Introduction:

Contract’ is a word having very wide connotations. We are all aware of the
Rousseau’s hypothetical social contract theory. One is a part of that contract by just
being born as a human being. This social contract helps the society to develop.
This is the edifice on which some of the rights are built. Social contract tells how
to enjoy without even entering into a contract. A perfect example is your human
right. That is a right you enjoy inherently as you are born. A complete person is
somebody who can enjoy his rights and fulfil his duties.

Definition of Contract:
The word Contract comes from a Latin word ‘contractus’ meaning to collect,
combine or make an agreement. In its most basic form, a contract will have two
parties, coming together, wanting to enter into a relationship where they want to
create rights, liabilities and obligations. The law of contracts confines itself to the
enforcement of voluntarily created civil obligations. It does not cover the whole
range of civil obligations. There are many obligations of civil nature whose
infringement may be actionable under other branches of law like the law of torts or
of trust or some other statutes. But they are outside the purview of the law of
contracts. The fundamental pre-requisite to have obligations (enforceable) in a
contract is that the contract must be valid and enforceable. Thus the obligation of
the parties to a contract comes predominantly from the terms of the contract itself.

Formation of Contract
1.Proposal and Acceptance:
According to H.L.A Hart, contracts are ‘created by the deliberate choice of the
individual’. Agreements that are acceptable or rather enforceable alone will be
treated as contracts. Every contract is an agreement, but every agreement is not a
contract. All agreements are contracts if they are made by the free consent of the
parties competent to contract, for a lawful consideration and with a lawful object
and are not expressly declared as void. The proposal and its acceptance is the
universally acknowledged process for making an agreement. A proposal is the
starting point. When one person signifies to another his willingness to do or abstain
from doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal. When a person to whom the proposal is
made, signifies his assent thereto, the proposal is said to be accepted. A proposal,
when accepted, becomes a promise. So these are the norms which one needs to
look into in order to determine whether there exists a valid contract or not. And
further, it can be noted that the obligations of the parties to a contract derive from
implicit or explicit promises. To be more specific, it is rooted on two factors, that
is, actual choice and actual and voluntary acceptance.

Doctrine of Frustration:
A contract is an agreement between two or more parties creating obligations that
are enforceable or otherwise recognizable at law. Execution of these obligations
may be affected by unforeseen or supervening events, that is, events which are
unexpected or incapable of being known in advance by either of the parties and
which ultimately discharge the parties from their contractual obligations.

The doctrine of frustration is a “doctrine” of special case of the discharge of

contract by an impossibility to perform it.The Indian Contract Act, 1872 (“Contract
Act) does not define the term frustration. The Black’s Law Dictionary defines
frustration in relation to contracts as “the doctrine that if a party’s principal purpose
is substantially frustrated by unanticipated changed circumstances, that party’s
duties are discharged and the contract is considered terminated,” also termed as the
frustration of purpose. In India, courts nuanced: “The expression ‘frustration of the
contract’ is an elliptical expression. The fuller and more accurate expression is
‘frustration of the adventure or of the commercial or practical purpose of contract”
This doctrine is a device to reconcile the rule of absolute contracts with a special
exception which is demanded in certain circumstances in the name of justice.
The doctrine comes within the purview of section 56 of the Contract Act as it
discharges the contract by reason of supervening impossibility or illegality of the
act agreed to be done. A contract is also frustrated under section 32 when the
condition, on which the contract is contingent, is not fulfilled or cannot be fulfilled
because of impossibility (paragraph 1 and 2 of section 32, respectively).
Nevertheless, the doctrine under Indian law is associated with section 56. As
section 32 only applies when contracts are discharged and parties absolved of their
obligations as per terms already contained in the relevant contract. Section 56
applies when contracts are discharged and parties absolved of their obligations as a
result of subsequent impossibility due to outside forces and factors.
The origin of the doctrine can be traced back to the Queen’s Bench judgment in the
case of Taylor v Caldwell in 1863 in England. Prior to this judgment, in both
Roman Law and Common Law, the law regarding contractual obligation was
extremely rigid. Supervening unforeseen events, owing to which the performance
has become impossible or more onerous, were not regarded as an excuse for
non-performance.

