Law of Contract

Research paper
The Doctrine of Frustation

MIT World Peace University

Name: Snehkiran Kaur Toor

Prn: 1182230118
Division: A
Submitted to : Ayush Mishra

Abstract
The doctrine of frustration has played a crucial role in the confluence of contract law, when
unforeseen events make the performance of a contract impossible. As codified under Section
56 of the Indian Contract Act, 1872, this doctrine points to the discharge of contractual
obligation where an event might be beyond the control of the parties and frustrate the
purpose or performance of the contract. Though frustration originated in the English
common law, it is heavily adapted and applied in India which provides a legal remedy when
a contract becomes impossible due to government interference, war, or unforeseen events
such as natural disasters. This essay delves deep into how the doctrine took shape based on
cases in earlier common law, from that of Taylor v. Caldwell on and onwards, until they were
formulated under Section 56 of the Contract (Remedies) Act,1952. Going forward it further
focuses mainly on those judiciary decisions especially of Satyabrata Ghose v. Mugneeram
Bangur & Co.(1953). The said judgment clearly expounded how "impossibility" is defined
upon by which physical impossibility, literal impossibility or impracticability of performance
gets differentiated under those clauses. The paper proves how the doctrine of frustration
elaborates within various case laws for dealing with different circumstances of contractual
non-performance and provides a fair solution to the circumstances when a contract is made
unperformable due to some unanticipated events. In conclusion, the doctrine is significant in
providing an alleviation of risks for parties entering contracts; thus, the law needs to offer a
just and equitable remedy in cases whereby performance becomes impossible due to other
uncontrollable external factors; the pandemic caused by coronavirus is an example.

Introduction

A contract is a legal agreement that binds two or more parties and creates duties that the law
can enforce. But unexpected or extraordinary events can affect how these duties are carried
out. These are events that neither party could have seen coming when they made the deal.
Such events might end up freeing the parties from what they agreed to do in the contract. The
doctrine of frustration is a legal principle that addresses the discharge of a contract due to the
impossibility of performance. While the Indian Contract Act, 1872 does not explicitly define
the term "frustration," it provides the framework under which this doctrine operates. Black's
Law Dictionary defines frustration in the context of contracts as "the doctrine that if a party’s
principal purpose is substantially frustrated by unanticipated changes in circumstances, that
party's duties are discharged, and the contract is considered terminated." This is also referred
to 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’”

The courts of India and England have laid down on the basis of which various considerations
establish whether a contract be said to be frustrated or not in several cases.

The genesis of The Doctrine of Frustration

The origin of the doctrine should properly be traced to a 1863 decision of the Queen's Bench
Court in England in “Taylor v Caldwell”. Long before this ruling, the Roman and Common
Law had no flexibility on the issue of contractual obligations; they did not regard
supervening, unforeseen events that rendered performance impossible or unduly burdensome
as a good excuse for non-performance. For the most part, this doctrine has developed to
consider justifications such as "loss of object," "radical change in the obligation," "implied
condition," and the impression of a "just and reasonable" solution, forming established
grounds for release from a performance obligation in a contract. Before Caldwell, it used to
be that parties could have predicted such events and addressed such eventualities in their
contract if they so wished. The "absolute contracts" principle underwent a reiteration in the
eminent case of “Paradine v Jane”, wherein the lessee was charged with defaulting on rent for
not paying it even after being evicted as an alien enemy. It was justified because- "A party, if
he has entered into any contract of his own free will and has created any obligation shall
carry it out as far as he can. Even in the presence of circumstances peculiar to that party or of
obvious necessity, he is still bound, making provision against the occurrence possible."
The rigid, formalistic approach of Common Law was relaxed in *Caldwell*. In this instance,
a concert held in an opera house burned down before the scheduled event. In his ruling,
Justice Blackburn introduced the theory of the "implied condition" or "implied term," saying
that "in contracts where performance is dependent on the continued existence of a specific
person or thing, an implied condition exists that failure to perform because of the loss of that
person or thing will excuse the performance." From the get-go, this implied condition had
been applied: the parties, albeit unaware of it, arrived at a conscious agreement when entering
into the contract.

