ABSTRACT

This article explores fundamental concepts within contract law, namely performance, impossibility of performance, and frustration. It commences with an introduction to contracts and the Indian Contract Act, providing readers with a foundational understanding. The discussion then progresses to an in-depth examination of contract performance, including various types of performance, elucidated through notable case laws. Subsequently, the article delves into the intricacies of impossibility of contract performance and frustration, drawing upon relevant case laws to illustrate key principles. This section offers insights into how unforeseen events can impact contractual obligations and lead to frustration or impossibility of performance. The article further explores the grounds of frustration, shedding light on the circumstances under which a contract may be considered frustrated. This comprehensive discussion equips readers with a nuanced understanding of the legal principles governing contract law. Lastly, the article summarizes its findings and invites readers to delve deeper into the subject matter for a more comprehensive understanding. A list of references consulted is provided, offering readers the opportunity for further exploration and study. Readers are encouraged to engage with the article to enhance their knowledge and comprehension of the concepts of possibility, impossibility, and frustration within contract law.Top of Form

Keywords

Performance, Impossibility of performance, Frustration, Contract Law, Indian Contract Act

INTRODUCTION

Contracts are the foundation of legal relationships, defining rights and obligations between parties in various transactions. Regulated by the Indian Contract Act of 1872, these agreements establish foundational principles governing their creation, implementation, and enforcement. Contract performance entails the fulfillment of agreed-upon obligations, while instances of impossibility arise when unforeseen circumstances render performance unfeasible. The doctrine of frustration offers recourse when events fundamentally disrupt a contract, making performance impractical or substantially different from the original intent. A clear understanding of these concepts is imperative for effectively navigating legal frameworks and upholding fairness in contractual engagements.

WHAT IS A CONTRACT

A contract is a legally binding agreement between two or more parties that establishes obligations enforceable by law. It can be documented in writing, orally agreed upon, or inferred from the conduct of the parties involved. Contracts plays an important role in both business and personal transactions, offering clarity and assurance regarding the rights and duties of each party. All contracts are agreements, but not all agreements are contracts. For a contract to be enforceable, it must meet certain conditions, which are discussed as follows:

1. Valid Offer and Acceptance: There must be a genuine offer made by one party and accepted by the other party without any conditions or alterations.

2. Unconditional and Communicated: The offer and acceptance must be clear, definite, and effectively communicated to the other party.

3. Intention to Enter into Legal Relationship: Both parties must demonstrate an intention to create legal relations by entering into the contract.

4. Lawful Consideration: The contract must involve lawful consideration, meaning that the exchange must not be illegal, immoral, or against public policy.

5. Free Consent: Each party must enter into the contract voluntarily and without any coercion, undue influence, fraud, misrepresentation, or mistake.

6. Certainty and Possibility of Performance: The terms of the contract must be sufficiently certain and capable of being performed.

7. Consideration: There must be some form of consideration exchanged between the parties, representing something of value given by each party.

8. Competent Parties: The parties entering into the contract must be legally competent, meaning they must have the legal capacity to do so.

9. Legal Acceptance: The contract must be accepted in a manner recognized by law, which could include verbal agreement, written agreement, or conduct indicating acceptance.

Failure to meet any of these criteria may result in the contract being void or unenforceable.

Section 2 (h) of the Indian Contract Act, 1872, states that an agreement enforceable by law is a contract.

Section 10 of the Indian Contract Act, 1872, states that all agreements are contracts if they meet certain conditions.

WHAT IS THE INDIAN CONTRACT ACT, 1872

The Indian Contract Act, enacted on April 25, 1872, and enforced from September 1, 1872, is the foundational legislation governing contracts in India. This act establishes a comprehensive framework for the formation, execution, and enforcement of contracts. The act defines various types of contracts, including contracts of sale, agency, partnership, and bailment, while specifying the rights, duties, and remedies available to parties in contractual relationships. Applicable across all states in India, with the exception of Jammu and Kashmir, the Indian Contract Act offers essential guidance and clarity in navigating contractual matters within the Indian legal system.

WHAT IS PERFORMANCE OF CONTRACT

Performance of contract means fulfilling the obligations which the parties were supposed to perform according to the contract they are into. Performance occurs when both of the parties does their part as laid out in the contract. Performance is executing an action[1]. For a contract to be valid, both the parties need to carry out the promises made by them in the contract.

