DOCTRINE OF FRUSTRATION

Abstract 

Contractual uncertainty arises when unforeseen circumstances make it difficult to fulfill obligations under a contract. The doctrine of frustration makes it possible for a fair outcome to come from such an unhappy incident that occurred without the contractual parties’ fault. Based on equity and fairness principles, the theory fills in the gaps in a contract on supervening events. Analyzing the elements that influence the courts’ decision to apply a contract is crucial given the significant consequences it bears for the binding and mandatory nature of a legitimate contract. In contrast to common law, section 56 of the Contract Act of Indian contract law expressly contains the idea of frustration. However, English law has had a significant influence on this doctrine’s development in India. This article is an effort to restate Indian law based on the theory of frustration.

Keywords: doctrine of frustration, performance, illegality, impossibility, common law, contingent contract, impracticality. 

Methodology 

This is a article based upon secondary sources of research. The information is gathered from a number of websites, journals, articles and research papers. This article presents a comprehensive view of the topic and is based on a qualitative line of action. The central idea of this paper is to analyse the doctrine of frustration in context of the Indian Contract Act, 1872. 

Research Questions 

• What is the origin of the doctrine of frustration ? 
• What is the meaning of the doctrine of frustration in the Indian context and its present status ? 
• What are the conditions required to satisfy Section 56 of the Indian Contract Act, 1872 ?
• What is the difference between section 32 and section 56 of the Indian contract Act, 1872 ? 

Objectives 

The objective is to inspect Doctrine of Frustration under Indian & English Laws closely from the beginning and till the current application. 

Introduction

A legally enforceable agreement that creates duties between two or more parties is known as a contract. Unexpected or supervening events, or those that neither party could have predicted in advance and which ultimately release the parties from their contractual responsibilities, may have an impact on how these obligations are carried out. A special type of contract discharge due to impossibility of performance is known as the doctrine of frustration. There is no definition for the term frustration in the Indian Contract Act, 1872. Frustration, also known as the frustration of purpose, is defined in relation to contracts by Black’s Law Dictionary as “the doctrine that if a party’s principal purpose is substantially frustrated by unanticipated changed circumstances, that party’s duties are discharged and the contract is considered terminated.” This theory serves as a means of balancing the principle of absolute contracts with the need for a unique exemption that is required in some situations for the sake of justice.

The theory falls under the ambit of Section 56 of the Contract Act since it supersedes the contract by reason of the agreed-upon act’s illegality or impossibility. Section 32 of the Indian Contract Act, 1872 also applies to contracts that are frustrated when a condition that made the contract possible is either not met or cannot be met due to impossibility. In spite of this, section 56 is linked to the doctrine of Indian law. Because section 32 only comes into play when agreements are fulfilled and parties are released from their duties in accordance with the conditions specified in the respective contract. When contracts are terminated and parties are released from their responsibilities as a result of a subsequent impossibility brought on by external forces and circumstances, Section 56 is applicable. 

Origin of Doctrine of Frustration

The Queen’s Bench ruling in the 1863 English case of Taylor v. Caldwell¹ is where the doctrine first emerged. Before this ruling, the rule governing commercial obligations was very strict, both in Common Law and Roman Law. Unexpected developments that occurred later that made the performance more difficult or impossible were not accepted as an explanation for missing the performance. The concept has developed over time, and as can be seen below, “loss of object,” “radical change in the obligation,” “implied condition,” and the requirement to find a “just and reasonable” remedy have all been recognized grounds for terminating a contract. It was assumed prior to Caldwell that the parties might have included provisions for such events in their contract if they so desired. This principle of “absolute contracts” was upheld in the well-known ruling of Paradine v. Jane², in which the lessee was held accountable for the rent arrears even after being kicked out for being an enemy of the alien. Caldwell lessened the strictness of Common Law. In this instance, an opera building was rented out for musical performances; unfortunately, the night before the performance, it caught fire. In this instance, Blackburn J. developed the concept of a “implied condition” or “implied term,” ruling that “in contracts where performance is contingent upon the continuous existence of a particular person or thing, an implied condition is that the impossibility of performance resulting from the person or thing’s perishing shall excuse the performance.” Since the implied condition was merely a legal fiction, this notion was met with a great deal of criticism. The argument against the implicit condition theory was based on the parties’ intentional assumption of risk in not including any potential intervening conditions in their contract; as a result, there could be no implied condition in the first place. In National Carriers Ltd v. Panalpina (Northern) Ltd³ , the House of Lords rejected the implied condition theory, noting that “the weakness of the implied term theory is that it raises once again the spectral figure of the officiously intruding on the parties at the moment of agreement.” A more complex hypothesis that supports the doctrine is the “loss of object” or “loss of foundation” of the contract due to the intervening events. The classic illustration of this theory is Krell v. Henry⁴, sometimes referred to as one of the “coronation cases,” in which it was decided that the defendant was released from performance because the contract’s foundation had been frustrated by the cancellation of the coronation procession, which was the agreement’s intended outcome. The performance is reliant on a particular state of affairs remaining unchanged. The “construction theory,” which was developed by Lord Radcliffe in the Davis Contractors Ltd. v. Fareham Urban District Council case⁵, is another well recognized argument that justifies the performance of the contract. 

