Doctrine Of Frustration Research Paper

Doctrine of Frustration under Indian Law & English Law

Submitted as per the requirement of the course curriculum of “Law of Contracts” in School of Law

Submitted by: Aadarsh Lunia L18BLB001 BL01

Submitted to: Ms. Anita Singh Assistant Professor

Table of Contents Abstract ........................................................................................................................................... 2 Introduction ..................................................................................................................................... 3 Objective of Study: ..................................................................................................................... 4 Research Questions: .................................................................................................................... 4 Research Methodology: .............................................................................................................. 4 Chapter I: What is the meaning & concept of Frustration of Contract and what is its present status? .............................................................................................................................................. 5 Meaning: ..................................................................................................................................... 5 Chapter II: How Frustration of Contract in Indian Law varies from English Law? ...................... 7 Chapter III: What are the grounds & effects of Frustration of a Contract? .................................. 11 Conclusion: ................................................................................................................................... 14 BIBLIOGRAPHY ......................................................................................................................... 15

Acknowledgement The present research work is a result of great efforts put by the researcher. However, it would not have been possible without the kind support and help of many individuals. The researcher would like to extend his sincere thanks to all of them.

He is highly indebted to Ms. Anita Singh for her constant supervision and help in understanding the complex subject of Law of Contracts and providing necessary information regarding the research paper and for support in completing the research work.

With profound gratitude

Aadarsh Lunia L18BLB001 BL01

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ABSTRACT

Frustration refers to the situation or feeling of not getting something despite trying for it. Similarly, an agreement or a Contract when it is made for a certain purpose but if that purpose cannot be achieved by that contract, the purpose for which the contract was being made that cannot be achieved, which means it has been frustrated. It can be due to impossibility of an event or legality issue of the contract.

The purpose of this research is to identify and examine Doctrine of Frustration under the Indian Law and English Law. The research paper critically analyses the present situation of Frustration of Contract in the light of the articles and cases under the Doctrine of Frustration. The research paper deals with specific grounds for Frustration of Contract, Frustration of Contract due to Intervention, cases which aren’t covered under the Doctrine of Frustration. Through this project, the researcher wanted to highlight the questions about the Doctrine of Frustration, i.e., meaning of Frustration, origin and development, applicability or inapplicability of this doctrine, The researcher wanted to know “Is there anything more to know about the Doctrine of Frustration under the Indian law and English Laws.”

So, this paper is all about determining the concept, emergence, grounds and effects of the Doctrine of Frustration.

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Doctrine of Frustration

INTRODUCTION

The origin of the 'Doctrine of Frustration' is derived 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. The frustrating event must also not be the fault of either party or foreseeable.

Frustration is an act outside the contract due to which the completion of a contract becomes impossible. The parties might expressly provide for the consequences of a frustrating event by what is known as a force majeure clause. 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 the situation when X had an agreement to sell his house to Y and further X’s house got burnt.

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Objective of Study: The objective is to inspect Doctrine of Frustration under Indian & English Laws closely from the beginning and till the current application.

Research Questions: •

What is the meaning & concept of Frustration of Contract and what is its present status?

•

How Frustration of Contract in Indian Law varies from English Law?

•

What are the grounds & effects of Frustration of a Contract?

Research Methodology: The researcher has used doctrinal method i.e. reference from available primary sources like Acts, Rules and Regulations to study the present questions in hand. The researcher has also taken reference from secondary sources like books, articles and internet to understand the concept, applicability, basis, & implications of the doctrine of frustration of contract.

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CHAPTER I: WHAT IS THE MEANING & CONCEPT OF FRUSTRATION OF CONTRACT AND WHAT IS ITS PRESENT STATUS?

Meaning: Happening of an intervening change which is very material in an agreement among other several terms, if that becomes impossible, the contract gets frustrated. The parties are not bound by the contract because the common basis has failed. The contract might be fine the way it was entered, due to something it became impossible as purpose of the contract has failed.

“When the performance of the contract becomes impossible, the purpose which the parties have in mind, is frustrated. If the performance becomes impossible due to a supervening event, the promisor is excused from the performance of the contract.” This is known as Doctrine of Frustration. According to Section 56 of the Indian Contract Act, “An agreement to do an impossible act is void,1” example, discover treasure by magic.

“A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful,” is known as Supervening Impossibility. For example, ‘A & B contracted to marry each other. Before the time fixed for the marriage, A goes mad. The Agreement becomes void.’