The doctrine of frustration has been well-codified in India under section 56 of the
Contract Act, and this obviates the dependence on different theories to justify the
application of the doctrine. It lays down a positive rule relating to the frustration of
contract and does not leave the matter to be determined according to the intention
of the parties or the choice of theory to be applied by the court. The relief under
this section is given by the court on the ground of subsequent impossibility when it
finds out that the whole purpose or the basis of a contract was frustrated by the
intrusion or occurrence of an unexpected event or change of circumstances which
was beyond the control of the parties.

Section 56 states that an agreement to do an act which becomes impossible or

unlawful is void. A thorough explanation of the section can be sought from the
celebrated and seminal decision of Satyabrata Ghose v Mugneeram Bangur and
Co. In this case, the defendant company promised to sell the plaintiff a plot of land
after developing it by constructing the roads and drains. However, some portion of
the area comprised in the scheme was requisitioned for military purposes. The
Supreme Court, while applying the doctrine, held that the requisitioning of the area
had not substantially prevented the performance of the contract as a whole and
therefore, the contract had not become impossible within the meaning of section
56.

Differentiating section 32 and section 56 of the Contract Act:

Under the Contract Act, both sections 32 and 56 apply to cases of frustration of
contacts and it is important to understand the difference between section 32 and
section 56. The party may see an incentive to go under section 56 instead of section
32. This incentive is the compensation under the third paragraph of section 56 that
a loss-incurring party may receive for loss through non-performance of act known
to be impossible or unlawful.
Technically, under both sections 32 and 56, the contract can be discharged on the
impossibility of certain events in the future. Section 32 deals with a contingent
contract, which is dependent on the fulfilment of a condition for its survival. A
contingent contract will dissolve under its own force if the condition is not
satisfied, whereas, section 56 is attracted when a contract becomes impossible to
perform because of an outside force. Therefore, it can be said that “it is sometimes
a matter of doubt whether a contract falls under section 32 or section 56”.

Section 32 will not only apply to a contract that expressly provides a condition on
which performance is dependent, but also to a contract where such condition is
implied.

Contractual Obligations:

The term contractual obligations are those duties which the parties to a contract are
responsible through the terms of the contract. So, pre-dominantly the nature of
obligations of parties to contract is dependent on the terms of the contract. Every
contract is accompanied with the exchange of a valid consideration which can be
almost anything ranging from products, services, money etc. Each party to the
contract will have various obligations in connection with this exchange of
consideration. If any of the parties to the contract fails to carry out their contractual
obligations in accordance with the contractual terms, usually the end result will be
the breach of the contract.

Thus, the contractual obligations mostly depend upon the specific subject matter of
the contract. It may be different for different types of contracts. However, some of
the most basic forms of contractual obligations which can be traced in almost all
the contracts include payment (for which the contact can again specify obligations
regarding amounts, deadlines etc), delivery (for which the contract can specify
obligations as to the time, place and mode of delivery), quality of goods (which can
again be described in the contract) etc. These types of specific obligations can be
varied or modified according to the pertinent details of the contracts at hand. Apart
from these, the parties may also be bound by certain general principles and
obligations while forming a contract. For example, every party to a contract is
obligated to deal fairly and truthfully with other parties and is also obligated to
refrain from the use of force or coercion in obtaining the consent to the agreement.

Conclusion:

A contractual obligation on the parties which arose from an agreement between the
parties can thus be enforced either specifically or by giving the obligee the
damages which is again stipulated more or less by the contract itself. The cause of
action arises only when the agreement and its breach is proved. The obligation to
perform the terms of the contract is the primary and antecedent obligation. The
obligation to pay the damages is only secondary and a remedial obligation.