However, this whole theory was severely criticized with the implied condition viewed upon
as a legal fiction by courts. The main basis of objections raised against it was that the parties
had knowingly assumed the risk of unforeseen circumstances by not having addressed it
within their bargain; thus, the doctrine of the implied condition was questioned. The House of
Lords refused to hear the case of implied condition in National Carriers Ltd v Panalpina
(Northern) Ltd, criticizing this, and asserting, "the whole weakness of the implied term theory
is that it represents an intrusion, or perhaps rather the specter of an officious bystander
intruding on the parties at the moment of the agreement.”
The objection-theory of 'loss of object' or 'loss of basis' represents a more sophisticated
articulation of the doctrine of frustration. Krell v. Henry is an important example wherein it
was decided by the court that the marriage procession, as the principal object of the contract,
frustrated the contract because it had been cancelled. In this case, performance depended on
the existence of a specific event, and that made the contract frustrated. Different from the
theory of implied conditions, this theory is widely accepted as it steers clear against the
offensive interpretations of the parties' intentions. Another theory involves the court’s role in
imposing a “just and reasonable” solution in cases of frustration. Even if a contract is
absolute in its terms, it may not be treated as such if the intent behind it was not absolute.
This theory, however, has been criticized for granting courts broad powers to modify contract
terms in the name of fairness. A more widely-known theory is the Lord Radcliffe's theory
concerning "radical change in the obligation" in Davis Contractors Ltd v Fareham Urban
District Council, wherein it was held that frustration occurs when the circumstances change
so drastically that the performance of the contract would be entirely different from that
originally agreed upon. Frustration, therefore, does not stem from hardships, but from major
alteration in the obligation at law.

The evolution of these theories reflects the courts’ efforts to adopt a more realistic approach
to situations of impossibility. In the UK, many aspects of frustrated contracts have been
codified in the Law Reform (Frustrated Contracts) Act 1943, which was enacted following
the landmark case of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd. This
Act allows for the recovery of payments made before the frustrating event, even when no
performance has been delivered, thus providing a more equitable solution for both parties.

Interpreting the Doctrine under the Contract Act

There are a lot of factors that help the court determine if the doctrine of frustration is
applicable in 'a certain event or not. The doctrine of frustration is only available on the
following happenings:

a. If there is an initial or subsequent impossibility: Initial impossibility is when a

particular act or event is impossible to discharge even before the contract is made,
then it is void. For example, waking up a dead person or performing some sort of
magic. They are usually things that are fictional in nature. Whereas subsequent
impossibility is when the agreement is possible as soon as the two parties set foot in
the contract but due to some incalculable factors, they are inadequate to carry forward
the contract.

b. If there is a destruction of subject matter: It is when the object, being the very part
of the contract gets destroyed before the contract is complete; then the contract is
frustrated. In the case of Taylor vs Caldwell'there, Taylor wanted to have an event in
Caldwell's Hall but before the event could take place the hall was on fire, making it
impossible to carry forward the event. This situation was unforeseeable by both the
parties, so the event could not take place and the contract was termed frustrated.

c. When there is the death of the party or incapacity to perform: When there is a
contract between two parties and after entering the contract there occurs sudden death
or incapacity to carry forward the contract then it becomes void. In the case of
Robinson vs Davidson" where the defendant fell ill and could not perform at the
concert. The concert was postponed and caused loss to the plaintiff but court asserts
that the contract was frustrated because the defendant fell ill.

d. Non-occurrence of contemplated event: Here, the contract is entirely possible but

frustrated because the event that is the heart of the contract has not taken place. In
Krell v Henry, a party had hired a flat for the coronation procession and it was
canceled. The party refused to pay money for the flat. Here, the court applied the
doctrine of frustration because the heart of the contract did not happen.

