What is the Doctrine of Frustration of Contract? State the circumstances under which this doctrine operates in full force and this doctrine does not operate.
Doctrine of Frustration of Contract:
“Frustration” means occurrence of an intervening event or change of circumstances so fundamental as to be regarded by the law both as striking at the root of the contract and as entirely beyond what was contemplated by the parties when they entered into the contract. In other words, frustration means that a contract has ceased to bind the parties because the common basis on which by mutual understanding it was based, 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 because of a supervening event, the porimsor is excused from the performance of the contract. This is known as “doctrine of frustration” under the English law and is known as “doctrine of supervening impossibility”. It is covered by Section 56 of the Indian Contract Act.
Section 56 provides “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.” The effect of frustration is that the dissolution of contract occurs automatically, it does not depend on the choice of either party or on their intention or the opinion or even knowledge as to the event.
Following are the circumstances under which the doctrine of frustration or supervening impossibility operates in full force:
Destruction of Subject-matter: If the subject-matter of a contract, subsequent to its formation, is destroyed without the fault of either party, the contract is discharged. But destruction of only a part of the subject-matter does not releases the promisor from his obligation to perform in respect of the part which has not been destroyed. For example, a music hall was let. for a series of contracts on certain day. The hall was burnt down before the date of the first concert. The contract was held to be void.
Non-existence or non-recurrence of a particular state of things: Sometimes a. contract is entered into between two parties on the basis of a continued existence or occurrence of a certain state of things. If the state of things changes or ceases to exist, the contract stands discharged. For example, A and B contract to many each-other. Before the time fixed for marriage A goes mad. The contract becomes void.
Death or personal incapacity of the promisor: Contracts involving personal skill or qualification of a party will stand discharged in the case of his death or personal in capacity. For example, A contracts to ad at a theater for the six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on these occasions becomes void.
Change of Law: A contract, which was lawful at the time of making it, but become unlawful due to subsequent change in law, the performance becomes impossible and the contract is discharged. For example, D agreed to transport goods of P from place X to place Y. Subsequently the trucks of D were requisitioned by the Government under a statutory power. It was held that the contract was discharged.
Outbreak of War: A contract entered into with an alien enemy during the war is unlawful and therefore impossible of performance and void. Contracts made before the outbreak of war are either suspended or declared void by the Government. They may be performed after the war.
Following are the circumstances under which the doctrine of frustration does not operate:
Difficulty of Performance: The fact that performance is difficult does not discharge the duty of performance. Increased or unexpected difficulty and expense do not excuse from performance. For example, A sold a certain quantity of Indian timber to B to be supplied between July and September. Before any timber was supplied, war broke out in the month of August and transport was disorganized so that A could not bring any timber from India. It was held that the difficulty in getting the timber from India did not discharge A from performance.
Commercial Impossibility: Performance cannot be excused on the ground of commercial impossibility. A contract cannot be said to be impossible of performance because expectation of higher profits is not realized or necessary raw material is available at a higher price because of the outbreak of war or there is a sudden depreciation of currency. For example, A agreed to supply certain goods to B on a later date.
As a result of increase in the cost of raw material and the wage bill, it is now no Longer Profitable for A to supply the goods at the agreed rate. A cannot be excused for non-performance.
Strikes, Lockouts, Riots etc: Strikes, lockouts, riots and other civil disturbances do not discharge a contract unless the parties have specifically agreed in this regard at the time of formation of the contract. For example, D agreed to supply to P certain goods to be procured from India, the goods could not be produced due to riots and civil disturbances in that country. It was held that there was no excuse for non-performance of the contract.
Impossibility due to the failure of a third person on whose work the promisor relied: If the contract cannot be performed due to the default of a third person on whose work the promisor relied, the doctrine of supervening impossibility will not apply and the promisor is not discharged. For example, A, a wholesaler entered into a contract with B for the sale of certain goods to be produced by Z, a manufacturer of those goods. Z does not manufacture those goods, A is liable to B for damages.
Partial Impossibility: If a contract is entered into for several objects, the failure of one of them does not discharge the contract. For example, A agreed to let out a boat to B for viewing a naval review on the, occasion of the coronation of King Edward VII and to sail around the fleet. Due to King’s illness the naval review did not take place, but the fleet. was assembled. The boat could be used for one of the objects i.e. sailing around the fleet. It was held that the contract was discharged on the ground of partial impossibility.