What do you understand by the frustration of the Contract? Discuss the law relating to frustration as applicable in India…judgments: Satyabrata Ghose v. Mugneeram Bangur, [AIR 1954 SC 44], Krell v. Henry, [(1903) 2 KB 740 (CA)], Ganga Saran v. Firm Ram Charan Ram Gopal, [AIR 1952 SC 9]

Question: What do you understand by the frustration of the Contract? Discuss the law relating to frustration as applicable in India while taking reference from the following judgments: Satyabrata Ghose v. Mugneeram Bangur, [AIR 1954 SC 44], Krell v. Henry, [(1903) 2 KB 740 (CA)], Ganga Saran v. Firm Ram Charan Ram Gopal, [AIR 1952 SC 9][HPJS 2019].

Find the answer to the mains question only on Legal Bites. [What do you understand by the frustration of the Contract? Discuss the law relating to frustration as applicable in India…judgments: Satyabrata Ghose v. Mugneeram Bangur, [AIR 1954 SC 44], Krell v. Henry, [(1903) 2 KB 740 (CA)], Ganga Saran v. Firm Ram Charan Ram Gopal, [AIR 1952 SC 9]

Answer

The doctrine of frustration can be defined as the doctrine of the special case of the discharge of contract by an impossibility to perform it.

This doctrine is not mentioned expressly under The Indian Contracts Act but Section 56 deals with the situation under which a contract is deemed to be void.

Section 56 is divided into three parts

The first part of the section states that an agreement to do an impossible act is in itself void.

The second part states that a contract to do any act becomes unenforceable if the act becomes impossible or because of some event that prevents the promisor from executing his promise. It also states that the act becomes unenforceable if the act is impossible to perform or becomes unlawful.

The third part places a liability on the promisor to compensate the promisee for non-performance, where the promisor knew that the act was unlawful or impossible and the promisee did not.

There are three very basic conditions for the application of the second part of Section 56

1. Firstly, there must be a valid and subsisting contract between the parties.
2. Secondly, there must be some part of the contract which is still not performed and
3. Thirdly, the contract is rendered as impossible of performance after it has been duly entered into by the parties.

This doctrine was introduced first time in the year 1863, in the case of Taylor v. Caldwell [(1863) 3 B&S 826], where the court held that “but as subject to an implied condition that the parties shall be excused in case, before the breach, performance becomes impossible from the perishing of the thing without default of the contractor.”

The test of frustration as adopted by the English courts state that there must be a significant change in the obligation, that thing if performed would be very different from the thing contracted for.

The Indian courts do not follow the tests laid down by the English courts. The Indian courts have stated that the Indian Contracts Act is exhaustive and hence there is no need to refer to the decisions of English Courts.

The only doctrine being followed by the Indian court is that of supervening impossibility or illegality of the act agreed to be done and this section lays down a rule of positive law and does not leave the matter to be determined on the basis of the intention of the parties. The section takes the word ‘impossible’ in its practical sense and disregards the literal meaning of the word.

The doctrine of frustration comes into play in two types of situations, first, where the performance is physically cut off, and, second, where the object has failed.

The Supreme Court of India has held that Section 56 will apply to both kinds of frustration. Referring to the section, B.K.Mukherjea J. of the Supreme Court observed in Satyabrata Ghose v. Mugneeram Bangur & Co [AIR 1954 SC 44] as follows:

“This much is clear that the word ‘impossible‘ has not been used here in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose which the parties had in view; and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do.”

To decide whether the contract is frustrating or not you have to look at it objectively since frustration is automatic on the occurrence of the event and does not depend on the volition or act of any of the parties to the contract. When an uncertain event occurs, which was not contemplated by any of the parties, the meaning of the contract is considered and the intention of the parties is not considered.

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

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. The present case 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.

The court held that the rent which had been paid before the contract to hire premises became void by reason of the postponement of the procession was not refundable and the outstanding rent was not recoverable.

Ganga Saran v. Firm Ram Charan Ram Gopal, [AIR 1952 SC 9].

A contract was made for supplying certain bales of cloth manufactured by the New Victoria Mills, Kanpur. The contract added: “We shall go on supplying goods to you of the Victoria Mills as soon as they are supplied to us by the said mills.” The mill failed to supply the goods to the sellers and, therefore, the sellers pleaded frustration.

But they were held liable. The court held that: “The agreement does not seem to us to convey the meaning that the delivery of the goods was made contingent on their being supplied to the respondents by the Victoria Mills. We find it difficult to hold that the parties ever contemplated the possibility of the goods not being supplied at all. The words ‘prepared by the Mills’ are only a description of the goods to be supplied, and the expression ‘as soon as they are prepared’ and ‘as soon as they are supplied to us by the said Mills’, simply indicate the process of delivery.”

It was accordingly held that the contract was neither contingent under Section 32, nor did it fall within the second paragraph of Section 56. The difference between Section 32 and Section 56 is that a contract is dissolved under its own force under Section 32, but when it comes to Section 56, the contract is deemed as unenforceable because of outside forces that are unrelated to the contract.

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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