TYPES OF PERFORMANCE

Three types of performances might occur in the contract, which are as follows:

Actual Performance: Actual performance occurs when both parties have fulfilled their respective obligations as outlined in the contract, and the terms of the contract have been executed along with the agreed-upon consideration. This fulfillment results in the discharge of the contract, as both parties have satisfactorily performed their duties or obligations as specified.

In the case of Cutter v. Powell[2], the defendant entered into a contract with a sailor, agreeing to pay him thirty guineas for serving as a second mate aboard a ship until it reached Liverpool. This compensation was notably higher than the standard wages for sailors, which typically followed a weekly payment structure. Tragically, the sailor fulfilled his duties but passed away before the ship reached its destination. Subsequently, the sailor’s estate pursued legal action, seeking his wages under the contract or, alternatively, under the quantum meruit principle of restitution. However, the court ruled in favour of the defendant. It determined that the contract specified payment of thirty guineas only upon the completion of the entire voyage, a condition that was not met due to the sailor’s untimely demise. Therefore, the obligation to pay never materialized. The contract’s provision of higher compensation was contingent upon the sailor completing the entire job, with the understanding that he would receive nothing if this condition was not met. Consequently, the sailor’s estate could not rely on quantum meruit to claim compensation under these circumstances.

2. Substantial Performance: This notion of performance comes into play when one party has fulfilled the majority of their contractual obligations, albeit with minor deficiencies. Despite these imperfections, if the primary purpose of the contract has been achieved, the parties are generally permitted to uphold the benefits of the agreement.

In the landmark case of Hoenig v. Isaacs (1952)[3], Hoenig entered into a contractual agreement to refurbish Isaac’s apartment for a fixed sum of £750. As the project progressed, Hoenig encountered unforeseen expenses that surpassed the agreed-upon budget. Faced with potential financial loss if he were to complete the remaining work, Hoenig made the decision to conclude the project prematurely, leaving some paintwork unfinished on the door. Subsequently, Hoenig pursued legal action against Isaac, asserting that he had substantially fulfilled his obligations under the contract and was entitled to the remaining balance. The court ultimately ruled in favor of Hoenig, recognizing his substantial performance under the contract. However, acknowledging the incomplete paintwork as a deviation from the agreed-upon terms, the court opted to reduce the amount Hoenig was to receive accordingly.

3. Breach of Contract: When either party fails to fulfill their obligations or duties as outlined in the contract, or when the performance, though substantial, fails to fulfill the fundamental purpose of the contract, a situation of non-performance or partial performance arises[4].

In the case of Planche v. Colburn[5], the plaintiff was contracted to perform in a theatre for a specified duration. However, prior to the performance, the plaintiff fell ill, prompting the defendant, who served as the theatre manager, to enlist another actor in the plaintiff’s stead. Subsequently, the plaintiff initiated legal proceedings against the defendant, alleging a breach of contract. The court ultimately ruled in favour of the defendant, asserting that the plaintiff’s illness did not absolve him from fulfilling his contractual obligations, as he was still capable of performing. By replacing the plaintiff with another actor, the defendant acted within reason to ensure the continuation of the performance as agreed upon in the contract. Therefore, the court deemed the defendant’s actions justified, and no breach of contract occurred.Top of Form

WHAT IS IMPOSSIBILITY OF PERFORMANCE OF CONTRACT

This situation refers to when it becomes impossible for either party to fulfill their obligations under the contract. This impossibility may arise due to various factors such as unforeseen circumstances, acts of nature, or changes in circumstances that render the contract legally unenforceable.

Section 56 of the Indian contract act 1872, states that “an agreement to do an act impossible in itself is void.”[6]

TYPES OF PERFORMANCE IMPOSSIBILITIES

The types of performance impossibilities that mainly occur are as follows.

Initial Impossibility: This concept pertains to an agreement to undertake an act that is impossible to perform from the outset, regardless of whether the parties were aware of this impossibility. In essence, it involves committing to an action that is inherently unachievable from the very beginning of the contract.

In the case of Taylor v. Caldwell[7], the defendant owned a music hall that the plaintiff had rented for an hosting event. The unforeseen destruction of the hall by fire rendered it impossible for either party to fulfill their obligations under the contract. The court ruled in favor of the defendant, acknowledging that the destruction of the music hall was beyond their control and not due to any fault on their part. This case set a precedent establishing the doctrine of impossibility, recognizing that when unforeseeable events make performance of a contract genuinely impossible, the affected party may be excused from their contractual obligations.

