Doctrine of Frustration : Meaning, Applicability, Conditions, and Effects

What is a Contract?

Indian Contract Act, 1872 is a central law, and it validates the contracts or agreements between various parties. Contract Act regulates and oversees all the business in case of any deal or an agreement. An agreement involving legal enforceability is said to be a contract. It specifies the responsibilities of the parties concerned. In every contract, the offeror makes an offer to enter into a contract with the offeree. Hence, a contract is anything that is an agreement and enforceable by the law of the land subject to the presence of all the essential elements to form a valid contract.

Meaning of ‘Contract’ as per The Indian Contract Act, 1872

The Indian Contract Act, 1872 defines the term “Contract” under its section 2(h) as “An agreement enforceable by law”. In other words, we can say that a contract is anything that is an agreement and enforceable by the law of the land.

Geeky Takeaways:

• A contract is the heart of most professional relationships.
• A contract is legally enforceable which ensures that if one party fails to do what he or she has agreed to do, the other party can then proceed to the court as a result of violation of the terms of the contract.
• A contract can be considered valid only if it satisfies the essential elements of a valid contract.
• Thus, most importantly, a valid offer and a valid acceptance must be present in a contract to be legally enforceable.

Evolution of Doctrine of Frustration

The established rule of contracts provides that the parties in a contract must fulfill their part of obligations as per the contract. In any event of a breach, the party who is responsible for breaching the contract must compensate the aggrieved party for the damages caused to him.

The Doctrine of Frustration is an exception to this general rule. The Doctrine of Frustration discusses the impossibility of the performance of the contract. This doctrine states that the contract could not be performed by either of the parties for a reason that is beyond the limits of control, and when the contract’s performance becomes a supervening impossibility, the performance of such a contract becomes frustrated or it becomes impossible, complicated, or illegal. Frustration in a contract can arise due to any unforeseen, impossible events and events out of control of the parties to the contract.

To rectify the deficiencies in the theory of absolute liability, the concept of the Doctrine of Frustration was introduced. The court for the very first time recognized this doctrine in the case of Atkinson v. Ritchie (1809) where the court held that the loading of a British ship on a foreign port was impossible due to the outbreak of war between the two countries. Hence, the contract is frustrated.

Doctrine of Frustration

The term “Frustration of Contract” is not specifically defined in the Indian Contract Act, 1872. However, Section 56 of the Indian Contract Act also governs the agreement to perform impossible acts in India. This doctrine allows the court to void a promisor’s promise to perform an act that is impossible to perform. The entire contract will be rendered void when an act becomes impossible or unlawful to perform due to unforeseen circumstances that are beyond the control of the parties.

In pursuance to the Indian Contract Act, the term ‘frustration’ means a situation that makes the performance of a contract impossible, and hence, the contract becomes frustrated. One of the most important essential elements of a contract is that it must be capable of being performed. Section 56 of the Indian Contract Act, 1872 makes an agreement that is incapable of being performed void. It provides that:

• An agreement that is incapable of being performed is void.
• A contract to do something which afterward becomes impossible is also void.
• The promisor in this case must compensate for the non-performance of the contract.

In the case of Satyabrata Ghose v. Mugneeram Bangur and Co., the court used the Doctrine of Frustration to allow for the discharge of contractual obligations when performance becomes inherently impossible. This case law was of prominence importance in shaping the Doctrine of Frustration in the Indian Contract Act. It was held in this case that the basic idea upon which the doctrine of frustration is based is that of the impossibility of performance of the contract and the terms ‘expression’ and ‘impossibility’ can be used synonymously.

In the case of Taylor v. Caldwell, it was established in English law that a contract becomes frustrated when the performance to be rendered becomes impossible due to uncontrollable events.

Applicability of Section 56

Section 56 of the Indian Contract Act, 1872 plays a crucial role in the application of the Doctrine of Frustration. Section 56 states that agreements to do impossible acts will be considered void, and agreements will also be considered void when the contract becomes impossible or unlawful due to uncontrollable events.

For example,

• X agrees with Y to discover treasure by magic. The agreement would be held void.
• X and Y enter into a contract to marry each other. Before the time fixed for marriage, X goes lunatic. The contract here becomes void.

Section 56 of the Indian Contract Act of 1872 is based on the maxim “les non cogit ad impossibilia” which means that the law will not compel a man to do what he cannot possibly perform.

However, the contracts that specifically contain clauses to account for the consequences of unexpected developments are exempt from the application of the provisions of this section. In this case, the parties will still be obligated to adhere to the terms of the contract, even in the face of unforeseen events as the terms were explicitly mentioned in the contract.

