Doctrine of Frustration – Indian Contract Act
Where after executing a contract, it becomes impossible to perform then such impossibility of performance of contract is known as Doctrine of Frustration.
Doctrine of Frustration is govern by Section 56 of the Indian Contract Act whereas it’s Effects are provided under Section 65 of the Indian Contract Act.
Table of Contents
- Meaning of Doctrine of Frustration
- ’les non cogit ad impossiblilla
- Initial Impossibility
- Commercial hardship
- Specific grounds for pleading frustration of contract
- Death or incapacity of party
- Government, legislative and administrative interventions
- Non-occurrence of contemplated event
- Change of circumstance
- Destruction of subject-matter
- Effects of frustration
- Frustration should not be self-induced
- Restitution under frustration
- Discovered to be void
- Becomes void
Section 56 of the Indian Contract Act, is based on the maxim,
‘’les non cogit ad impossiblilla” which means “the law does not compel a man to do what he cannot possibly perform.”
Initial impossibility [Section 56]
Section 56 of The Indian Contract Act, 1872 begins by “an agreement to do an act impossible in itself is void”. For instance, agreement between 2 parties to discover treasure through magic, as it is impossible to performance, is void. An agreement to do an act that is impossible from the very beginning, the agreement itself will be void.
Subsequent impossibility [S.56]
If parties enter into a contract and at the time of entering into a contract, there was possibility of performance of contract but due to some supervening reasons or factors, beyond the control of either of the parties the performance of the contract becomes impossible or unlawful. Such Agreements become void. Example – A agrees to sell his land to B but thereafter due to change in Governmental policy, the Government decided to take over said land for their official purposes. Here, the contract is affected by doctrine of frustration as it cannot be performed and B cannot sue A for non-performance of his obligation as the performance of A’s duty has become impossible.
Taylor v. Caldwell
The defendant allowed plaintiff to use their music hall for a concert. However, before the performance could happen in music hall, the hall was destroyed by fire without the fault of either of the party. The plaintiff sued defendant for non availability of music hall. The court held that the performance of the contract has become physically impossible because of the destruction of the subject-matter( the music hall) .
If there is no possibility of the performance of the contract because it would be unlawful to do that, such agreement is void. According to the Section 23, every agreement of which the object or consideration is unlawful is void.
For example, A contracts to marry B but B is already married to C, and being forbidden by the law to which he is subject to practise polygamy. The arrangement by A to marry is void.
In cases where the very reason/object stands frustrated, the reason for parties to do contract fails to materialize then the contract becomes void.
Krell v. Henry.
Defendants took a flat on rent for the coronation procession from plaintiff. However, owing to the King’s illness the procession was cancelled and the defendants refused to pay the balance amount, as the purpose for which defendants took flat got defeated.
The court held that the doctrine applies to the very object of the contract and as both the contracting parties knew that the coronation was the main object of the contract. The very object of the contract was frustrated by the non-happening of the coronation and the court held plaintiff is not entitled to receive balance.
Hence, the doctrine of frustration applies in 2 scenarios,
- Where performance is physically impossible or legally impossible.
- Where the very object/reason of contract has failed to materialise.
A Change in situation where performance is very much possible but only become difficult or costly does not fall under the scope of Section 56 of Indian Contract Act.
Sachindra Nath v. Gopal Chandra.
Plaintiff let out certain property to defendants for the purpose of running a restaurant at a rate higher than usual. The defendants agreed expecting huge profits as the British soldiers were stationed in the town.
However, due to government order, soldiers departed from that area. As no profit was materialised as was expected by the plaintiff. The defendants pleaded frustration and refused to pay rent. The court quashed their plea and said that the change in circumstances must upset the purpose of the contract and mere unprofitability cannot render the contract to be frustrated.
Specific grounds for pleading frustration of contract
1. Death or incapacity of a party
Where a contract requires personal performance, death or incapacity of party puts an end to the contract.
