THE DOCTRINE OF FRUSTRATION

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This article is written by Aditya Gautam of LL.B (Hons.) of 3rd year of University of Lucknow, an intern under Legal Vidhiya

ABSTRACT

This article explores the Doctrine of Frustration in the Indian Contract Act of 1872, focusing on its origins, significance, and application. Section 56 addresses unforeseen events rendering contract performance impossible, providing a legal framework for discharge. Unlike standard contract norms, this doctrine acts as an exception, relieving parties from duties without assigning blame. The article discusses the historical genesis, conditions for demonstrating frustration, and key case laws like Krell v. Henry. It acknowledges limitations, emphasizing genuine impossibility and absence of fault. In conclusion, the Doctrine of Frustration ensures fairness in contract law amid unforeseen challenges.

KEYWORDS

Doctrine of Frustration, Indian Contract Act of 1872, Section 56, Contract law, Unforeseen events, Legal framework, Contract discharge, Exception, Case laws, Conditions for frustration, Limitations, Fairness, Legal certainty, Equity and Justice.

INTRODUCTION

The formation of a contract involves a communicative process between individuals, culminating in a legal agreement that establishes enforceable obligations. Unforeseen or supervening events, those that are unexpected or cannot be predicted in advance by either party, have the potential to disrupt the execution of contractual responsibilities, leading to a discharge of the parties from their obligations.[1]

When parties enter into contracts, they assume contractual obligations to fulfill the terms of the agreement. However, the performance of these obligations is often hindered by unforeseen circumstances, rendering the contract frustrating. The term “frustration” is invoked when the fulfillment of a contract becomes impossible due to unexpected events, representing a unique circumstance of contract discharge due to the inability to perform.[2]

The term “frustration,” in its literal sense, refers to “a sensation of dissatisfaction induced by being unable to achieve anything.”[3] However, in legal parlance, it commonly denotes the termination or failure of contracts. The concept of frustration comes into play in exceptional circumstances where the fulfilment of a contract is deemed impossible. According to Black’s Law Dictionary[4], when the primary purpose of a party is substantially thwarted due to unforeseen changed circumstances, the party’s obligations are discharged, leading to the dissolution of the contract.

The legal principle “les non cogit ad impossibilia” asserts that no legal system or regulation can compel an individual to perform an act that appears impossible due to specific circumstances.[5] This principle finds expression in Section 56 of the Indian Contract Act, 1872.[6] In the Indian legal context, the term “frustration of the contract’s practical aim” is used to provide a nuanced definition to this theory. This theory serves as a legal mechanism to grant justice by offering a specific exception in certain circumstances, ensuring fairness and equity in contractual relationships.

This article delves into the origin of the phrase “Doctrine of Frustration” within the Indian Contract Act[7], emphasizing its significance in the legal system. The author explores the peculiar position occupied by the Doctrine of Frustration under Section 56 of the Indian Contract Act, shedding light on its historical development, contemporary relevance, and practical applicability in modern contractual scenarios. The discussion aims to provide a comprehensive understanding of why the Doctrine of Frustration is essential in navigating the complexities of contract law in India.[8]

WHAT IS THE DOCTRINE OF FRUSTRATION?

The Doctrine of Frustration is a pivotal concept in contract law, encapsulating the idea of hindrance or prevention of the attainment of a contractual goal. As per the Black Law dictionary, frustration refers to the prevention or hindering of the achievement of a specific objective, particularly in the context of contractual performance.

In the realm of contracts, the term “frustration” goes beyond its common layperson connotations of being defeated or exasperated. It is a legal term used to describe transactions that could not be successfully completed due to unforeseen reasons. Contrary to the general rule in contracts, where parties are obligated to fulfill their contractual obligations and compensate for breaches, the Doctrine of Frustration serves as an exception to this rule.