Interpretation of the Doctrine of Frustration under the Indian Contract Act, 1872

Section 56 of the Contract Act provides a clear codification of the doctrine of frustration in India, eliminating the need to rely on various theories to support its applicability. It establishes a prescriptive guideline for contract frustration and does not defer to the parties’ intentions or the court’s preference for using a certain theory. When the court determines that the occurrence of an unforeseen event or change in circumstances that was outside of the parties’ control frustrated the entire purpose or basis of a contract, it may grant relief under this section on the grounds of subsequent impossibility. According to Section 56, a contract to perform an act that becomes illegal or impractical is null and void. One can find a comprehensive explanation of this part in the well-known and landmark Satyabatra Ghose v. Mugneeram Bangur and Co.⁶ decision. The question that needs to be answered in this case is how much the clear variation from the literal interpretation norm can work with section 56’s structure. Section 56’s second paragraph addresses two requirements: (i) impossible; (ii) because to an occurrence that the promisor was unable to stop, illegality. Although the first criterion does not make such a prescription, the second condition clearly stipulates that the illegality must originate from an event that is within the control of the parties as a result of their fault. Therefore, even in cases where performance has become “impossible” due to a party’s fault or to that party’s failure to avert the relevant event, the contract will still be dismissed. However, this is not the current theory under Indian law; in reality, the situation is completely reversed.  Self-induced frustration, or the inability to execute due to another party’s fault, is not dischargeable under section 56. Although it would appear that the Supreme Court’s view in Satyabatra is incompatible with the language of section 56. While the second paragraph addresses supervening impossibilities that exist after a contract is entered into, the third paragraph assumes that one of the parties knew or should have known that performance was impossible at the time of contracting. When a contract lacks provisions addressing the effects of specific intervening events, Section 56 takes effect. If the parties to a contract specifically address the repercussions of such events, they will be bound by it and cannot invoke section 56 as a defense. Consequently, the conditions of the contract determine how section 56 will be applied. The drafting of Section 56 of the Contract Act aims to comprehensively reflect the frustration associated with contracts. Further rulings have maintained that it is pointless to rely on foreign judgements in order to comprehend Indian law, as demonstrated by a case from 2018. Common Law rulings “cannot” provide immediate aid, but they have persuasive value and demonstrate how English courts have handled cases with comparable facts. Common Law precedents have been frequently mentioned, taken into consideration, and even relied upon by Indian courts, notwithstanding the Supreme Court’s stated position that Indian law on frustration is comprehensive and independent of Common Law. 

Conditions under Section 56 

Three fundamental requirements must be met in order for the section 56 doctrine to be satisfied:

• There must be an active contract, 
• some of the contract’s obligations must still be fulfilled, and
• after the contract is signed, performance is no longer feasible.

As previously said, physical impossibility is not a requirement. It would take a significant shift in the underlying presumption upon which the contract was made for execution to become unfeasible, unlawful, or impossible absent a breach by either party. The contract’s structure in the context of the circumstances that existed at the time of its formation must be examined in order to ascertain the extent of the change in the obligation. 