Robinson v. Davison
A contract drafted to perform piano at a concert. But due to sudden illness of the defendant, she was unable to perform at concert. As a result, the concert was postponed by the plaintiff and he suffered losses due to postponing the concert. The plaintiff sued defendant for damages. The court said that the contract was frustrated as she became ill without there being any mistake or negligence on her part. The contract terms required personal performance and incapacity by the means of illness put the contract to an end, so suit was quashed by the court.
2. Government, legislative and administrative interventions
At the time of entering into a contract, the performance was possible and lawful but after entering into the contact, it becomes impossible or unlawful due to Legislative or Administrative intervention.
Example – Owner of a land ceases to be the owner, as government land of owner. Since the government had acquired the land and becomes owner therefore contract for sale of land becomes frustrated due to the impossibility of performance.
Man Singh v. Khazan Singh,
Parties agreed to the sale of trees in forest. Later, Rajasthan Government passed an order that cutting of the trees in that forest is prohibited. The contract becomes frustrated.
3. Non-occurrence of contemplated event
Krell v Henry case mentioned above.
4. Change of circumstance
Easun Engineering Co Ltd v. Fertilizers and Chemicals Travancore Ltd.
A price hike of 400% of a certain type of oil due to the outbreak of war in the Middle East. The appellants plead of commercial hardship and hence damages should be awarded for breach of contract.
The court said that the price escalated out of all proportions making things impossible for the respondents to supply the oil. Commercial Hardship is about not allowing a party to avoid the contract for lack of profitability. But 400% increase in prices makes contract impossible to perform so, the contract frustrated.
5. Destruction of subject-matter
Taylor v Caldwell mentioned above.
Effects of frustration
1. Frustration should not be self-induced
Maritime National Fish Ltd v. Ocean Trawlers Ltd.
The appellants hired a trawler (fishing vessel) named “St.Cuthbert” from the respondents. The trawler was hired to be used in Canadian waters only for which Canadian Government license was required to be taken and this fact is very well known by both the parties. The appellants took 5 trawlers but the Canadian Government gave license to only 3 trawlers. Appellants name the 3 trawlers for which they wanted to use the license for. The appellants did not include St.Cuthbert. while naming 3 trawlers for licensing but when Canada government seized the said trawler, the appellants repudiated the contract and pleaded frustration.
The courts held that there is no frustration of contract , as the impossibility of performance was induced by the acts of the appellants himself and not by a supervening act.
Restitution under frustration (S.65)
Section 65: A person obliged to restore who received advantages under void agreement, or contract that becomes void.—When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.
1. Discovered to be void
If parties enter into an apparently valid contract and passed benefits under the contract. But later on they discover that the agreement was void ab initio then the benefits passed under the agreement which they believed to be valid have to be returned or resituated to the other party.
In Devinder Singh v. Shiv Kaur
A minor gave a shop to the defendant under a partnership but it was later discovered that the agreement was void. The court held that the minor could recover the shop back.
The intention of Section 65 is to restore any benefits which were given under void agreement. For this section to apply to the parties and restitution to happen the parties should not be aware of its void nature, it has to, later on, be discovered to be void. If parties are aware that contract is void and still enter into a contract then the benefit of restitution shall not be available.
2. Becomes void
Benefit under valid contract has to be restored, once valid contract becomes void.
Fibrosa Spolka Akeyjna v. Fairbairn Lawson Combe Barbour Ltd
Advance paid for the purchase of machinery from neighbouring country but due to war the contract was frustrated. Any advanced under a valid contract shall have to be returned if contract became unlawful subsequently. The benefits must be passed under the valid contract only not after it became void.
The doctrine of frustration is an exception to the general rule of contracts as provided under Section 56 of The Indian Contracts Act, 1872. A contract stands frustrated when no fault of either of parties can be proved, then performance of the contract becomes impossible. So, any party benefited must restore the benefit.