Indian courts have emphasized that the term ‘frustration of the contract’ is more precisely described as the ‘frustration of the adventure or of the business or practical objective of the contract.[9] This concept serves as a mechanism to balance the general rule of absolute contracts with specific exceptions that fairness demands under certain conditions.[10]

Fundamentally, the Doctrine of Frustration revolves around the impossibility of performing a contract by the involved parties. It signifies that the contract becomes inexecutable due to incidents beyond the control of the contracting parties. This frustration can manifest in various forms, making the performance complicated, impossible, or even illegal. It is triggered by unforeseen and uncontrollable events that render the contractual obligations impracticable. In essence, the Doctrine of Frustration provides a legal framework to address situations where external factors make it unfeasible for parties to fulfill their contractual commitments.

SIGNIFICANCE

The Indian Contract Act of 1872 addresses the notion of frustration in Section 56. The terms of the agreement or the duties that each party must perform are outlined in the contract. An agreement to perform an act that isn’t feasible on its own isn’t valid. Consequently, because to unanticipated events, the parties are unable to fulfil the terms of the contract since doing so would be illegal or impossible. Under such circumstances, the agreement is nullified.

Both parties to the contract should be free from any wrongdoing or fault that could undermine the agreement and cause them to fail to fulfil their obligations under it. The theory of frustration shall be applied where there is no fault or wrongdoing on the part of any party in performing the contract since the contract cannot be performed because of unanticipated circumstances. The legal impact of frustration is independent of the parties’ understanding of the incident, their viewpoint, or even their purpose.

THE DOCTRINE OF FRUSTRATION UNDER THE INDIAN CONTRACT ACT

The Indian Contract Act of 1872 does not explicitly define the term “frustration of contract,” but it addresses the Agreement to Perform Impossible Acts through Section 56. This section provides the legal framework for situations involving the impossibility of performing certain acts in India. A court in India has the authority to nullify a promisor’s commitment to carry out an impractical act. Contract frustration is recognized when actions following the establishment of the contract become impossible or when a party fails to fulfill obligations due to unforeseeable circumstances.

KEY POINTS FROM SECTION 56:

1. Agreement to do Impossibility:

   – Section 56 states that an agreement to do an impossibility is inherently void.

   – If a contract to perform an act becomes impossible or unlawful due to uncontrollable events, the entire contract is void.

2. Illustrative Scenario:

   – Consider a contract between A and B, where A is to receive cargo at a foreign port. If A’s government declares war on the nation where the port is located, rendering the contract’s performance impossible, frustration of the contract occurs.

Satyabrata Ghose v. Mugneeram Bangur and Co.[11]:

– In this case, the doctrine of frustration is elaborated in the Indian legal context.

– Justice Mukherjee draws a parallel between the first paragraph of Section 56 and common law principles, asserting that the obligation to perform is discharged due to inherent impossibility.

Syed Khursheed Ali v. State of Orissa[12]:

 – The Supreme Court, in this case, defined the meaning of the Doctrine of Frustration.

 – It was clarified that Section 56 is invoked in the event of a subsequent unforeseeable incident for which neither party is accountable.

Section 56 of the Indian Contract Act acknowledges and provides a legal remedy for situations where the performance of a contract becomes impossible due to unforeseen events beyond the control of the contracting parties. The doctrine of frustration, as interpreted by the courts, serves as a crucial mechanism to address inherent impossibility and unforeseeable incidents in the Indian legal landscape.

THE FRUSTRATION DOCTRINE’S GENESIS

The idea behind this doctrine was first expressed in a ruling made by the Queen’s Bench in the Taylor v. Caldwell case.[13] Attempting to establish a novel definition of “implied term” or “implied condition,” Justice Blackburn explained in this case that in contracts where performance is dependent on the continuous existence of a particular person or thing, it is implied that the impossibility of performance owing to the person’s or thing’s death will absolve the performance.[14]

EVOLUTION

Roman law is where the notion of frustration originated, and English rule is closely related to it. It is relevant in cases when the parties were let go because the item was destroyed or the intended outcome could not be achieved.

