Doctrine of Frustration

 ABSTRACT

• The Doctrine of Frustration, which is vested under the Indian Contract Act 1872, plays a significant role under law. It forms an obligation towards the parties in the contract to meet their contractual obligations so there is an equal amount of consideration. This serves as a safeguard against any unforeseen event that could arise from not following the contractual obligation so when the parties are allowed to terminate their contract.
• In this article, we will explore the Doctrine of Frustration under the Contract Act 1872, by having guided through the origin followed by the essentials, effects, applicability, and a few relevant case laws.

INTRODUCTION

• This doctrine is based on the legal maxim “Lex non cogit ad impossibilia” which translates to the law will not compel one to do the tasks which ought to be impossible in nature. When a party fails to play his role in the contract due to the impossibility of performing the contract, then the contract is said to be frustrated.[1]
• Frustration would mean that its defeated which is related to the unsuccessful transaction under the Contract Act. This is dealt with under Section 56[2], which plays a pivotal role in understanding the legal implications when an event is impossible to be performed under the said contract between the parties.
• This doctrine has not been defined under the Indian Contract Act. However, it has been enumerated in Black’s Law Dictionary that if there are unanticipated changes under the contract between the parties, then the contract is considered to be terminated. [3]This was established in the case Satyabrata Ghose v. Mugneeram Bangur and Co [4]that the contract will get frustrated when it becomes impossible to perform the act.

EVOLUTION

• This doctrine has been borrowed its origin from the Roman law. It could be traced back to the case of Paradine v Jane[5], where it was held that a tenant is obligated to pay rent even during the times when the land was held by the enemy forces. This case enlightened the doctrine of frustration. The origin of this doctrine could be traced back to the Queen’s Bench judgment in the case of Taylor v Coldwell[6], where it was held that hiring a music hall was not valid when the hall was destroyed which established the doctrine.
• Prior to this case, the laws regarding this doctrine were highly complex in nature where a contract that had involved unforeseen events would have not been regarded as invalidating the entire contract. With the evolution of this doctrine, wherever there ought to be found a ‘just and reasonable solution’ then the contract could be redacted.
• It could be pointed out that in the case of Krell v. Henry[7], where the development of this doctrine has been shown where the contract was to hire a flat for the coronation of King Edward VII but due to the illness of the King, the coronation stood canceled. With this, the plaintiff could still recover the portion of his deposits as the contract was frustrated.[8]

Position of this doctrine in India

• In India, the doctrine could find its place under the Indian Contract Act, where it has been enumerated under Section 56[9] which governs the impossibility of performing Acts which is allowed by the court to invalidate the contract. The most notable case in India in relation to this is the case of Satyabrata Ghosev. Mugneeram Bangur [10]and Co, where their defendant had agreed to sell a lot after constructing the roads and. Drains. However, the state acquired a large portion of the land during World War II, hence it was ruled out by the Supreme Court that the contract becomes void when it is impossible to perform an act.[11]

Applicability and Conditions

• section 56 [12] plays a crucial role in relation to the applicability of the doctrine of frustration. This section states that any agreements to do impossible acts shall be considered void when the contract becomes impossible to perform. However, it could be stated that contracts that contain precise clauses that state the consequences in view of unprecedented actions shall be exempted from this section.[13]
• One commonly used clause that provides relief to the parties is the ‘Force Majeur’ clause which translates to ‘Act of God’. This refers to an unforeseeable event which renders the whole contract void. This covers both natural and catastrophic disasters.[14]
• This could be enumerated in the case of Lebeaupin v. Crispin[15] that this clause could generally cover all events such as strikes, wars, riots, and acts of god, the burden of proof lies with the parties affected.

I. Conditions

• There should be a valid contract between the parties as prescribed under the Indian Contract Act, of 1872.
• The contract is still yet to be initiated.
• The performance of the contract should become impossible due to unpreceded events.
• Impossibility shall be beyond the control of the parties in the contract.

II. Grounds for the Doctrine

• Destruction of subject matter- The contract is considered to be impossible to complete when the subject matter is completely demolished. 
• Impossible to perform the act- the contract may sometimes render it almost impossible to perform due to the circumstances which arise which are outside the reach of the parties.
• Death, Delay, or incapacity of a party- if either of the parties dies from unforeseen circumstances, the contract shall be demolished due to non-completion of the contract.

• Legal intervention- when there is an intervention by the government or other legal entities, this would render the contract to be impossible for performance. Hence, it’s frustrating.

• Change in circumstances- there might be few changes in the circumstances but when these set of changes lead to divert from the primary goal of the contract then the said contract shall be void.

• War intervention. – the contract can be exempted if there are any outbreaks relating to war[16]

III. Effects  

• Contract is frustrated automatically- the generally accepted rule of the doctrine of frustration is that the contract would automatically come to an end when it’s frustrated. The parties have no necessity to rescind their contract on their own.
• Both parties are discharged from any future obligations- this doctrine would help to discharge any obligations that are required to be completed when the contract is frustrated.
• Restitution- At the initial stage where either party had performed a part of their contract before the happening of frustration, the parties could be asked to recover the amount of contribution they had made earlier for the performance.
• The legal right accrued before the frustrating event.- any legal right which arose before the contract is left unbothered.[17]

Right and obligation arising after the doctrine

• When the contract is frustrated due to the circumstances that arose leading to the impossibility of performing the contract, this in turn alters the claims which are being made by the parties to the contract. Hence, here are a few rights arising after the contract.

