This paper thoroughly explores the doctrine of frustration in contract law. The
doctrine, which originated from Roman law and evolved into English law, allows
parties to void agreements when performance becomes impossible or unlawful due
to unforeseeable events beyond their control. In India, the doctrine is
enshrined in Section 56 of the Contract Act and has been clarified through cases
such as
Satyabrata Ghosh v. Mugneeram Bangur & Co. The paper examines the
historical development of the doctrine, its practical significance in
contemporary legal frameworks, and its impact on business transactions and legal
remedies. It also highlights exceptions to the doctrine of frustration, drawing
on recent legal precedents such as Kerala High Court rulings.
The paper
discusses the implications of frustration for businesses, individuals, and legal
practitioners. It emphasizes the importance of risk management considerations
for businesses, such as assessing potential risks and incorporating appropriate
contract clauses to mitigate losses. Additionally, it stresses the importance of
effective communication and mitigation efforts in addressing the impact of
frustration on business relationships and reputations. In conclusion, this paper
comprehensively explains frustration's role in navigating complex business
transactions and legal disputes. Legal practitioners, scholars, and businesses
can benefit from the insights presented in this thorough exploration of
frustration in contract law.
Research Methodology
This study employs a systematic approach to gather and analyze information from
online sources to address the research questions posed. The methodology
encompasses several key stages, including identifying the research topic,
formulating the search strategy, source evaluation, data collection, analysis,
synthesis, and interpretation.
Introduction
In the contemporary era of Contract law, agreements are a fundamental aspect of
establishing commercial or legal relationships. However, the doctrine of
frustration serves as a crucial protection against unforeseen circumstances that
could make fulfilling contractual obligations impossible. Frustration in the
contract occurs when unanticipated events beyond the parties' control disrupt
the basis upon which the agreement was formed, making it impractical, unlawful,
or fundamentally different from its original purpose.
As a general rule, parties to a contract have an intention towards the
fulfillment of their part. In case of breach, the party breaching is liable to
compensate for the same, but an exception to this rule is laid down in sec 56[1]
of the Indian Contract Act 1872. In agreements and contracts, "frustration"
refers to a scenario where a deal cannot be completed due to unforeseen events.
It is a way to deal with unsuccessful transactions. When contract law is
involved, the doctrine of Frustration is often used to manage failed contracts,
which is one of the most common issues in this area.
Understanding the complexities of the frustration of contracts is crucial in
navigating modern business transactions. Unexpected events such as natural
disasters and legislative changes can impact the feasibility of contractual
performance. This paper comprehensively explores the doctrine of frustration,
including its historical development, legal framework, requirements, types,
consequences, limitations, and practical implications. By examining fundamental
case studies and anticipating future trends and challenges, this research aims
to shed light on the nuanced landscape of frustration of contract. The insights
offered in this paper are invaluable to legal practitioners, scholars, and
businesses alike.
Historical Development
In contract law, the doctrine of frustration deals with situations where an
agreement becomes impossible or impractical to fulfill due to unforeseen
circumstances. The concept evolved in English law, where it is recognized as
part of the frustration doctrine, while American law refers to this as the
theory of impossibility and impracticability. However, in the Indian legal
system, it is codified under section 56[2] of the Indian Contract Act, 1872.
The term "frustration" essentially means defeat or inability to proceed.
According to the Black Law Dictionary, frustration refers to preventing or
hindering the achievements of a specific objective, particularly in the context
of contractual performance[3]. Indian courts have emphasized that the term
frustration of the contract is more precisely described as the frustration of
adventure or the business or practical objective of the contract[4]. This
concept serves as a mechanism to balance the general rule of absolute contract
with the specific Exception that Fairness is demanded under certain
conditions[5].
Fundamentally, this doctrine revolves around the impossibility of
performing a contract by involved parties. It signifies that the contract
becomes inexecutable due to incidents beyond the control of the contracting
parties. This frustration can manifest in various forms, making the performance
complicated, impossible, or illegal. It is triggered by unforeseen or
uncontrollable events that render the contractual obligations practical; the
doctrine of frustration provides a legal framework to address situations where
external factors make it unfeasible for parties to fulfill their contractual
commitments.
The doctrine of frustration of contract originated from Roman law, which was
first mentioned in the case of
Paradine v. Jane[6]. In this case, the parties
were discharged because the thing had been destroyed or the purpose of the
contract had become impossible to perform. Analyzing the case facts, Jane was
sued for rent by Party, and the defendant argued that a German prince had taken
the area where the property was situated. Therefore, he could not use the
property to make any profits. He had planned to give the rent out from this
property where he would make a profit by using it. However, the defendant's
defense was not held liable because the obligations under the contract were
absolute, with no exceptions whatsoever.
Here, the judge held that
responsibility under the agreement should be owned under all circumstances.