Difference between Section 32 and Section 56 of the Indian Contract Act, 1872 

It is crucial to recognize the distinction between sections 32 and 56 of the Contract Act, as they both apply in situations involving frustrated contracts. There can be a reason for the party or parties to choose section 56 over section 32. This incentive is the compensation that a party that suffers a loss due to non-performance of an act that is known to be impractical or illegal may receive under the third paragraph of section 56. In general, the contract may be terminated under sections 32 and 56 if specific future events become impossible. A contingent contract, which depends on the satisfaction of a requirement in order to survive, is covered under Section 32. If a condition is not met, a contingent contract will dissolve of its own accord; nevertheless, section 56 applies when an external force renders a contract unenforceable. Thus, “it is sometimes a matter of doubt whether a contract falls under section 32 or section 56” can be said. 

Factors amounting to the Frustration of Contract

Some of the circumstances that apply to section 56’s provisions are physical destruction of the subject matter, loss of the object, subsequent illegality to comply, delay, death, or incapacity of the party in a contract requiring personal performance, etc. A situation could fit into one or more of these categories. 

Conclusion 

Section 56 of the Indian Contract Act incorporates the doctrine of frustration, which gives the party or parties a way out when performance becomes impossible due to an unavoidable intervening event. The doctrine’s applicability calls into doubt the contract’s integrity in specific altered situations. English courts developed a number of theories to support the doctrine’s use in specific situations, but Indian law eliminated the need for these developments and applications when it codified the doctrine in section 56. The events that would trigger the provisions of section 56 include the following: the contract’s subject matter is destroyed; performance has turned unlawful; the reason for entering into the agreement is no longer valid; performance has been unduly delayed; the performer has passed away or is no longer able to perform; and so on. On the other hand, the clauses of section 56 would not apply in the following situations: the contract is executed; the risk is inherent in the agreement; the frustration is self-initiated; the contract can still be implemented; or the basis of the agreement is not materially damaged. Although there have been numerous instances of Indian courts incorrectly applying section 56 to cases involving contingent contracts, a contract should be subject to the provisions of section 32 rather than section 56 if the circumstances and factors leading to contract frustration are addressed in the contract either explicitly or implicitly. Nevertheless, despite the specific clause, such intervening conditions and circumstances may discharge the contract under section 56 if the terms of the contract have not anticipated the extent to which they genuinely interfere with the performance of the relevant contract. With carefully drafted and precisely defined clauses, like a force majeure clause, the contracting parties can steer clear of the gray area created by unforeseen circumstances. These clauses may divide up the parties’ risks in the event of an intervening circumstance. The extent of the clause will establish whether or not it covers the supervening event; if not, section 56 may need to be applied. The key factors guiding the interpretation of the clause’s scope are market and business practices. In order to preserve the confidence of contract parties, it is critical that rights and responsibilities under a contract be enforceable. This is achieved by applying the doctrine and clauses like force majeure clauses narrowly. Despite having its origins in Common Law, the doctrine of frustration has undergone significant and continuous growth under Indian law, with its codification in section 56. 

References 

1. M.P. Ram Mohan, Promode Murugavelu, Gaurav Ray, and Kritika Parakh, The Doctrine of Frustration under section 56 of the Indian Contract Act, Indian Institute of Management Ahemdabad, 3, 2020. 

2. Scribd.com, https://www.scribd.com/document/420845365/Doctrine-of-Frustration-Research-Paper , 31 December 2023. 

1. Taylor v. Caldwell, [1863] EWHC QB J1 122 ER 309;3 B. & S. 826 ↩︎
2. Paradine v. Jane,  82 E.R. 519 ↩︎
3. National Carriers Ltd v. Panalpina (Northern) Ltd, (1980) UKHL J1211-1 ↩︎
4. Krell v. Henry, (1930) 2 KB 740 ↩︎
5. Davis Contractors Ltd. v. Fareham Urban District Council, (1956) UKHL 3 ↩︎
6. Satyabatra Ghose v. Mugneeram Bangur and Co. , 1954 AIR 44 1954 SCR 310
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