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Home Contract Law Doctrine of Frustration : Facts you need to know about
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Doctrine of Frustration : Facts

you need to know about
September 26, 2019
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 Table of Contents

o Origin of the Doctrine of frustration

 Meaning
 Application of Doctrine under different scenarios:
o

 Not Limited to Tangible Things
 Frustrating Events
 Limits of the Doctrine
 Doctrine of Frustration in India
o
 Major Indian Case related to this doctrine
o Grounds Of Frustration
o Effects of frustration
o The case of Thompson v . ASDA-MFI Group plc
o Issues affecting the Operation of the Doctrine
o Conclusion

Origin of the Doctrine of frustration

The doctrine of frustration of contract owes its origin to Roman law. Its
application was seen in the Roman Contract law, where the parties were
discharged because the thing has been destroyed or the purpose of the
contract has become unattainable.

The Origin of Frustration of Contract is closely related to the English Rule:

Subsequent impossibility of performance cannot be a valid defence by the
defendant in cases of breach of an obligation under the contract. This rule
was laid down in: Paradine vs Jane, 1647 (82) ER 897: 1647 Alyen 26. Brief
facts of the case are: Jane was sued for rent due to Paradine. The defendant
argued that the German Prince had invaded the area where the property was
situated (Occupied the property), therefore he couldn’t use the property to
make any profits. He had planned to pay the rent out of the profits which he
would have made, had he used the property.

The defence was not held valid; as the obligation under the contract was
absolute with no exception whatsoever. Though the defendant’s proposition
was a reasonable and strong one- he couldn’t have done anything about the
situation- the Judge held that responsibility under the contract should be
honoured under all circumstances.

The Doctrine of frustration was evolved as a response to the aforementioned

doctrine. There were cases where the contract couldn’t be performed through
no fault of the defendant, and the rigidity of the English rule was found to be
unreasonable, unfair, hence an exception to this rule was necessary. The
doctrine of Frustration was incorporated in the contract law as a remedy to
the above situation.

Meaning
A contract is an agreement or set of obligations to be fulfilled by the parties
to the contract. Sometimes, subsequent to the construction of contract an
unforeseen circumstance may arise, which render the performance of the
contract impossible. The object of the contract ceases to exist. This change in
circumstance is not caused by the parties and it changes the nature of
obligations, different from what was contemplated by the parties.

As with most laws in India, the contract act is influenced by English

laws/doctrines(The act was passed when India was under colonial rule), this
doctrine constitutes the Indian Contract Act,1872, as Section 56 (Agreement
to do impossible act).

It speaks about two impossibilities i.e. Initial impossibility and Subsequent

Impossibility. Initial impossibility undergirds the fundamental proposition
that ‘’An agreement to do something that is intrinsically impossible is void’’.
For example, an agreement to bring a person back to life who is dead, being
impossible of performance, is void.

Subsequent Impossibility as the term suggests something that happens later,

i.e. after the parties have got into a contract. Sometimes, it happens that at
the time when the contract was constructed, the performance of the contract
wasn’t an issue, but subsequently, because of the change in circumstances
or factors, the performance becomes impossible or unlawful. An example
here would be where a contract is made for the import of goods, and the
import is thereafter forbidden by a Government Order.

Application of Doctrine under different

scenarios:
In Taylor vs Caldwell, the court pointed out that the rule stated in Paradine
vs Jane ‘’is only applicable when the contract is positive and absolute, and
not dependent on any contingency either explicit or implicit’’.

Facts were as follows: the defendants agreed to let the plaintiffs operate on
their premises for a concert. Subsequently, before the scheduled concert the
premise was destroyed by fire without any fault of either party. It was held
that the contract was not absolute, because its performance depended on the
existence of the hall. It was, therefore, ‘’subject to a tacit understanding that
the parties shall be expunged in a case, preliminary to breach,
accomplishment becomes impossible from the exterminating of the thing
without fault of the contractor’’.

This decision brought to the fore- the constant struggle between two
conflicting doctrines-the principle of inviolability of contract which supports
the principle of the paramountcy of contract and the principle that a contract
is discharged when the common object or assumption has been annihilated
by certain happenings or incidents.

Not Limited to Tangible Things

Furthermore, Krell v Henry (Coronation case) highlights that the above
principle is not restricted to physical impossibilities. It also extends to cases
where the performance of the contract is achievable tangibly, but the
purpose for which the parties had constructed the agreement has failed to
materialise. To better illustrate this point, we should discuss the facts of Krell
v Henry, which are:

The defendant agreed to rent a flat from the plaintiff for two days, on which
days it had been announced that the crowning would take place, and,
therefore, a parade would pass along that place. Some portion of the rent
was paid before the event. Later, the parade was dropped because the King
was ill, the defendant objected to pay the remaining amount.