A contract that has already been made should not be affected by events that occur later, according to the ruling in the English case of Paradine v. Jane[15]. The English Rule is not applicable to this notion. The theory of frustration developed when the defendant bears no culpability and the English Rule turns unjust and irrational. This theory was then included as a remedy in contract law.

INDIAN LEGAL FRAMEWORK ON FRUSTRATION OF CONTRACT

The Indian legal framework addressing the impossibility of performing certain acts in contracts is embodied in Section 56 of the Indian Contract Act of 1872[16]. This section renders void any promise to undertake an impossible act by a promisor, as decreed by the courts in India. The frustration of a contract occurs when, after its formation, the performance becomes impossible or when one party fails to fulfil its obligations due to unforeseen circumstances[17].

For instance, if Party A contracts with Party B to receive cargo at a foreign port, and subsequently, A’s government declares war on the country where the port is situated, the unforeseen circumstances would lead to the frustration of the contract.

In the legal case of Satyabrata Ghose v. Mugneeram Bangur and Co.[18], the doctrine of frustration within the Indian legal context is elucidated. Justice Mukherjee draws a parallel between the first paragraph of Section 56 and common law principles, asserting that the obligation to perform is discharged when inherent impossibility arises.

Section 56’s second paragraph delves into the interpretation of “impossibility” and the occurrence of unforeseen incidents that the promisor could not have prevented, such as situations involving illegality. Additionally, it touches upon self-induced frustration, where the performance becomes difficult due to the party’s own fault. An example is illustrated in section 56(e), where if Party A contracts with Party B to perform at B’s theatre for the next six months, and A falls ill on several occasions, the contract for those specific occasions becomes void. Thus, the term “impossible” extends beyond its literal meaning, allowing for interpretation based on the specific context.

It is crucial to note that agreements involving inherently impossible acts, such as A agreeing with B to find treasure through the use of magic, are considered void ab initio, as they are impossible to perform. This underscores the comprehensive nature of Section 56 in addressing various aspects of contract frustration in the Indian legal landscape.

CONDITIONS REQUIRED TO DEMONSTRATE FRUSTRATION OF CONTRACT 

The contract can be proven to be frustrated if the following requirements are met:

  • The existence of a legally binding contract;
  • The contract has not yet been fulfilled;
  • The contract’s performance has become unfeasible;
  • The impossibility arose as a result of an unforeseeable incident for both parties.

REASONS FOR THE DOCTRINE OF FRUSTRATION

The aforementioned are the causes for the  frustration of the contract:

PERFORMANCE IMPOSSIBILITY

The doctrine of frustration arises from the inability to complete a task. However, the principle is not restricted to physical impossibilities.

GROUNDS OF FRUSTRATION IN CONTRACTS

1. Destruction of Subject-Matter:

  • Occurs when the actual subject-matter of the contract ceases to exist.
  • If the specific object or property that is central to the contract is destroyed, the contract may be frustrated.

2. Change of Circumstances:

  • Arises when unforeseen circumstances emerge, making the contract’s performance impossible as initially envisioned.
  • Changes in external factors that significantly impact the feasibility of contract execution fall under this category.

3. Non-Occurrence of Contemplated Event:

  • Refers to situations where a specific event, anticipated by both parties as a fundamental aspect of the contract, fails to occur.
  • If the non-occurrence of this event fundamentally undermines the purpose and value of the contract, frustration may be invoked.

4. Death or Incapacity of Party:

  • The death or incapacity of a party, especially when personal performance is integral to the contract, leads to the termination of the contract.
  • Contracts requiring specific skills or personal involvement are affected when the responsible party is no longer able to fulfill their role.

5. Government, Administrative or Legislative Intervention:

  • Legislative or administrative interventions that directly impact the fulfillment of the contract can lead to its dissolution.
  • When the conditions for performing the contract are altered by government actions, frustration may be invoked.

6. Intervention of War:

  • The occurrence of war or warlike conditions during the performance of the contract can pose challenging questions.
  • War-related disruptions may render the execution of the contract difficult or impossible, leading to frustration.

