Frustration of Contract

In this article we will first explain valid contract. After that, with the help of various case laws, understand frustration of contract.

Introduction

Every day we enter into numerous knowingly or unknowingly. Contracts have been in existence from the very beginning of transactions in the economy of a country. Earlier there was not any law governing contracts; they were first recognized by Plato in his last dialogue THE LAW. So now we know the importance of a term contract. It is very old and great philosophers of all time recognize it.

But today the number of transactions has increased; and several companies are entering into contracts daily. We require a law to govern the same. This led to the forming of The Indian Contract Act 1872 enacted on 25^th April 1872. This law governs all the contracts in India. It originally had 226 sections but now the sections are lowered to:

• 1-75        GENERAL PRINCIPLES
• 124-238   SPECIAL CONTRACTS

Contract in laymen language means an agreement between two or more parties which is legally enforceable. According to Section 2(h) of Indian contract Act 1872” An agreement enforceable by law is contract. Every promise and every set of promises, forming the consideration for each other, is an agreement.

Agreement which is not enforceable by law is a void agreement.

A contract which is enforceable at the option of one party is voidable.

Essential elements that give rise to a valid contract are given under section 10 of the Indian Contract Act, 1872 are as follows:

1. Free Consent
2. Competence of Parties
3. Lawful Consideration
4. Lawful Object
5. Not expressly declared void by law

Meaning of Frustration of Contracts

A frustrated contract is a contract that, after its formation, and without fault of either party, is incapable of being performed due to an unforeseen event, resulting in the obligations under the contract being radically different from those contemplated by the parties to the contract.

In Indian Contract Act 1872, second paragraph of section 56 deals with the frustration of contract. It reads as follows “Contract to do an 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”.

Origin of Frustration

The origin of Frustration of Contracts has been from Roman Contract Law. The concept of frustration is based on the Doctrine of Frustration which extinguished obligations of innocent parties where the “thing is destroyed without the debtor’s act or default”, and the contract purpose has “ceased to be attainable”.

History of Frustration

The recorded application of this concept was centauries later in the British King’s Court Bench in 1863 by Justice Blackburn in the case of Taylor vs Caldwell ([1863] EHWC QB J1).

In this case Caldwell & Bishop owned Surrey Gardens & Music Hall, and agreed to rent it out to Taylor & Lewis for £100 a day. Taylor had planned to use the music hall for four concerts. A week before the first concert was to be given, the music hall burned to the ground. The plaintiffs sued the music hall owners for breach of contract for failing to rent out the music hall to them. Here Blackburn J said that since the object of contract is no longer in existence, the contract cannot be enforced and thus the contract was declared frustrated.

In India the first application of this Doctrine was in the case of Mugneeram Bangur And Co. vs Gurbachan Singh (AIR 1959 Cal 576).

Conditions and Effect of Frustration

Some of the conditions under which the contract is declared to be frustrated are:

1. Destruction of Subject Matter
2. Death of Parties
3. Frustration due to contract declared invalid by law after its formation
4. Frustration due to change in circumstances

 After the contract is declared frustrated, the party who has received any benefit under such a contract is bound to either restore it or compensate the other party as per Section 65 of the Indian Contract Act 1872.

Conclusion

This concept of frustration has helped to evolve new doctrine in law to protect individuals who cannot perform contracts on account of the frustration of contract and saves them from being imposed with a severe amount of compensation from breach of contract.