Frustration of Contract 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.
Merriam Webster defines the term contract: “a binding agreement between two or more persons or parties especially: one legally enforceable”.
Merriam Webster defines the term frustration as” a deep chronic sense or state of insecurity and dissatisfaction arising from unresolved problems or unfulfilled needs” In contract when a party does not fulfill the needs of other for which the contract was formed then the other party feels frustrated and hence the term frustration of contract. But when this frustration is due to certain impossibility beyond the control of parties then doctrine of frustration comes in place.
The Indian Contract Act, 1872, does not specifically define frustration of contract. However, the doctrine is envisaged in Section 56 of the Act. Section 56 of Indian Contract Act deals with the doctrine of frustration as being acts which cannot be performed. Under this doctrine a promisor is relieved of any liability under a contract in the event of the breach of contract and contract will be deemed to be void. A valid contract becomes void if it subsequently becomes illegal or its performance becomes impossible due to change in subsequent events. The impossibility could be due to flood, fire, natural disaster, epidemics, strike, riot, civil war, etc. The contract is said to be frustrated. A contract may be frustrated when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfill the contract.
The doctrine of frustration was initially used by the English Courts in 1863 in the case of Taylor vs. Cardwell. In this case, an opera house, which was rented for holding concerts, was destroyed by fire. The Court held that the contract was frustrated because the very thing on which the contract depended on ceased to exist.
The doctrine of frustration was named in England in the case of Krell vs. Henry in 1903, wherein the Defendant C. S. Henry rented out the London apartment owned by the Plaintiff Krell to be used for witnessing a royal parade. The procession was abandoned, nevertheless, and the Defendant refused to give the Plaintiff the remaining rent money. The Court determined that the procession served as the basis for the contract and that the defendant was exempt from performance because his original motive for doing so had been defeated.
Doctrine of frustration is applicable only when- The object of the contract has become impossible to perform.
- An event has occurred making the performance of the contract to be impossible beyond the Control of promisor.
Doctrine of frustration is only applicable in circumstances of Subsequent Impossibility and where it was always impossible to carry out the terms of the contract. It is also not relevant when there was just a minor delay in performance and the contract is still capable of being carried out.
The theology of frustration currently only covers a small area. There are two main causes for this. The courts do not want to permit a party to use the doctrine of frustration in an effort to get out of a deal that has turned out to be a bad one, which is the first reason. As per a prominent case[1] “The frustration is not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains”.
The second is that parties to commercial contracts frequently include clauses in their agreements that address the potential effects of different catastrophic occurrences on their contractual commitments.
As a result, phrases relating to hardship, force majeure, and interveners are regularly included in commercial contracts. Due to the fact that the contract is not frustrated when clear provisions for the event that has already occurred have been made in the contract itself, these clauses have the effect of lessening the practical significance of the theory of frustration. Therefore, the practical application of the notion of frustration is constrained by how broad the reach of contractual agreements is.
What is Force Majeure Clause?A “force majeure” clause is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. In the absence of a force majeure clause, parties to a contract are left to the mercy of the narrow common law contract doctrines of “impracticability” and “frustration of purpose,” which rarely result in excuse of performance. Instead of relying on the common law, they can better achieve flexibility during times of crisis through a carefully negotiated force majeure clause.
Determining which types of circumstances will be covered by the force majeure clause is essential. Provisions often cover natural disasters like hurricanes, floods, earthquakes, and weather disturbances sometimes referred to as “acts of God.” Other covered events may include war, terrorism or threats of terrorism, civil disorder, labor strikes or disruptions, fire, disease or medical epidemics or outbreaks. Death or incapacity of a party:- Where a party to the contract has died after entering into contract or the party is incapable of performing the contract, in such a situation the contract will be void (Robinson v Davison).
Frustration by virtue of legislation:- Where, a law promulgated after the contract is made, makes the performance of the agreement impossible and thereby the agreement becomes void (Rozan Mian v Tahera Begum). Frustration due to change of circumstances:- This particular situation deals with those cases where there was no physical impossibility of performance of the contract, but because of the change in circumstances, the main purpose for which the contract was entered into has been defeated. Frustration of a contract makes the contract void, and discharges the parties of the contractual obligations. However, Section 65 of the Act states that when an agreement has become void, the person who has received any advantage under such agreement is ‘bound’ to restore it or to make compensation for it, from which he received it.
Important precedents to look upon Paneshwari Das Mehra vs. Ram Chand Om Prakash. AIR 1952 34,38 In this matter Court held that whether this change of circumstances has affected the performance of the contract to such an extent as to make it virtually impossible 0r extremely difficult or hazardous. If the change of circumstances not having been brought about by the fault of either party, the court will not enforce the contract.
Supreme Court in the case of Satyabrata Ghose v. Mugneeram Bangur & Co. observed “This much is clear that the word ‘impossible’ has not been used here in the sense of physical or literal impossibility.
The performance of the act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose which the parties had in view…”
Supreme Court in Naihati Jute Mills Ltd v. Khyaliram Jagannath opined that a contract will be dissolved when “legislative or administrative intervention has so directly operated upon the fulfillment of the contract for a specific work as to transform the contemplated conditions for a specific work as to transform the contemplated conditions of performance.”
Maritime National Fish Ltd v Ocean Trawlers Ltd – Court said that the essence of ‘frustration’ is that it should not be due to the act or election of the parties. Frustration should arise without blame or fault on either side. Reliance cannot be placed on a self-induced frustration.
Cases when Frustration does not happens.a. Difficulty in performance- According to the House of Lords, frustration may not occur if the parties may still fulfil their primary commitment even though they no longer have control over the situation. There are instances where a contract’s performance becomes challenging but not impossible due to a change in specific external circumstances. The contract can still be performed and completed before the deadline by hiring extra personnel or extending the hours of work even though construction work was halted for three days due to rain. b. Failure of third party- Any contract, whether it be for business or otherwise, involves numerous auxiliary parties who support those parties in the background and are referred to as third parties in addition to the contracting parties. The third parties that often provide the contracting parties with raw materials have an impact on the contract between the principal contracting parties. Sometimes the main contracting parties fail to fulfil their obligations under the agreement due to the fault of those third parties, but this does not invalidate the agreement because the contracting parties were not at fault.
ConclusionFrustration occurs whenever the law recognizes that without default of the either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.
Force majeure clauses help the parties to avoid or lessen their obligations in case of happening of as supervening event which is beyond their control. If force majeure clauses is not present in the contract then the concept of frustration of contract as present in the common law and recognized by section 56 of the Indian Contract Act, 1872 would operate to save the parties from any liability because of the non-performance of the contract.
This article is written by Mr. Varun Ahuja,Partner at Ahuja Law Offices, New Delhi
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