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The Doctrine of Frustration under the Indian Contract Act, 1872

Narendra Kumar

| Updated: Apr 04, 2019 | Category: Legal Agreements

Doctrine of Frustration

When contracts are entered between the parties, it imposes a contractual obligation on them for the performance of the contract. However, many times due to unforeseeable circumstances the performance of the contracts becomes impossible. In such cases, the contract is said to be frustrated. Here in this article, we are going to discuss the doctrine of frustration, the doctrine of frustration under the Indian Contract Act, grounds for the frustration of contract, and the effect of frustration.

What is the Doctrine of Frustration?

The general rule of contracts states, that the parties to a contract have to fulfill their obligations under the contract and in case of breach, the party breaching the contract has to compensate the other for the damages caused. The doctrine of frustration is an exception to this rule.

The doctrine of frustration basically talks about the impossibility of performance of the contract. It means a contract cannot be executed because of an incident beyond the control of parties. The performance of such a contract becomes frustrated i.e. it becomes complicated, impossible or even illegal. The frustration of contract can be due to any unforeseen, impossible events and events out of control of the parties.

The doctrine of Frustration under Indian Contract Act

The Indian Contract Act, 1872, does not define the term “frustration of contract”. However, the doctrine of frustration is enshrined under section 56 of the Act. According to section 56, an agreement to do an impossible act is in itself void. Further, it states that when a contract to do an act becomes impossible, or, by reason of some event which the promisor cannot prevent, it becomes unlawful, the whole contract becomes void when the act becomes impossible or unlawful.

In this regard, in the Court in Syed Khursheed Ali vs. the State of Orissa held that the doctrine under section 56 is attracted in the event of the subsequent unforeseen event for which, neither of the parties is responsible.  

What are the conditions required to prove frustration of contract?

The frustration of contract can be proved upon the fulfillment of the following conditions-

  • The existence of a valid contract
  • The contract is not performed yet
  • The performance of the contract has become impossible
  • The impossibility has occurred due to event uncontrollable by both the parties.

What are the grounds for Doctrine of Frustration?

Following are the grounds for the frustration of a contract-

  • Impossibility of performance

The doctrine of frustration arises from the impossibility to complete an activity. But the principle cannot be limited to physical impossibilities.

It was held in Satyabrata Ghose vs. Mugneeram Bangurn & Co & Anr., that the term ‘impossible’ has not been used in section 56 of the Contract Act in the sense of physical or literal impossibility. It is not necessary that the performance of act be literally impossible but it may be impracticable and if an event totally changes the very foundation of the contract, it can be said that the promisor finds it impossible to do the act which he promised to do. Therefore, when we say the object of contract is lost, the contract is said to be frustrated.  

  • Destruction of subject matter

The doctrine of frustration applies when there is the destruction of the subject matter of contract.

This was further explained in the landmark judgment of Taylor vs. Caldwell, where Taylor had entered into an agreement to perform at an event, but on the day of the event, the hall where the event was to take place burned down. The burning of the hall depicts the impossibility of carrying forward the contract. This shows that the destruction of the subject matter of contract will make the contract automatically frustrated.

  • Death or incapacity of a party

If the contract demands the personal performance of the parties, the death or incapacity of the party will make the contract void because the contract cannot be performed anymore.

  • Frustration by legal or government intervention

Where, a law is promulgated after a formation of a contract, making the performance impossible then the contract becomes void.

  • The frustration of contract due to change of circumstances

This situation occurs when there is no physical impossibility of performance of the contract, but due to change in circumstances, the main reason for which the contract was formed is defeated. The changed circumstances dissolve the contract and the parties are absolved from the performance of the contract.

  • The Intervention of War

The intervention of war makes the performance of contract difficult, thereby making the contract void.

What is the effect of the doctrine of Frustration?

  • The contract is frustrated automatically– The general rule is that the occurrence of the frustrating event puts an end to the contract automatically. The parties are not required to rescind the contract as the obligations of the parties get terminated immediately after the contract is frustrated.
  • Further obligations are discharged- Both the parties are discharged from any obligations after the contract is said to be frustrated.
  • Accrued obligations- The legal rights or obligations already accrued before the frustrating event occurred are left undisturbed.

Conclusion

The doctrine of frustration comes into play when an unforeseeable event occurs rendering the performance of the contract impossible. The frustration of the contract makes the contract void and it also discharges the parties from any liability. This doctrine is an exception to the general principles of contract under when compensation is usually given for breach of contract.  But when the doctrine of frustration is applied there is no fault of the parties and therefore, the party should not be made to compensate in such an event.

Here at Enterslice, we provide assistance in drafting various types of contracts. For more information, you can contact our team of experts at Enterslice.

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Narendra Kumar

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