Ten Things That Happen When You Are In Frustration Of Contract

When a contract is entered into between two parties, specific duties and rights arise between those two parties. The frustration of contract is a scenario whereby some unforeseen events happens after the contract is entered into, which make the performance of the contract impossible. Such a situation is known as the frustration of the contract. The parties need not perform the contract; thereafter, they are relieved from the entire contractual obligation that arose from such contract.

English Law on the frustration of contract

The doctrine of frustration of contract was initially developed in the English laws. The case which developed this doctrine was Taylor v. Cardwell, whereby there was an opera house which was rented to hold concerts via contract between the parties. The opera house was subsequently destroyed by fire. The court held that the contract was frustrated as the subject-matter of contract on which the entire contract was made, was destroyed by fire and in no way, the contract could be further carried on.[1]

The doctrine of Frustration of contract under the Indian Law

As a general rule, once a contract is entered into between the parties, it has to be carried on according to such agreement. But there is an exception to this rule under the Indian Contract Act, 1872 under Section 56. The section reads as follows-

“Contract to do act afterward becoming impossible or unlawful.-A contract to do an act which, after the contract is made, becomes impossible, or, because of some event which the Promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

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 non-performance of the promise.”[2]

Therefore, a contract to do anything which is made impossible or unlawful to execute thereafter becomes void. Compensation is also provided to the party who suffers a loss on such non- performance of the contract by the person who knew that the act was unlawful or impossible to perform.

The doctrine is based on the legal maxim “les non cogit ad impossibilia,” which means the law will not compel a man to do what he cannot possibly do. The apex court very well explained the doctrine in the case of Satyabrata Ghose v. Mugneeram, whereby, the court held that the word ‘impossibility of contract’ and ‘frustration’ could be used as a synonym. Where the contract cannot be performed because of the impossibility, then the person cannot be compelled to do that task.[3]

 Conditions necessary for Section 56

1. There should be a valid contract existing between the parties. The contract occurred between the parties should satisfy all the requirements of a valid contract set out by the Indian Contract Act, 1972.
2. The contract must be set to be performed. That means it has not been performed either wholly or has been performed only in part. Only if some part of the contract is yet to be performed, section 56 will find its applicability.
3. The contract has either becomes impossible or unlawful after that. The contract, after being entered into, should become impossible to perform or unlawful. The party should be unaware of this fact or else they will have to pay the compensation to the party suffering from such known frustration of contract.

Grounds of the frustration of contract may be the destruction of the subject –matter, non- occurrence of the contemplated events, death or incapacity, change of circumstances, government, administration or legislation intervention, the intervention of war, and such other circumstances.

Conclusion

The doctrine of frustration of contract can be very well be defined after reading Section 56 of the Indian Contract Act, 1872. It is made evident can frustration can be allowed into in two circumstances, i.e., the impossibility of performance of contract and illegality of contract. Adequate compensation is provided to the party who has in any of the circumstances of the frustration suffered loss by the party who has gained something from the frustration.

[1] Taylor v. Cardwell (1863) 3 B.& S. 826.

[2] Indian Contract Act, 1872, s. 56.

[3] Satyabrata Ghose v. Mugneeram (1954) AIR 44.