Another critical case in which this trace originated is the case of a queen
bench judgment, Taylor vs Caldwell,[7] in England. The doctrine of frustration
has evolved as a response to the abovementioned doctrine. There were so many
instances where the contract was impossible to perform through no fault of the
defendant, and the strictness of the English lovers was found to be unhelpful
and unjust. Hence, an exception to this rule was required. Therefore, it
incorporated the doctrine of frustration in the contract to remedy the
impossible circumstances.
Doctrine of Frustration under Indian Contract Act
The Indian Contract Act of 1872[8] Does not explicitly mention the term
"frustration of contract" or define it. However, Section 56[9] the Act, which
governs agreements to perform impossible acts in India, is relevant to this
doctrine. According to this section, if a contract to carry out an impractical
act is voided by law in India, a quote of law can void a promise or promise. If
an action taken after a contract has been established becomes impossible or if
one party fails to fulfill their obligations due to unforeseen circumstances,
the contract is frustrated. This section specifies that an agreement due to
impossibility is void in and of itself. Moreover, when a contract to perform an
act is rendered impossible or unlawful due to an event beyond the control of the
promiser, the entire contract is rendered void. This situation is known as a
frustration with the `contract.
To clarify the concept, let's consider a scenario where two parties, A and P,
have a contract under which A is to receive cargo at a foreign port. However, if
A's government declares war on the nation where the port is located, the
contract's performance is impeded by unforeseen events, leading to frustration
with the contract.
In India, the doctrine of frustration was developed in the
context of Indian laws in the landmark case of
Satyabrata Ghosh vs. Mungir Ram
Mango and Corporation[10] Justice Mukherjee stated that the first paragraph of
Section 56[11] is akin to common law principles in that the responsibility to
comply is charged due to inherent impossibility. In another case, Syed Kurishid
Ali vs. the State of Orisa[12], the doctrine of frustration was defined as an
event of subsequent unenforceable incidents for which neither party is
accountable, and it indirectly specifies the frustration of contract.
Practical Implication
The Doctrine of frustration of contract carries significant practical
implications for businesses, individuals, and legal practitioners. If we're
talking about businesses, there's a risk management factor. In this factor, the
frustration with the contract introduces a level of uncertainty to business
transactions. Companies need to assess the potential risk of unforeseen events
that could lead to When a contract is frustrated; businesses may suffer
financial losses due to the inability to fulfill obligations or the loss of
anticipated benefits.
Understanding the legal remedies available, such as
restitution or compensation, is crucial for businesses to mitigate these losses.
Frustration should be considered, and the contract should include appropriate
clauses to mitigate these risks. Frustration of contracts can impact business
relationships and reputation. How a company handles a frustrated contract,
including communication with the other party and efforts to minimize disruption,
can influence its reputation within the industry. Where a contract is
frustrated, it is considered terminating.
This means the parties are no longer
obligated to perform their obligations under the contract. Frustration of
contract shifts the risk of laws from parties to the contract to the party who
peers the lowest resulting from the frustration. This could mean that one party
may have to bear certain costs incurred before the frustration occurred. If
payments have already been made under the contract, the doctrine of frustration
may allow for recovery of those payments, depending on the circumstances and the
jurisdiction laws[13]. Frustration excuses both parties from performing their
application under the contract. This can have significant implications for
ongoing projects or transactions.
Example of the practicality of frustration- The ongoing conflict between Russia
and Ukraine could potentially lead to frustration of contracts in certain
situations, depending on the nature of the contract and specific circumstances.
Suppose conflict directly impacts the ability of parties to perform their
contractual obligation, such as disrupting supply chains, damaging
infrastructure, and causing political instability. In that case, it may render
the contract impossible to perform.
If the conflict results in sanctions, trade
restrictions, or other legal barriers that make it illegal or impractical to
fulfill the contract, it will lead to frustration. For example, if the country
fled to sections prohibiting the export or import of certain goods, contracts
may be frustrating. If the subject matter of the contract is destroyed, damaged,
or rendered on the massive vehicle as a result of conflict, the contract may be
frustrated.
For instance, if a contract involves rear estate or infrastructure
in a conflict zone that is destroyed during the war, the contract may be
frustrating. The. The conflict may fundamentally alter the contract's
circumstances, making it radically different from what the party initially
intended. These change circumstances could lead to frustration if it makes the
performance of the cottage commercially or practically impossible, as we have
seen various properties.
Lands were destroyed due to the attack made by Russia
in Ukraine, and those properties were involved in any contract. This situation
led to frustration because the contract was a waste due to the destruction of
the complete subject matter. So, it is essential to note that whether a contract
is frustrated due to the Russia and Ukraine conflict will depend on each case's
specific facts and circumstances, the governing law, and any relevant
contractual provisions. Parties affected by conflict should carefully review
their contract; this whole day, there are two various deaths, which also makes
them incapable of making a contract for those parties who were already involved
in any contractual relationship before their deaths.
Exceptions of this Doctrine:
- No frustration of contract due to mere commercial hardship caused by
pandemic held by Kerala High Court, Suneesh K S V Travancore Devaswom Board & Ors [14]:
The Kerala High Court has recently ruled that occurrence of a commercial
difficulty or hardship to perform a contract is not an excuse to back out from
contractual obligations, which the party's had agreed to in the first place.
