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Frustration Of Contract

Concept
The case where the performance of a contract become impossible, then the respective purpose which the parties have in their minds tends to be frustrated. In case, any supervening event happens and performance becomes impossible, then the promisor is accused from the performance of the contract. This act of the impossible event is known as the doctrine of frustration, under the English law And under the Indian contract act it is covered under the section 56.

In the case of Satyabrata Ghose Vs. Mugneeram, The basis of doctrine of frustration was explained by Mukherjee J. His words were, The impossibility of performance of the contract is one of the essential idea upon which this doctrine of frustration is based. Even the fact impossibility and frustration are used as interchangeable expressions. Dynamic circumstances makes the performance of the event of the contract impossible and then all the parties are absolved from performing further actions because now they do not promise to each other to perform the impossibilities. This doctrine is actually and aspect of the law of discharge of contract by the reason of supervening impossibility or illegality of the act which the parties have agreed to perform.

It was held in the case of Taylor vs. Caldwell, That when the contract is neither positive nor absolute but it is a subject to an implied or expressed condition. For example, in case a particular thing shall continued to exist, Is that thing see this to be exist, then the performance of the contract is deemed to be an impossible act and the party then will be accused from the performance of that particular contract. In Alluri Narayana murthy Raju v. District collector, Vishakahapatnam.

The petitioners under a contract were granted leasehold rights for lifting sand In Maddi gram panchayat in the river. The residents of the village prevented him from carrying on quarry operations on the ground that it would lead to the depletion of ground water affecting the irrigation channels. The villagers were registered under the criminal case.

So the verdict was to confirm that the second limb of section 56 of the contract act 1872 was squarely attracted and the doctrine of frustration envisaged by said provision was applied in all fours of the contract. Therefore there performance is rendered by intervention of law invalid or subject matter assumed by parties to continue To exist is destroyed or a state of thing assumed to be foundation of contract fails or it does not happen or where performance is rendered personally.

Etymology
The frustration of contract doctrine originally emerged in the Courts of England in 1863 in the case of Taylor vs Cardwell . The case was pertaining to the opera house rented for the holding a concert, which was destroyed by the fire before the concert. The court held that, the contract is frustrated as due to cease of the essence of the contractual obligation, i.e. opera house. The Frustration of contract doctrine was named in the case of Krell vs. Henry 1903 in court of England.

In this case, plaintiff leased an apartment situated in London to the defendant , for the purpose of viewing a royal procession. Anyhow, the procession got cancelled and the defendant refused to pay the balance of rent agreed amount to the plaintiff. The court was of the view that the procession was the foundation of the the contract and the hence the defendant was allowed to excuse from the performance of the contractual obligation, as his motive to enter into a contract was frustrated with the cancellation of procession.

Frustration of Contract- Indian Contract Act 1872
Indian Contract Act 1872 does not expressly define doctrine of frustration of contract. But, Section 56 of the Indian Contract Act states that, ‘An agreement to do an act impossible in itself is void. Moreover, any contract for the performance of an act, which later become impossible due to circumstances, not in control of either party, or unlawful, be void , as when such an act becomes unlawful of impossible. As frustration is a cause of an act , distinct from the contract making it impossible or unlawful results in performance of contractual obligation to be impossible.

Contract can be frustrated due to following conditions:
  • Valid acceptance of an agreement , leading to valid contract between parties
  • That contractual obligation is yet to be performed.
  • When the performance was due, the obligatory act becomes impossible or illegal.
  • That an act is impossible to be performed due to such a circumstance in which, either of the party do not have any control.

Factor of Frustration of Contract
  1. Obligatory Performance not Possible
    The frustration of the contract arise from such a circumstances where a performance of an act becomes impossible. It is to be understood that term ‘impossibility’ is not just confined to ‘physical impossibilities’. In case of Satyabrata Ghose Vs. Mugeeram Bangurn & Co. And Anr. , court held that ‘impossibility’ is not defined in any section under Indian Contract Act ,1872 in sense of ‘physical or literal impossibility’. Even though the contractual performance maybe literally possible but it may be useless or not in-sync with the condition for which the bargain for the contract has been settled. And an un-foreseeable event or any so circumstances , upsets the foundation or the genesis of the contract, it can be said that it is impossible for the promisor to perform the act promised by him. If , the foundation or the object of the contract is lost, then the contract is said to be frustrated.
  2. Modification in contractual circumstances:
    It is one of the major factor for the frustration of the contract. Courts, in various cases, have held the frustration of a contract on the fact of impossible performance when if finds that whole purpose or basis of a contract was frustrated due to the occurrence of an unforeseeable event or change in the circumstances which was not in the control either of the party to the contractual obligation contemplated by them at the time of the entering into an agreement. The alteration in the original circumstances led the performance of an act impossible and the parties are absolved from the contractual obligation of it as they did not agreed to the performance of an impossible act.
  3. Loss of an object
    The impossible performance of a contract mentioned under Section 56, of the Indian Contract Act , is not just something that is not humanly possible. In case of Shushila Devi vs Hari Singh , the court was of the view that , performance of a contract becomes impossible , impractical or useless having regard to the object and the foundation of the contract, i.e. foundation , then it must be said that performance has become impossible. But , anyhow, such an event should take away the very genesis of the contract and it should as like, that it effects the foundation of the contract. The above mentioned case was of the land lease, which later due to partition of India and Pakistan , and the property went to another side, hence the very basis of the contract was effected , due to circumstances on which, neither of the party had any control and so the contract was held to be frustrated.