When one person has promised to do something which he knew, or, with reasonable diligence, might have known, & which the promise did not know, to be impossible or unlawful, such promisor must compensate to promise for any loss which such promise sustains through the nonperformance of the promise. Here are some examples:

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Section 56, The Indian Contract Act.

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

A Contracts to marry B, being already married to C, & being forbidden by the law to which he is subject to practice polygamy, A must compensate B for the loss caused to her by the non-performance of his promise.

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A Contracts to take in cargo for B at a foreign port. A’s Government afterwards declares a war against the country in which the port is situated. The Agreement becomes void when war is declared.

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A Contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act. The agreement to act on those occasions becomes void.

The doctrine of supervening impossibility as enunciated in Section 56 is like the doctrine of frustration which is popular in English Law. However, the doctrine of supervening impossibility is wider than the doctrine of frustration as it includes physical impossibility as well as failure of subject i.e. that it became impossible after the frustration. If it is initially impossible then that is covered under the supervening impossibility & this observation was made in Satyabrata Ghose v. Mughneeram Bangur,2 wherein it was held that supervening impossibility is wider than doctrine of frustration.

The “Doctrine of Implied term” was in vogue before the doctrine of frustration i.e. an implied condition would be read into the contract when the performance becomes impossible from the perishing without default of the contracting parties. So, since the contract is impossible, but what was the intention behind that agreement was taken into consideration.

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Satyabrata Ghose v. Mughneeram Bangur, AIR 1954 SC 44.

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CHAPTER II: HOW FRUSTRATION OF CONTRACT IN INDIAN LAW VARIES FROM ENGLISH LAW?



ENGLISH LAW

In English laws, the law was reluctant to excuse a party for his performance of a contract even in cases where supervening events rendered that performance difficult or impossible. This rule was also known as absolute contracts rule & was laid down in Paradine v Jane,3 where the defendant had taken an estate on lease from the plaintiff. He was dispossessed of it by alien enemy for some time and therefore refused to pay the rent for the period of dispossession. It was held that a party could always make express provision for unforeseen events and, if he did not do so, he should be bound by his contractual obligations.

According to J. Blackburn in the case of Taylor v Caldwell,4 in which, the defendant had agreed to let the plaintiffs the use of their music hall between certain dates for the purpose of holding a concert theatre. But before that first day on which the concert was to be given, the hall was destroyed by fire without the fault of either party. Plaintiff sued the defendant for their loss. this rule only applicable when the contract is positive and absolute and not subject to any conditions either express or implied. It was held that as the subject matter of the contract got destroyed, contract was not absolute, the performance was depended upon the existence of the hall. Although there was no express provision to this effect, the court implied one as a matter of construction. If the parties had thought about it when making the contracts, they would have agreed to such a condition. The decision led to a struggle between two principles: Sanctity of contract & contract be discharged when the contractual assumption has been destroyed by change of circumstances.

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Paradine v Jane, KB 82 ER 897. Taylor v Caldwell, (1863) 3 B & S 826.

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In the case of Krell v Henry,5 in which defendant agreed to hire a flat from plaintiff for the coronation procession, a part was paid in advance, but the procession was cancelled due to King’s illness & subsequently defendant refused to pay. It was held that as the real object of the contract was to view coronation process which didn’t happen so the subject matter was frustrated & hence the plaintiff was not entitled to recover the balance of the rent. The contract was frustrated even though its performance was still physically possible. The doctrine was applied in circumstances where some events, which must reasonably be regarded as the basis of the contract, failed to take place. The purpose of the contract was frustrated by the postponement of the function. The court must be careful while allowing a party a convenient means of escape from a contract just due to a bad bargain. This case is the development of the doctrine of frustration. But, in Herne Bay Steamboat Co. v Hutton,6 plaintiff still could recover the money as it was still possible to do the act & the purpose of the contract was not frustrated. The contract in this case was of a frequent nature but where as in Krell v Henry, it was highly unusual.

In the case of Cricklewood Property & Investment Trust Limited v. Leighton’s Investment Trust Limited,7the court explained the doctrine of frustration & meant that contract ceased due to an intervening event which was the root of the agreement & there has been a failure in contemplation of both the parties.

