The Doctrine of Frustration of Contract and its Features
Meaning of Doctrine of Frustration of contract:
Whenever a contract is entered, it is always assumed that the parties shall perform their obligations in good faith. Nevertheless, certain events may take place which hinder the performance of a contract and they are beyond the control of parties. When such events occur which make the performance of a contract impossible, the contract is said to be “frustrated”. Therefore, the term “doctrine of frustration” is often used to refer to all those events that make the performance of contractual obligations impossible.
Background of Doctrine of frustration of contract
In England, the principle of absolute liability forms the basis of the law of contracts. Courts believed that no matter what, the parties to a contract are absolutely liable to meet their obligations. As Courts applied this principle, they were reluctant to interfere in a contract assuming that the parties were competent and intelligent enough to meet their obligations and that by interfering, the sanctity of the contract will get affected.
Therefore, in order to remove the deficiencies of the principle of absolute liability, the doctrine of frustration of contract was evolved. Modifications started from the case of Atkinson v Ritchie (1809) 10 East 530 wherein it was realized that a charter party under which a British ship was to load at a foreign port might get frustrated by the outbreak of war between the UK and the foreign country. However, the Courts still declined to identify any general principle under which a party would be relieved from obligation in the absence of an express condition that operated to release him in the specific events that happened.
Thereafter, in the case of Taylor vs Caldwell [1863] 3 B. & S. 826, the principle of frustration gained more attention. An opera house was rented for the purpose of conducting concerts; however, it was destroyed by fire before the night of the concert. It was held that the parties were released from their liabilities since the performance of the contract was impossible. The contract was treated as “frustrated”. It was understood that it won’t be fair for the parties to pay damages as external forces had rendered the performance of the contract impossible.
The boldest step taken by English Courts towards the doctrine of frustration of contract was in the case of Krell v Henry [1903] 2 K.B. 740. Here, “frustration” was extended to cover issues in which the object of the agreement gets destroyed. In the given case, a contract was entered into for hiring a flat on the days of the coronation procession of King Edward-VII, and the procession was cancelled. It was held that since coronation was the foundation of the contract, parties stand withdrawn from their obligations, and as such, rent cannot be recovered. The object of the contract was destroyed and hence, it was impossible to perform it under the agreed conditions.
These were the first times when Courts acknowledged that subsequent events may jeopardize the performance of a contract. Over the years, several instances have been acknowledged that render the performance of contracts impossible:
- Destruction of the subject matter of contract
- Death or incapacity for service
- Outbreak of war
- Change of law or stepping in of a new law which makes performance illegal
- Non-existence or non-occurrence of a particular state of things
- Non-occurrence of contemplated events
- Delay in cases in which time is the essence of the contract
Hence, the contract law developed from viewing a contract as a private agreement between contracting parties which is binding in all circumstances to a complex commercial code under which Courts have to read terms and conditions.
Features of Doctrine of frustration of contract
The following are the features of the doctrine of frustration of contract:
Necessary conditions:
English law lays down some conditions which are necessary for the application of the doctrine.
- A valid and subsisting agreement must be there between the parties.
- A part of, some part of, or whole of the contract must be unfulfilled.
- After it is made, the contract should become impossible to perform due to some supervening events.
Frustration is not self-induced:
Courts put extreme emphasis on ensuring that the frustration is not because of the default or negligence of the parties. In the classic case of Maritime National Fish Ltd. vs Ocean Trawlers Ltd. [1935] A.C. 524, the defendants were not discharged from their obligations to pay hire charges to the plaintiffs since the defendants had contributed to the contract’s non-performance. This seems fair because the doctrine of frustration of contract was evolved to prevent any injustice and undue hardship caused to the parties. Moreover, the abuse would also hamper the principle of good faith that exists between the parties.
Thus, in order to invoke the doctrine of frustration, it must be established that non-performance is caused due to reasons beyond the control of parties and that they should not be at any default.
The frustration of part of a contract:
Both English and Indian Courts take the general view that the doctrine of frustration of contract can only be applied to the whole performance and not when only a part of the performance gets frustrated.
When a court concludes that the entire purpose or basis of a contract has been frustrated by the presence or occurrence of an unexpected event or change of circumstances beyond the control of the parties, relief under this principle is granted on the basis of subsequent impossibility.
In the case of Satyabrata Ghose v Mugneeram Bangur and Co. (1954) A.I.R. 44, 1954 S.C.R. 310, the defendant company pledged to sell the plaintiff a block of the property after it had been developed by building roads and drains. However, a portion of the scheme’s land was requisitioned for military uses. The Court stated that because the corporation had not begun its work when the land was requisitioned, there was no interruption of operations. While applying the doctrine, the Supreme Court determined that the requisitioning of the land had not significantly hampered the performance of the contract as a whole, and so the contract had not become impossible.
The common intention of contractual parties:
The event that forms the basis of frustration should defeat the common intention of both parties and not one party alone. This is so because Courts can’t render justice to the promisor at the cost of the promisee since this would defeat the purpose of the doctrine.
Effect of frustration:
On the occurrence of the frustrating event, the contract gets terminated automatically and all future obligations of the parties under the contract stand discharged. The reason is that if one party is unable to perform the contract, the other party’s obligations also end. Moreover, under Common Law, money or goods received by either party under the contract have to be returned. A corresponding provision is also found under Section 65 of the Indian Contract Act. Therefore, the effect of the doctrine of frustration is that contracting parties should, as far as possible, be placed in the same position that they were in before entering into the contract.
Relatability between English law and Indian law
In English Law, the doctrine of frustration is the parallel concept of supervening impossibility. Supervening impossibility, as contained in Section 56 of the Indian Contract Act, works on the same lines as the doctrine of frustration. A contract may be discharged by supervening impossibility, i.e., the parties may be discharged from their obligations when the contract is found impossible to perform after it has been entered into. Section 56 specifies that a contract to perform an act that becomes impossible or illegal is null and void.
In fact, frustration and impossibility are often used as interchangeable expressions. They apply when the common object of a contract cannot be achieved or when after a contract is made, it becomes unlawful or impossible to perform because of reasons beyond the control of the parties.
To know more about the cases of supervening impossibility and its exceptions as per Indian law, please refer to this blog:
The Doctrine of Supervening Impossibility: An overview
Conclusion
The doctrine of frustration of contract, established under Section 56 of the Indian Contract Act, provides a way out for the party (or parties) when performance becomes impossible due to any supervening event that is not their fault. The doctrine’s applicability calls into question the integrity of the contract under specific altered circumstances. English courts developed several theories to justify the use of the doctrine in specific circumstances, whereas Indian law, by codifying the concept in section 56, has eliminated the need for developing and applying theories to justify the doctrine’s application.
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