LIMITATION OF THE DOCTRINE OF FRUSTRATION

The doctrine of frustration, while providing an essential legal remedy in certain situations, is not without its limitations. One notable limitation lies in the recognition that alterations in circumstances, though significant, may not always discharge the parties from performing the contract. The following points elaborate on this limitation:

1. Delay or Change in Contract:

  • The doctrine may not be automatically invoked in cases of mere delay or changes in the contract.
  • Not every alteration in circumstances, even if substantial, warrants the discharge of contractual obligations.

2. Universal Expectation:

  • Contracts are often based on the tacit understanding that certain changes or delays, which are common to all human beings, do not render the contract impossible to perform.
  • It cannot be presumed that every contract is implicitly made with the condition that any change in circumstances would discharge the parties from their obligations.

3. Reasonable Expectations:

  • The doctrine of frustration is generally applied when unforeseen events make the performance of the contract radically different from what was initially contemplated.
  • Courts assess whether the change in circumstances is so severe and beyond what the parties could have reasonably anticipated that it frustrates the purpose of the contract.

4. Impractical or Inconvenient Performance:

  • Mere impracticality or inconvenience in performing the contract may not be sufficient grounds for invoking frustration.
  • The courts often distinguish between situations where performance becomes genuinely impossible and cases where it remains possible but becomes more challenging or inconvenient.

ANALYSIS OF SELECTED CASE LAWS ON THE DOCTRINE OF FRUSTRATION

1. Krell v. Henry, (1903) 2 KB 740:

Held that the non-happening of the coronation frustrated the object of the contract, and the plaintiff was not entitled to recover the balance of the rent.

2. Satyabrata Ghose v. Mugneeram Bangur & Ors., AIR 1954 SC 44:

Established that even if the performance is not literally impossible but impracticable and useless from the viewpoint of the contract’s object, frustration can be invoked.

3. Raja Dhruv Dev Chand v. Raja Harmohinder Singh, (1968) 3 SCR 339:

Clarified that the doctrine of frustration may not apply to lease deeds, as evidenced by the rights and obligations enshrined in a lease deed.

4. Industrial Finance Corporation v. Thletdc, Anr & Naonroasr, E Appeal (Civil) 3239 of 2002:

Emphasized that the doctrine of frustration does not apply when the principal debtor’s failure to pay triggers the guarantee, as the Contract of Guarantee is independent and not dependent on the Nationalisation Act.

5. T. Lakshmipathi and Others v. P. Nithyananda Reddy, 2003 SCC 5 150:

Highlighted that the doctrine of frustration, belonging to the law of contracts, does not apply to leases where both privity of contract and privity of estate are created.

6. CIT Group Inc v. Transclear SA., (2008) Bus LR 1729:

Ruled that when delivery remains physically and legally possible but the seller’s supplier chooses not to make goods available, the contract is not frustrated.

7. Nirmala Anand v. Advent Corporation Pvt. Ltd., 2002 SC 2290:

Stated that unless competent authorities have rejected applications for consent or sanction, making performance impossible under Section 56, relief cannot be refused.

8. Mary v. State Of Kerala And Others, 2013 AIR SC 6082:

Applied the doctrine of frustration to a contract that did not provide consequences for non-performance, relieving parties from liability.

9. Ramanand & ors v. Dr.Girish Soni & Ors., RC. Rev. 44/2017:

Held that the doctrine of frustration under Section 56 does not apply to lease agreements, aligning with precedents that limit its applicability to executory contracts.

10. National Agricultural Cooperative Marketing Federation Of India v. Alimenta S.A., 2020 SCC ONLINE SC 381:

Importantly recognized the doctrine of frustration, allowing its application when the real object of the contract was frustrated, justifying the implication of requisite terms.

CONCLUSION ON THE DOCTRINE OF FRUSTRATION

The Doctrine of Frustration emerges as a fundamental principle within contract law, offering a critical remedy when unanticipated events disrupt the performance of a contract. Section 56 of the Indian Contract Act serves as the codified framework for this doctrine, providing clarity and legal structure.

