Discuss the Doctrine of Frustration and its applicability under Indian Contract Law.

Question: Discuss the Doctrine of Frustration and its applicability under Indian Contract Law.

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Answer

The general rule of contracts states, that the parties to a contract have to fulfill their obligations under the contract and in case of a breach, the party breaching the contract has to compensate the other for the damages caused. The doctrine of frustration is an exception to this rule.

The doctrine of frustration talks about the impossibility of the performance of the contract. It means a contract cannot be executed because of an incident beyond the control of the parties. The performance of such a contract becomes frustrating i.e. it becomes complicated, impossible or even illegal.

Applicability under Indian Contract Act

The Indian Contract Act, 1872, does not define the term “frustration of contract”. However, the doctrine of frustration is enshrined under section 56 of the Act.

According to Section 56, an agreement to do an impossible act is in itself void. Further, it states that when a contract to do an act becomes impossible, or, by reason of some event which the promisor cannot prevent, it becomes unlawful, the whole contract becomes void when the act becomes impossible or unlawful.

Applicability of Doctrine of frustration of contract requires a supervening event which is not foreseeable and is not attributable to either party too. If it is foreseeable then it will be a breach of contract and hence non-excusable. Also, this supervening event must render the performance of the contract impossible.

Conditions required to prove frustration with the contract

The frustration of the contract can be proved upon the fulfillment of the following conditions-

• The existence of a valid contract
  
• The contract has not been performed yet
• The performance of the contract has become impossible
• The impossibility has occurred due to events uncontrollable by both parties.

Grounds for Doctrine of Frustration

Following are the grounds for the frustration of a contract

Impossibility of performance: The doctrine of frustration arises from the impossibility of completing an activity. However, the principle cannot be limited to physical impossibilities.

It was held in Satyabrata Ghose v. Mugneeram Bangurn & Co & Anr., (1954 AIR 44), that the term ‘impossible’ has not been used in section 56 of the Contract Act in the sense of physical or literal impossibility. It is not necessary that the performance of act be literally impossible but it may be impracticable and if an event totally changes the very foundation of the contract, it can be said that the promisor finds it impossible to do the act which he promised to do. Therefore, when we say the object of a contract is lost, the contract is said to be frustrated.”

Destruction of subject matter: Explained in the landmark judgment of Taylor v. Caldwell, (1863) 3 B & S 826, where Taylor had agreed to perform at an event, but on the day of the event, the hall where the event was to take place burned down. The burning of the hall depicts the impossibility of carrying forward the contract. This shows that the destruction of the subject matter of the contract will make the contract automatically frustrated.

Death or incapacity of a party: If the contract demands the personal performance of the parties, the death or incapacity of the party will make the contract void because the contract cannot be performed anymore.

Frustration by legal or government intervention: Where, a law is promulgated after the formation of a contract, making the performance impossible then the contract becomes void.

The frustration of contract due to change of circumstances: This situation occurs when there is no physical impossibility of performance of the contract, but due to a change in circumstances, the main reason for which the contract was formed is defeated. The changed circumstances dissolve the contract and the parties are absolved from the performance of the contract.

The Intervention of War: The intervention of war makes the performance of a contract difficult, thereby making the contract void.

Effect of the Doctrine of Frustration:

The contract is frustrated automatically: The general rule is that the occurrence of the frustrating event puts an end to the contract automatically. The parties are not required to rescind the contract as the obligations of the parties get terminated immediately after the contract is frustrated.

Further obligations are discharged: Both parties are discharged from any obligations after the contract is said to be frustrated.

Accrued obligations: The legal rights or obligations already accrued before the frustrating event occurred are left undisturbed.