Discuss in brief, the doctrine of frustration as applicable in India and state the specific grounds of the frustration of contract. Refer to statutory provisions and decided cases wherever relevant.

Question: Discuss in brief, the doctrine of frustration as applicable in India and state the specific grounds of the frustration of contract. Refer to statutory provisions and decided cases wherever relevant. [UPJS 2018]

Find the answer to the mains question only on Legal Bites. [Discuss in brief, the doctrine of frustration as applicable in India and state the specific grounds of the frustration of contract. Refer to statutory provisions and decided cases wherever relevant.]

Answer

Frustration signifies a certain set of circumstances arising after the formation of the contract, the occurrence of which is due to no fault of either party and which renders performance of the contract by one or both parties physically and commercially impossible. The court will consider this set of circumstances as releasing the parties from any further obligations. Where the entire performance of a contract becomes substantially impossible without any fault on either side, the contract is dissolved by the doctrine of frustration.

In India, the law dealing with frustration is contained in Section 32 and 56 of the Indian Contract Act, 1862 dealing respectively with contingent contracts.2 and the effect of impossibility. Where the contract itself contains, impliedly or expressly, a term according to which it would stand discharged on the happening of a certain event, the dissolution of the contract would take place under the terms of the contract itself and that would be outside the scope of Section 56 that excuses performance for impossibility.

The contract dissolves under its own provisions, and such cases fall outside the scope of Section 56 of the Indian Contract Act. In Indian law, such falls cases under Section 32 of the Contract Act dealing with contingent contracts or similar provisions.

Applicability of doctrine of frustration

The court can give relief on the ground of subsequent impossibility when it finds that the whole purpose or the basis of the contract has been frustrated by the intrusion or occurrence of an unexpected event or change of circumstances, which was not contemplated by the parties at the date of the contract; or the performance of the contract becomes impracticable or useless having regard to the object and purpose the parties had in view. The test of impossibility is whether it is practically impossible for a party to perform the contract within the specified time.

Effect of impossibility

A contract that cannot be performed because of subsequent impossibility becomes void when performance becomes impossible. It discharges both parties from further performance; this discharge is automatic and independent of the volition of parties. The aggrieved party cannot keep it alive. If a contract becomes void, any person who has received any advantage under the contract must restore it or make compensation for it to the person from whom he received it.

Specific grounds of frustration

“The principle of frustration of contract, or of the impossibility of performance is applicable to a great variety of contracts. It is, therefore, not possible to lay down an exhaustive list of situations in which the doctrine is going to be applied so as to excuse performance. The law upon the matter is undoubtedly in process of evolution. Yet the following grounds of frustration have become well-established.

1. Destruction of subject-matter

The doctrine of impossibility applies with full force “where the actual and specific subject matter of the contract has ceased to exist”. Taylor v. Caldwell [(1863) 3 B&S 826] is the best example of this class. There, a promise to let out a music hall was held to have frustrated on the destruction of the hall.

2. Change of Circumstances

A contract will frustrate “where circumstances arise which make the performance of the contract impossible in the manner and at the time contemplated“. Kapur J. of the Punjab High Court in Pameshwari Das Mehra v. Ram Chand Om Prakash [AIR 1952 Punj 34, 38] explained the principle thus:

“It is clear that if there is an entirely unanticipated change of circumstances the question will have to be considered whether this change of circumstances has affected the performance of the contract to such an extent as to make it virtually impossible or even extremely difficult or hazardous. If that be the case, the change of circumstances not having been brought about by the fault of either party, the courts will not enforce the contract.”

In this case: ‘A’ contracted to supply to ‘B’ certain classes and quantities of American piece goods. The contract was c.i.f Karachi. The goods arrived there after some delay. ‘B’ refused to accept on the ground that both the qualities and quantities offered for delivery were not according to the particular contract. ‘A’ called upon ‘B’ to refer the dispute to the nominated arbitrator who was residing in Karachi.

Then came the partition which made it impossible for non-Muslims to go to Karachi. Holding that the contract was not thereby frustrated, the court said: “If it was necessary for the parties to go to Karachi and to take witnesses there, the performance of the arbitration agreement would have been rendered impossible. But, as going to Karachi was not necessary, the change of circumstances did not have a material effect on the contract.”