e. Government, legislation and administration interventions: The contract can be

held frustrated if there is any government interference. In the case of Man Singh vs
Khazan Singh, where there was a contract of selling trees in a certain forest area
whereas the government of Rajasthan passed a bill that forbade cutting of trees in that
area, which was the soul reason why an agreement was made. So the contract was
held frustrated in accordance with the government orders.

f. When there is a change of circumstances: In the case of Easun Engineering Co Ltd

v Fertilizers and Chemicals Travancore Ltd there was a sudden hike of 400 percent of
some oil due to war. The court said that it was not foreseen as well as disproportionate
increase in price. It is such a drastic change that this contract became frustrated.
 g. Intervention of war : I In such situations when there is a war declared and there is an
impossibility for performing the contract, it will then be held frustrated. These are all
the bases according to which the contract is said to be frustrated. This act has an
exceptional place in the Indian Contract Act. The doctrine of frustration was brought
into the picture to ease toughness of the common law.

Case Law:

The doctrine of frustration is clearly codified in India under Section 56 of the Indian Contract
Act, which provides a positive rule regarding the frustration of contracts. This section
eliminates the need for courts to rely on various theories to justify its application. It allows
relief when the performance of a contract becomes impossible due to an unforeseen event or
change in circumstances beyond the control of the parties. Section 56 states that an agreement
to do an act that becomes impossible or unlawful is void. A key case illustrating this principle
is *Satyabrata Ghose v. Mugneeram Bangur & Co.* (1953). In this case, the defendant
company agreed to sell land to the plaintiff, but part of the land was requisitioned for military
use. The Supreme Court, applying the doctrine of frustration, ruled that the requisition did not
substantially prevent the performance of the contract, and thus the contract did not become
impossible under Section 56.

Satyabrata Ghose vs Mugneeram Bangu (Satyabrata Ghose vs Mugneeram Bangur & Co.,
1953)and company: Mungeeram company had a plot in Calcutta where they decided to start
development of the land for residential schemes, under the name of lake colony scheme
number 1. The contract of constructing drains and roads for residential purpose was taken up
by the company. Small amount of earnest money, a total of 101rs was taken by the company.
While selling the land they agreed on the fact that the balance amount would be paid when
the roads and drains are constructed. Bejoy Krishna Roy had signed an agreement by paying
the earnest money to Mungeeram company. Later on, the 30th of November 1941, Satyabrata
Ghose was made the nominee of the above land. Before the roads and drains were
constructed the land was requisitioned by the government, they took a certain part of land
because of sudden war like situation. Looking at the situation the company decided that they
will not carry forward the project so they informed the buyers that they can take back their
earnest money which is ₹101 within one month of the letter or they can take the land as it is
without roads and drains constructed. And if none of these options add chosen the land will
get forfeited. The issue is that Satyabrata wanted his contract as it is, and the company said
the contract is frustrated under section 56 of the Indian contract act.

“An agreement to do an act impossible in itself is a void. 1. See s. 73, infra. 2. C.f. ss. 62 and
63, infra. 26 Contract to do an act afterwards becoming impossible or unlawful.—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.1 Compensation for loss through non-performance of act known to be
impossible or unlawful.— Where one person has promised to do something which he knew,
or, with reasonable diligence, might have known, and which the promisee did not know, to be
impossible or unlawful, such promisor must make compensation to such promisee for any
loss which such promisee sustains through the nonperformance of the promise.”

The trial court and the district court were in favor of Satyabrata, but the High Court, later on,
did not favor him. This compelled an appeal in the Supreme Court. The Supreme Court
ventured into the issue of whether "impossible" meant physical impossibility, literal
impossibility, or impracticability of performance. The High Court's decision was founded on
English principles of frustration of contract, which the Supreme Court considered nowhere
applicable to the provisions of the Indian Contract Act.

