This article discuss doctrine of frustration, the condition in English law also the specific grounds on which it is applicable and the grounds where it is not applicable. It also discuss the theories of frustration and the effects of frustration along with the relevant leading case laws.
DOCTRINE OF FRUSTATRATION
Section 56(2) lays down the effect of subsequent impossibility of performance. Sometimes the performance of a contract is a quite possible when it is made, but some event subsequently happens which renders its performance impossible or unlawful. For example, after making a contract of marriage one of the parties goes mad or where a contract is made for the import of goods and the import is thereafter forbidden by a government order or where a singer contracts to sing and becomes too ill to do so.
ENGLISH LAW ON THE POINT
In Paradine vs. Jane.., it was pointed out that subsequent happenings should not affect a contract already made. It was held that “When the party by his own contract creates a duty, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against is by his contract.
In another case of Taylor vs. Caldwell Queen’s Bench (1863) 3 B & S 826 : 12 ER 309, Blackburn J laid down that the above rule is only applicable when the contract is positive and absolute and not subject to any condition either express or implied. In this case the defendants had agreed to let the plaintiff the use of their music hall between certain dates for the purpose of holding a concert there. But before the first day on which a concert was to be given, the hall was destroyed by fire without the fault of either party.
It was held that the concert was not absolute as its performance depended upon the continued existence of the hall. It was therefore, “subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible by the perishing of thing without default of the contractor.
This principle is not confined to physical impossibilities. It extends also to cases where the performance of the contract is physically possible, but the object the parties had in mind has failed to materialize. The well-known coronation case of which Krell vs. Henry (1903) Al ER Rep 20 is one which illustrates this point.
The defendant agreed to hire from the plaintiff a flat for June 26 and 27 on which days it had been announced that the coronation procession would pass along that place. A part of the rent was paid in advance. But the procession having been cancelled owing to the King’s illness, the defendant refused to pay the balance.
It was held that the real object of the contract, as recognize 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 contract. The object of the contract was frustrated by non- happening of the coronation and the plaintiff was not entitled to recover the balance of the rent
Thus the doctrine of frustration comes into play in two types of situations,
- Where the performance is physically cut off
- Where the object has failed.
The Supreme Court has held that Section 56 will apply to both kinds of frustration.
SPECIFIC GROUNDS OF FRUSTRATION
“The principle of frustration of contract or of impossibility of performance is applicable to a variety of contracts”. It is not possible to lay down an exhaustive list. Yet following are the grounds of frustration
- 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”. In Taylor vs. Caldwell QB(1863) & S 826, there a promise to let out a music hall was held to have prusted on the destruction at hall.
- Unusual 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”. This happens when the change of circumstances has affected the performance of the contract to such an extent as to make it virtually impossible or even extremely difficult or hazardous.
- Non – occurrence of contemplated event-
Sometimes the performance of a contract remains entirely possible, but due to the non- occurrence of an event contemplated by both parties as the reason for the contract, the value of the performance is destroyed.
- Death or incapacity of party-
A party to a contract is excused from performance if it depends upon the existence of a given person, if that person perishes” or becomes too ill to perform.
- Government or legislative intervention –
A contract will be dissolved when legislative or administrative intervention has so directly operated upon the fulfilment of the contract for a specific work as to transform the contemplated conditions of performance.
The effect of an administrative intervention has to be viewed in the light of the terms of the contract, and if the terms show that the parties have undertaken an absolute obligation regardless of administrative changes, they cannot claim to be discharged.
Following are not grounds of Frustration:
- Where merely performance has been delayed:
Mere delay in performance. When time is not essence of performance, does not lead the frustration as held in Satyabrata Ghosh vs. Mungnee Ram Bangur & Co.
- Mere commercial hardship (does not) amount to frustration:
In Alopee Prasad vs. Union of India, it was held that if hardship is of such type that it will ruin other party, then contract is frustrated.
- Frustration applies to executory contract and not to executed contract:
In India the question was considered by the Supreme Court in Raja Dhruv Dev Chand vs.Raja Harmohinder Singh AIR1968 SC 1024.., it was observed that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease.
In case of Sushila Devi vs. Hari Singh AIR 1971 SC 1956.., The Supreme court held that an agreement of lease ended by frustration where before completing the parties had to run away and not go to Pakistan to give or take permission
- Where the parties have in contemplation that there can be delay in the performance,
The delay will not result in frustration.
THEORIES OF FRUSTRATION
- Theory of implied term.-
The theory of implied term was explained by Lord Loreburn in F.A Tamplin SteamshipCo. Ltd vs. Anglo- Mexican Petroleum Products Co. Ltd. It was held that the courts do not have the power to dissolve a contract. But they can examine the circumstances of the contract to see whether the parties contracted on the footing that a state of things would continue to exist. If so, a term to that effect would be implied. If that term fails the contract should be over.
- Just and reasonable solution.
In a subsequent case the court really exercise a qualifying power- a power to qualify the absolute, literal or wide terms of the contract- in order to do what is just and reasonable in the new situation.
- Indian position
In deciding cases in India, the only doctrine that is to be seen is that of supervening impossibility or illegality as laid down in section 56 of the contract act taking the word “impossible” in its practical and not literal sense. It must be borne in mind, however that section 56 lay down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.
EFFECTS OF FRUSRTRATION
When there is frustration the dissolution of the contract occurs automatically & both parties are discharged.
- Frustration should not be self – induced:
It should not be due to the act or election of the parties. Frustration should arise without blame or fault on either side. The Privy Council held that the frustration in this case was the result of the appellants own choice of excluding the respondents ship from the license and therefore, they were not discharged from the contract.
- Automatic operation of frustration-
Frustration operates automatically to discharge the contract “irrespective of the individuals concerned, their temperaments and feelings, their interest and circumstances”.
This is particularly true of Indian law as sec 56 of the Contract Act lays down rule of positive law and does not leave the matter to be determined according to the intention of the parties. A subsequent case, however, shows that in circumstances frustration may be waived by one party and then the other will be bound by the contract.
The Supreme Court laid down that frustration puts an end to the liability to perform the contract. It does not exterminate the contract for all purposes. Whether the doctrine of frustration would apply or not has to be decided within the framework of the contract and if the contract contains an arbitration clause, the arbitrator could decide the matter of frustration.