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Doctrine of Frustration

In Taylor v Caldwell,1863(1), the Doctrine of Frustration was established so that the contracts could be set aside due to impossibility of performance Historically, there was no way to set aside the contract after it has been legally entered into by the parties even though the contract became impossible to perform

The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end -Lord Reid

Doctrine of frustration

In English Law, Doctrine of Frustration is to set aside the contracts where the contractual obligation or main part of the contract becomes impossible to perform or changes the principal purpose of the contract

The doctrine of frustration comes within the purview of Section 56 of the Contract Act as it discharges the parties to the contract and the Contract which is entered into, by reason of Supervening Impossibility of the act or when the contract becomes illegal agreed to be done by the parties

Section 56 of Indian Contract Act,1872 states that any Agreement which becomes impossible to perform is considered in itself as void

In Boothalinga Agencies v VTC Poriaswami(2), The Supreme Court held that the statutory provisions contained in Section 56 of the Contract Act lay down a positive rule of law and the provisions of Section 56 cannot apply to a case of "self-induced frustration

Self-induced frustration is the event which creates hindrance in the performance of the contract, by act of either of the party

In Supreme Court case, Satyabrata Ghose v Mugneeram Bangur & Co (3), it was stated that even though the law of frustration of England is not applicable in India, the matter is always determined to the court which considers the contract as presented the same as in the circumstances of Frustration

It is held that Doctrine of Frustration and Impossibility of performance can be considered with the same meaning

Section 56 of Indian Contract Act deals with Doctrine of Frustration which reads that the law excuses further performance under the Doctrine of Frustration, where the contract is silent as to the position of the parties in the event of performance becoming literally impossible or only possible in a very different way from that originally contemplated

The Doctrine of Frustration operates to excuse from further performance where:
  1. It appears from the nature of the contract and the circumstances that the parties have contracted on the basis that particular person will continue to be available or if some future event takes place which forms the basis of the contract;
  2. before breach, an event in relation to the matter stipulated in, renders performance impossible or only possible in a very different way from that contemplated, but without default of either party
Initial and subsequent impossibility
Initial impossibility is when the contract from the initial stage that is from the making of the contract, is impossible to perform or is unlawful While making of the contract, if one of the parties know that the performance of the contract is impossible or unlawful but still enters into the contract without indicating it to the other party, has to compensate to that other party from whom the impossibility was kept

Subsequent impossibility is when the contract was made, the performance was possible but subsequently the performance of the contract became unlawful or impossible due to some unforeseen event This discharge the parties to perform the contract and are no longer considered to be bound by the contract agreed upon No compensation is bound to be paid as the event which occurred subsequent to the contract was not in the hands of either of the parties

It is important to note that the Contract which afterwards become impossible to perform or unlawful is only applicable for Doctrine of Frustration, the Contract which was initially impossible to perform does not cover in Doctrine of Frustration

Some Grounds of Frustration:
  • Changes the purpose of Contract
    When the subject matter of the contract is been diverted from the main purpose of the contract, the contract becomes void
  • Delay
    When there occurs an excessive delay in the performance of the Contract after which the purpose of the contract becomes negligible, the contract becomes void This does not apply when there is a mere delay in the performance and can still be performed by the parties
  • Inability to perform or Death
    In the situation where the party to the contract has died after entering into the Contract or becomes incapable to perform the contract, the contract becomes void
     
  •  Contractual Obligations
    It applies to only contractual obligations and not to a contract creating an estate in lam which had already accrued in favour of party

Important conditions to determine the Frustration:
  • A valid and subsisting contract between the parties,
  • There must be some part of the contract yet 'to do'
  • The contract after it is made, becomes 'impossible'
The appropriate test to determine whether the contract has been frustrated is: "a radical change in the obligation"

Lord Raddiffe said in Davis Contractors Ltd v Fareham Urban District Council (4), (1956) 2 All ER 145 at 160 = (1956) AC 696 at 728:
frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract there must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for

Some relevant cases relating to Doctrine of Frustration
In Gurdarshan Singh S/O Dalip Singh… vs Bishan Singh S/O Uttam Singh (5),
Khosla CJ concluded that Doctrine of Frustration does not apply to completed contracts of lease where possession has already been taken by the lessee under the contract and the lessor has nothing more to do under the contract

In Court of Wards Dada Siba Estate And  vs Raja Dharan Dev Chand (6),
the discussions were of the view that Section 56 of the Contract Act embodies a positive rule of law relating to doctrine of frustration and this section must be treated as exhaustive so far as it goes and the same is applicable only to purely contractual obligations and not to a contract creating an estate in land which had already accrued in favour of a party

Conclusion:
Doctrine of Frustration gives relief to the parties to contract which was agreed upon, the chance to discharge the contract on the basis of impossibility of performance The contract which becomes impossible to perform after making of such contract, is void
Section 56 of Indian Contract Act,1875 enriched Supervening impossibility as the concept which applies same as Doctrine of Frustration
Doctrine of frustration is an exception to the general rule of breach of contract where it provides compensation

Notes:
  1. Taylor v Caldwell,1863- [1863] EWHC QB J1, (1863) 3 B & S 826, 122 ER 309
  2. Boothalinga Agencies v VTC Poriaswami -1969 AIR 110, 1969 SCR (1) 65
  3. Satyabrata Ghose v Mugneeram Bangur & Co -1954 AIR 44, 1954 SCR 310
  4. Davis Contractors Ltd v Fareham Urban District Council -(1956) 2 All ER 145 at 160 = (1956) AC 696 at 728
  5. Gurdarshan Singh S/O Dalip Singh… vs Bishan Singh S/O Uttam Singh- AIR 1963 P H 49
  6. Court of Wards Dada Siba Estate And  vs Raja Dharan Dev Chand- AIR 1961 P H 143

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