Introduction sense. In Indian law relating to contracts,

Introduction

A contract is a starting point of any social structure. It is
the fixing of rights and duties of parties by mutual agreement. Even in history,
there has been various instances of the development of contracts. From the
biblical times of God making a covenant with the Jewish people to the more
recent time of the Declaration of Independence in 1776. The legal sanction of
contracts has made it enforceable and the statues have various provisions by
which contracts can be regulated. The law has also made provisions to deal with
contracts when they cannot be performed.

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The frustration of the contract happens when something occurs
which due to the radical change in the position of the parties rendering the
contract impossible or illegal.

As Lord Ruskin once put it, the doctrine of frustration is
‘not lightly to be invoked to relive contracting parties of the normal
consequences of imprudent bargains’1

 

Doctrine of Frustration

The arising of certain set of circumstances which occur after
the formation of the contract and is a result of no fault of the parties, and
as a consequence renders the performance of the contract commercially or
physically impossible. The court recognizes these set of circumstances which
release the parties from further obligations. Therefore, the contact is
dissolved by the operation of the doctrine of frustration.

The purpose of the doctrine is to reduce or mitigate the
common law approach of literal performance of absolute promises. It tries to
encompass the difficulties that are posed in contracts where there is
significant change in circumstances. And due to the effect of frustration, its
scope must be limited so that this doctrine can be invoked in a limited sense.  In Indian law relating to contracts, section
56 of the Indian Contract Act deals with frustration of contract.

Various theories which have served as a juristic basis for
the doctrine of frustration has aided in softening of the rigors of the
absolute rule. There are four main juristic bases for the doctrine of
frustration. The main theories are

a)    
implied
term theory

b)    
basis
or foundation of the contract

c)    
just
and reasonable solution and

d)    
radical
change in the obligation under the contract

 

English Approach to Frustration of Contract

The English law being a follower of the Common Law tradition,
has aided to a huge extend the development of Contract law. The English interpretation
of the doctrine of frustration was very straight jacketed.

In Paradine v. Jane2,
the case that was before the court where a tenant of a land was disposed of it
for a period of 2 years by the kings enemies. His claim was that he did not
have to pay rent for the two-year period. But the court was of the view that
the agreement had to be honored and the rent was to be paid. 

There seem to be change in the way in which the courts
started interpreting this in Taylor V. Caldwell3.
In the case the plaintiff and the defendants entered into a contract by which
The Surrey Gardens and Music Hall was booked for various concerts and events.
All the terms and conditions were laid down. But as the date of the event
approached there was a major fire, which resulted in the hall burning down. The
court stated that it was without the fault of either party and as a consequence
the act of one of the parties could not be complete as intended. Therefore, no
action would lie for breach of agreement to allow the defendants to use the
said hall as the hall had burned down before the contract could be performed.

In a case that happened subsequently, Krell v. Henry4,
where one of the parties had owned a certain flat and gave it out on rent for a
few days, as the Kings Coronation procession was to pass along the road where
the flat was located. This purpose of viewing the procession as communicated
and a reasonably high rent was decided. Due to serious illness the procession
as cancelled. The party that owned the flat, demanded that the other party pay
for the full amount as the contract was frustrated. The court of appeal upheld
the decision of the trial court that party that owned the flat could not demand
the remaining amount due because the contract was frustrated.

Frustration of contract is something that happens in the
rarest of rare circumstances. But that does not rule out or reduce the chance
of its occurrence. They are three titles under which that frustration can be
looked at more closely. A) impossibility b) illegality c) Frustration of
Purpose.

 

Indian Approach to Frustration of Contract

The law of contract in India does not attempt to regulate the
consequences especially financial which arise out of a discharge of a contract.
Parties who want to be prepared for any unexpected event which may cause
hardship have the option of inserting a provision which would case for
suspension or adjustment of the contract, a force majeure clause in case of
suspension and a hardship clause in case of adjustment.

The section is very different from the Common law approach to
a large extent, the act attempts to lay does the positive rules of law which in
the view of the English Court lately have viewed it as the matter of
construction based on the true intention of the parties. In the Common Law approach,
a person who makes a promise without qualifications is bound by that promise.
In case the parties do not want the agreement to be unconditional, they have
the option of qualifying it with conditions. Sometimes these conditions need
not always been expressed as this can be inferred from the nature of the
transactions.

The Supreme Court in various cases has interpreted section 56
of the Indian Contract Act. It has stated that the provision is exhaustive and
there is no need to travel outside the provisions5.
When there are events which occur, and have such an impact that it strikes the
root of the contract, the court must take the step to declare the contract to
be frustrated. The various circumstances under which the contract was made, the
knowledge of and the intentions of the parties contracting must be examined by
the court at length.

In Satyabrata Ghose v. Mugneeram Bangur & Co6,
the court had made observations on the various theories that were to be the
judicial basis of the doctrine of frustration, but the root of it was the basis
on the impossibility of the performance of contract. It was also noted that
frustration and impossibility of performance could be interchangeably used. It
also opined that the word ‘impossible’ that is used in section 56, unlike its
usage in English law, was not to be taken literally. The performance of the
objects of the contract and the supervening factors which result in its impossibility
was to be the way in which it was to be read. Also in another case of Sushila
Devi vs. Hari Singh7,
the impossibility contemplated by section 56, was not confined to something
that was humanely possible. In the case, there was a lease of property which
after the partition had gone to Pakistan thus resulting in the contract to be
frustrated.

In India, the law which deals with frustration can be related
to two section, S.32 and S.56. It has been held in various case law that the S.56
deals exhaustively with the doctrine of frustration and there is no need to
extend it by borrowing analogies from English law. A contract which is
frustrated is distinctly different from the one which is void due to mistake.
The contract is frustrated once the supervening event occurs and in the case of
mistake, the contract is void even from the very beginning.

Conclusion

Therefore, the performance of a contract and its subsequent
discharge due to factors that are beyond the parties are encapsulated in the
discharge of contracts. Section 56 of the Indian Contract act is very clear on
the way in which it deals with frustration of contracts. The various cases that
have determined by the Supreme Court has aided in the the interpretation of
this section and the concept of frustration of contract as a whole. It also
reflects, the dynamism with which law needs to be enacted and enforced. The
Common law was of the approach of literal application of contracts, but that resulted
in genuine challenges faced by the parties in peculiar circumstances. This was
corrected by various judgements of the English courts. Indian law makers also
made sure that when circumstances that occur which are beyond the control of
the parties to a contract, they can be dealt with effectively without adversely
affecting either of the parties.

1 The Nema (1982) AC 724, 752

2 (1647) Aleyn 26

3 (1863) 3 B & S 826, Queen’s Bench

4 (1902) 2 KB 740, Court of Appeal

5
Raja Dhruv Dev Chand v. Raja Harmohinder Singh (AIR 1968 SC 1024)

6 AIR
1954 SC 44

7 AIR 1971 SC 1756