Subsequent Impossibility: This situation emerges when circumstances arise that make it impossible for either party to fulfil their contractual obligations. Initially, it might have been feasible for both parties to carry out their contractual duties. However, due to subsequent events or changes in circumstances, fulfilling these duties becomes unattainable, rendering the performance of the contract impracticable.

In the case of Krell v. Henry[8], he defendant and the plaintiff entered into a contract to lease a flat for two days specifically to witness the coronation procession of King Edward VII. The agreed-upon payment was to be made in two installments. However, the coronation procession was unexpectedly postponed due to the illness of King Edward VII, rendering the purpose of the contract void. Consequently, the plaintiff sued the defendant for refusing to pay the second installment. The court ultimately ruled in favour of the defendant, recognizing that the unforeseen event of King Edward’s illness frustrated the purpose of the contract. As a result, both parties were discharged from their obligations under the contract, and the defendant was not obligated to pay the second installment. This case illustrates the legal principle that when an unforeseen event frustrates the purpose of a contract, the parties are excused from further performance.Top of Form

WHAT IS FRUSTRATION OF CONTRACT

A contract that becomes unlawful or impossible to fulfill after it is made is termed as frustration of contract. It’s crucial to emphasize that the doctrine of frustration is applied with precision by courts, and its application necessitates a thorough examination of the particular circumstances surrounding each case. Parties intending to invoke frustration as a defence must be ready to illustrate that the event in question was unforeseen and fundamentally transformed the essence of the contract. This demands a detailed analysis of the contract terms and the impact of the unforeseen event on the parties’ ability to fulfill their obligations.

Section 56 of the Indian Contract Act, 1872 addresses the doctrine of frustration and impossibility of contract. It stipulates that a contract becomes void if it becomes impossible for either party to fulfill their contractual obligations, or if it is frustrated by an unforeseen event that was not contemplated by the parties at the time of entering into the contract. This provision underscores the principle that when circumstances arise that render performance of the contract impossible or fundamentally different from what was initially envisioned, the contract is deemed void.

In the case of Satyabrata Ghose v. Mugneeram Bangur & Company[9], the plaintiff and the defendant had entered into a contract for the supply of goods within a specific timeframe. However, an unforeseen delay in obtaining government approval for export resulted in the failure to meet the deadline. This scenario prompted the Supreme Court of India to provide crucial clarification on the doctrine of frustration as delineated in the Indian Contract Act, 1872. Frustration occurs when an unforeseen event fundamentally alters the nature of the contract beyond the control of the parties, and it is not caused by the fault of either party. In such instances, if frustration is established, the contract is automatically discharged, thereby relieving both parties of their contractual obligations. This judgment serves to protect parties from liability in situations where unforeseen events render performance impracticable.Top of Form

In the case of Tsakiroglou & Co. Ltd v. Noblee & Thomsen[10], the plaintiff and the defendant had entered into a contract for the sale of groundnuts, with the agreed transportation route being via the Suez Canal. However, the occurrence of the Suez Crisis in 1956 resulted in the closure of the canal to shipping, making the agreed-upon route impracticable. Upon consideration, the court determined that the closure of the Suez Canal constituted an unforeseen event that fundamentally frustrated the purpose of the contract. Consequently, both parties were relieved of their contractual obligations as the contract had become impossible to perform due to circumstances beyond their control. This ruling underscore the application of the doctrine of frustration, where unforeseen events render contractual performance impracticable, thereby releasing parties from their obligations.Bottom of Form

GROUNDS FOR FRUSTRATION

It is challenging to provide a definitive list delineating when the doctrine of frustration applies and when it does not, as the law in this area is continually evolving. However, certain well-established situations recognized by the courts where the doctrine of frustration applies can be discussed. These situations often involve unforeseen events that fundamentally alter the nature of the contract, rendering performance impossible or radically different from what was initially envisioned. Examples of such situations include:

Death or Incapacity of party: It refers to a situation where a party to a contract may be excused from fulfilling their duties if their performance is dependent on their personal existence. This concept applies specifically when the party involved is an individual, rather than an organization or legal entity. Thus, if the contract requires personal performance by an individual, and circumstances arise rendering them incapable of fulfilling their contractual obligations, they may be relieved from liability.

