DOCTRINE OF FRUSTRATION

UNDER CONTRACT LAW

Submitted by

Rishabh Aggarwal

Batch- 2019-24

Programme of Study- B.B.A L.L.B

Division- A

PRN-19010224032

Symbiosis Law School, NOIDA

Symbiosis International (Deemed University), Pune

In August, 2019

Under the guidance of

Ms. Pallavi Mishra

Assistant Professor

SLS NOIDA
 CERTIFICATE

The project entitled “Doctrine Of Frustration Under Contract Law”

submitted to the Symbiosis Law School, NOIDA for Law of Contracts as part of
Internal assessment is based on my original work carried out under the
guidance of Ms. Pallavi Mishra from July 04,2019 to August 05,2019. The
research work has not been submitted elsewhere for award of any degree. The
material borrowed from other sources and incorporated in the research has
been duly acknowledged. I understand that I myself could be held responsible
and accountable for plagiarism, if any, detected later on.

Rishabh Aggarwal

Date- August 5, 2019

INTRODUCTION

In all the contracts, it is assumed that the parties involved will perform their
obligations in good faith. Sometimes it so happens that the performance of the
contract is possible when it is made, however, certain events which are beyond the
control of the parties may subsequently happen and render the performance
impossible or unlawful( e.g. flood, fire, earthquake, unavailability of materials due
to wars, natural disasters, strike ,riot, civil war etc). So, the contract becomes void.
When such event occurs, the contract is said to have been “frustrated” 1. Thus,
“frustration” is the sum total of all the events which serve to make performance of
contractual obligations impossible/ unlawful.

Among the modern developments in law of contracts, the doctrine of frustration

occupies a very unique place , particularly when cross referencing between Indian
law and Common law. Courts in India have referred to the common law judgements
on impossibility to bring out the stark differences in the judgements and the Indian
Contract Act, 1872. It can also be proclaimed as “a special exception which justice
demands”2.Non the less, the doctrine has been statutorily adapted in our country 3
and was held in the famous case, Satyabharta Ghose v Mugneerum Bangur & Co.4,
by the Supreme Court as to be a rule of “rule of positive law”.

Over the years, the doctrine has become more and more complex and an analysis
of the same is required so, this research project will first consider the explanation
of the doctrine which includes the evolution of the doctrine, applicability in India,
and its features. Followed by a literature review (2 book reviews 5, one article
review6) and the research paper will at last discuss a conclusion with an assessment
of the theoretical basis of the doctrine of frustration.

1 The word “frustrated” appears to have been first used in a dissent by Sir Roland Vaughn Williams
in Nickoll & Knight v Ashton, Edridge & Co. (1901), 2 KB 126, an admirality case discussed in Krell v
Henry
(1903) 2 KB 740 (CA).
2Lord Sumner in Hirji Mulji v Cheong Yue Steamship & Co. (1926), AC 497,507.
3S.56, Indian Contract Act (1872)
4AIR 1954 SC 44.
5Peel,E. (2012). Treitel: The Law of Contracts. London. Sweet & Maxwell: Thomas Reuters UK
6Reddy,V.(1999). The Doctrine of Frustration of Contracts: Its Development, Features and
Anamolies. IIIrd year student NLIU
EXPLANATION
I. Evolution and development

In England, the law of contracts in based upon the principle of absolute liability 7.
This means that the contractual obligations were absolute and supervening events,
which were outside the scope of control of the parties involved, provided no excuse
for non-performance. In the case of Paradin v Jane8, a tenant was sued for rent and
pleaded that he was dispossessed of the property by the King’s enemy. This plea
was considered bad. Further, it was held that “when the party by his own contract
creates a duty, he is bound to make it good, if he may, notwithstanding any
accident by inevitable necessity, because he might have provided against it by his
contract; though the land be surrounded or gained by the seas, or made barren by
wildfire, yet the lessor will have his whole rent”.