Conditions Required to Establish Doctrine of Frustration

To establish the Doctrine of Frustration, the following conditions must be present in a contract:

• A valid contract must exist between the parties and all the essential elements of the valid contract should be present.
• The contract is not executed and the performance of the contract is unperformed.
• Performance of the contract becomes impossible due to certain unforeseen events.
• The impossibility of performance must have occurred due to uncontrollable events which are beyond the control of the parties.

Grounds for Doctrine of Frustration

1. Impossibility of Performance: The doctrine is triggered when the performance of a contract becomes impossible. This not only includes physical impossibility but also includes situations where the performance becomes impracticable, and the subject matter of the contract is disrupted.

2. Destruction of Subject Matter: Destruction of the contract’s subject matter is another case when the doctrine of frustration comes into play. So, due to this, the destruction of the subject matter of the contract becomes impossible to perform.

3. Death or Incapacity of a Party: In cases where the contract is based upon the personal performance of a party, the doctrine of frustration will come into action. If the person on whose performance the contract was based has died or becomes incapacitated to contract, in such a case the contract will be void.

4. Frustration by Legal or Government Intervention: In the case where a subsequent law is enacted that ultimately disrupts the foundation of the contract that was formed before such enactment, the contract becomes void as the performance is not possible.

5. Frustration due to a Change of Circumstances: This occurs when the impossibility is not due to a physical impossibility, but there has been a change in circumstances that defeats the primary purpose of the contract. The changes in the circumstances dissolve the contract.

6. The Intervention of War: The performance of any contract can also be disrupted if there is an outbreak of war. If the war has made the performance of the contract difficult or impossible to perform, the contract will be void and the doctrine of frustration shall be invoked.

Effects of Doctrine of Frustration

When the Doctrine of Frustration comes into play, and the performance is disrupted there can be the following effects:

1. Automatic Termination of Contract: Any occurrence or event that invokes the doctrine of frustration automatically terminates the contract. And once terminated, there is no need on the part of the parties to rescind the contract.

2. Discharge of Further Obligations: Once the contract is frustrated, both parties to the contract are released from any further obligations.

3. Accrued Obligations are Unaffected: All the legal rights or obligations that have already accrued before the contracts become frustrating, and all events that have occurred before remain unaffected.

Conclusion

The general rule of contract provides that the parties in a contract must fulfill their part of obligations as per the contract. In any event of a breach, the party who is responsible for breaching the contract must compensate the aggrieved party. The Doctrine of Frustration is an exception to the general rule and discusses the impossibility of the performance of the contract. The doctrine states that the contract could not be performed by either of the parties for a reason that is beyond the limits of control and when the contract’s performance becomes a supervening impossibility the performance of such a contract becomes frustrated or it becomes impossible, complicated, or illegal. Frustration in a contract can arise due to any unforeseen, impossible events and events out of control of the parties to the contract. The doctrine was introduced earlier the provisions regarding impossible contracts were very rigid. The doctrine is based on section 56 of the Indian Contract Act and also discusses the effects and grounds of the doctrine.

Frequently Asked Questions (FAQs)

1. What is a Contract?

Answer:

The Indian Contract Act, of 1872 defines the term “Contract” under its Section 2(h) as “An agreement enforceable by law”. Hence, a Contract is anything that is an agreement and enforceable by the law of the land, subject to the presence of all the essential elements to form it a valid contract.

2. What is the Discharge of the contract?

Answer:

The discharge of a contract takes place when none of the party to contract is left liable under it and the objective or responsibilities of the contract have been completed. Discharge of contract can also be called termination of the contractual relationship between the parties to the contract and also the rights and obligations of the parties which are created at the time the contract is made, also comes to an end.

3. What is the Doctrine of Frustration?

Answer:

This Doctrine of Frustration invokes to make a contract void when a promisor’s promise to perform an act that is impossible to perform. The entire contract will be rendered void when an act becomes impossible or unlawful to perform due to unforeseen circumstances that are beyond the control of the parties.

4. What are the effects of the Doctrine of Frustration?

Answer:

Following are the effects of the Doctrine of Frustration:

• Automatic termination of contract.
• Discharge of further obligations.
• Accrued obligations are unaffected.

5. When will the provisions of Section 56 not apply to a contract?

Answer:

When the contracts specifically contain clauses to account for the consequences of unexpected developments are exempted from the application of the provisions of this section. In this case, the parties will still be obligated to adhere to the terms of the contract, even in the face of unforeseen events as the terms were explicitly mentioned in the contract. (DDA vs Kenneth Builders and Developers Ltd.)