Doctrine of Frustration of Contract – Section 56 of Indian Contract Act

Doctrine of Frustration of Contract – Section 56 of Indian Contract Act

Meaning of Doctrine of Frustration

Contract is an agreement enforceable by law which gives rise to rights, duties and obligations for the parties to the contract. When parties enter into a contract, it gives rise to certain obligations which parties are expected to perform. If parties fail to perform their obligations as per contract, it will amount to breach of contract. The party who commits breach of contract will be required to pay compensation to the other party. However, Doctrine of Frustration is an exemption to this rule. Section 56 of the Indian Contract Act, 1872 incorporates the provision of Doctrine of frustration.

Doctrine of Frustration incorporates the concept of impossibility of performance of contract due to incidents beyond control of the parties. Sometimes, it becomes impossible to perform the obligations under the contract because of incidents beyond control of the parties.

Doctrine of Frustration is based on the maxim ‘’les non cogit ad impossibilia” which means that the law will not compel a man to do what he cannot possibly perform.

See also  Offer and Acceptance under Law of Contracts

Some of the grounds on which Doctrine of Frustration is applicable are as follows:

a) War
b) Strike
c) Change of Circumstances
d) Death of Party
e) Export/Import Prohibition
f) Destruction of Subject matter
g) Destruction of things essential for the performance of contract
h) Method of Performance becomes impossible
i) Unavailability of subject matter or things essential for performance of contract

Illustration: A, an Indian interior designing company enters into a contract with B, a Chinese manufacturer to sell 5000 pieces of fairy lights before Diwali. However, the delivery could take place, war broke out between India and China resulting in India suspending the import of all Chinese goods. This is an example where Doctrine of Frustration will be applicable.

Conditions necessary for Application of Doctrine of Frustration

The Doctrine of Frustration is applicable only in two cases. They are as follows:

  • The object of the contract has become impossible to perform
  • Performance of contracts has become impossible because of event/events beyond the control of the party.

Grounds on which Doctrine of Frustration can be invoked

Some of the grounds on which Doctrine of Frustration is invoked/applicable are as follows:

a) War
b) Strike
c) Change of Circumstances
d) Death of Party
e) Export/Import Prohibition
f) Destruction of Subject matter
g) Destruction of things essential for the performance of contract
h) Method of Performance becomes impossible
i) Unavailability of subject matter or things essential for performance of contract

Effects of frustration

Doctrine of Frustration of contract makes the contract void and discharges all contractual obligations of the parties. Section 65

of the Indian Contract Act, 1872 states that a party who has received any benefit from a frustrated contract is liable to compensate the other party. However, frustration of contract happens because of events/circumstances beyond the control of the parties so, parties should not be made to pay compensation. But, if compensation is not provided to the other, he may suffer loss.

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When Doctrine of Frustration not Applicable

Negligence

Doctrine of Frustration is not applicable when frustration is caused by the negligence of one of the parties to contract.

Circumstances where frustration is anticipated

Doctrine of frustration is not applicable in circumstances where an incident which can cause frustration is anticipated and provided by including a force majeure clause (covering all eventualities) in a contractual agreement.

Difference between Doctrine of Frustration and Force Majeure

The Doctrine of Frustration and Force Majeure clause is often overlapped. There is a difference between Doctrine of Frustration and Force Majeure.

  1. Doctrine of Frustration is when performance of a contract becomes impossible after its execution due to circumstances/events beyond control of the parties.
    Whereas Force Majeure is a common clause in a contract which frees the parties to the contract from contractual liabilities when performance of contract becomes impossible due to extraordinary circumstances or events beyond the control of the parties.
  2. Section 56 of The Indian Contract Act, 1872 incorporates statutory provisions of Doctrine of Frustration. Whereas Force Majeure does not have any statutory provision under Indian Contract Act, 19872. However, section 32 of the Indian Contract Act just provides for reference.
  3. Force Majeure is prior to performance of contract as parties decide the list of events/circumstances that will amount to force majeure before executing a contract. However, Doctrine of Frustration is applicable when performance of contract becomes impossible during the time of execution or after the contract is executed.

Cases

Taylor v. Caldwill

In this case, a musical hall was rented for organizing a consent. But, the hall got destroyed by fire before it could be used for the concert. The claimant sued the defendant for breach of contract. The court held that the contract was frustrated as the very thing on which was necessary for performance ceased to exist.

See also  Revocation of Offer and Acceptance

Styabrata Ghosh v Mugneeram

In this case, the court held that the basic idea on which Doctrine of Frustration is based is on impossibility of performance of contract and that the word impossibility and frustration can be used synonymously.

Gambhirmar v. Indian Bank Ltd

In this case, the court held that if the performance of a contract becomes impossible due to war (caused by negligence of the party), the Doctrine of Frustration will not apply.

Syed Khursed Ali v. State of Orissa and Anr

In this case, Parties to an agreement did not include a Force Majeure clause. The performance of the contract later became impossible and unlawful. The court held that the doctrine under section 26 is applicable in the event of the subsequent unforeseen event for which neither party is responsible.

Sushila Devi v. Hari Singh

In this case, A disputed leased property situated in Gujranwala, British India went onto the side of Pakistan after the partition which made the terms of the agreement impossible. It was observed that impossibility of performance under section 56 of Indian Contract Act does not include something which is not humanly possible.

References

https://blog.ipleaders.in/doctrine-of-frustration
https://enterslice.com/learning/doctrine-of-frustration-under-the-indian-contract-act-1872/
https://www.mondaq.com/india/contracts-and-commercial-law/654334/frustration-of-contract

Author: Shreya Rathor,
Bharati Vidyapeeth Deemed University, Pune, Final Year

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