Introduction
In a general scenario, frustration means defeated, and this concept has been commonly used in parties’ agreements and contracts. The word frustration is used to deal with transactions that were ineffective and could not be completed because for some reason. The doctrine of frustration has arisen in the law of contracts as one of the most common problems that have come to resolve broken contracts. Frustration occurs if, without default of either side, a contract becomes difficult to execute after its formation; the doctrine is also referred to as subsequent or supervening inability, and its effect is to free the parties from their contractual obligations. Until the 19th century, a doctrine of total duty to execute a contract was followed by common law. In the Black’s Law Dictionary, the word “frustration” has been described as “preventing or hindering the accomplishment of a goal, such as contractual performance” and concerning “contracts” the term has been described as “the doctrine that if the main intention of a party is significantly frustrated by unanticipated modified circumstances, the duties of that party are discharged and the contract is assumed to be terminated”.
Indian scenario of the doctrine of frustration:-
The impossibility of the performance of the contract is base on the doctrine of frustration. This doctrine is founded on the principle ‘Lex non-cogit ad imposibilia’ i.e. that the law does not require something difficult to do. In India, as the doctrine of frustration itself embodies Section 56 of the Contract Act, the dispute is reasonably narrow. Accordingly, the discharge of the contract must be analysed well within the framework of Section 56 of the Contract Act. However, it cannot be completely ruled out that, as known in English law, the doctrine of frustration does not fall under the limits of Section 56 of the Contract Act. The judgement of the Supreme Court of India in the case of Satyabrata Ghose versus Mugneeram Bangur & Co & Anr5 the doctrine of frustration was thoroughly addressed in Section 56 of the Contract Act. The same was followed in India since that time. In the case of Satyabrata Ghose (supra), the SC held that the “doctrine of contract frustration is simply an element or part of the rule of discharge of the contract by way of resolving the impossibility or illegality of the act agreed to be executed and thus falls within the scope of section 56 of the Indian Contract Act.” Indeed, the impossibility of performance and frustration is sometimes synonymous. In relation to English law, the Supreme Court made it clear that the term unlikely was not used in the sense of physical or literal impossibility. From the point of view of the object, the execution of an act can be impracticable and meaningless, and the courts have to determine if it forms the basis of the contract correctly.
It was noted in Sushila Devi vs. Hari Singh that the impossibility envisaged by section 56 of the Contract Act is not limited to anything that is not humanly conceivable. As it was a case of the land rental, the property in question located in Gujranwala went to the side of Pakistan after the tragic partition, rendering the terms of the arrangement unlikely.
Nirmala Anand vs. Advent Company Pvt. is another Supreme Court case. The lawsuit involved a suit for precise fulfilment of a deal for the purchase of an apartment in a house on a plot rented out by the municipality. The court held that unless the appropriate authorities were moved and the appeal for agreement or punishment was refused once and for all and that the denial eventually becomes irresolutely binding and made unlikely the execution of the contract resulting in dissatisfaction 56, the relief cannot be rejected because such barriers were found.
To determine that a contract is frustrated, it is important to fulfil the conditions stated below:-
- A legitimate and subsisting contract must exist between the parties;
- There must always be a section of the contract to be executed;
- That part of the contract which is not yet executed should become impossible or unlawful, and that part of the contract which is not yet executed should become impossible or unlawful; and
- That the impossibility should be for reasons which the promisor could not avoid for any case.
Difference between section 56 and section 32 of the Indian contract act, 1872:-
When addressing the doctrine of frustration of contract, we should also keep in mind the distinction between Section 326 and Section 56 of the Contract Act.
Section 32 endorses two aspects: (1) the contingent contract is enforceable only in an uncertain case; and (2) the contract shall be void if the event of the contract, as foreseen by the parties at the time of contract entry, appears impossible.
The second part takes into account that if the “case” becomes unlikely, then the contract will be invalid. Accordingly, according to Section 32 of the Contract Act, if the specified case in which the contract is subject becomes unlikely, the contract shall be void. Whereas, according to Section 56, the parties have not considered, at the time of entering into the contract, any other occurrence as a result of which the contract could become void.
