to be performed & without performing it the ultimate purpose of the contract is not fulfilled.

3) The contract after being entered becomes impossible to perform & therefore, the contract stands void.

SIGNIFICANCE OF DEVELOPMENT OF DOCTRINE OF FRUSTRATION

Under the Doctrine of Frustration, a promisor is relieved of any liability under a contractual obligation in the event of a breach of contract where a party to the agreement is prevented from or unable to perform their obligations due to some unforeseen events, which was beyond their control. Hence, in these circumstances, the law regards the contract as frustrated for all purposes. Thus, both the parties cannot sue each other under this doctrine, and it is unfair to compel the injured party to comply with the terms of the agreement.

After the contract is frustrated, Section 65 of the Contract Act that is the principle of restitution applies and the consideration received must be repaid, i.e. if any party has received any advantage under a frustrated or void agreement, is bound to restore it to the person from whom he had received.

The application of the doctrine questions the sanctity of the contract under certain changed circumstances.

IMPACT OF DOCTRINE OF FRUSTRATION

If the contract is found to be frustrated, the contract is automatically terminated, and the future obligations of both the parties are discharged. All obligations falling due for performance after the frustrating event occurred are discharged. Parties to the contract cannot claim damages for non-performance of these future obligations. This means that the contract is not void ab initio or void from the beginning. It is not required that either party take steps to revoke the contract. Obligations of both parties are terminated immediately on the happening of the event. Accrued obligations, i.e. the expenses that have not yet been paid shall remain, that is the legal rights or obligations already accrued and due before the frustrating event occurred are left undisturbed. Under the Law Reform (Frustrated Contracts) Act, 1943, any money paid pursuant to the contract before the frustrating event occurred is repayable. A party will not be able to retain or recover a sum greater than the amount of money paid or payable at the time of the frustrating event. In addition, when one party has already obtained the benefit before the contract is discharged, that party may be ordered by the court to pay to the other party a sum that the court considers just.

CASE LAWS

Krell v. Henry [3]

The plaintiff leased his apartment in London to the defendant C.S Henry to be used for viewing a royal procession of Edward VII. However, the procession got canceled and the defendant refused to pay the plaintiff the balance of the rent. The court held that the procession was the foundation of the contract, thus, the performance of the defendant becomes impossible and gets frustrated.

Satyabrata Ghose v. Mugneeram Bangur & Co. [4]

Satyabrata the plaintiff, assignee of Bejoy Krishna Roy, sued the defendant along with Bejoy, for wrongfully repudiating the contract of developing the lands which were sold to the plaintiff. The land was temporarily requisitioned by the government and there was also war-like condition. The court held that the actual existence of war condition at the time when it was entered into and the requisition did not affect the fundamental basis of the contract nor did the performance of the contract becomes impossible or illegal by reason.

Pardine v. Jane [5]

Pardine the plaintiff brought an action against the defendant Jane for the rent arrears of the lands that Pardine had leased to Jane. The defendant did not pay it because the land was invaded by the enemy of the king. He was expelled from the land and could not enjoy it. The court held that defendant is bound to pay notwithstanding any accident.

ANALYSIS

The Doctrine of Frustration will apply in the absence of a force majeure clause or where the force majeure suffers from drafting ambiguities. Under the doctrine, unforeseen or unenforceable supervening events make the performance of the contract impossible for no fault of the party concerned, the contract may be frustrated. The Doctrine of Frustration is applicable only in cases of subsequent impossibility, where the contract was impossible to perform from the very beginning and where this doctrine has no application. Moreover, this doctrine will also not applicable in cases where there was a mere delay in performance, and the contract can still be performed. In order to invoke this doctrine parties must show that the performance of the contract has become impossible and the arrangements and conditions have become fundamentally different from those envisaged in the contract.

During the outbreak of deadly coronavirus, all the sectors across the country and the economy of the country are adversely affected. In this context, the force majeure clause and the Doctrine of Frustration will be determining factors to understand the significance of these circumstances and these two will play a very crucial role in the non-fulfillment of the performance of contracts.

CONCLUSION

It was very interesting to write about the development of the Doctrine of Frustration and events which lead to such enforcement. The definition of frustration is given under Section 57(2), “A contract to do an act which, after the contract is made, becomes impossible or by the reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful”. For frustration to apply it is not necessary that the supervening event is unforeseen, unexpected, or not contemplated by the parties. All that is necessary that the party has made no provisions for such future events in their contract.

There are only certain events where the Doctrine of Frustration can be applied. Usually, the term applies when there a risk involved in the performance of contract, making it impossible or frustrated through no fault of the parties involved. When this occurs parties are released from their obligation to perform the contract automatically.

Lastly, I would like to end with a legal maxim, based on the Doctrine of Frustration, i.e. “les non cogit ad impossibilia”, which means a man cannot be compelled by law to do what he cannot possibly perform.

REFERENCES

(1) Taylor v. Caldwell, (1863) 3 B & S 826.

(2) Satyabrata Ghose v. Mugneeram, 1954 AIR 44.

(3) Krell v. Henry, [1903] 2 KB 740.

(4) Id at 2.

(5) Pardine v. Jane, [1647] EWHC KB J5.