The doctrine of absolute contracts works fine and continues to apply wherever it
would be reasonable, having taken into consideration the circumstances in which
the contract was made, to expect it to provide for the event. But in other
contractual relations where the contract called for personal performance by a party
who died or was permanently incapacitated 9; or in cases of supervening illegality 10,
the doctrine was not regarded as a satisfactory way to allocate the losses.

The modification of this theory/principle began in 1809 with the case of Atkinson v
Ritchie11 where the court recognised that the outbreak of war between UK and
foreign countries would frustrate the charter according which a British ship was to
load at a foreign port. In the subsequent case of Taylor v Caldwell12where the
defendants were absolved from the liability as the performance of the contract was
impossible.

In this case, the defendants had agreed to let the plaintiffs use their music hall
between specified dates for holding concert there. But before the date of the
concert, the hall caught fire and was destroyed without the fault of either of the
parties involved.

7Beastson and Freedman .(1995). Good Faith and Fault in Contract Law. UK:Claredon Press.
8King’s Bench, (1647) Aleyn 26: 82 ER 897.
9Taylor v Caldwell ,(1863) 3 B&S 826: 122 ER 309.
10Brewster v Kitchell,(1691) 1 Salk 198; Atkinson v Ritchie,(1809) 10 East 530
11 (1809) 10 East 530, supra n.3.
12(1863) 3 B&S 826: 122 ER 309
The defendants were sued by the plaintiffs for the loss. It was held that the
defendants were not liable to pay for the contract as the contract was not absolute
and its performance depended on the existence of the hall. The contract had been
discharged because,”the parties must from the beginning have known that it could
not be fulfilled unless...... some particular thing continued to exist”’ and in these
circumstances it was

“not to be construed as a positive contract but as subject to an implied condition

that the parties shall be excused in case, before breach, performance becomes
impossible from the perishing of the thing without the fault of the contractor” 13.

In the well known coronation case of Krell v Henry14, the courts further widened the
scope of the doctrine by extending the cause of frustration to cover cases where
the commercial object of the contract was destroyed or failed to materialize. In this
case, the defendant hired a flat for the days of coronation of King Edward VII, but
the coronation was cancelled due to the ill health of the king. It was held that the
defendant is not liable to pay the rent as the coronation was the foundation of the
contract and it failed to happen15.

Over the years, various events and instances have been identified by the courts in
contractual cases which may render the contract impossible to perform and thus,
widening the scope and applicability of the doctrine of frustration under contract
law. These instances include-

1. Destruction of the commercial object or subject matter16.

2. Death or Incapacity of the party17
3. War Between countries.
4. Govt./legislative interference making the performance of the contract
illegal18.
5. Non occurrence of foreseen events.
6. Change of circumstances19.
7. Delay in cases where time is essential part of the contract.

II. Doctrine of Frustration in India

13Ibid at 833
14(1903) 2 KB 740 (CA)
15See Mclory and Williams, The Coronation Cases, 4 Mod LR 241.
16Example-The case of Taylor v Caldwell,(1863) 3 B&S 826: 122 ER 309.
17Example- The case of Robinson v Davison,(1871) LR 6 Exch 269 cited from Tripathi GP.(1975).
Implied term as a basis of Doctrine of Frustration in India and England. 7 Law
18Example- The case of Union of India v C.Damani, AIR 1980 SC 1149.
19If the basis on which parties contract changes suddenly and drastically, then the parties might not
require due performance of the contract and the Cour shall then hold the contract as frustrated
because the purpose of the contract could now not be achieved by either of the two parties.
The word “frustration” is not mentioned in the Indian Contact, 1872, however, Sec
56provides that "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 Supreme Court first mentioned the word “frustration” and explained the
doctrine of frustration of contract in the case of Ganga Saran v Firm Ram
Charan20wherein it observed that “the doctrine of frustration cannot avail a
defendant when the non-performance of a contract is attributable to his own
default”.