Exceptions:-
However, in certain circumstances of the contract, Section 56 of the Contract Act does not apply.
- In a situation where the act becomes difficult to perform, there is no frustration: – If because a subject matter has gone away from their hands, the Parties may still exercise their primary obligation, there can be no frustration. There are situations where the contract becomes difficult to execute due to changes in certain external circumstances, but it has not yet become impossible to perform. This exception was noted in the case of Pacific Forest Industries Sdn Bhd v Lin Wen-Chih.
- Self-induced frustration: – A party cannot rely on “self-induced frustration,” that is, frustration due to its actions or the behaviour of those for whom it is responsible. The doctrine of frustration asserts that it was not the fault of any party to the contract that caused the frustrating circumstance. The nature of frustration is that the party’s behaviour or option should not be attributed to it.
- If at the time the contract was made, the promisor knew or should have known that the commitment was physically impractical or unlawful to make, there would be no frustration.
- Where the parties themselves have provided for the situation that has arisen in the contract, the clauses in the contract shall apply. There is no anger at all.
Effect/Consequences of the doctrine of Frustration
A contract becomes ‘void’ after getting frustrated. In simple words, the contract is determined and discharged upon the occurrence of an event that makes the contract impossible or unlawful. In the event of frustration, the agreement itself is avoided, and the parties are automatically discharged.
However, section 56 of the Contract Act provides for liability to be owed for loss of non-performance if that party was aware of the same. If a promisor knew or should have known with fair caution that the act he had agreed to perform was impossible or unlawful, but the pledge did not know the same thing, the promisor is responsible for compensating for the loss that the promise would incur because of the promisor’s non-performance in such a scenario.
Section 65 of the Contract Act is also worth mentioning in the light of contract frustration. Section 65 postulates that the person who has received some benefit under such a contract is ‘bound’ to restore it or to make restitution for it, from whom he received it when an agreement is found to be invalid, such as in the case of a contract being frustrated.
Conclusion:-
The law on contract frustration in India is, by statute, better than that of English law. There is no understanding of judges as to whether a contract is frustrated. But there are marginal shifts in opposing views in India, as the provisions are well-defined.
The legislation on frustration in India seems to be sounder than the English law in the light of the clause of Article 56. It is necessary to note that the fear of violation by any dishonest party of the theory of supervening impossibility has been properly resolved by empty paragraph three of section 56, which obliges a person who, with any innocent person, is otherwise void, ignoring the fact that such an agreement is otherwise invalid. This form of structural arrangement is not defined under English law. It was established by the Indian courts by an interpretation process. The position played by the Supreme Court put it on a reasonably simple basis, by its outstanding judicial craftsmanship itself, in a clear manner, and any complexity there has been in the past has been significantly overcome in the implementation of the doctrine.
References: –
Indian Contract Act, 1872
https://www.conventuslaw.com/report/india-frustration-of-contract-impossibility-of/
https://www.mondaq.com/india/contracts-and-commercial-law/407868/doctrine-of-frustration
https://www.natlawreview.com/article/client-alert-introduction-to-doctrines-impossibility-and-frustration-purpose
https://www.natlawreview.com/article/client-alert-introduction-to-doctrines-impossibility-and-frustration-purpose
https://www.soolegal.com/roar/doctrine-of-frustration-and-force-majuere
https://www.studocu.com/my/document/multimedia-university/contract-law/other/doctrine-of-frustration/8684181/view
http://www.legalserviceindia.com/legal/article-2528-doctrine-of-frustration.html
http://www.legalserviceindia.com/legal/article-626-frustration-of-contracts-the-indian-perspective.html
https://www.irglobal.com/article/covid-19-and-frustration-of-contracts-an-indian-context/
https://www.dlapiper.com/en/poland/insights/publications/2020/06/covid-19-force-majeure-and-frustration/
https://www.dlapiper.com/en/poland/insights/publications/2020/03/coronavirus-covid-19-and-frustration-is-your-contract-at-risk/
https://www.legal500.com/developments/thought-leadership/force-majeure-and-frustration-of-contracts-during-covid-19/