Another thing on which the Court laid emphasis was that, since no time was mentioned in the
contract for completion, there was no task time-bound in nature, and hence could be said to
be tantamount to frustration. Moreover, acquisition of land by the government was only a
temporary wartime situation and not one to permanency that would render the contract
impossible. Accordingly, because of this, the Supreme Court set aside the judgment of the
High Court in favor of Satyabrata.

Analysis:

The doctrine of frustration, as stipulated in Section 56 of The Indian Contract Act, 1872, acts
as a legal rescue for the parties when a contract's performance has become impossible due to
none of their faults. This notion comes as a relief to the parties to a contract when unexpected
situations make the contract impossible to be performed as agreed initially, thus reducing the
risk to the parties entering into a contract.

As discussed earlier, a contract can become frustrated due to various circumstances, such as a
sudden change in the conditions, government interference, or a natural disaster. The doctrine
is thus a guarantee to the parties that they will not be unfairly blamed for issues beyond their
control.

The concept of frustration in English common law influenced the Indian law, particularly,
through the adoption of Section 56. This in turn has led to a major and still ongoing
development in the legal understanding of contract law. The case of Satyabrata Ghose vs.
Mugneeram Bangur & Co. (1953) is a real instance of how the term "impossible" can
potentially be interpreted in various ways. The Supreme Court said clearly that physical
impossibility, literal impossibility, and impracticability are the three different aspects of
impossibility that should do the difference is by pointing out that the mere difficulty or the
inconvenient of performance is not the idea of the difference between physical and literal
impossibility which means all of these should be possible; there must be a drastic change of
conditions.

This doctrine comes into play as a very interesting principle in situations of unexpected
happenings like the turning out of "acts of God." This is not the case though, a recent
COVID-19 epidemic has amongst other things reviewed this by rendering contractual
agreements unvalid due to lockdowns, travel restrictions, and public health emergencies. The
pandemic resulted in a worldwide pause of activities due to which companies and individuals
neither could meet their obligations nor could not adapt to the situation despite their
concerted efforts.

By offering a legal remedy for such situations, the doctrine of frustration provides a level of
certainty and fairness for parties involved in contracts. It ensures that neither party is unduly
penalized when an external, uncontrollable event makes performance impossible. This makes
the doctrine a valuable tool for fostering trust and clarity in contractual relationships,
knowing that in the face of truly unforeseen circumstances, the law offers a way to relieve
parties from their obligations.

CONCLUSION

The doctrine of frustration, as enshrined under Section 56 of the Indian Contract Act, 1872,
serves as an essential safeguard in contract law, offering relief to parties when unforeseen
circumstances make the performance of a contract impossible. Through the evolution of case
law, particularly in landmark cases like Satyabrata Ghose v. Mugneeram Bangur & Co., the
principle has been refined to ensure that it addresses real-world challenges, where external
factors beyond the control of the parties frustrate the purpose of the contract. The Indian legal
system, by codifying this doctrine, has moved beyond rigid common law principles,
providing a more flexible and equitable framework for dealing with situations of
impossibility.

The key takeaway from this research is the recognition that frustration is not limited to
physical impossibility but extends to cases where performance becomes radically different
from what was originally agreed upon due to unforeseen events. Whether it's government
intervention, acts of nature, or extraordinary circumstances like a pandemic, the doctrine
ensures that neither party is unfairly penalized when they are unable to fulfill their obligations
due to factors outside their control.

In essence, the doctrine of frustration plays a pivotal role in promoting fairness and certainty
in contractual relationships. By providing an avenue for the discharge of obligations in such
situations, it protects the parties from unjust consequences while maintaining the integrity of
contractual agreements. As our global legal landscape continues to adapt to unforeseen
disruptions—such as the COVID-19 pandemic—the relevance of this doctrine becomes ever
more pronounced, highlighting the importance of the law's capacity to respond to changing,
uncontrollable circumstances in a just and reasonable manner.