The case was followed in the landmark case of Satyabrata Ghose v Mugneerum
Bangur & Co.21 BK Mukherjea J of the Supreme Court observed as follows: “ this is
much clear that the word ‘impossible’ has not been used here in the sense of
physical or literal impossibility. The performance of an act may not be literally
impossible but it may be impracticable and useless from the point of view of the
object and purpose which the parties had in view; and if an untoward even or
change of circumstances totally upsets the very foundation upon which the parties
rested their bargain, it can very well be said that the promissory finds it impossible
to do the act which he promised to do”22.

Application of Section 56

Change in subsequent laws governing contracts might change rendering the whole
performance of contract illegal. The Supreme Court judgement in Boothalinga
Agencies v V.T.C Poriaswami Nadar23where the court ruled that subsequent illegality
to perform a contract, due to government legislations, renders the contract void
under Section 56 on the Indian Contract Act. The decision was followed in Rozan
Mian v Tahera Begum24 where the court decided that changes in legislations can
make the agreements between parties void.

20AIR 1952 SC 9.
21AIR 1954 SC 44: 1954 SCR 310.
22These principles have been affirmed by the Supreme Court in Dhruv Dev Chand v Harmobinder
Singh, AIR 1968 SC 1024, where SHAH J (afterwards CJ) held that the doctrine does not apply to
completed transfers. Indian Rare Earth Ltd v Southern Electric Supply Co of Orrisa, AIR 2010 Ori
115,no supply to factory because of uprooting of towers by super cyclone, no liability.
23AIR 1969 SC 110
24AIR 2007 SC 2883
In the case of Punj Sons v Union Of India25 where the court implied the conditions
of supply of Tin ingots from the terms of the contract which dealt with the supple of
hot dip tin ingot coated milk containers. As the tine ingots were not available the
contract was held frustrated.

So it can be concluded that the scope of doctrine of frustration under Indian

Contract Law is anomalous in nature with the following key points-

1. Frustration is an exception because the Common Law doctrine of

absolute liability is inherited in India.
2. Section 56 governs the doctrine of frustration in Indian Contract Act,
1872, which the Supreme Court says “lays down a positive rule of
law”.26

III. Features of the Doctrine

There are certain features that reduce the effectiveness of the doctrine-
1. Frustration must not be self induced.
2. Only the whole performance could be frustrated and not a part of it.
3. Frustration is the missed question of law and facts.
4. Frustrating event should destroy the common intention of both the
parties and not one party alone.
5. Once the frustrating event occurs, the contract is terminated
automatically and all the future obligations under the contract stand
discharged.27

These are the features of the doctrine of frustration of contract which help in
categorising an event as a frustrating event or not. These features help to
distinguish between which are frustrated and void and provide a basis of
classification for the same.

LITERATURE REVIEW
25AIR 1986 DEL 158
26Satyabarta Ghose v Mugneerum Bangur & Co. AIR 1954 SC 44.
27Khan R.(1982). Frustration: Legislative or administrative intervention. 6 C.U.L.R 96.
1. Peel, E.(2012). Treitel: The Law of Contracts. London. Sweet & Maxwell:
Thomson Reuters UK Limited pp 920 986.

The book clearly explains the concept of the Doctrine of Frustration of

Contracts. It explores the depth of the topic from the development of the
doctrine to its applications, limitations, effects and juristic basis. First
explaining the origin of the doctrine discussing various case laws in detail with
judgements from the courts, the author tries to make the topic interesting
with his own analyses of the judgements. The book defines various headings,
sub headings and articles. Unlike the book written by Avtar singh, this book
has no mentaion of Indian cases or Indian judgements on the doctrine of
frustration. The book is good for an in depth study and comprises of lengthy
explanations. No topic/ concept is left uncovered by the author and the the
chapter mentions all the related cases of common law that relate to the topic
providing clarity of thought and a basis of credibility of the author. One is
intrigued by the smallest of details the author has put forward in the book
and it can be referred both by teachers and students.

