Introduction

Section 56 of the Indian Contract Act, 1872, deals with agreements to do impossible acts, stating such agreements are void. It also covers contracts that become impossible or unlawful after formation (frustration of contract), making them void. It includes provisions for compensation if one party knew of the impossibility beforehand, establishing the important Doctrine of Frustration.

What is doctrine of frustration? And what are its core principles

Sometimes, at the time of the agreement, the circumstances for performance were favorable, but subsequently, due to a change of circumstance, the performance became impossible. And when the performance became impossible, the contract is frustrated.

• A contract becomes void or frustrated when it becomes impossible due to a change of circumstances.

• The change of circumstance must make the contract wholly impossible.

 Frustration vs. Commercial Hardship:

If a change of circumstance makes the contract partially impossible (meaning performance is possible at a higher cost or higher expense), it is a case of commercial hardship, not frustration. The change of circumstance must make the performance wholly impossible. If the performance is possible on higher expense, then it is a case of Commercial Hardship, not frustration.

Illustrative Case 1 (Higher Expense):

A promises to supply some goods to B at Varanasi through the shortest route.

Due to a political party strike, the shortest route between Patna and Varanasi was blocked.

The contract is possible, but with higher expenses.

Here, the contract is not frustrated because the performance is still possible, albeit with higher     expenses.

Illustrative Case 2 (Increase in Price):

Alopi Prasad & Sons Ltd v. U.O.I. AIR 1960 SC 588

 Facts:

The plaintiff, Alopi Prasad & Sons, entered into a contract with the Government of India to supply edible ghee to army personnel during the Second World War at fixed rates. Due to wartime conditions, the price of ghee increased substantially, making performance of the contract commercially burdensome for the plaintiff.

Issue:

Whether the increase in the price of ghee due to wartime conditions rendered the contract impossible to perform under Section 56 of the Indian Contract Act, 1872, or merely caused commercial hardship.

Held:

The Supreme Court held that the increase in the price of ghee did not make the performance of the contract impossible. It merely resulted in commercial hardship.

In this case, the Supreme Court of India elucidated the difference between commercial hardship and frustration.

Specific Grounds for Frustration:

1. Death or Incapacity of the Parties:

If a party to a contract either dies or becomes incapable of performing, then the contract is frustrated. But, incapability must be up to the extent of full or whole impossibility, not up to the extent of partial impossibility.

Example: Robinson v. Davison (1871) LR 6 Ex 269

Fact: The Defendant's wife was a piano player and was to perform at a musical concert on remuneration. The husband managed all the things. On behalf of his wife, Davison entered into a contract with Robinson for his wife's services in a musical concert. On the day of performance, the defendant's wife fell ill and could not perform. Robinson filed a suit for breach of contract against the defendant.

 Held: The Court examined that the wife of Davison was so ill that she could not perform in the musical concert; hence, the contract was frustrated. The Court will determine whether the sickness was up to the extent of non-performance and full impossibility.

If the sickness was minor, then it would be declared as a commercial hardship, and in this case, the contract would be possible.

2. Declaration of War:

If, due to the declaration of war, the performance became wholly impossible, then the contract is said to be frustrated. It must be proved beyond doubt that the war made the performance wholly impossible, not partially impossible.

3. Government or Legislative Intervention:

If, due to the intervention of the Legislature, or a new act being passed, or an action of the Government, the performance became impossible, then the contract is frustrated. Due to Government intervention, the supply of Gunpowder became impossible; now the contract is frustrated.

Government or Legislative Intervention must make the performance wholly impossible.

Example: Satyabrata Ghose v. Mugneeram Bangur & Co. AIR 1954 SC 44

Fact: The Defendant was a builder. The Defendant owned land and entered into a contract with the Plaintiff for the allotment of a flat in a stipulated time. Before the construction actually started, the land was acquired by the Government for military purposes for a temporary period of time. After that, the Government gave the land back, and it came into the possession of the Defendant again. Despite that, the Defendant did not start construction. The Plaintiff filed a suit against the Defendant for breach of contract, and the Defendant pleaded frustration (Government Intervention).

Court (SC of India) Held: This was a Government Intervention for a temporary period. The Court said a temporary Government Intervention is not impossibility. The contract is not frustrated. The Government or legislative intervention must make the performance wholly impossible, and it must be an intervention of a permanent nature.

Consequence or Effect of Frustration:

1. Condition for Application:

Frustration must be self-induced; it must occur automatically, and the parties must not have any hand in the event. It must not be induced by the parties. If any of the parties induced frustration, or if frustration occurs due to the intervention of any of the parties, then it is not truly frustration, and it is not void.

2. Adjustment of the Rights of the Parties: Pari delicto (Equal fault):

If both parties are at equal fault or on the same footing, then nobody will give anything to each other. The Court will restore the parties where they are. The Court will leave the party where they are.

Example: In Krell v. Henry (1903) 2 KB 740

Facts: The King's Coronation process was cancelled. When it was canceled, both parties were on equal footing because neither of the parties had any role in the cancellation of the King's Coronation.

Held: When both were on equal footing, the Court left the parties where they were. The Court said neither could Krell recover the balance from Henry, nor could Henry recover the advance given to Krell. But if the parties are on unequal footing, then the party who is on the higher footing must compensate.

3. Under Indian Contract Act (ICA):

The consequence of frustration is given under section-65. The Section states “When a contract is frustrated, either it is discovered to be void, or it becomes void.”

When an agreement is discovered to be void or when a contract becomes void, then the parties must restore the benefit taken from each other. If a party has consumed the benefit, they will have to give compensation to the other.

In conclusion, the Doctrine of Frustration provides as a safeguard to the parties in case the performance becomes impossible but at the same time also protects one from the other party claiming commercial hardship as impossibility.

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