DOCTRINE OF FRUSTRATION OF CONTRACT

"It is clear that any civilized system of law is bound to provide remedies for cases of what has
been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the
money of or some benefit derived from another which it is against conscience that he should
keep."

The Frustration of the contract literally means that when “unforeseen circumstances collide
with the very purpose of the contract that render/make it impossible for the contract to be
performed by either of the parties thereby causing the contract to be repudiated by either of
the party”. These unforeseen circumstances are thereby known as the Act of God or the act
outside the contracts.

When the parties make a contract for themselves they mutually agree upon the terms of the
contract and the subject matters that are to be performed by both the parties but certain events
happen that are not termed in such concluded contracts, that frustrate the very purpose of their
agreement and thus render the contract null and void.

An example to showcase the frustration of contract is where there is an agreement between ‘A’
and ‘B’, wherein ‘A’ agrees to perform for ‘B’ in his hall for certain amount on the given date.
Before the due date ‘B’s hall gets destroyed by fire and thus makes it impossible for ‘A’ to
perform over there. Thus, the agreement between ‘A’ and ‘B’ is frustrated by the event outside
their concluded contract.

So, the events that occur outside the scope of contracts and make it impossible to perform by
either of the parties are frustrated and they fall under the ambit of “Doctrine of Frustration”.
The Origin of Doctrine of Frustration can be traced back to the Roman periods, where the
Roman law contained such rule to save liability of any person in an agreement. The doctrine
was part of the Roman Contract law which extinguished obligations of innocent parties where
the ‘thing is destroyed without the debtor’s act of fault and the contract cannot be performed.

Centuries after in England in 1863, the rule came under consideration in the case of Taylor v.
Cardwell, wherein it was held that when an opera house which was rented for the purpose for
concerts was destroyed by fire, the contract was frustrated. This was because the very thing on
which the contract was depended on ceased to exist. Thus, it was held that for the “Doctrine of
Frustration” it must be so that the nature of contract is such that it would not operate if a thing
ceased to exist.
Consequently in Paradine vs. Jane, it was held that, 'In common rule of contract a man was
bound to perform the obligation, which he had undertaken, and could not claim to be excused
by the mere fact that performance had subsequently become impossible; because the party
could expressly provide in their agreement, that upon fulfillment of a condition or occurrence
of an event, either or both of them would be discharged of some or all of their obligations under
the contract. This was the concept of 'absolute contract'.

After various instances of people being excused for failure of performance of contract, the
Doctrine was named in England in a rent case of Krell vs. Henry in 1903, when an Englishman
named Krell leased his apartment in London to C.S Henry to be used for viewing a royal
procession, which subsequently got cancelled and Henry refused to pay Krell the balance of
the rent. Krell sued, but the English court held against him on the ground that the purpose of
the contract between them was "frustrated". The court thought if Krell and Henry had foreseen
the cancellation of the King's procession, they would not have entered into the agreement. It
found that the procession was the foundation of the contract.

*The English law extended the principle beyond cases where the subject matter of the contract
was destroyed rendering performance impossible, to cases where impossibility of performance
follows the cessation of an "express condition or state of things" essential to the contract.

India Scenario

The doctrine of Frustration of Contract is mentioned u/sec 56 of the Indian Contract, 1872. The
section clearly mentions that “any act which was to be performed once the contract is made
which becomes unlawful or impossible to perform, and which the promisor or promisee could
not prevent, then such becomes impossible or unlawful will become void. It does not stipulate
whether the parties had intention to perform the contract rather it is a positive rule of law. If
the consideration of the contract is destroyed with some unforseen events, but still parties have
the obligation to perform the contract then this doctrine of frustration comes into action.

- In the case of Satyabarta v. Mugneeram, AIR 1954, wherein the SC observed that
various theories have been propounded regarding the juridical basis of the doctrine of
frustration yet the essential idea upon which the doctrine is based is that of the
impossibility of performance of the contract. The Supreme Court made it clear that
unlike English law the word impossible has not been used in the sense of physical or
literal impossibility. The performance of an act may be impracticable and useless from
 the point of view of the object and whether it forms the basis of the contract rightfully
has to be decided by the courts.
- In Sushila Devi vs. Hari Singh AIR 1971 SC 1756, it was observed that the
impossibility contemplated by section 56 of the Contract Act is not confined to
something which is not humanely possible. As it was a case of lease of property, which
after the unfortunate partition, the property in dispute which was situated in
Gujranwala, went onto the side of Pakistan, hence making the terms of the agreement
impossible.

Due and reasonable care

The line “due and reasonable care” means that the parties to contract have taken all the
necessary and due precautions to prevent the destruction of the subject matter of contract on
which the contract is based. All the parties to contract prepare certain clauses in their
agreements that every party must duly take such necessary precautions in order that would
fulfill the purpose of the contract and the agreement also contains the ‘force majeure clause’
that in case of any unforeseen event the performance of the contract by either party would make
it impossible having taken the due and reasonable care.

Force majeure

- The force majeure or the unforeseen events comes under the doctrine of frustration of
contract. Force Majeure is some event that is unforeseen and unstoppable and makes
the contract’s performance impossible.
- A party faced with an external occurrence or event that may make its performance under
a contract impractical, or even impossible shall take the defence of such unforeseen
event that even if the due and reasonable cause would have been taken by the party to
the contract the happening of such unforeseen event would make the performance
impossible.
- Thus, in Syed Khursed Ali Vs. State of Orissa and Anr. AIR 2006, there was no
force majeure clause in the agreement between the parties. The performance of the
contract later became impossible and unlawful as it depended on the granting of a
certificate which was not granted by the government and the act was declared as
unlawful. It was held that the petitioner would not be responsible for payment of any
damages nor forfeiture of the security money deposited by him to the opposite party no.
 2 as the doctrine of frustration as present in Section. 56 of the Contract Act 1872 would
apply to the said contract/agreement.
- It was observed by the Hon’ble Supreme Court in Industrial Finance Corporation of
India Ltd. Vs. The Cannanore Spinning & Weaving Mills Ltd. and Ors. that “It
may be noticed here that the Statute itself has recognised the doctrine of frustration and
encompassed within its ambit an exhaustive arena of force majeure under which non-
performance stands excused by reason of an impediment beyond its control which could
neither be foreseen at the time of entering into the contract nor can the effect of the
supervening event could be avoided or overcome.

Conclusion

From the reading of the Doctrine of Frustration of contract it is clear that despite the parties to
the contract have the obligation to perform their part according to the terms of the said
agreement but due to the occurrence of unforeseen events or force majeure such performance
of terms cannot be duly performed having taken reasonable and due care by the parties to the
said agreement. This doctrine of frustration is now has become universally accepted doctrine
through the precedents and latest judgments.