The court concluded that the real intention of the parties, which was given
effect by the contract, was to have a view of the parade. This was the
cornerstone of the contract; With the Coronation process not taking place on
the given date, the object of the contract was frustrated. As a result, the
plaintiff was not qualified to recover the balance of the rent. It is a perfect
example of the court not restricting itself to physical possibilities.

Frustrating Events
1. Destruction of subject-matter: The doctrine applies where the actual
and specific subject-matter of the contract has ceased to exist. Taylor
vs Cadwell best illustrates this point.
2. Supervening illegality: Performance of the contract becomes impossible
in the manner and the time contemplated ensuing from the change in
circumstance. If the legislature passes law after the contract is
constructed to deal with the changed situation, which makes the
contract frustrated. A, a company in India dealing with exports and
imports of dry fruits. A gets into an agreement with B, a supplier of dry
fruits in Pakistan. Subsequently, war breaks out between India and
Pakistan, as a result, the legislature passes a law, thereby making the
 imports from Pakistan illegal, the contract is frustrated by supervening
illegality.
3. Death or Incapacity of Party: When there is a contract that depends on
the particular skill or specific act of the promisor, his death or
incapacity terminates the contract. A classic case on this point would
be Robinson vs Davison: A contract between the plaintiff and the
defendant’s spouse(famous pianist), that she will be performing i.e.
playing the piano at a concert organized by the plaintiff on a particular
day. On the morning of the said day, she apprised the defendant that
she was ill, and will not be playing the piano. The concert had to be
postponed and this was a loss for the plaintiff. The court dismissed the
case stating that she had the option to not play if she was sick to do
so. The contract was clearly contingent on the fact that she was well
enough to perform.
4. Delay: The contract can also be frustrated by the inordinate delay.
However, the delay must be serious which defeats the purpose of the
contract. In Bank Line Ltd v Arthur Capel & Co where the ship was to
be chartered for 12 months from April 1915 to 1916. The vessel was
requisitioned until September 1915. It was held that the contract was
frustrated by the delay. Freights had risen and it would be unfair to the
owner if the old contract was enforced.

Limits of the Doctrine

The norm is that the parties will be held responsible for breach of the
obligation under the contract and the parties getting discharged due to
frustration is an exception. Acting in consonance with this approach, the
courts have made an observation that change of circumstances must be
‘’such as to upend the object of the contract. Some impediment or some
deviation is very common in all transactions, and it cannot be assumed that
any agreement has been made on the implied understanding that such a
thing will not take place to any extent’’.

‘’Commercial hardship’’ or ‘’Bad bargain’’ is an important limit to the

doctrine.

Davis Contractors Ltd v Fareham UDC perfectly illustrates this point. Brief
facts of the case are: Davis Contractors agreed with Fareham UDC to build
78 houses over eight months. Time taken to complete the project was 22
months because the plaintiff was short on labour and materials.

The plaintiff’ contended the delay had increased the costs, and the delay was
caused due to circumstances beyond anybody’s control. They pleaded to the
court to declare the contract frustrated, therefore were entitled to quantum
meruit for the value of work done. The decision was in favour of the
defendant. No doubt that the contract had become more onerous but in no
way, this can be interpreted as the frustration of contract. This is what lord
Reid stated as the difference between the contract becoming more onerous
and it becoming frustrating.

Doctrine of Frustration in India

Section 56 of the Indian Contract Act: As with most laws in India, the
contract act is influenced by English laws/doctrines(The act was passed when
India was under colonial rule). This doctrine constitutes the Indian Contract
Act,1872, as Section 56( Agreement to do impossible act). An agreement to
do something, which was possible or lawful when the contract was
constructed, but subsequently, becomes impossible or unlawful without any
fault of either party, then such an act will be void.

Major Indian Case related to this doctrine

Satyabrata Ghose v Mugneeram Bangur and Company & Anr.: The defendant
company launched a scheme related to developing the land into a housing
colony. The plaintiff was granted a plot on payment of advance money. The
company committed to constructing the roads and drains necessary for
improving the land, thereby making it suitable for building and residential
purposes. Following the completion of development work, the purchaser was
to pay the remaining amount to complete the conveyance. Meanwhile, a
large part of the land was taken over by the State during the Second World
War for war purposes. The company attempted to rescind the contract on the
ground of supervening impossibility.