Initial Impossibility v/s. Subsequent Impossibility
The object of entering into agreement and ratifying it to be a contract is the performance of a contractual obligation termed in the agreement. And that both the parties will perform their part of act as per the same, and incase, the performance of an act in not possible the parties would never enter into it. The cases where the performance of an act is impossible ‘ab-initio’ is said to be Initial impossibility. Illustration — A married man, having knowledge that he cannot marry another women before the divorce, does so, then he is bound to compensate the later.

Whereas, the subsequent contract are of such nature, whose performance might be possible at the time when the parties entered into the contract , but due to some event , the performance is effected and has become impossible or unlawful and therefore it absolves the party from the performance.

Illustration:
If a person purchases a ticket from ticket-seller for watching a match, against which he had paid half of the amount, and if the match is cancelled on the subsequent day, then the ticker-seller can not claim the other half amount , as the cancellation of match was beyond anyone’s control.

Exception to Frustration of Contract
There are instances when , court has held the doctrine to be ineffective even after the condition of a contract to be frustrated. Such condition are as follows :-

Performance is Difficult:
The House of Lords was of the view that the parties can still perform the main contractual obligation , even after the considerable set of an agreement has been out of preview of performance , it can not be termed to be frustrated. Their maybe circumstances where, due to the alteration in certain performance of the contract becomes difficult, but not impossible to be performed.

Failure of third party to compliance:
The contract involving more than one party, or where a contract maybe effected by the conduct of third party. The contract of between the actual two party , depends upon the supply/ such factor where the faults of them would lead to failure of performance of the contract , but even though the contract is not frustrated as the fault was not of the parties to the original contract.

Conclusion
The contract frustrated due to various aspects are void, and the performance of contractual obligation is absolved. The doctrine enshrined in section 56 of the act states “ those cases where the performance of contract are frustrated and performance becomes impossible to perform due to any unavoidable condition. The doctrine is an exception to the rule which provides for the compensation in case of breach of contract.

Whereas, section 56 deals with the cases pertaining to the subsequent impossible performance of contract , as to the case of initial impossibility. In Satyabrata v. Mugneeram the Supreme Court has seen that different hypotheses have been propounded in regards to the juridical premise of the precept of frustration of contract, yet the fundamental thought whereupon the regulation is based is that of the inconceivability of execution of the agreement.

Moreover, the importance of the term ‘impossible' was clarified u/s 56. The Supreme Court clarified that dissimilar to English law the word impossible has not been utilized in the feeling of physical or exacting inconceivability. The presentation of a demonstration might be unreasonable and futile according to the perspective of the article and whether it shapes the premise of the agreement legitimately must be chosen by the courts.

Frustration of the contract is when a performance would be deemed impossible due to an unforeseen events. It occurs when a party to the contract is not able to comply to contractual performance because of an event , happens after ratification of an agreement. The distinction is that , the frustration means a contract cannot be performed due to an event, leading to the impossible performance.

When this doctrine is invoked the parties to the contract are absolved from the liability of the performance. Likewise in Sushila Devi versus Hari Singh , it was seen that the difficulty considered by section 56 of the Contract Act isn't kept to something which is not accommodatingly conceivable.

As it was an instance of rent of property, which after the partition, the property in question which was in Gujranwala, went onto the side of Pakistan, consequently settling on the details of the understanding incomprehensible. In another Supreme Court case, Nirmala Anand versus Coming Corporation Pvt. Ltd.6, the case was identifying with suit for explicit execution of arrangement for acquisition of a level in a structure development on plot rented out by district.
The court held that except if the equipped specialists have been moved and application for assent or authorization have been dismissed unequivocally and such dismissal made at long last turned out to be indecisively restricting and delivered impossible, the presentation of the agreement bringing about frustration u/s 56. It is very much settled that frustration consequently dissolves the agreement at the time of the baffling occasion.

This is rather than release by penetrate of agreement where the blameless party can pick whether to regard the agreement as renounced. Also, an agreement, which is released by dissatisfaction, is unmistakably unique in relation to one, which is void for botch. A disappointed agreement is substantial until the hour of the happening occasion yet is naturally finished from that point, while an agreement void on the grounds of slip-up is a finished nullity structure the start.

References:
  1. https://blog.ipleaders.in/doctrine-of-frustration/
  2. https://www.mondaq.com/india/contracts-and-commercial-law/654334/frustration-of-contract
  3. (1863) 3 B.& S. 826
  4. Satyabrata Ghose vs Mugneeram Bangur& Co & Anr (AIR 1954 SC 44)
  5. AIR 1971 SC 1756: (1971) 2 SCC 288
Written By: Siddharth Gupta BBA. LL.B (Hons) , Amity Law School, Noida

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