3. Non-occurrence of contemplated event

Sometimes the performance of a contract remains entirely possible, but owing to the non-occurrence of an event contemplated by both parties as to the reason for the contract, the value of the performance is destroyed. Krell v. Henry [(1903) 2 KB 740 (CA)] is an apt illustration. There, a contract to hire a room to review a proposed coronation procession was held to have frustrated when the procession was postponed. For this result to follow it is necessary that the happening of the event should be the foundation of the contract.

4. Death or incapacity of a party

“A party to a contract is excused from performance if it depends upon the existence of a given person if that person perishes” or becomes too ill to perform. Thus, where the nature or terms of a contract require personal performance by the promisor, his death or incapacity puts an end to the contract. Robinson v. Davison [(1871) LR 6 Exch 269] is a well-known authority.

There was a contract between the plaintiff and the defendant’s wife, who was an eminent pianist that she should play the piano at a concert to be given by the plaintiff on a specified day. On the morning of the day in question, she informed the plaintiff that she was too ill to attend the concert. The concert had to be postponed and the plaintiff lost a sum of money.

The plaintiff’s action for breach of contract failed. The court said that under the circumstances she was not merely excused from playing, but she was also not at liberty to play if she was unfit to do so. The contract was clearly subject to the condition of her being well enough to perform:

“The whole contract is based on the assumption of the continuance of life, and on the conditions which existed at the time. That assumption is made by both; it is really the foundation of the contract. It does not require close reasoning to prove that if the foundation fails, the whole contract must fail. Here the foundation was wanting for there was on Mrs. Davison’s part an entire and total incapacity to do the thing contracted for.”

5. Government, administrative or legislative intervention

A contract will be dissolved when legislative or “administrative intervention has so directly operated upon the fulfillment of the contract for a specific work as to transform the contemplated conditions of performance” Thus, where a vendor of land could not execute the sale-deed because he ceased to be the owner by operation of law, it was held that the contract had become impossible of performance.

A well-known English authority is Metropolitan Water Board v. Dick Kerr & Co Ltd [1918 AC 119 (HL)] In this case, by a contract made in July 1914, a firm of contractors contracted with a water Board to construct a reservoir to be completed within six months. But by a notice issued under the Defence of the Realm Acts, the contractors were required to cease work on their contract and they stopped the work accordingly.

They claimed that the effect of the notice was to put an end to the contract. The House of Lords held that the interruption created by the prohibition was of such a character and duration so as to make the contract when resumed a different contract from the contract when broken off and that the contract had ceased to be operative.

6. Intervention of war

The intervention of war or warlike conditions in the performance of a contract has often created difficult questions. However, if there is more than one way of performing a contract and the war cuts off only one of them, the party is still bound to perform by the other way, however inconvenient or expensive.

The leading authority is Tsakiorglou & Co Ltd v. Noblee & Thorl [(1961) 2 WLR 633] The following statement of facts was given by Lord Reid:

The appellants agreed to sell to the respondents three hundred tons of Sudan groundnuts c.i.f Hamburg. The usual and normal route at the date of the contract was via Suez Canal. Shipment was to be in November/ December 1956, but, on November 2, 1956, the Canal was closed to traffic and it was not reopened until the following April.

It is stated that the appellants could have transported the goods via the Cape of Good Hope. The appellants refused to ship goods via the Cape. The question now is whether, by reason of the closing of the Suez route, the contract had been ended by frustration. The appellant’s argument was that it was an implied term of the contract that shipment should be via Suez. But it was held that such a term could not be implied.

The customary or usual route via the Suez Canal being closed, the appellants were bound [by the Sale of Goods Act, 1893, S. 32(2)] to ship the groundnuts by a reasonable and practical route and, though the appellants might be put to greater expense by shipping the groundnuts via the Cape of Good Hope, that did not render the contract fundamentally or radically different, and there was not, therefore, the frustration of the contract. Thus, if the intervention of war is due to the delay caused by the negligence of a party, the principle of frustration cannot be relied upon.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X