Held: The court dismissed the defendant’s suit stating that the ‘’impossibility’’
under Section 56( Agreement to do impossible act) doesn’t mean in the
physical or literal context. It refers to change in circumstances which
completely upsets the very foundation upon which the parties rested their
bargain. The requisition orders, it must be noted were temporary in nature.
There was no timeline mentioned within which the project had to be
completed. With the absence of any deadline whatsoever in the contract, and
when it was natural for some restrictions to be in effect during the war,
thereby causing difficulties and delay in the project. This delay caused by the
requisition order didn’t affect the fundamental objective or struck at the roots
of the adventure.

Sushila Devi vs Hari Singh

This case expanded the scope of the Doctrine of Frustration. ‘’Impossibility’’

under Section 56 of the Contract act should not be restricted to humanely
possible scenarios. In this case, lease of certain property was the subject
matter of the agreement. Later, because of partition the property to be
leased became a part of Pakistan, thereby making the terms of agreement
impossible.

Grounds Of Frustration
1. Destruction of subject-matter:The doctrine of impossibility is befitting
‘’where the specific subject-matter of the contract is annihilated.
‘’Taylor vs Cadwell’’ as discussed previously is a good example.
2. Change of circumstances: A contract will frustrate ‘’where certain
situations arise which make the accomplishment of the contract
impossible in the way contemplated’’. Justice Kapur of the Punjab High
Court in Pameshwari Das Mehra v Ram Chand Om Prakash explained
the principle thus: ‘’It is clear that if there is entirely unforeseen
occurrence the critical point that has to be pondered upon, whether this
occurrence has influenced the responsibility of the parties in the
contract to such an extent as to make it virtually impossible or even
perilous or hazardous. If that be the case, the occurrence not having
been brought about by the fault of either party, the courts will not
enforce the contract’’. For example, A ship was chartered to load cargo
but on the day she should have proceeded to her berth, an explosion
occurred in the auxiliary boiler, which made it impossible for her to
undertake the voyage at the scheduled time, the House of Lords held
that frustration had occurred in the circumstances.
3. Non-occurrence of contemplated event: There are times when the
performance of contract is entirely possible, but only if a specific event
occurs, which if doesn’t affect the core objective of the contract. It
makes the purpose of the contract unattainable.The coronation case is
the best example here. This has been discussed earlier in the article.
4. Death or incapacity of party:’’A party to a contract is exempted from
the obligation if it is contingent upon the survival of a given person, if
that person dies’’. The essence of these type of cases that it requires
individual to use his particular skill, in this case the promisor, his death
or incapacity puts an end to the contract. An illustration where A
contract between painter, and the person to draw his picture on a
particular date. The painter dies before that date, hence the parties are
automatically discharged.
5. Government, Administrative or Legislative intervention: Contract will be
dissolved when by the operation of legislative or administrative action
which strikes the objective or purpose of the contract, thereby
changing the fundamental nature of the contract. Thus, where a vendor
of land could not complete the sale-deed because he was no longer the
owner due to a law which came into effect, it was held that the contract
had become impossible of performance.
6. Intervention of War: War or War like situations has often raised difficult
questions for the courts. In a particular case, appellants had agreed to
 sell to the respondents three hundred tons of groundnuts.The usual
route at the date of the contract was via Suez Canal. The shipment was
to be in November/December, but due to certain geopolitical
development the canal was closed until April next year. It was stated
that the appellants could have shipped through the alternate route
which was Cape of Good Hope. Appellants refused to ship goods via
Cape. The appellant’s argument was that it was a tacit understanding
between the parties in the contract that the shipment should be via
Suez. It was held that such an understanding was wrong. What the
appellants could have done was shipped the shipment through Cape
route,and they were bound by law (Sale of Goods Act,1893) to do this.
Although this would have been more expensive for the appellants, but
it didn’t render the contract fundamentally or radically different, hence
there was no frustration of contract.
Application to leases: The “English Law’’ on application to leases is unsettled.
In India this was discussed by the Supreme Court in Raja Dhruv Dev Chand v
Raja Harmohinder Singh, where it was observed ‘’Authorities in the courts in
India have generally taken the view that Section 56 of the Contract Act is not
applicable when the rights and obligations of the parties arise under a
transfer of property under a lease’’. This was one of the cases arising out of
the partition of the country into India and Pakistan. The lease in question
was that of an agricultural land for one year only. The rent was paid and the
lessee was given possession. Before the land could be used for any crops,
came partition which left the land in Pakistan and the parties migrated to
India. The action was to recover the rent paid. It wasn’t successful because
the respective judges pointed out that completed transfers are completely
outside the scope of Section 56.

