DOCTRINE OF FRUSTATION

This article was written by Aishwarya Singh a student of Jindal Global Law School.

The doctrine of frustation occupies a special place in the Law of Contract. This doctrine of frustation was evolved to mitigate the rigour of the common law’s insistence on literal performance of absolute promises. [1] Under the doctrine of frustation a contract may be discharged if after its formation events occur making its performance impossible.[2] In the case of Taylor v. Caldwell[3], the performance of the contract had become physically impossible because of the disappearance of the subject-matter, but the principle is not confined to physical impossibilities. It extends to also to cases where the performance of the contract is physically impossible, but the object the parties had in mind has failed to materialise.[4]

The English Common Law historically holds the parties to their bargain, thus leaving them to make their own provisions for events outside of their controls, for circumstances which may make their obligations more burdensome and for instances which may render further performance of contract impossible.[5] The well known coronation case is Krell v. Henry[6] it was held that the real object of the contract, as recognised by both contracting parties, was to have a view of the coronation procession. The taking place of the procession was, therefore, the foundation of the contrcat. The obejct of the contract was furnished by non-happening of the coronation and the plaintiff was not entitled to recover the balance of the rent.[7]

The doctrine of frustation comes into play in two types of situations:

1. Where the performance is physically cut off.
2. Where the object has failed.[8]

The Supreme Court has held that Section 56 of the Indian Contract Act, 1872 will be applied in both the situations this principle was laid down in the case of Satyabrata Ghose v. Mugneeram Bangur & Co.[9] and in Cricklewood Property Ltd v. Leighton’s Investment Trust Ltd[10]. A contract for sale of land for non-agricultural use was held to have frustated when the application for such use was rejected by the authorities.[11] The rule as to absolute contracts has been accepted and applied in a number of case. A modification of this rule came in Atkinson v. Ritchie[12] which was a case of supervening illegality, where the dispute was between the cargo-owner and the ship-owner of the British ship for a short delievery of cargo. The ship owner was held liable in damages when he sailed the ship away with only half cargo loaded upon a rumour of a hostile embargo being laid on all British shis. The Court denied availability to ship-owner of the way to escape from his contractual obligation on the pretext of threatening embargo.

Section 56 of the Indian Contract Act, 1872 incorporates the doctrine of frustation which relates to the performance of contracts and it purports to deal with one class of circumstances under which performance of a contract is excused on the ground of the contract becoming void.[13] The section state as follows:

“Agreement to do impossible act: An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful: A contract to do an act which, after a contract is made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful: Where one person has promised to be something which he knew or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promisor must make compensation to such promise for any loss which such promisee sustains through the non-performance of the promise.”[14]

SPECIFIC GROUNDS FOR FRUSTRATION:

“The principal of frustration of contract, or of 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.”[15] The following grounds established are as follows:

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”.[16] Taylor v. Caldwell[17] is the best example of this class. There, is a promise to let out a music hall was held to have frustrated on the destruction of the hall. Another example for this is the case of Howell v. Coupland.[18] A parallel decision under Section 56 is that of the Madras High Court in V.L. Narasu v. P.S.V. Iyer[19].

In a contract for carriage of goods by sea, a vessel sank with the cargo; the court said that the sinking of the vessel could not be described as an inevitable accident. Reasonable care had not been taken to prevent the sinking of the vessel and the defence of frustration failed.[20]

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”[21].

3. Non-occurrence of Contemplated Event

Sometimes the performance of a contact remains entirely possible, but owing to the non-occurrence of an event contemplated by both parties as the reason for the contract, the value of the performance is destroyed.[22] The doctrine of frustration also applies to cases concerning the cancellation of an expected event. It is possible that the performance of a contract remains entirely possible, but owing to the non-occurrence of an event contemplated by both parties as the reason for the contract, the value of the performance is destroyed.

4. Death or Incapacity of Party

A party to the contract is excluded 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 contract. Robinson v. Davison[23] is the well-known authority. Where performance of obligations under a contract for personal services is rendered impossible or radically different by the death or incapacitating illness of the promisor, the contract will be frustrated. A party to a contract is excused from performance if it depends upon the existence of a given person, if that person dies or becomes incapable to perform.

