India: Doctrine Of Frustration

"It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep." – Lord Wright (Fibrosa Case)

Frustration is an act outside the contract due to which the completion of a contract becomes impossible. After the parties have concluded a contract, events beyond their control may occur which frustrate the purpose of their agreement, or render it very difficult or impossible, or as even illegal, to perform. An example of this is where a hall, which has been booked for the performance of a play, is destroyed by fire, after the contract has been concluded, but before the date of performance of the play.

The origin of the 'Doctrine of Frustration' as many other laws has been from the Roman laws. It was part of the Roman contract law which extinguished obligations of innocent parties where the 'thing is destroyed without the debtor's act or default', and the contract purpose has "ceased to be attainable". It was applied in Roman times, for instance, to save, from liability, a man who promised to deliver a slave by a certain day if the slave died before delivery.

Centuries later in England in 1863, in the case of Taylor vs. Cardwell1 it was held that when an opera house, which was rented for holding concerts, was destroyed by fire, the contract was frustrated. This was because the very thing on which the contract depended on ceased to exist. Thus it was held that for the doctrine of frustration it must be so that the nature of contract is such that it would not operate if a thing ceased to exist

Again in Paradine vs. Jane2 it was held that, 'In common rule of contract a man was bound to perform the obligation, which he had undertaken, and could not claim to be excused by the mere fact that performance had subsequently become impossible; because the party could expressly provide in their agreement, the upon fulfillment of a condition or occurrence of an event, either or both of them would be discharged of some or all of their obligations under the contract. This was the concept of 'absolute contract'. After various instances of people being excused for failure of performance of contract, the Doctrine was named in England in a rent case of Krell vs. Henry3 in 1903, when an Englishman named Krell leased his apartment in London to C.S Henry to be used for viewing a royal procession, which subsequently got cancelled and Henry refused to pay krell the balance of the rent. Krell sued, but the English court held against him on the ground that the purpose of the contract between them was "frustrated". The court thought if Krell and Henry had foreseen the cancellation of the King's procession, they would not have entered into the agreement. It found that the procession was the foundation of the contract. The English law extended the principle beyond cases where the subject matter of the contract was destroyed rendering performance impossible, to cases where impossibility of performance follows the cessation of an "express condition or state of things" essential to the contract.

The doctrine of frustration is present in India u/s. 56 of the Indian Contract Act 1852. It says that any act which was to be performed after the contract is made becomes unlawful or impossible to perform, and which the promisor could not prevent, then such an act which becomes impossible or unlawful will become void. It lays down a rule of positive law and does not leave the matter to be determined according to the intension of the parties. This section clearly does not apply to a case, in which although consideration of contract is lost, performance of promise on other side is still possible.

In Satyabrata v. Mugneeram4 the Supreme Court has observed that various theories have been propounded regarding the juridical basis of the doctrine of frustration yet the essential idea upon which the doctrine is based is that of the impossibility of performance of the contract. In fact the impossibility of performance and frustration are often interchangeable expression. Also the meaning of the term 'impossible' was explained u/s 56. The Supreme Court made it clear that unlike English law the word impossible has not been used in the sense of physical or literal impossibility. The performance of an act may be impracticable and useless from the point of view of the object and whether it forms the basis of the contract rightfully has to be decided by the courts. Also in Sushila Devi vs. Hari Singh5, it was observed that the impossibility contemplated by section 56 of the Contract Act is not confined to something which is not humanely possible. As it was a case of lease of property, which after the unfortunate partition, the property in dispute which was situated in Gujranwala, went onto the side of Pakistan, hence making the terms of the agreement impossible.

In another Supreme Court case, Nirmala Anand vs. Advent Corporation Pvt. Ltd.6, the case was relating to suit for specific performance of agreement for purchase of a flat in a building construction on plot leased out by municipality. The court held that unless the competent authorities have been moved and application for consent or sanction have been rejected once and for all and such rejection made finally became irresolutely binding and rendered impossible the performance of the contract resulting in frustration u/s 56 the relief cannot be refused for the pointing out of some obstacles.

It is well settled that frustration automatically brings the contract to an end at the time of the frustrating event. This is in contrast to discharge by breach of contract where the innocent party can choose whether to treat the contract as repudiated. Moreover, a contract, which is discharged by frustration, is clearly different from one, which is void for mistake. A frustrated contract is valid until the time of the supervening event but is automatically ended thereafter, whereas a contract void on the grounds of mistake is a complete nullity form the beginning.

We have to see that unless the law provides for a fair distribution of the loss resulting from the supervening event, it may not be satisfactory simply to hold that the contract is frustrated.

Footnotes

1 (1863) 3 B.& S. 826

2 91 LQR 247

3 [1903] K.B. 740

4 AIR 1954 SC 44: 1954 SCR 310

5 AIR 1971 SC 1756: (1971) 2 SCC 288

6 AIR 2002 SC 2290

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