In a subsequent case of Sushila devi v Hari Singh the Supreme Court

concluded that In this particular case there is no concluded contract since no
deed was written or registered. It was an agreement to lease and that came
within the scope of Section 56.There was frustration of the Contract as the
parties could not go to give or take possession.

Effects of frustration
Frustration should not be self-induced: The frustration should not be caused
because of any of the parties’ fault or action.One of the case illustrates this
points where the exporter had an export licence to supply 3000 tons of sugar
beet pulp pellets. They had applied to the government to increase their quota
but that was refused. After exporting 1500 tons to the first buyer with an
option to supply 1500 tons later. They also contracted with another buyer to
supply them with 1500 tons of sugar . This was clearly beyond their limit
under the licence. To get out of this exporters apportioned the 1500 tons
between the two buyers equally. One of the buyers sued the exporters for
the breach of the contract. The suppliers pleaded frustration.
This was not accepted, though the court referred to the principle stated in
the American Uniform Commercial code that in such a situation the seller
may apportion supplies in any case which is prudent and just but found no
basis for applying the principle into English law.

The case of Thompson v . ASDA-MFI Group plc

This case represents an interesting scenario relatively ignored by the texts.
How to the English Law should be interpreted where a party claims to be
excused from performance because of his own action, not directly amounting
to breach of the contract,has brought about a situation in which the contract
provides for discharge of his obligations. The discharging term may be a
condition precedent. For example where an estate agent’s entitlement to the
commission was dependent on the sale of the principal’s property from which
the principal withdrew. Or it may be a condition subsequent, as in New
Zealand Shipping Co. ltd, where a shipbuilding contract had become void
after a delay in delivery which the buyers alleged was caused by the builders’
own actions.

Thompson concerned a condition subsequent. In this case, a company which

offered shares to its own employees and employees of its subsidiary and
after an employee of a subsidiary had accepted the offer, the company’s
subsidiary was sold to a bidder and the employee was informed that the
scheme lapsed but he sued the company for breach of contract. Rule 5 of the
scheme provided that the right to exercise an option depended on the option
holder being employed by ASDA or its subsidiaries.

In order to attract the principle that a party is not to rely on his own act in
not fulfilling a condition subsequent and thereby bringing a contract to an
end, the act has to amount to a breach of duty owed to the other party
under the contract. If a term cannot be implied into a contract that a party
would not do an act which, if done, would prevent the fulfilment of a
condition precedent or would cause a condition subsequent to be fulfilled, the
contract takes effect according to its tenor.

In keeping the above principle in mind, the court held that the Company is
not liable. If ASADA were so bound, it would be incapable of exercising other
contractual rights, such as dismissing the plaintiff for misconduct, without
incurring liability under the option contract.

 Frustration operates Automatically: Frustration operates independently

and is conditioned to discharge the parties in a contract in certain
circumstances. “irrespective of the parties affected, their dispositions
and their interest and circumstances’’.
The legal effect doesn’t depend on the parties’ intention or opinions, or even
knowledge, as to the event. This is particularly true of Indian law as Section
56 of the Contract act ‘’lays down a rule of positive law and does not leave
the matter to be determined according to the intention of the parties.

 The adjustment of rights: The rights of the parties are adjusted under
Section 65 of the Act.

Issues affecting the Operation of the Doctrine

1. Negligence: When the frustration is caused by the negligence of one of
the parties’. It also depends upon the particular facts of a case whether
negligence will affect the operation of the doctrine.
2. In circumstances where the incident leading to the frustration is
anticipated and provided for by inserting a force majeure clause into a
contractual agreement, frustration shall not apply. This is the case,
however, only if the said clause adequately covers all eventualities.
In Jackson v. Union Marin Insurance Co. ltd, it was held that such an
extensive damage was not covered under the expressed exceptions.The
contract was frustrated.

Conclusion
The Doctrine of Frustration came into existence to deal with certain
situations, where through no fault of the parties’, the contract was frustrated.
The law is dynamic and takes shape according to the needs of the society.
Perhaps, to an extent doctrine of Frustration brings clarity on the conflicting
positions: the paramountcy of contract which supports the principle of
absolute liability and the principle that a contract is discharged when the
common object or assumption has been destroyed by the chan