5. Government, Administrative or Legislative Intervention

A contract will be dissolved when legislature or administrative intervention has so directly operated upon the fulfillment of the contract for a specific work as to transform the contemplated conditions of the performance.[24]

EFFECT OF DOCTRINE OF FRUSTRATION:

1. Contract frustrated automatically: The rule established at common law is that the occurrence of the frustrating event brings the contract to an end forthwith and automatically. It is not required that the either party to the contract take steps to rescind the contract. The obligations of both the parties get terminated immediately on the happening of event.
2. Future obligations discharged: The effect of frustration at common law is to release both parties from any further performance of the contract. All obligations falling due for performance after the frustrating event occurred are discharged.
3. Accrued obligations remain: Legal rights or obligations already accrued and due, before the frustrating event occurred, are left undisturbed.

CONCLUSION:

The law relating to Frustration of Contract in India is covered statutorily better than that of the English law relating to Frustration of Contract because it is just possible that under the English law there is no concurrence among judges on the reasons behind the frustration of a given contract. But in India as the provisions are contained in well defined terms, the chances of conflicting opinions are minimal.

Under the Indian law, the doctrine of frustration is an aspect of the law of discharge of contract by reason of supervening impossibility or illegality of the contract to be done and hence comes within the purview of section 56 of the Indian Contract Act, 1872. Therefore, the position in effect is that in Indian law it is not necessary to have any resort to any legal fiction or legal theory for application of the doctrine of frustration. The courts in India appear to have understood the real purport of provisions of the Act and thus they are applying them correctly to actual-factual situations of contracts arising before them for decision.

The decisions of English courts possess only a persuasive value but they may be helpful in showing how the courts in United Kingdom have decided cases under circumstances similar to those which have come up before the Indian courts. Initially the Indian courts including Privy Council appear to hold the opinion that the law under section 56 is not exhaustive on the subject. However with the passage of time and their repeated dealings with the provisions of section 56, the courts appear to have changed their opinion.

In the view of the provisions of section 56, the Indian law on the doctrine of frustration seems to be comparatively on a more sound footing than the English law. It is significant to note that fear of the misuse of the principle of supervening impossibility by any dishonest party has duly been taken care of vide paragraph three of section 56 which obliges the person, who with due knowledge or presumed knowledge of impossibility of performance of the agreement makes any innocent person enter into the agreement and thus suffer loss, to pay compensation to such innocent person in spite of the fact that such agreement is otherwise void. This type of structural arrangement is not found under the English law. The Indian courts have developed it by process of interpretation. The role played by Supreme Court placed it on a comparatively clear foundation through its remarkable judicial craftsmanship. Thus, the law has crystallised itself into a clear form and whatever ambiguity there had been in past has been settled substantially in the application of the doctrine.

[1] Anson’s Law of Contract, 28^th edn, (ed J. Beatson), Oxford University Press, New York, 2002, p.530.

[2] Treitel, The Law of Contract, 12^th edn, (ed Edwin Peel), Sweet & Maxwell Ltd., London, 2007, p.924.

[3] 122 ER 309

[4] Singh, Avtar, Contract &Specific Relief, 10^th Edition. Eastern Book Company Page 391.

[5] The Doctrine of Frustation, Available at: http://www.docstoc.com/docs/23799980/The-Doctrine-of-Frustration , Last accessed at: 3^rd April 2016.

[6] (1903) 2 KB 740 CA.

[7] See McElory and Williams, The Coronation Cases, 4 Mod LR 241

[8] Supra Note 5

[9] AIR 1954 SC 44

[10] (1945) AC 221

[11] Naimudin I. Bharmal v. Charotar Gramoddhar Sahakari Mandli Ltd. (1997) 1 Guj LR 547.

[12] (1809) East 530

[13] Journal of Indian Law Institute, Volume 37, No.4 (1995), p.446

[14] Section 56, The Indian Contract Act, 1872.

[15] See A.L. Corbin Recent Developments in Contracts, 50 Harv LR 549, 465-466 (1937).

[16] See Mc Cardie J in Blackburn Bobbin Co v. T.W. Allen & Sons, (1918) 1 KB 540, where the learned judges formulates a list of the grounds of frustration as warranted by the authorities.

[17] 3 B&S 826: 122 ER 39

[18] (1876) 1 QBD 258 (CA).

[19] ILR 1953 Mad 831

[20] Ghee Seng Motor v. Ling, (1994) 1 Current LJ 382 (Malaysia).

[21] Viscount Maugham in Joseph Constantine Steamship Line Ltd v. Imperial Smelting Corpn Ltd, (1941) 2 All ER 165, where his Lordship referred to different types of situations in which frustration may occur.

[22] See Williston On Contracts, S. 1935.

[23] (1871) LR 6 Exch 269

[24] Supra Note 16