Referring to the precedent in Sureshan Nair TS, V Travancore Deva Swamp Board,
the court ruled that once an individual accepts a grant of Kuthaka, the right to
sell designated products, and remits the first installment; they are bound to
adhere to all conditions in the tender notification and execute the agreement
within the stipulated time.
Failure to do so forfeits the right to avoid
contractual occupations and claim benefits. They highlighted that clause 12 of
the tender agreement empowers the board to recover losses from the petitioner's
movable and immovable properties due to default payment, emphasizing the
importance of ordering contractual commitment despite any challenges forced by
the pandemic[15].
- The Doctrine of Frustration Has Narrow Limits-In an instructive English
judgment. Namely, Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH[16], despite the
closure of the Suez Canal, and even though the customary route for shipping the
goods was only through the Suez Canal, it was held that the contract of sale of
groundnuts, in that case, was not frustrated, even though it would have to be
performed by an alternative mode of performance which was much more expensive,
namely, that the ship would now have to go around the Cape of Good Hope, which
is three times the distance from Hamburg to Port Sudan. The freight for such a
journey was also double.
Despite this, the House of Lords held that even though
the contract had become more onerous to perform, it was not fundamentally
altered. Where performance is otherwise possible, it is clear that a mere rise
in freight price would not allow one of the parties to say that the
impossibility of performance discharged the contract[17]
Conclusion
The doctrine of frustration of contract, which is described in the Indian
Contract Act and is interpreted through case law, serves as a crucial safeguard
in modern commerce against the impact of unforeseen events. This paper has
examined its historical development, legal framework, and practical
implications, providing insights into its nuanced application in business
transactions. Through examples such as the conflict between Russia and Ukraine
and recent rulings by the Kerala High Court, we have seen how frustration can
significantly impact contractual relationships and legal remedies.
Key business considerations include effective risk management strategies and
upholding contractual commitments despite challenges. While frustration provides
relief in exceptional circumstances, its narrow limits, as illustrated by legal
precedents, emphasize the principle of honoring contractual obligations. By
offering insights into frustration's role in navigating complex business
transactions and legal disputes, this paper is a valuable resource for legal
practitioners, scholars, and businesses. As commerce continues to evolve in an
increasingly unpredictable world, understanding the intricacies of the
frustration of contract remains essential for ensuring fair and equitable
outcomes in contractual relationships.
End-Notes:
- The Indian Contract Act of 1872, § 56 No. 9, Acts of Parliament, 1872 (India).
- The Indian Contract Act of 1872, § 56 No. 9, Acts of Parliament, 1872 (India).
- Black's Law Dictionary 21st ed. (2021), karnatakajudiciary.kar.nic.in/hcklibrary/PDF/Blacks-Law-Dictionery.pdf.
- Ram Kumar v PC Roy and Co Ltd A.I.R. 1952 Cal 335 [23]; Andhra Pradesh Mineral Development Corporation Ltd v Pottem Brothers 2016 (3) ALT 297 [69].
- HirjiMulji v Cheong Yue Steamship [1926] A O 497, 510 (Lord Sumner), Affd Nirmal Lifestyle Ltd v Tulip Hospitality Services Ltd, Arbitration Petition No 550, 864 and 891 of 2013 [14] (Bombay High Court, 27 November 2013).
- Paradine v. Jane, 82 Eng Rep. 897 (1647).
- Taylor vs. Caldwell, [1863] 3 B&S 826.
- The Indian Contract Act of 1872, Act No. 9 of 1872, India Code (as amended).
- The Indian Contract Act of 1872, § 56 No. 9, Acts of Parliament, 1872 (India).
- Satyabrata Ghose v. Mugneeram Bangur & Co. AIR 1954 SC 44.
- The Indian Contract Act of 1872, § 56 No. 9, Acts of Parliament, 1872 (India).
- Syed Kurishid Ali v the State of Orisa, AIR 2007 ORISSA 56.
- LEXOLOGY.COM, lexology.com/library/detail.aspx?g=708960c8-f4f5-4d7c-92f3- (last visited Mar. 20, 2024).
- Suneesh K S v Travancore Devaswom Board & Ors, WP(C) NO. 19896 OF 2021.
- Hannah M Varghese, No Frustration Of Contract Due To Mere Commercial Hardships Caused By Pandemic: Kerala High Court, LIVE LAW (Mar. 22, 2024, 2:28 PM), livelaw.in/news-updates/frustration-of-contract-commercial-hardship-pandemic-kerala-high-court-section-56-contract-act-191257.
- Tsakiroglou & Co. Ltd. v Noblee Thorl GmbH [1961] 2 WLR 633: 1961 (2) All ER 179.
- Prashanth Shivadass & Priyanka Yavagal, Force Majeure- The Sudden apprising, SCCONLINE (Mar. 22, 2024, 3:43 PM), scconline.com/blog/post/2020/06/16/force-majeure-the-sudden-apprising/
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