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INDIAN LAW

As per Section 56 of the Indian Contract Act:

“Agreement to do impossible act- An agreement to do an act impossible is void. Contract to do act afterwards becoming impossible or unlawful- A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

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Krell v Henry, (1903) 2 KB 740 CA. Herne Bay Steamboat Co. v Hutton, (1903). 7 Cricklewood Property & Investment Trust Limited v. Leighton’s Investment Trust Limited, 6

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Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.”

There are 2 cases of impossibilities: Initial & Subsequent. In initial impossibility, it refers that contract has been entered to do something impossible but in subsequent, it refers to happening of an event subsequently which renders the agreement impossible. In both the cases, contract is void. If one of the parties knew that the performance of contract is impossible and the other party has done something in pursuance of his duties under the contract, then the aggrieved party is entitled to compensation.

In Satyabrata Ghoshe v Mughneeran Bangur & Co.,8 The defendant company owned a large tract of land in Calcutta. For sale of the land, it was divided into several plots and offers were invited from those interested in purchasing the plots. A small amount of money was collected from the purchasers by way of earnest at the time of agreement and it was decided that the remaining amount would be paid by them once construction of roads and drains was complete. On November 12, 1941, an order was passed by the Collector, according to which a part of the company’s land was to be requisitioned for military purposes. The company accordingly informed Bejoy Krishna Roy, one of the purchasers, that due to the requisitioning of the land by the government, they had decided to cancel the agreement for sale and that he could take back his money within a month of receipt of the letter. The company also made an alternative offer of continuing the agreement and performing their obligations when the plot of land would be returned to them after the war. Refusing to accept either of the two alternatives offered by the company, Satyabrata Ghose, assignee of Bejoy Krishna Roy, sued the defendant for wrongfully repudiating the contract of sale of land, and asked for specific performance of the same. It was held that section 56 would be applicable to both initial & subsequent impossibility. The performance of an act may not be literally “impossible” but may be impracticable and useless from the point of view of the object and purpose which the parties had in mind. The performance of a contract can be said to have

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Satyabrata Ghoshe v Mughneeran Bangur & Co., AIR 1954 SC 44.

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become impossible if an untoward event or change of circumstances beyond the contemplation and control of the parties upsets the very foundation upon which the parties rested their bargain.

In Sachinranath v Gopal Chandra,9 there was a difference between impossibility & difficulty where in the plaintiff let the premises to the defendant for a restaurant at a higher rent. The defendant agreed to pay high rent because the British troops were stationed in the town and a clause in the agreement specifically provided that ‘This agreement will remain in force so long as British Troops will remain in this town’. After some time, the locality was declared out of the bounds of the British Troops. It was held that it was possible that the defendant would not have paid such a high rent apart from the expectation of deriving high profits from the British Troops, that was not enough to make out a case of frustration. But this doesn’t make out frustration as the main purpose was to start a restaurant, & as they were earning less profit & paying higher rent therefore, it was commercially difficult situation but was not impossible to perform. It is the situation of commercial hardship due to which performance of contract is unprofitable but is insufficient to excuse performance.

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Sachinranath v Gopal Chandra, AIR 1949 SC 240.

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CHAPTER III: WHAT ARE THE GROUNDS & EFFECTS OF FRUSTRATION OF A CONTRACT?

The effect of Frustration is that the dissolution of the contract occurs automatically. It doesn’t depend on the choice or election of either party or on their intention or the opinion or even knowledge as to the event. A very important principle follows from this, that frustration should not be due to the act of a party to the contract i.e. self-induced. According to Section 65, “When a contract becomes frustrated, the party who has received the benefits must restore them to the other.”

The following grounds of Frustration have become well established:

1) Destruction of the subject matter. 2) Change of Circumstances 3) Non-Occurrence of contemplated Event 4) Death or incapacity of party 5) Government or Legislative Intervention 6) Intention of War

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Destruction of Subject Matter: Taylor v Caldwell: It was promised to let out a music hall but got frustrated on the destruction of the hall. Howell v Coupland: The defendant was not liable when he constructed to sell a specified quantity of potatoes to be grown on his farm but failed to supply them as the crop was destroyed by a disease.

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Change of Circumstances

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The change of circumstances must be such as to make performance of the contract impossible or even extremely difficult in the manner & at the time contemplated & then upset altogether the purpose of the contract. And, the change should be unanticipated and beyond the control of the parties. Eg: declaration of war. Thus, where a ship was chartered to carry some goods, but before it could proceed there was an explosion in the ship boiler making it impossible to undertake the journey in the schedule time held that change in circumstances amounted to frustration of the contract. 