Frustration is rooted in unforeseen events that render contract fulfillment impossible. This legal doctrine challenges the conventional sanctity of contracts, recognizing that dynamically changed circumstances may render performance impracticable. Unlike the typical norms of contract law that often entail compensation for breach, the Doctrine of Frustration operates as an exception. Parties are relieved of contractual duties, rendering the contract unenforceable without assigning blame.

The codification of the doctrine in Section 56 provides a clear legal foundation, eliminating the need for evolving and applying theories. This codification streamlines the determination of the doctrine’s applicability. Frustration is triggered by supervening events beyond the parties’ control, underscoring their unexpected nature. Importantly, the doctrine assumes no wrongdoing on the parties’ part, preventing compelled compensation when frustration is genuinely applicable.

Courts carefully consider various factors and circumstances in determining the applicability of Section 56. These include foreseeability of the event, genuine impossibility of performance, and the absence of fault on the parties’ part. At its core, the Doctrine of Frustration upholds principles of equity and fairness, offering relief when adherence to contractual obligations becomes unfeasible due to unforeseen events. The doctrine seeks to balance the interests of both parties in light of changed circumstances.

In contrast to English law, which has seen the evolution of theories justifying frustration in specific circumstances, Indian law has streamlined and clarified the application of the doctrine through codification, enhancing legal certainty.

In summation, the Doctrine of Frustration plays a pivotal role in maintaining equilibrium and justice in contract law. As a foundational element of contract jurisprudence, it ensures that parties are not unduly burdened when confronted with genuinely unforeseeable and unavoidable challenges, providing a principled and comprehensive approach to address complexities inherent in such situations.

REFERENCES

[1] Satyabrata Ghose v Mugneeram Bangur and Co AIR 1954 SC 44 [14]; Dhruv Dev Chand v Harmohinder Singh AIR 1968 SC 1024 [6]

[2] Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC 154.

[3] Merriam-Webster, Frustration, Merriam-Webster.com (Feb.12, 2022, 10:10 AM), https://www.merriam-webster.com/dictionary/frustration.

[4] Ayush Goyal, Doctrine of Frustration of Contract, 3 Pen Acclaims 1, 2 (2018), http://www.penacclaims.com/wp-content/uploads/2018/09/Ayush-Goyal-New.pdf. 

[5] Sridevi Krishna, Invoking ‘Force Majeure’ Clause For Nonperformance Of Contract- A Predicament Created By The Pandemic, 7. the law brigade publishers, 1, 2(2021), https://thelawbrigade.com/wp-content/uploads/2021/11/Sridevi-Krishna-JLSR.pdf. 

[6] The Indian Contract Act, 1872, No. 9, § 56.

[7] https://en.wikipedia.org/wiki/Indian_Contract_Act,_1872

[8] Supra note 2, at 1.

[9] Ram Kumar v PC Roy and Co Ltd AIR 1952 Cal 335 [23]; Andhra Pradesh Mineral Development Corporation Ltd v Pottem Brothers 2016 (3) ALT 297 [69]

[10] HirjiMulji v Cheong Yue Steamship [1926] A O 497, 510 (Lord Sumner), affdNirmal Lifestyle Ltd v Tulip Hospitality Services Ltd, Arbitration Petition No 550, 864 and 891 of 2013 [14] (Bombay High Court, 27 November 2013).

[11] AIR 1954 SC 44 (14)

[12] W.P.(C) 9119 Of 2003

[13] Taylor vs. Caldwell, [1863] 3 B&S 826.

[14] Merriam-Webster, Frustration, Merriam-Webster.com (Feb.12, 2022, 10:10 AM), https://www.merriam-webster.com/dictionary/frustration.

[15] Paradine v. Jane, 82 Eng.Rep. 897 (1647).

[16] Supra note 3, at 1.

[17] Id. 

[18] Satyabrata Ghose V. Mugneeram Bangur and Co., AIR 1954 SC 44 (14).

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.

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