2. Sen, GM.(1972).Doctrine of Frustration in the law of Contract. Journal of

Indian Law Institute Special issue 1972. pp 132- 177 Retrieved from
https://www.jstor.org/stable/43950178?
Search=yes&resultItemClick=true&searchText=doctrine&searchText=of&sear
chText=frustration&searchUri=%2Faction%2FdoBasicSearch%3FQuery
%3Ddoctrine%2Bof%2Bfrustration%26amp%3Bfilter
%3D&ab_segments=0%2Fdefault-2%2Fcontrol&refreqid=search
%3Abfca727ffe4d69300607a87fb7e8c9d5&seq=1#metadata_info_tab_conten
ts

The journal written by G M Sen (faculty of law, University of Delhi) covers th

entire topic of doctrine of frustration of contract. The 46 pages journal is good
for reference and analysis of the topic from the point of view of the author.
The author elaborates the introduction, the meaning of frustration under
contract law and tries to present the state of the doctrine of frustration in
English law before 1872. All the major cases related to the topic and the
explanations of various judges in their judgements have bee presented in a
detailed manner. The author presents the development of the doctrine both in
the light of developments in English Law and also in Indian Contract Law. The
 journal throws light on the view of the author towards the doctrine and
clearly, the author tries to answer all the questions related to the doctrine.
The journal concludes with the answer to the question that what exactly is
the reasoning behind the doctrine and if the development of the doctrine is
possible in today’s dynamic environment.

3. Poole, J.(2006).Case Book on Contract Law. New York. Oxford University

Press Inc. pp 509 534.

The book published by Oxford Press Inc, New York and authored by Jill Poole
potrays all the case laws that helped in the introduction and development of
the doctrine of frustration of contract in the Common law system. The book
mainly focuses on cases and judgements and helps to understand the concept
of doctrine through the view point of the judges and the interpretation of the
law through the previous cases. The book is good for referencing cases
related to the doctrine and provides the reader with very detailed
judgements. The book however does not have any Indian Case Law reference
and the explanation of the topic is only through detailed cases. The book,
however, does not contain any view point of the lawyer and the general
explanation is very less. The scope of the doctrine has just been limited to the
previous cases and judgements in the book.

CONCLUSION

To conclude, the agreement of performance of an impossible act in a contract

renders it void. Changes in legislations can further affect the legality of a contract.
If illegality arises, the contract becomes void. Subsequent changes can affect the
performance of the contract rendering it impossible to perform. If the occurrence of
an event is anticipated by the contractual agreement then it would become a
contingent contract under Section 32. If there is no solution for an unforeseen
event mentioned in the contract, then the courts will decide the severity of the
changed context under Section 56. The courts will asses that if change in
circumstances in fundamental and if it uproots the main objective of the contract. If
the answer is yes, then the contract is said to be frustrated. The subsequent
change in circumstances or happening of an event is not confined only to physical
event. Further, impossibility to perform a contract will include performance of an
act which is impractical in nature or useless from the point of view of the objective
of the contract, which the parties had in mind when they drafted a contract. If a
contract is frustrated, the terms for restitution of the benefits earned by the
parties, are provided under Section 65 of the Indian Contract Act. Also, Several
reasons can make a contract void and “frustration” is just one among them.
However, under this section, no contract can be frustrated if it is already performed
or if the contract is already completed.

Scope of the doctrine should be enlarged bringing all the events that frustrate a
contract in the within the purview of Section 56, thereby removing unnecessary
categorisation of cases as governed under Section 32 and 56 when all the cases can
be decided under Section 56 alone. Provisions like that of imprevision under French
law, must be made so as to secure public interest and also prevent any injustice
caused to the promisor. Most importantly, the courts should work to preserve the
elasticity and flexibility of this doctrine of frustration ensuring that it keeps pace
with the dynamic business, social and economical environment where complex
transactions are continuously taking place making the contract more vulnerable to
supervening events. This would eliminate the injust demand of absolute liability
from the side of the promisor and help in the development of the doctrine and the
law of contracts in general.