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Doctrine of Frustration (Contract Act)


Doctrine of Frustration (Contract Act)
Doctrine of Frustration (Contract Act)

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A contract may become null and void due to events beyond the promisor's control, rendering the performance impossible or unlawful.



Contracts are rendered void when the performance of the act becomes impossible or unlawful, either due to unforeseen events or legal constraints.



Illustrative Examples


(a) Magic Treasure Hunt: An agreement between A and B to discover treasure through magic is inherently void.



(b) Mental Incapacity: If, before the agreed-upon marriage date, one party becomes mentally incapacitated, rendering them unable to fulfil the contract, the contract becomes void.


(c) Invalid Marriage Contract: If A enters into a marriage contract with B while already married to C, and such polygamous marriage is prohibited by law, A must compensate B for any losses incurred due to the non-performance of the promise.


(d) Effect of War Declaration: A contract to take in cargo at a foreign port becomes void if war is declared by A's government against the country where the port is located.


(e) Contractual Performance and Illness: In a scenario where A contracts to perform at a theatre for six months but becomes too ill to do so on multiple occasions, rendering performance impossible, the contract for those occasions becomes void.


 
 

Principle of Non-Interference


The foundational principle of judicial non-interference in contracts was established in the landmark case of Paradine v Jane, highlighting that subsequent events should not alter a contract already in place.



This principle emphasises the promisor's obligation to fulfil their contractual duties, regardless of unforeseen circumstances, as they could have safeguarded against such events through the contract itself.



Absolute Liability vs. Contractual Conditions


In Taylor v Caldwell, Blackburn J elucidated that the aforementioned rule applies only to contracts that are positive and absolute, devoid of any express or implied conditions.



This distinction was made evident when a contract's performance was contingent upon the continuous existence of a subject matter, absolving parties from liability if performance became impossible due to circumstances beyond their control.



Introduction of Frustration Doctrine


The concept of frustration emerged when the performance of a contract became either physically impossible or the intended purpose of the contract failed to materialise.


Illustrated by cases like Krell v Henry, where the cancellation of an event led to the frustration of the contract's purpose, this doctrine recognizes situations where unforeseen events fundamentally undermine the contract's foundation.




Application of Frustration Doctrine


The Supreme Court of India, in Satyabrata Ghose v Mugneeram Bangur & Co, clarified that Section 56 of the Indian Contract Act applies to both types of frustration. Here, "impossibility" extends beyond literal physical impossibility to encompass situations where performance becomes impracticable or futile due to unforeseen circumstances.



Definition of Frustration


Viscount Simon LC in Cricklewood Property & Investment Trust Ltd v Leighton's Investment Trust Ltd defined frustration as the occurrence of intervening events or changes so fundamental that they strike at the core of the agreement, beyond the contemplation of the parties at the contract's inception.


Lord Wright emphasised that frustration denotes a failure of the essential conditions or purposes of the contract as mutually understood by the parties.

 
 

Commercial Hardship


In contract law, the alteration of circumstances must be significant enough to entirely disrupt the purpose of the contract. The court exercises caution in releasing parties from their contractual obligations, recognizing that some degree of change or delay is common in human affairs and cannot be anticipated to be completely avoided.



In Sachindra Nath v Gopal Chandra, the Calcutta High Court deliberated on a situation where the defendant leased premises at a higher rent due to the presence of British troops.


However, when the troops were relocated, the defendant refused to continue paying the elevated rent.


The court held that mere commercial hardship, such as a decrease in anticipated profits, does not constitute frustration of the contract unless it fundamentally alters the nature of the agreement.



While commercial hardship may pose challenges to contractual performance, it does not automatically release parties from their obligations unless it fundamentally alters the contract's purpose or renders performance impracticable. Courts scrutinise the circumstances to determine whether frustration or mere inconvenience is at play in a given contractual dispute.



Specific Grounds of Contract Frustration


1. Destruction of Subject-Matter

The doctrine of impossibility applies when the specific subject matter of the contract ceases to exist. This principle was exemplified in Taylor v Caldwell, where the destruction of a music hall frustrated the contract.


Similarly, in Howell v Coupland, failure to supply potatoes due to crop destruction constituted frustration, regardless of whether the potatoes were already in existence.



2. Change of Circumstances

A contract may frustrate when unforeseen circumstances make performance impossible or significantly alter the contract's terms. In Parmeshwari Das Mehra v Ram Chand Om Prakash, the partition affecting travel to Karachi did not frustrate a contract as travel to Karachi was not essential.


However, in cases like Alopi Parshad & Sons Ltd v Union of India, extreme economic changes due to war necessitated contract renegotiation.



3. Non-Occurrence of Contemplated Event

If the performance of a contract hinges on the occurrence of a specific event, and that event fails to materialise, frustration may occur. Krell v Henry demonstrated this when a contract to rent a room for viewing a coronation procession was frustrated due to procession postponement.



4. Death or Incapacity of Party

Personal performance contracts are terminated if the promisor dies or becomes incapacitated. In Robinson v Davison, a pianist's illness excused her from a concert performance contract as her personal capability was essential to the contract.



5. Government or Legislative Intervention

Contracts may dissolve if governmental or legislative actions directly impact the contract's fulfilment. This intervention fundamentally alters the conditions of performance.

 
 

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