Non-occurrence of a contemplated event Sometimes the performance of a contract remains possible but owing to the non-occurrence of a contemplated event as the reason for the contract, the value of the performance is destroyed. In Parshotam Das v Batala Municipal Committee, the committee leased out certain tonga stands to the plaintiff for 5000 Rs but no tonga driver used the stand through out the year. The contemplated event event not having occurred the doctrine of frustration applied.

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Death or Incapacity of a party Where nature or terms of a contract requires personal performance by the promisor, his death or incapacity puts an end to the contract. The performance of the contract depends upon the existence of good health of the promisor in such cases.

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Government or Legislative Intervention A contract will be dissolved when legislative intervention has so directly operated upon the fulfilment of the contract of a specific work to transform the contemplated condition of performance. Thus, where a vendor of land could not execute the sale deed because he ceased to be the owner by operation of law, held that the contract had become impossible of performance. The following cases explain effect of Government Intervention: Satyabrata Ghose v Magneeram Bangur & Co., it shows intervention of a temporary nature, which does not uproot the foundation of the contract, will not have the dissolving effect. Hence the contact was not frustrated.

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Naihati Jute Mills Ltd v Khyaliram Jagannath, in this case, agreement to purchase the imported raw jute, the buyer was to supply the import license. The buyer failed to do so because of a change in government rules, later it was held that buyer was liable & if the government had completely forbidden imports, Section 56 would have applied and the effect of government has to viewed in the light of the terms of the contract & if it shows that parties have undertaken an absolute obligation regardless of administration changes, they cannot claim to be discharged. 

Intervention of war Intervention of War in the performance of a contract has often created difficult situation. However, where a ship has to take a longer route because of the closure of the normal one due to war, causing the inconvenience & loss to the shipper, it was held that there was no frustration of contract, as when the normal route was closed, if there are more than one way of performing a contract and the war cuts of only one of them, the party is still bound to perform by the other way reasonably or practically though it might be inconvenient or expensive as stated in the case of Tsakiirglou v& Co Ltd. V Noblee & Throl Gm BH.

There is a general rule that If and when there is Frustration, the contract stands automatically dissolved. Express intervention of the contract is not required.

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Adjustment of Rights According to Section 65: Obligation of person who has received advantage 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.

Contract frustrated due to supervening impossibility: Any advantage transferred under the contract while the contract was valid must be restored back – Doctrine of Restitution & is not applicable to void-ab-initio contracts. 13

Pari Delicto: Latin for "in equal fault", is a legal term used to indicate that two persons or entities are equally at fault. The principle is held to be applicable to cases where a contract is void by reason of ‘unlawful object’ but the parties were not aware of it. In Ram Singh v Jethanad Wadhumal & co.10 where in the parties made a forward contract in hydrogenated groundnut oil, not aware of the existence of the order issued under the Defence of India Rules prohibiting such contracts and it was held that since the parties are not in pari delicto and therefore the contract which is subsequently discovered to be void. The purchaser is entitled to a refund of it.

Quantum Meruit Claims: A reasonable sum of money to be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract. It determines the amount to be paid for services when no contract exists or when there is doubt as to the amount due for the work performed but done under circumstances when payment could be expected. According to the Supreme Court, under Law of Contract: A claim for quantum meruit is a claim for damages for breach of contract. The value of the material used or supplied is a factor which furnishes a basis for assessing the amount of compensation.

CONCLUSION: “The evolution of the contracted frustration doctrine as an inspiration into the old doctrine of absolute responsibility of the contract is a fascinating and interesting study. Some time ago a contract was regarded as a piece of private law, sacred, sacrosanct, which man had to obey from a distance, but not to approach the sanctum sanctorum. The aim of the frustration doctrine is to find a satisfactory way to distribute the risk of supervening events. The doctrine does not prevent the parties from arranging for themselves to that end. They can specifically ensure that the risk is borne by one, not by one, or they can contribute.”

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Ram Singh v Jethanad Wadhumal & co., AIR 1964 RAJ 232.

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BIBLIOGRAPHY Acts/ Regulations/ Rules Referred 

The Indian Contract Act, 1872.

Books 

The Contract Act by Avatar Singh.

Articles 

DOCTRINE OF FRUSTRATION OF CONTRACT IN INDIA: AN ANALYSIS by Sudarshan Kumar.

Websites Referred: 

Lawyersclubindia.

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