1. Prior obligations- there are circumstances where the obligations need to be completed before the said contract is frustrated if a party has benefitted from the contract then they shall be required to pay for the services rendered, this could be explained by an example. If there was a contract between the buyer and the seller and the buyer would’ve paid for the service to be rendered but due to unforeseen circumstances the seller is not in the position to render those services hence, the seller shall be obliged to return the consideration paid before by the buyer.
2. Discharge of further duties and obligations- when there is frustration occurring between the parties, then the said contract shall be discharged from any other further duties that were intended earlier before the event. This could be explained with an example, if a store is obliged to render certain goods to the buyer but due to some unexpected natural event demolishes the goods, the said contract shall be discharged.
3. No penalties nor liabilities- frustration could only be termed as those events which are far beyond the reach of the parties and have no control over the happening. Hence, the parties shall not be charged for those circumstances. This could be explained with an example, if a company’s business was abruptly stopped due to a. natural disaster, the company is not the one at fault nor the buyer.[18] 

Boundaries of the doctrine

• In order for this doctrine to take accountability, the level of the situation that arises should be severe in nature which shall make the primary goal of the contract impossible to perform by both parties. Any inconveniences which are minor, or cost increment shall not be the reason to render the contract void. [19]

Reciprocity between Doctrine of Frustration and Force Majeure Clause 

• Force majeure applies when parties have expressly agreed on the provisions.
• The clause under Force Majeure is drafted uniquely.
• Force majeure clause may precede over the doctrine of frustration.
• Notice under frustration is irrelevant whereas in force majeure, plays a vital role.
• Parties can suspend the contract but not terminate under force majeure.[20]

How the Force Majeure clause plays a vital role in this doctrine 

• Underling procedures- The Force majeure clause would have normally set out a predetermined set of rules that the parties ought to follow when the said event occurs.
• Flexibility in contract- This clause allows the contract to be suspended due to the occurrence of said event.
• Determine risks- This clause helps to determine all the risks which are ought to arise so the parties shall have an idea about the circumstances. While generating this, it also helps the parties to maintain their business ties.
• Allocation of risk- when an unforeseen event takes place while in performance of the contract, this clause would’ve well before laid down the risk which the parties are required to take in and this helps to minimize the unfair shift of risk upon one party only.

Conclusion

• It could be concluded by stating that, the doctrine of frustration is recognized when fault of the parties, the contract becomes impossible to be performed due to the surrounding circumstances. This acts as to excuse the parties when the said objectives of the contract have changed rendering it not possible to perform.
• This doctrine acts as an exception to the general principles of a contract to act as a compensatory for the breach of contract where there is no fault of the parties involved in the performance of the contract. Hence, they are exempted from compensating for the loss.

Reference(s):

[1] legalserviceindia.com. (n.d.). Doctrine Of Frustration. [online] Available at: https://www.legalserviceindia.com/legal/article-2528-doctrine-of-frustration.html#google_vignette [Accessed 8 Jun. 2024]

[2] Indian Contract Act, 1872.

[3] Ram, M., Promode, M., Gaurav, M. and Parakh, R. (n.d.). The Doctrine of Frustration under section 56 of the Indian Contract Act. [online] Available at: https://www.iima.ac.in/sites/default/files/rnpfiles/8569076382020-10-01.pdf

[4] AIR 1954 SC 44.

[5] [1647] EWHC KB J5.

[6] [1863] 3 B&S 826.

[7] [1903] 2 K.B. 740.

[8] Kulshrestha, V. (2023). The doctrine of Frustration under the Indian Contract Act 1872. [online] StartupFINO. Available at: https://www.startupfino.com/blogs/doctrine-of-frustration-under-indian-contract-act-1872/ [Accessed 8 Jun. 2024].

[9] Indian Contract Act, 1872.

[10] AIR 1954 SC 44.

[11] Garg, R. (2023). The doctrine of Frustration under the Indian Contract Act,1872. [online] iPleaders. Available at: https://blog.ipleaders.in/doctrine-of-frustration/ [Accessed 9 Jun. 2024]

[12] Indian Contract Act, 1872.

[13] GeeksforGeeks. (2024). Doctrine of Frustration: Meaning, Applicability, Conditions, and Effects. [online] Available at: https://www.geeksforgeeks.org/doctrine-of-frustration-meaning-applicability-conditions-and-effects/ [Accessed 9 Jun. 2024].

[14] Investopedia. (n.d.). Vis Major: What It Is, How It Works, Exceptions. [online] Available at: https://www.investopedia.com/terms/v/vis-major.asp#:~:text=What%20Is%20a%20Force%20Majeure [Accessed 9 Jun. 2024]

[15] [1920] 2 KB 714.

[16] legalstixlawschool.com. (n.d.). Legalstix Law School | Blogs | Frustration of Contract under Indian Contract Act 1872. [online] Available at: https://legalstixlawschool.com/blogs/Frustration-of-Contract-under-Indian-Contract-Act-1872 [Accessed 19 Jun. 2024]

[17] Enterslice. (2019). The doctrine of Frustration under the Indian Contract Act, 1872. [online] Available at: https://enterslice.com/learning/doctrine-of-frustration-under-the-indian-contract-act-1872/

[18] Sharma, A. (2024, June 11). The doctrine of frustration in contract law. Jus Scriptum. https://www.jusscriptumlaw.com/post/doctrine-of-frustration-in-contract-law

[19] Kulshrestha, V., & Kulshrestha, V. (2024, June 12). The doctrine of Frustration under the Indian Contract Act, 1872. StartupFINO. https://www.startupfino.com/blogs/doctrine-of-frustration-under-indian-contract-act-1872/

[20] www.bankside.co.nz. (n.d.). Frustrated by Coronavirus? Part 1: A brief comparison between frustration and force majeure | Lauren Lindsay | Bankside Chambers. [online] Available at: https://www.bankside.co.nz/post/frustrated-by-coronavirus-part-1-a-brief-comparison-between-frustration-and-force-majeure [Accessed 9 Jun. 2024].