In the case of Robinson v. Davison[11], the plaintiff contracted with the defendant’s wife for her to play the piano at a concert on a specified date. However, due to unforeseen illness, she became unfit to perform on the scheduled date. The illness was communicated to the plaintiffs on the morning of the performance, leading to delays and financial losses for the plaintiffs. Subsequently, the plaintiffs filed a claim for breach of contract. However, the court dismissed the plaintiffs’ claim, ruling that the contract was frustrated due to the wife’s illness, for which she was not at fault. The nature of the contract necessitated personal performance, and the wife’s incapacity resulting from illness terminated the contract. Therefore, the defendant was not liable for breach of contract under these circumstances.[12]

Government, Legislative and Administrative Interventions: It refers to the situation where a contract may be considered frustrated if, at the time of its formation, performance was feasible or legal, but subsequently became impracticable or unlawful due to legislative or executive intervention.

In the case of Man Singh v. Khazan Singh[13], the parties entered into an agreement for the sale of trees from a specific forest. However, subsequent to the formation of the contract, the Government of Rajasthan issued an order prohibiting the cutting of trees in that particular area. As a result, the contract became impossible to perform due to the governmental order rendering it unlawful. Due to these circumstances, the court held that the contract was frustrated because it became unlawful after its formation due to the governmental intervention. Consequently, the parties were relieved of their obligations under the contract. This case exemplifies how legislative or executive actions can lead to the frustration of contracts when they render performance impossible or illegal after the contract has been formed.

Destruction of subject matter: The doctrine of frustration applies when the subject matter of the contract has ceased to exist, rendering performance impossible. The subject matter of a contract refers to the essential element without which the contract cannot be fulfilled. [14]

In the case of Taylor v. Caldwell, which was previously discussed under the concept of impossibility of contract, we can observe how this principle applies. In this case, the contract involved the use of a music hall for hosting events. However, before the performances could take place, the music hall was destroyed by fire, causing the subject matter of the contract to cease to exist. As a result, the contract was frustrated, as it became impossible to perform due to the absence of the essential subject matter, i.e. the music hall. Therefore, Taylor v. Caldwell serves as a relevant example of the application of the doctrine of frustration in situations where the subject matter of the contract becomes non-existent, leading to the impossibility of performance.

CONCLUSION

The concept of contract law, as governed by the Indian Contract Act, 1872, holds immense significance in both personal and business domains, serving as the cornerstone of legal relationships. Contracts, being legally binding agreements, offer clarity and assurance regarding the rights and duties of parties engaged in transactions. Understanding the fundamental elements of a valid contract, such as offer, acceptance, consideration, and legal capacity, are essential for ensuring enforceability and accountability. Performance of contracts, whether through actual fulfillment, substantial performance, or breach, is pivotal in determining the adherence to contractual obligations. Nonetheless, unforeseen circumstances may emerge, rendering performance impossible or impracticable, thereby invoking the doctrine of frustration. Recognized under Section 56 of the Indian Contract Act, 1872, frustration of contracts provides relief to parties when unforeseen events fundamentally alter the essence of the contract, making performance either impossible or significantly different from the original terms envisioned. In essence, contracts serve as the bedrock of legal relationships, furnishing certainty and predictability in transactions while furnishing mechanisms for dispute resolution and safeguarding the rights of parties involved. The Indian Contract Act, 1872, furnishes a comprehensive framework for the formation, execution, and enforcement of contracts, thereby ensuring fairness and equity in contractual dealings.

REFERENCES

[1] https://www.merriam-webster.com/dictionary/performance

[2] 101 ER 573

[3] (1952) 2 AII ER 176

[4] https://unacademy.com/content/ca-foundation/study-material/business-correspondence/performance-of- contract/#:~:text=yours%20is%20effective

[5] 172 ER 876

[6] https://www.indiacode.nic.in/bitstream/123456789/2187/2/A187209.pdf

[7] 122 ER 309

[8] [1903] 2 KB 740

[9] 1954 AIR 44

[10] [1962] A.C. 93

[11] LR 6 Exch 269

[12] https://www.legalserviceindia.com/legal/article-7353-impossibility-of-performance-and-frustration-of-contract.html

[13] AIR 1961 RAJ 277

[14] https://blog.ipleaders.in/impossibility-performance-frustration-contract/#Initial_impossibility_S56

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